So the recovery is here but what of the grand rebalancing George Osborne made so much of in opposition and the early days of Government? Imports to exports. Debt to savings. South to north. Filthy rich to squeezed middle. Without substantial evidence of these shifts, Osborne must constantly fear his jowlier, greyer appearance on Newsnight sometime hence explaining to a fulsomely bearded Jeremy Paxman why his legacy was one of bubble and bust.
As he drafts his Autumn statement, Osborne could banish such images from his head by focusing on one potential rebalancing that is widely overlooked: a shift from big to small.
On the face of it, the UK economy appears well balanced in this area with big firms generating around half of private sector turnover and SMEs and micro-businesses generating the other half. That is until you notice that there are only 6,500 of those larger firms while the smaller companies number no less than 4.8 million.
And that is, of course, just the private sector. 45% of GDP is generated by public spending most of which is delivered through public sector organisations, the great majority of which would easily fall within the official definition of a large business.
The truth is for all the political rhetoric praising the contribution and importance of small business, our economy is overwhelmingly dominated by large, and often very large, organisations. Small business is seen as a ‘good thing’ but rarely is its relative weakness seen as a systemic problem. The failure to focus on this imbalance means we miss potential routes to creating the very sort of economy which rebalancing is supposed to promote.
Small = Fair
Take the issue of fairness. The vast remuneration packages that have created a super-wealthy, super-powerful elite originate in the boardrooms of our largest firms. The exceptionally wide pay ratios that now exist in the biggest businesses are not a feature of smaller companies.
One reason, of course, is that small businesses simply have less cash to splash around with such abandon but it is also about the extent to which a firm’s directors are genuinely exposed to the competitive and financial realities of the market. It appears that those with the enormous organisational power of a blue chip CEO can make sure they are handsomely rewarded no matter what the market conditions. SME leaders are not so lucky. How else to explain the fact that while the pay of the directors of the biggest firms continued to rise in the wake of the 2008 Crash, that of the directors of smaller businesses barely shifted?
Small = Creative
Then there is the ever present goal of ‘winning the global race’; becoming a nation that consumers around the world want to buy from. Economists cannot agree on whether small or larger businesses provide the best conditions for the creativity that drives such success but what is not contested is that allowing innovative start-ups and SMEs to genuinely challenge big business creates an economy more likely to offer better products and a better deal to consumers. Sectors like energy, transport and public services reveal how far we are from such competitive conditions. A recent report for the RSA and the Fairbanking Foundation, for example, showed how the real innovations in customer care in banking are happening at the much smaller end of the sector while the behemoths remain locked in to a flawed model predicated on opaque products.
Small = Stable
As we learned from the Crash, size also brings with it enormous risks but ‘too big to fail’ is not necessarily just a concern for the City. Allow a large part of an economy to fall under the control of a handful of very big firms and the risk that one or two dysfunctional organisations can pose is vastly magnified. The result is not just a less stable economy but also an undue reliance on the taxpayer to bailout firms when things go wrong and, somewhat ironically, a much greater capacity for those large firms to demand special favours from government to make their trading conditions less challenging.
We have already seen how the state has been forced to step in to crucial areas like transport and banking but who can doubt that something similar would happen should one of the mammoth energy firms collapse. An economy with its core sectors under the control of a wider range of smaller companies would necessarily be less risky for the long-suffering taxpayer and more stable for all.
This is not a straightforward case of big bad, small good. Larger businesses undoubtedly have their virtues and benefits – most started off as small businesses themselves at some point after all. It’s about the recognition that the economic game will be more stable, fairer and creative when power and resources are distributed more widely to more players. The challenge the Chancellor should meet is how to deliver that change.
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A couple of weeks ago I wrote a post wondering why entrepreneurial spirit is so much greater in the south of the UK than the north. I’ve now cut the data in a new way and included the recent publication of the Business Population Estimates for 2012 which allows us to compare the last three full years of entrepreneurial activity across the country. What it shows is that while there are more businesses in the south, some parts of the north are displaying a rising entrepreneurial spirit and growing their business populations faster. But the overall picture is rather mixed and complex.
