The Power To Create: big in the past, the present and the future

March 2, 2014 by · 5 Comments
Filed under: Adam Lent 

The ‘Power to Create‘ is the notion that by unleashing the deep desire of billions to turn their ideas into reality we will not only stand a better chance of solving our biggest problems but will become a more fulfilled and happier species in the process. It is becoming an increasingly central idea to the way the RSA sees itself, the world and the future. This is an edited version of a presentation I gave about the Power to Create at the RSA’s staff away-day. (Huge thanks to Travis Wentworth who helped with the research and look of the presentation.)

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Why we should support small businesses even if they are inefficient and pay badly

February 23, 2014 by · 2 Comments
Filed under: Adam Lent, Enterprise 

Why do David Cameron and Ed Miliband love small business so much? As Ben Dellot points out, there’s an increasing number of votes in it but beyond that both leaders are clear about the two reasons they are falling over each other to back small business.  Firstly, SMEs create more jobs than big business. Secondly, they will help the UK economy win the “global race”.

The problem with both of these claims is that they have two rather ugly cockroaches in the rhetorical ointment.

Firstly, small business may well be a good generator of employment but jobs there pay less than in big business. Even if you’re the top dog in your own SME, it’s hardly a sure-fire route to a yacht and a Lamborghini.

Secondly, as for the global race, small businesses are very rarely as productive as big business. That’s one reason, after all, why small businesses have an exceptionally high tendency to stay small.

Logically, one might think this means politicians should end their love affair with small business and cuddle up to the big players instead. It’s not that simple of course.

Small businesses are growing apace – not far shy of five million in the UK and growing at a rate of 100,000 a year. As a result, they account for a big wedge of GDP (now around 40%) and a significant slab of the labour market (no less than 60% of private sector jobs).  The internet is also allowing small businesses to raise their visibility and reach out to markets once closed to them. The truth is no policy maker could or should set themselves against trends of that scale.

But while politicians fail to acknowledge the two inconvenient truths above, their small business policy will remain incomplete. Why create complex policy frameworks to encourage more start-ups and a bit of SME growth if all this means is a less productive economy and lower paying jobs? I’d suggest three steps that might begin to resolve this problem.

1. Accept most small firms will never be highly productive

Politicians could begin by admitting that the majority of small businesses will not be highly productive, high growth operations. They should also accept that’s not a disaster. The rise in small business should be welcomed because it is about millions of people turning their ideas and vision into reality – what we at the RSA call ‘unleashing the power to create’.

It’s because of this that surveys show that people who run their own small business feel more satisfied and autonomous. Productive or not, that’s a good enough reason to support small business.

2. Free the small firms that are highly productive

However, there are a small number of SMEs that are highly productive. If you want to ‘win the global race’, this is the place to look.  What is needed there is not the current policy vogue for lots of advice and state-sponsored finance, it is making sure these firms have the power to be creative free of any blocks. One of the reasons the US is more productive than Europe is because of a dynamism which means sluggish uncreative whales are quickly replaced by hungry innovative piranhas who themselves get replaced once they run out of ideas.

In short, it is about an economy where those who exercise their creativity to the max get justly rewarded. Achieving this means stripping away the regulations, tax arrangements, public sector procurement and monetary policies which keep unproductive bigger businesses alive at the inevitable expense of new smaller players.

3. Address low pay in small businesses

Finally politicians need to acknowledge and help resolve low pay amongst entrepreneurs, the self-employed and those who work for them.  The truth is you won’t create a new generation of ambitious entrepreneurs or create good jobs in the burgeoning small business sector without making it a place to earn more.

The key here is not byzantine tax breaks for living wage deals – a policy that will probably favour big over small business anyway. A more straightforward route would be to create an extremely favourable tax environment for small businesses and for the people who work in them.

More important, however, is the establishment of that creative, dynamic economy where big business is less featherbedded. The truth is that when 60% of the economy is shared out between the public sector and 6,500 large corporations and the other 40% is left for 4.8 million firms, it is hardly surprising there is less cash to splash around for those smaller businesses.

 

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In the 21st Century, we want the freedom to create for ourselves not just to choose between elites

January 26, 2014 by · 2 Comments
Filed under: Adam Lent 

Freedom has a voracious appetite. Offer it a bowl of peanuts and it’ll demand a three pound steak.

