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David Birch and firm demography

Thursday 26 May 2011, by Bernard Zimmern

Firm Demography (DEME) acquired fame in the late ’70s with the work of David Birch who made headlines by showing that jobs were not created by large companies listed in Fortune magazine as one believed at the time, but rather by a myriad of small and micro enterprises. He relied on Dunn and Bradstreet database identifying million U.S. businesses. Thanks to computers and his training as a nuclear physicist, he brought numbers into a world hitherto remained very qualitative.

Birch was a visionary since the early 80’s he developed the use of DEME, through a company he founded, Cognetics, for commercial applications and for general economic analysis. Commercial applications such as determining the economic growth of a given territory and optimize the location to create a bank branch or a supermarket. General economic analysis: at this time, Birch was asked by European governments for advises on the best way to develop jobs, advices that they have not followed (less state intervention, more private initiative).

The most significant contribution of Birch is certainly to have proven that DEME was possible, simply by developing databases on businesses to monitor the company credit [1]. The quantitative analyses allowed have a view on the real economy with entirely new concepts, such as disclaiming the importance of large firms for employment creation and focusing the interest on previously unknown companies, the Small and Medium Enterprises (SMEs).

An historical paper by David Birch

One of the most fruitful concepts developed by Birch is the one describing all firms in an economy as a cloud, apparently very stable from the outside but this stability hiding inside the cloud, very violent updrafts and downdrafts currents. The updraft current pushes smaller businesses to grow and move to higher levels of the cloud (SMEs, then very large companies) or, conversely, to come down.

Birch clouds in France, the United Kingdom and Germany

IRDEME has taken this concept to quantify the French, English and German clouds, using databases of the pH Group (Experian), created by a disciple of Birch, Rolf Hickman and, more recently, from Amadeus database.

Source : Base Amadeus ; IRDEME calculations

Each colored rectangle represents the total employment for a given business category. The job total also includes self-employment.

Footnotes

[1In the U.S., firms such as Dun & Bradstreet had long defined the territory through representatives identifying any business creation and to monitor developments of these firms by obtaining, from the firm, the number of employees, balance sheets, income results, statement of claims and debts in the American context much more open than the French one, this is information that a firm has to communicate to anyone who asks.

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