The table below shows how many businesses (registered and unregistered) there were per 10,000 of population for each region and nation over the last three years. The final column shows percentage growth over that time placed in order of size. It should give a rough idea of whether a region seems to be getting more or less entrepreneurial as we emerge from the deepest recession in many decades.
Business density by UK region and nation
per 10,000 population
per 10,000 population
|N Ireland||861||785||- 8.8|
If you prefer, you can look at the change in the total number of businesses in a region or a nation. The growth percentages are different from the above because of demographic shifts but the shape of the table is largely unchanged with the exception of London which leaps from sixth to third equal place again as a result of demographic change.
Business Population by UK region and nation
|N Ireland||122||113||- 7.3|
It is notable that four of the six areas in the top half of both tables are northern (assuming the West Midlands counts as northern). Most interestingly, the North East which has the lowest business density in the UK is managing to grow faster than any other part of the UK with the possible exception of the West Midlands – more than twice as fast as the South East in fact which has grown its business population surprisingly slowly since the Crash.
One fascinating thing about these tables is how those regions which have the highest business populations are not necessarily those growing fastest. This rather contradicts the point I made in my earlier post about how the south is favoured by a success breeds success principle.
Unfortunately, the picture is not entirely rosy. The situation in the Midlands is mixed with the West of the region growing apace and the East almost at a standstill. Maybe something excitingly entrepreneurial is happening in Birmingham that isn’t happening in Nottingham and Leicester.
Most worryingly, Wales and particularly Northern Ireland have suffered a shocking decline in entrepreneurialism recently – they are the only two parts of the UK to register a shrinking business population.
So there are some encouraging signs here which may point to the fact that some regions which have found it hard to compete with the south for entrepreneurial spirit are possibly coming out of the prolonged downturn with some gusto. But it’s far from a good news story everywhere.
Of course this leaves the rather pressing question of why this disparity is emerging. I can only speculate without further research but I’ll leave that to a later post.
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As a general rule the number of businesses in the UK has grown by around 120,000 each year since 2000. That is until we got to 2011 when the increase almost doubled to approximately 225,000 following two years of below average growth*. The recent publication of the annual Business Population Estimates by the ONS shows that in 2012 we returned roughly to trend with an increase of 102,000.
Why should 2011 have been such a bumper year for the number of start-ups? Was it something the Government did? Maybe the introduction of more support for new businesses.
Or could it be that the surge in unemployment after the 2009 recession forced people into business once they realised a new job was not forthcoming?
What I think the data actually shows is that people’s propensity to be entrepreneurial is largely (although not entirely) driven by the big shifts that occur in the wider economy. The evidence for this is that we saw a very similar trend in business population growth in the early years of the century. 2003 enjoyed an almost identical leap in business population with a sudden surge of 248,000. As with the more recent growth, this earlier surge followed a couple of years of below average increases. It is relevant, I would argue, that the earlier surge followed the confidence sapping dotcom bust of 2000 just as the later surge followed the 2008 Crash.
What this may be telling us is that after an economic crisis, the UK’s potential entrepreneurs are like a coiled spring. Plans to start up are put on hold as confidence and trading conditions worsen but at the first sign of light, entrepreneurs just as suddenly revive those plans and put them into action except that by then a lot more entrepreneurs are waiting to move than exist under normal conditions.
What is remarkable about the surge in 2011 is how quickly we got back to entrepreneurial ways. Clearly the 2008 Crash was far more serious than the 2000 crisis especially as it was followed by two periods of recession. And yet the surge happened over the same time frame as the earlier crisis and with close to equal vigour.
In short, it seems the entrepreneurial spirit has proved more resilient, bouncing back just as quickly from a deeper economic crisis. Indeed the bounce may have been helped by the more profound nature of the 2008 crisis as more businesses went to the wall creating greater opportunities for new companies once conditions began to return to normality.
It should also put to rest, in my view, any notion that the recent rise in entrepreneurial activity is being largely driven by desperation as the unemployed or low paid seek any way of making a living. It is notable, for example, that after the surge of 2003, growth in the business population continued unabated. There is no indication that those new entrepreneurs returned to ‘proper jobs’ once the crisis passed. This time could be different, of course, but we shall have to wait until the next year or two of data to know for sure.
