The problem is that it is increasingly difficult to survive as a small business (due to constantly increasing compliance/regulatory/legal burdens), so it makes sense to ‘sell out’ as soon as possible (or just give up early). The rate of small businesses growing into large ones has been decreasing for at least 20 years.

This is tech we are talking about. There are very little, if any, regulatory burdens in place here.

The only things that DO hurt SMBs across the board are things like paying for private health insurance and retirement plans. Two core things every worker needs but only massive corporations can truly provide.

It's why things like medicare for all and universal childcare are so popular among workers, also why things like corporate welfare are so disgusting.

>"There are very little, if any, regulatory burdens in place here."

Speaking as someone who works in a small company that designs and manufactures embedded devices, I can tell you that many of the 'minor' regulations which are not supposed to burden small businesses actually do. My (single) biggest annoyance is the conflict minerals reporting requirements which were supposed to apply to very large companies, but have been 'passed down' to smaller suppliers (as anyone with half a brain would have expected). There are many other KYC, CBP, and other regulations which have substantial impacts as well.

The only innovation needed to be sustainable is to recognize that capitalism is not sustainable, and never can be. But that's not a profitable innovation, so it never gets pursued.

That's not at all a benefit for #2—when small businesses that are thriving and making Society #2 better get bought up by big businesses, they cease to be part of Society #2. In many cases, the innovative things they were doing simply disappear, as the big business that bought them didn't want to use it, they just wanted to kill it.

"Big business," in the sense it exists today, is itself a detriment to our society as a whole, and can only exist because of the utter destruction of antitrust that happened under Reagan. Without that, much more of our current society would look like #2, with or without LLMs.