Matt Yglesias brings up this graph to counter small business fetishism

His take, which is my natural take, is that the represents a failure of the evolutionary process of the market.

For example, I like to show this picture to my students

This is Lucius Lowe’s Hardware store in Wilkesboro North Carolina. He opened it in 1921 and indeed until 1949, this was the only location.

Today Lowes has roughly 1800 locations and employs about 250K people. There were thousands of little hardware stores in small towns all across America. There was only one that became an nationwide Big-Box megachain.

Their primary competitor The Home Depot was an intentional big box creation.

The point is that Lowe’s became what it is today almost certainly by chance. Perhaps the Lowe’s family was blessed with simply amazing business insight but I doubt it.

They happened to do the right things at the right time and were rewarded for it. Their company grew and expanded to become the 7th largest retailer in the world.

The fact that business owners don’t actually have to know anything about business is the fundamental strength of capitalism and it goes incredibly unappreciated.

What happens is that people start small businesses. Then by sheer dumb luck  someone will be operating a business model that happens to serve the needs of millions of people.

This business will kill off the competition and grow to dominate its industry. Then all customers will enjoy the advantages of this business model. However, its crucial to realize that not a single human being anywhere in this process needs to have even the slightest clue about what he or she is doing.

The process of market selection makes it appear as if there was intelligent design but no intelligence and no design is necessary.

Indeed, the key in this entire process is the death of most businesses.  Most ideas are bad ideas. There are many more ways something can go wrong than for something to go right. So what you need is a process that destroys as many bad ideas as possible, leaving the rare good idea to prosper.

This is the market process.

If you see an economy that is dominated by small business then this tells you that something is keeping them from dying. That very thing is stopping market evolution and – we should expect – is holding back economic growth.