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*Due to a methodological change, the ONS can only estimate the business population growth for 2011 as being somewhere between 200,000 and 253,000 rather than being a single figure. I’ve roughly split the difference to recognise this.
On Wednesday the annual edition of the Business Population Estimates for 2012 will be published by the Office for National Statistics. It’s a publication that attracts far less attention than the regular inflation, employment and growth reports but it deserves more for it will almost certainly present a worrying picture of an emerging ‘entrepreneurial divide’ between the north and the south.
The last two editions of the report for 2010 and 2011 show a country where the number of businesses has been rising inexorably since 2000 from 3.5 million to 4.5 million – a rise of over 30%. Even the most severe financial and economic crisis since the 1930s has not dented the appetite for start-ups.
But this hides the reality of a divided nation. While southern regions boasted 1,126 enterprises per 10,000 people in 2011, northern regions (including Scotland and Northern Ireland) could muster only 773.
More worryingly, the recent acceleration in the establishment of start-ups is happening far faster in the south than the north with a 6% and 2.5% rise respectively in the number of enterprises per 10,000 people between 2010 and 2011. Wales and Northern Ireland actually saw a 5% fall.
The sheer scale of the entrepreneurial divide is shocking. The most entrepreneurial region (London) had 1,231 enterprises per 10,000 people in 2011. The least entrepreneurial (the North East) had very nearly 50% less at 625.
Why this divide is so stark urgently needs further investigation. As Ben Dellot points out in his blog post today:
where once we were a nation of shopkeepers, now we are seemingly one of consultants, freelancers, entrepreneurs, online marketplace traders.
This is the reality of the new economy that is being created in the UK and those regions that fail to nurture the intense entrepreneurial spirit required to adapt to this challenging world will inevitably be left behind.
Undoubtedly there is a strong element of Catch 22 about all this: regions that have more active labour markets and more enterprises are inevitably more likely to generate further entrepreneurial activity. The regions with more businesses and start-ups do, for example, have higher employment rates and lower unemployment rates (although London, interestingly, bucks this trend).
But to simply accept this as a sad fact of life is to condemn northern regions to their fate in an economy where entrepreneurial oomph increasingly counts. Instead, we desperately need to understand more about the motivations and needs of the new wave of business people and then explore how those motivations can be nurtured and those needs supported in the regions where the entrepreneurial fire merely flickers rather than roars.
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The idea of a trade union representing entrepreneurs, first mooted by Doug Richard exactly three years ago, is suddenly back in the ether. Former No.10 adviser, Rohan Silva has called for such a beast to counter the “immoral” hold big business has over government while City AM Editor, Allister Heath has demanded:
a slick, professional pressure group relentlessly fighting for wealth creators and promoting mass entrepreneurship as the answer to the crisis of confidence that is currently engulfing capitalism.
It’s not an idea without merit. Indeed, it reflects the themes I’ve been exploring on this blog over the last few months. There is undoubtedly a need to challenge the grip sluggish, rent-seeking business has over the UK to allow an economy built around the small and the imaginative.
But it’s also a proposal that begs two big questions.
What form would such a body take?
The traditional membership body structure strikes me as inappropriate. Your average start-up entrepreneur is unlikely to be a natural joiner or committee hack plus s/he has limited time to volunteer. To secure membership from such a group something of direct benefit beyond the promise of better government policy would have to be offered such as business support or investment opportunities. But as RSA research has shown, this is already offered by a very crowded and confusing market not desperately in need of a new entrant.
What would it actually lobby for?
Allister Heath suggests that the focus of such a group must be to break up monopolies and oligopolies to allow new, innovative players in. Amen to that. But the problem with any body that seeks to “represent” a certain social or economic group is that it usually drifts into an effort to squeeze special favours out of the state: byzantine tax breaks, ear-marked procurement deals, distortionary regulation. The reason being that it is far easier to secure these ‘quick wins’ to justify the body’s existence to its supporters than bring about profounder change.