Look, for example, at the way tentative moves to let merchants trade freely in areas exclusively exploited by the aristocracy became a global movement for free trade.  Or how nervous steps to extend the franchise beyond the very wealthy ultimately led to multi-party systems based on universal suffrage. More recently, the polite requests for reform of laws that discriminated against ethnic communities, women and gay people became loud and proud movements forcefully challenging economic, social and cultural constraints.

The truth seems to be that when people get some freedom, they just want more of it. It’s a truth that has been of enormous benefit to humankind. The huge advances made in material well-being over the last 250 years is in very large part the result of the freedom to trade. Our world has become more peaceful as democratic process has replaced violent battles over succession. And human life is now more diverse and colourful as cultures and groups once suppressed or dismissed have been allowed to flourish.

Which raises the interesting question of what freedom will demand off the menu next. Of course, there are still parts of the world and of life where freedoms historically extended to others have yet to be secured.  However, I do think we can begin to see that where freedom is deepening even further it is heading towards an emphasis on creativity. Or to put it another way we are moving from a world built around the ideal of freedom of choice to one built around the ideal of the freedom to create.

From single to multiple elites

To understand this, it’s important to appreciate that for the greatest part of our history, the political, social and economic life of most societies were controlled by a single nobility held in place by a combination of force and orthodox ideology. Those outside the elite who questioned this monopoly on power would suffer various unpleasant penalties.

But something incredible happened in the early sixteenth century when the Reformation launched the idea that individuals could decide to leave the Catholic Church. It took a while but ultimately this idea become the radical notion that all individuals have a right to choose which religion they practice (generally seen as first being established by the Edict of Torda in 1568).

By the ‘iron law of expanding freedom’ it was not long before philosophers, poets and similarly dangerous types were asking why a similar freedom of choice couldn’t be extended to other areas of life such as government and trade. A suggestion that underpinned an unprecedented period of revolution and progress that affected European countries and their colonies for the next three and a half centuries.

What much of that progress meant in practice was a shift from a world dominated by a single elite to a world where people got to choose between elites. Government was based on a popular choice between party elites. Social values and practices meant choosing between allegiance to different clerical elites. And economics, certainly by the twentieth century, often meant choosing to buy a product from one or other large corporate elite.

This ‘multiple choice’ era has been an incalculably beneficial advance on the very long period of single elite rule that existed before. But freedom is always hungry and a great deal of the popular frustration that is now felt towards government and big business originates with a sense that people want something deeper than simply a choice between elites.

The freedom to create

The shifts in religion in the last few years give a sense of where things are heading. In recent decades many millions have simply walked away from religious elites seeking instead to live according to norms and practices of their own making. In essence, they have become the creators of their own moral and social world.

The same thing is beginning to happen in the economy as new technologies and a new spirit of freedom and creativity means consumers embrace and ditch brands at a stunning rate (witness the rise and fall of Blackberry and possibly Facebook) but also increasingly seek the freedom to create products and services unique to themselves. Alternatively, they buy them direct and bespoke from their peers bypassing corporate structures altogether. As I have written elsewhere, people increasingly want to be the creators of their own economic world.

The real laggard in this is the political world where systems remain dominated by a very select group of elites who insist that voters choose between them and only them every five years or so. If freedom of choice really is giving way to freedom to create then this is not a state of affairs that can last forever. Sooner or later new forms of political process will emerge which allow for much greater involvement of individuals and their communities in the decisions and delivery of government and public services.

 

This shift from freedom to choose to freedom to create is potentially enormously challenging with the power to stir up all sorts of tensions and conflicts. It is already making life for established political and corporate elites very uncomfortable.

Inevitably, some will see it as the beginning of a dangerous anarchy rather than a deepening of freedom. But this is, of course, what those who opposed the move away from single elite rule once said. By contrast, here at the RSA, we are starting to understand that humanity may, in fact, be entering a new era in freedom’s great story driven this time by a hunger for creativity.

 

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How do we solve our biggest problems when power and authority is dying?