Both of these concerns lead to a more fundamental point which is that entrepreneurs generate change (sometimes world shattering) by offering a service or a product in such an effective way that consumers can’t resist. It’s a grassroots, messy, creative approach to transformation that needs to be left free to flourish. I’m not sure it is best served by engaging over the long term with the clunky, hierarchical, hide bound world of government and politics where change is generated in very different and often less effective ways. Entrepreneurs challenge monopolies by being entrepreneurial not by asking for government help which is precisely what monopolies themselves do.
Ultimately, it seems to me that what is required is not so much an official union for entrepreneurs as a loose alliance of like-minded people and organisations who see the value in creating an economy where enterpreneurial challenge to oligopoly and monopoly can thrive. That would mean seminars, conferences, papers, conversations with the powerful generated by a variety of organisations sharing a similar goal: a once in a generation shift in favour of the entrepreneurial and creative.
The work of the RSA around young entrepreneurs, social enterprise and micro-business, the new Centre for Entrepreneurs and a wide host of business support organisations, start-up incubators and various loose networks provide a fertile soil within which to start creating such a movement.
Maybe we should just all get together some time soon.
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By Adam Lent, Director of the Action and Research Centre, RSA
Nicole Vanderbilt, Managing Director for Europe, Etsy
The rise of the very small business seems unstoppable. Over the last forty years the total number of businesses in the UK has grown from around 800,000 to almost 5 million. Over 95% of these employ less than nine people meaning they are officially ‘micro-businesses’. That’s an awfully rapid growth in this type of company and a very big shift in the way our economy works.
And the trend only seems to be accelerating: the number of micro-businesses has grown by 40% in the last decade alone.
These micro-businesses may be small but they are powerful. They now account for a third of all employment in the UK (almost 8 million people) and a fifth of private sector turnover. It is also clear that smaller companies have generated more jobs in recent years than big business.
Strangely, however, we do not know much about this increasingly central part of our economy. Why has there been such an explosion of micro-businesses? What does it mean for the future of the economy? What impact has it had on our society’s values and politics? We can speculate but there has been little hard thinking or rigorous research.
We also know surprisingly little about the motivations and hopes of the people who run micro-businesses. How many, for example, run a micro-business primarily because it gives them greater autonomy and the freedom to be creative and how many are looking to make their fortune? We simply do not know.
This is why the RSA and Etsy have teamed up to launch a research project – called The Power of Small – to answer these and other questions. Over eighteen months, we will run surveys, conduct interviews and analyse data to understand as much as we can about micro-business in the UK. Our findings will be presented through a series of reports, public events and on the RSA and Etsy blogs.
A central part of the project will be to find out as much as we can about the many Etsy sellers in the UK. We’re particularly interested in the connections they form with each other, their customers and the world outside Etsy.
The aim is not just to find out more about micro-business for its own sake. Ultimately, we want to help government, support organisations and, of course, micro-businesses themselves understand how small-scale enterprise can build the more creative society for which both the RSA and Etsy are aiming.
If you’d like to know more about The Power of Small project and want to be kept up to date with developments contact Ben Dellot by emailing him at email@example.com
We seem to be entering the era of clunky.
A growing desire on the part of politicians and public to deal with inequality and the cost of living is colliding spectacularly with the impossibility of delivering tax and spend solutions. The result is politicians turning to the regulatory rather than the spending power of the state through things like crackdowns on executive pay, price freezes, changes to the minimum wage and a general ramping up of the rhetoric against ‘predatory’ businesses that treat their staff and customers badly.
The problem with this drift is that the solutions tend to have unintended consequences which can often (particularly in the longer term) negate the very purpose for which they were designed. In other cases they simply fail to work as planned.
Playing around with the minimum wage, for example, always runs the risk of generating unemployment for the very people it is supposed to help. Controlling executive pay is becoming one of those knotty issues for which the blunt tools of government seem particularly unfit. And price freezes, as Ed Miliband is discovering, bring with them a wide range of troubling economic, legal and political questions.
A less messy way through the dilemma could be to ensure that a larger proportion of our economy is delivered by small companies.
Currently around half of private sector turnover is accounted for by large businesses and half by small and medium sized businesses. That in itself is quite a striking fact when you consider that there are only 6,500 large businesses in the UK but almost 4.8 million SMEs. In fact, micro-businesses (those with less than 10 employees) number around 4.5 million and employ 32% of the workforce but only account for 20% of turnover (Data available here and here). So there is, on the face of it, a great deal of room for small businesses to play a bigger role.
One outcome if they did might be a wider spread of vibrant economies across the UK. We tend to think of inequality as being a matter of individual or household incomes and wealth but, of course, the geographical factor is crucial. People who live in areas with healthy labour markets, lots of business activity and high investment are much more likely to be far better off than those who do not. As is widely known, this has led to the much discussed regional imbalances and inequalities that afflict the country.
A more bigger small business sector could help address this because, as research has shown, smaller businesses tend to spend more of the money they make from a local area within that area. For example, one report found that for every £1 a local authority spent with an SME, 63p was re-spent in the local area compared to 40p in every £1 spent with a large business.
This is not just chance: large businesses will inevitably shift their money around their organisation which may well mean moving it to locations many miles from its origin. Large businesses will also have a much wider range of stakeholders, investment needs and suppliers with a claim on revenues who have no link to the original area.
Another aspect is the role that smaller companies can play in driving innovation and productivity: two of the main factors which over time make an economy more competitive hence driving up employment and living standards. Having a wide spread of smaller companies working in all sectors keeps the big guys on their toes, breaks down oligopolies and ensures a good flow of new market-shaping ideas makes an economy more innovative. It also tends to create more price competition and so delivers a better deal for consumers.
The energy sector which has been the focus of so much attention over the last few days is a case in point. Dominated by six very large companies, the sector is widely regarded as unimaginative and famously takes its customers for granted.
Inequality is heavily gendered. Women have a median weekly income that is only two thirds of that earned by men. Even young women, who have the same or higher qualifications than men, still earn less.
It seems here too small business may have an important role to play if the behaviour of women themselves is anything to go by. In effect, women are voting with their feet with a significant recent growth in the numbers establishing and running their own small business. For example, the number of female entrepreneurs has grown by 9.6% during the past two years, compared with a 3.3% rise for men.
The reasons for this shift are not clear but I suspect that many women are now taking advantage of the lower costs of setting up a business provided by the internet to add an extra income on top of their salary. I also imagine that for many it provides a route to a job and earnings determined by their own abilities rather than the discrimination faced in the labour market and workplace.
It could also be added that although wages in smaller businesses are generally lower than big businesses, I would be willing to bet that the sorts of absurd wage differentials between directors and other staff that is found in large corporations is far rarer in small businesses. Indeed, there is evidence that while executive incomes in large businesses have continued to rise rapidly despite recent economic conditions, those in small businesses have actually fallen since the credit crunch hit. The fact that average pay for a FTSE 100 executive stood at £4 million in 2011 but at £87,000 for an executive of a small company tells its own story.
So there are good reasons to suspect that an economy where the majority of turnover is generated by small businesses could be one with a better record on equality and living standards.
The big question then, of course, is how do you ensure that smaller companies can deliver the majority of a nation’s economy. That is a question for a future post but my hunch is that the answer will be a lot less clunky than the regulatory solutions currently enthralling our leaders.
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Back in April I wrote a blog post suggesting light-heartedly that we ban the word ‘entrepreneur’ because of its misleading connotations and replace it with a completely new word – I proposed ‘Venturist’. Much of the thinking behind the post arose from my engagement, through the RSA, with a new generation of young entrepreneurs who seem to me to be all about the mission rather than the money.
The post proved pretty popular so I thought I’d write a short think piece about what a Venturist might actually be and why they could be the most important force for change in our economy today. Here’s a short extract from the introduction that should give you an idea of the main themes. If you’re interested, you can read the whole thing here. It’s not long!
The Irresistible Rise of the Venturist
Every era has its iconic lifestyle. A way of being that comes to encapsulate the aspirations and values of a generation.
In the 1950s, it was the nuclear family: stable, conservative and, most importantly, powering an economic boom with its taste for the ‘mod cons’ churned out by factories tooled with the latest technology.
When that cosy post-war glow faded with the recessions of the 1970s, it was some time before a new icon emerged in the form of the yuppie. Initially derided, the yuppie taste for conspicuous consumption, real estate and hedonism ultimately set the tone for the long boom that lasted from the mid-1990s to 2007.