January 19, 2014 by · 5 Comments
Filed under: Adam Lent 

Moises Naim came to speak at the RSA last week. His thesis is that we are witnessing the ‘end of power’ or, at least, the end of concentrated and effective power as we used to know it. As he puts it: “power has become perishable, transient, evanescent”. He argues this is true not just of government but also business, religion and military affairs.

For Naim this shift has been driven by three revolutions which make it far harder for those in power to control the world and hence be effective.

  • The more revolution: there is just so much more happening and in existence today than there used to, from the size of the world population itself to the number of civil society organisations, making control from above impossible.
  • The mobility revolution: humans move around far more slipping out of the conventional territorial realms within which much power operates.
  • The mentality revolution: people increasingly just will not accept being told what to do by those in power.

I think the last is by far the most important, and as I’ve written elsewhere, is a trend that has been underway for at least the 350 years since Thomas Hobbes scandalously suggested that freedom was doing what you wanted to do rather than what God or the community told you to do.

Inevitably those in positions of power find this trend extremely troubling.  Like Naim, however, I think it is great. It is one more phase in the long liberation of humankind from the bondage of dominant, elite authority. I also think it is the historical underpinning of the drive to personal creativity that we at the RSA increasingly feel characterises so much of human endeavour today.

A Big Dilemma

But it does raise an enormous challenge that is yet to be resolved: in a world of diverse, creative and self-determined individuals positively hostile to authority and power, how do we address the big problems that require collective effort to solve?

For some this is a non-question. Those of a more libertarian persuasion are certain that everything (or nearly everything) can be solved by individuals coming to mutually beneficial arrangements that serve their own interests. I am convinced that much more can be achieved this way than is often admitted by those in power but there are some problems which require a degree of widespread co-operation and speed that is beyond the capacity of the market or similarly distributed system to deliver.  The most famous example of this is environmental degradation but many would argue that other problems such as poverty, inadequate economic infrastructure and public ill-health can never be fully or speedily addressed by distributed systems.

The alternative response is to reassert the co-ordinating power of the state, big business or civil society bodies to address these problems. But this overlooks Naim’s insight that we simply cannot return to those days. There are huge cultural, economic and political trends underway that render assertions of power ineffective and, often, counter-productive not least because they sooner or later encounter a popular backlash (witness, for example, the way the public debate on climate change has shifted in recent years as governmental regulation has been imposed).

Creative, Collaborative Solutions?

If there is an obvious solution to this dilemma I don’t know what it is. Given that so much public debate is still focused on the supposed solutions the state offers to our problems I am not sure anyone else has a clear solution or, indeed, has even acknowledged the dilemma.

What I do know is that we have to find a way of generating solutions to collective action problems that are not imposed from above but emerge instead out of a process of creative collaboration. At one level we are getting much better at doing this: witness, for example, new creative and collaborative approaches to disaster relief or supporting the most vulnerable people. But we have yet to step up to meet the really big collective action challenges such as climate change or infrastructure development in a way that feels better suited to the era of the ‘end of power’.

Time for some very hard thinking here at the RSA and elsewhere.

 

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We need a creativity revolution: four ideas to stir it up.

January 12, 2014 by · 5 Comments
Filed under: Adam Lent 

How do you transform a nation into the most creative place on earth? Or for that matter how do you transform a region, city or town? In short, how do you unlock a creativity revolution?

As any reader of this blog site over the last week will have realised, the idea of unleashing creativity is becoming central to the RSA’s sense of its own mission, so this question is close to our heart right now. Given how important creativity is to our personal, social and economic well-being (see my last post), it should, I think, be close to everyone’s heart.

So here are my suggestions for the elements of a creativity revolution. This emerging world view for the RSA is still very much in the developmental stage, so please feel free to suggest other elements or dispute the ones I’ve chosen.

 

1. Start a million mission movement

As I’ve written elsewhere something fascinating is happening amongst the so-called millennial generation. Increasing numbers are seeing entrepreneurialism as a viable and attractive career route.

But this is not enterprise as presented on programmes like The Apprentice; it is driven by mission rather than money. These young entrepreneurs are excited by the idea of using their own unique skills and vision to be an agent of change. And I reckon there are few better definitions of creativity than that.