Now we are in the down time again. Five years of economic crisis is making the 1970s look like a cakewalk. Boom may return, one day, but no-one is holding their breath. Into this slough, however, has stepped a new type of icon tailored for an era unlike any we have experienced since the end of the Second World War.
The Venturist is usually young, energetic and sharp but, most importantly, they are on a mission to solve a problem or seize an opportunity. The nature of that venture can vary widely set up as a charity, a business, a grass roots movement, a loose network or an on-line initiative with a focus on anything from supporting a local community to providing a service to customers. But whatever the form, venturists have a burning desire to be “an agent of change”…
… Venturists don’t wait for or ask others to deliver. They get on with delivery themselves.
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As contestants on The Apprentice never tire of telling us you have to give 110% to make a business work. A survey that came out a few days ago seems to give statistical backing to this unmathematical assertion.
The survey of 2,000 micro-business leaders found they work, on average, 52 hours a week. That’s 63% longer than the average British worker.
How do we square this then with another recent survey which found that almost 70% of entrepreneurs say they started their business to secure more autonomy over their time?
Could it be that entrepreneurs aren’t aware of how time consuming it is to run a business when they first set it up? That seems highly unlikely. As I know from my own experience, there are plenty of people happy to warn you to sell your bed and use the proceeds to buy a truck-load of Red Bull as soon as you mention starting a business.
Maybe entrepreneurs just exaggerate how hard they work to impress investors, customers and the wider world. The first survey gives some credence to this when it shows that London based entrepreneurs stated they put in 62 hours a week – a full 10 hours more than the average. Bluff, straight-talking northerners may have a view on such a claim! But this can’t be anything close to a full explanation because it is without doubt true that starting and running a small business is genuinely demanding particularly in the period before funds are available to hire staff and before you have found a relatively secure customer base.
I think the truth is that when entrepreneurs say they want autonomy over time they mean something different to what most people mean. As I’ve suggested elsewhere, entrepreneurs are often people who want to pursue their own mission or idea - in short they want to be agents of change on their own terms. So, for an entrepreneur, autonomy over time doesn’t mean having free time or better work-life balance - it really means having the freedom to spend time on something they want to do rather than what a manager or employer tells them to do.
Strange as it may seem, entrepreneurs can spend every waking hour serving customers, keeping investors happy and chasing suppliers and still feel entirely autonomous. As the entrepreneurial spirit infuses our culture and economy more and more that may be something to keep in mind as we try to understand what type of people we could become in this post-Crash world.
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I’ve been re-reading E.F Schumacher’s Small Is Beautiful having not picked it up in about twenty years. It seemed like a good point to do so given the rise of micro-business that I’ve been exploring on this blog and elsewhere. The book was also first published forty years ago this year.
For those who don’t know, Schumacher was (rather incongruously) the chief economist for the UK’s National Coal Board whose most famous work was an enormous influence on three separate movements: modern environmentalism, intermediate technology, and the well-being movement.
The book is a frustrating read. In more than a few places it makes very sweeping statements about the nature of capitalism and the West that are justified on the grounds of “wisdom” or “common sense” rather than evidence. It also has that common oppositional failing of characterising capitalism and modernity solely through their negatives while ignoring their rather significant positives.
Nevertheless the book is strikingly fresh when it deals with its core theme of the small scale enterprise.
Schumacher advances a number of arguments in favour of “smallness” but it is his emphasis on human creativity that is particularly interesting in an economy where the mission-focused, innovative micro-business seems to be growing in importance.
He argues that the notion of private property can only be truly meaningful when it operates at a small enough scale to allow people to act creatively. As soon as private property is applied at such a large scale that ownership is exercised passively then creativity for the owner and those working in the enterprise is destroyed.
As regards private property the first and most basic distinction is between (a) property that is an aid to creative work and (b) property that is an alternative to it. There is something natural and healthy about the former – the private property of the working proprietor; and there is something unnatural and unhealthy about the latter – the private property of the passive owner who lives parasitically on the work of others.