This zeitgeist needs to spread more generally to the whole population. Could we jointly create, for example, a ‘million mission movement’ where people are encouraged and supported to shape their lives around a specific mission designed to create a better life for themselves and a better world for others? A movement not in pursuit of a single ideological or campaign goal like most previous social movements but one which seeks to unleash a million plus visions for how to do things better.

The missions could be any number of things: everything from establishing the best cab company in North Manchester to sending the first human to Mars; from raising the happiest kids possible to creating the most innovative education system in Wales.

The point is that such a cultural movement would be the beginnings of that creativity revolution. Once you commit yourself to excel at a particular mission you are forced to think creatively because you have to do things better or differently from everyone else. Or, at the very least, you have to adapt the best way of doing something to your own unique circumstances and capacities.

A million mission movement would be enormously challenging to the sticky, anti-creative remnants of the culture that existed before 2008. Focusing your life on a creative mission undermines the idea that the purpose of being is to buy stuff. It challenges the notion that it is acceptable purely to generate income no matter whether you or your organisation are actually doing something of economic, consumer or social benefit.

 

2. Educate for creativity

Many of the creative young entrepreneurs I mentioned above and to which the RSA has spoken over the last couple of years are rarely flattering about their schooling. They either see it as having made little contribution to their career and life choices or, worse, as having positively hindered those choices.

This is hardly surprising. As Ken Robinson explains in the second most watched RSA Animate (11 million plus views!), education around the world is still trying to shape children to be fit for a post-war economy that divided the world into an elite of clever, creative leaders and a mass of dim drones able to do little more than produce and consume. As I mentioned in my last post and a longer pamphlet, the global economy is accelerating away from such a structure at speed: it is an economy in which success is driven by the creativity of all not of an elite.

The result is that for millions of children, education has become a deadening rather than an awakening experience. Students and teachers are forced to think of education in purely instrumental terms where all you learn is only designed to get those qualifications to get that traditional job to earn that money to buy those things. A radical shift is needed where education becomes an opportunity to discover what you as a unique individual are great at, to identify your life’s mission and understand how you can put the former to the service of the latter.

This is not a cry for a return to the woolly notions of unstructured self-expression that shaped progressive education in the 1970s. Being truly creative in serious pursuit of a personal goal requires discipline, hard work and a set of generic skills that need to be learned, tested and perfected.

But it also requires the time and freedom to allow students to discover and refine their own sphere of excellence. Sadly this is a space that is being closed down by politicians who think they can design a single, centrally enforced curriculum for the millions of diverse children who pass through an education system. This has been going on for years and if anything is only getting worse. In the name of creativity, it’s time for a popular backlash.

 

3. Let the small flourish

An explosion of creativity based on a million plus missions inevitably means the explosion of small scale ventures. Ultimately big organisations cannot compete with the way small ventures spring directly from the desire of a creative individual or individuals to fulfil a mission. Nor can an economy dominated by the feather-bedded big compete for sheer creativity with an economy where the big is constantly challenged by the small.

Letting the small flourish requires a stripping out of all those state activities that keep the big in business and the small consigned to the sidelines.  We could start, for example, by making it a requirement for officials at every level of government to explain why each new contract cannot be let to small businesses, charities or community groups.  Similarly, big infrastructure decisions, such as over transport or construction, should be required to show that they have not been taken in a way that deliberately benefits big business over small. The burden of proof needs to be on those who want to back the big – the very opposite in fact to how government works today.

Ultimately, however, the small will flourish when the shift amongst consumers towards the authentic, the bespoke and the human deepens further. This trend is well underway and it is a cultural as much as an economic issue. An upstart insurgency that cries ‘creativity’ would nudge it along nicely.

 

4. Keep the politicians out

Politics, sadly, is the very opposite of creativity.  Politics, as it is currently conceived, is inherently elitist. It is fundamentally about formally delegating power and decision-making to a tiny leadership class. If creativity is driven by our pursuit of a personal mission for a better life and a better world then we cannot expect to remain creative if we hand that mission over to someone else to fulfil.

A genuine creativity revolution needs to be driven by millions of people acting creatively. It can’t be ordained from above and it certainly must not be led by people who will ditch or warp the notion as soon as it becomes politically or personally expedient to do so.

In fact, a central goal of a creativity revolution may be to develop a fundamentally different way of doing politics that, like Ken Robinson’s new education paradigm, awakens rather than deadens the population.

 

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Why is creativity the most important political concept of the 21st Century?

January 5, 2014 by · 25 Comments
Filed under: Adam Lent 

There is no concept more politically important today than creativity. I’ll give four reasons why but first a definition.

‘Creative’ has narrow, broader and even broader connotations in English. It’s the last of these we should be most interested in.

The narrow meaning immediately leads one to think of activities directly associated with the arts.

The broader sense encompasses those activities associated with what Richard Florida calls the ‘creative class’. This includes the arts but also involves activities such as architecture, design, advertising, video game development etc.

Finally there is the broadest meaning which implies an act that is unique to an individual’s own capacities or vision. This includes actions which can range very widely from developing your own food recipes, setting up a charity to address a local problem, establishing a website to network a group with a shared interest, writing your own music, building your own house, writing a blog post and so on and so on. But the defining characteristics are the unique, pro-active and self-determined nature of the activity.

So how can such a broad notion be so important? Here are those four reasons.

 

1. Creativity is good for us: it’s the best use of freedom

I’m with the great economist Deirdre McCloskey who argues that people living in the advanced capitalist economies are the freest and happiest populations who ever lived. But that’s not to say we couldn’t be freer and happier.

Being as free as we are has got to be about more than the consumption and acquistion which so dominated western economies in the 1990s and 2000s. A deeper happiness (the well-being or fulfillment we hear a lot about these days) has got to come from using our freedom to be creators as well as consumers.

No less a thinker than the Grandpa of capitalist democracy, J.S. Mill felt the same way. It was his fervent hope that individuals would use their political and economic freedoms to combine their “individual vigour and manifold diversity” to deliver “originality.”

Mill understood that taking the great historical gift of freedom in order to remain passive, ineffectual and conventional was horribly wasteful. To achieve real fulfillment through free choice, we need to understand what it is that we as a unique individual can do to make the world a better and more interesting place.  Fortunately, we now have the resources to be creative in ways we could not have imagined even a decade ago; which brings me on to my next point.

 

2. Creativity is more economically important then ever: modern capitalism thrives on it

Creativity has always been the driving force of capitalism but for most of its history this creativity has been confined to a rather select group who had the access to the knowledge and resources to develop and deliver a product. The great mass of consumers were simply passive recipients who largely expressed their feelings about a product through price.

As I described in a paper I wrote last year, this is undergoing radical change. We are in the era of ‘self-generated value’ where consumers increasingly control the products and services they purchase to the extent that they actually become producers or co-producers themselves – a shift largely driven by the rise of the internet. I give a lot of examples in the paper and won’t reiterate them here but suffice it to say that the most successful internet firms – Google, YouTube, Twitter, Facebook – are those that provide platforms upon which tens of millions of people can share their own creations.

One massive consequence of this is that economic success will be driven as much by the creativity of all as the creativity of an elite. Competitive companies will be those that offer products intensively shaped by the unique ideas and perspectives of every single one of their customers.  Companies and wider economies that fail to grasp this new reality will ultimately be squeezed out of markets by those that do.

 

3. Creativity is necessary: it is the only solution to long-term austerity

Short of radically reducing life expectancy, there’s not much we can do to deal with austerity other than release a wave of innovation in our most fundamental public services. You can protest all you want about stretched social care budgets and winter health crises but with a rapidly ageing population increasing demand on services while paying in less tax there’s not a great deal that protest will achieve.

Far more beneficial, I think, to look to the highly creative innovators in public service delivery who are finding new, productive ways to deliver impact by breaking out of established institutions and mobilising the vast resource of volunteer support and service user creativity which the public sector does barely nothing to employ imaginatively. We need far more Charlie Alcocks, Alex Foxs, Lucy Macnabs and Ben Paynes if we are to really generate the levels of creativity needed to meet the challenges of austerity.

 

4. Creativity is under threat: it needs protecting 

It’s such a warm, cuddly concept it seems odd that anyone can be against creativity but the truth is that unleashing the power of the masses to act on their own ideas is deeply troubling to all sorts of people.