Private enterprise carried on with property of the first category is automatically small-scale, personal, and local. It carries no wider social responsibilities. Its responsibilities to the consumer can be safeguarded by the consumer himself. Social legislation and trade union vigilance can protect the employee. No great private fortunes can be gained from small-scale enterprises, yet its social utility is enormous.
It is immediately apparent that in this matter of private ownership the question of scale is decisive. When we move from small-scale to medium scale, the connection between ownership and work already becomes attenuated; private enterprise tends to become impersonal… The very idea of private property becomes increasingly misleading.
Schumacher argues that a number of aspects of our society and culture favour the large scale enterprise which crushes creativity but he feels technology plays a primary role. For too long there has been a focus on creating technologies for production by very large companies. He calls instead for:
methods and equipment which are: cheap enough so that they are accessible to virtually everyone; suitable for small-scale application; and compatible with man’s need for creativity…
Suppose it becomes the acknowledged purpose of inventors and engineers, observed Aldous Huxley, to provide ordinary people with the means of ‘doing profitable and intrinsically significant work, of helping men and women to achieve independence from bosses, so that they may become their own employers, or members of a self-governing, co-operative group working for subsistence and a local market … this differently orientated technological progress (would result in) a progressive decentralisation of population, of accessibility of land, of ownership of the means of production, of political and economic power’.
This is, of course, remarkably prescient. The development of the PC, then the internet and now digital fabrication technology has been a major driving force of the rise of micro-business and has unleashed a new wave of creativity in just the form Schumacher hoped for.
His overall view is summarized well below and also stands, I think, as a rather elegant summary of the ethos of the emerging micro-business movement:
The economics of gigantism and automation is a left-over of nineteenth-century conditions and nineteenth-century thinking and it is totally incapable of solving any of the real problems of today. An entirely new system of thought is needed … It could be summed up in the phrase, ‘production by the masses, rather than mass production’. What was impossible, however, in the nineteenth century, is possible now …
The system of mass production, based on sophisticated, highly capital-intensive, high energy input dependent, and human labour-saving technology, presupposes that you are already rich, for a great deal of capital investment is needed to establish one single workplace. The system of production by the masses mobilises the priceless resources which are possessed by all human beings, their clever brains and skilful hands, and supports them with first-class tools.
The Alternative to the Alternative?
Schumacher’s concerns, however, go much further than an interest in small-scale enterprise for the sake of human creativity. Like much of the world now after the 2008 Crash, his core concerns were to create a more stable economy that serves the interests of the less well-off far better, is more environmentally sustainable and offers more satisfying and secure employment.
However, unlike the current consensus on the alternative to pre-2008 capitalism, he doesn’t see any meaningful solutions coming from those who run the big state, big business or big monetary systems. Schumacher believes it is the very “bigness” of these structures that is the cause of so many problems. It is this that concentrates wealth and power to such a degree that it makes a mockery of the notions of private property and enterprise and stifles the human creativity that can flow from those concepts. It is that concentration of wealth and power that allows bad decisions and greed by elites to lead to crises of such depth that they threaten economic systems and the well-being of whole populations as was the case in 2008.
The underlying assumption behind much of the accepted alternative to the pre-2008 economy is that those in charge simply made the wrong calls and with better guidance and analysis will not make them again. All we need is more socially minded corporate boards, better regulation of the banks, wiser central bankers and a bit of state intervention to balance the economy.
It is an assumption that occludes a very tough question that Schumacher might pose were he alive today: why did anyone ever have so much political and economic power in the first place to make mistakes with such all-encompassing and existential consequences not just in the banking sector but in politics, central banking and the wider corporate world?
It’s a tough question because it immediately reveals that an alternative that relies on exactly the same super-powerful elites to solve our problems can never remove the risk that the same all-encompassing and existential crises will occur again in the future. It wasn’t just the banks that were too big to fail but the giant political, corporate and monetary infrastructure built around them as well.
These insights raise the intriguing possibility that as the number and nature of micro-businesses expand and as a new generation looks to self-generated, small-scale experimental solutions to the world’s problems that a more stable, fairer and sustainable economy might be being created from the bottom up and under the very noses of the powerful elites who claim to have the solutions so soon after they delivered crisis.
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