Take the last point about public services. There is a very strong culture in the public sector that is deeply suspicious of the sort of freelance, disruptive creativity that is required to transform delivery.  Part of this results from an understandable fear of change which may well impact on jobs and working conditions but it is also the result of politicised trade unions that fail to engage constructively with any radical innovation as well as a management that is too imbued with the interests of their own institution rather than longer term impact.

Not that the Government always does its best to encourage creativity and challenge inertia in a meaningful fashion. Look, for example, at what is currently happening in English schools. A strengthening obsession with inspection, testing and a tightly constrained curriculum focused on traditional academic subjects is squeezing out the opportunity to nurture the creativity of students or allow teachers to innovate and experiment.

Even the part of our world where one would think mass creativity is most free to operate – the private sector – is actually still dominated by oligopolies unable or unwilling to adapt to a world where good ideas can come from anywhere. Some of our most important sectors – energy, banking, transport – are controlled by a handful of hidebound companies (heavily backed by the state) structurally unable to do things differently.

As I’ve mentioned before it is a striking statistic that half of the UK’s private sector turnover is generated by just 6,500 companies while the other half is generated by 4.8 million. Indeed some of the most radical, creative things happening in the private sector made possible by the internet face constant challenge from vested interests whether it’s alternative currencies being banned in China, Airbnb facing similar treatment in New York or supposedly beneficial regulation making life difficult for smaller, innovative banks.

 

Time to stand up for creativity

This notion that mass creativity is the driving force of our new(ish) century and an ideal that needs strenuous defence and promotion does not come out of nowhere. For the last few months staff, Fellows and trustees at the RSA have been thinking hard about what the RSA should stand for and what it should focus on in coming years. We still have a lot of wider deliberation to do but we are sure that unleashing the power to create will be at its heart.

It was not a hard idea to come by. A deep faith in the creativity of all has always been central to the RSA with its long history of giving  people the tools and incentives to innovate and create no matter what their background whether that be through offering financial support for innovations, establishing the first vocational qualifications or stimulating radical ideas from young designers.

Creativity is in the DNA of the RSA and we don’t think there has been a better time to stand up for what we believe in. The truth is the 21st century could be an unprecedented explosion of creative endeavour or, should we give in to the pressures of inertia and vested interests, it could be the century when we never fully escape austerity and the economic mistakes of the past.

So expect us all to be taking to the barricades yelling “Liberté! Fraternité! Egalité! Créativité!” from now on. Feel free to join us.

 

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People hate politics and politicians for good reason. This will not change any time soon.

December 28, 2013 by · 8 Comments
Filed under: Adam Lent 

There’s been another bout of hand wringing over ‘political disengagement’ courtesy of a new poll which found that most people don’t vote out of anger rather than apathy.  “Big whoop” I say. The Power Inquiry, for which I was Research Director, found exactly the same back in 2006. That would be the 2006 that pre-dated all the things currently blamed for popular antipathy: MP’s expenses, Coalition politics, the 2008 Crash, the recession, Damian McBride etc. etc.

The truth is there are two very good, intimately linked reasons why people hate politics and politicians. Neither of them are easy for the political class to swallow.

 

Politics is hateful

The first is that politics is hated because it is a hateful profession. That doesn’t make it unusual – most professions are characterised by petty politicking, tedious tribalism, gossip and self-interest. The difference with politics is that, unlike other professions, all those frailties get constantly and very publicly dressed up, by politicians themselves, as humble public service. Such in your face hypocrisy is rarely good for anyone’s credibility.

Of course, that’s not to say a lot of MPs don’t work very hard for their constituents and even sometimes in the national interest but a lot of people work very hard for others or for the good of the country and never get a gratis peerage from a thankful nation at the end (or even in the middle) of their careers.

 

Parliamentary democracy is dying

The second is that parliamentary democracy itself is based on a conceptualisation of the relationship between ruler and ruled that is dead. In that conceptualisation, we the people accept being ruled by a tiny elite as long as we get to choose which tiny elite is doing the ruling. The problem is that the populations of the advanced economies increasingly don’t like the idea of being ruled by a tiny elite whether they have chosen them or not.

Again this is not just a matter for politics. The elitist institutions of authority and power that people are free to walk away from (the Church, the trade unions, the press) have been in decline for decades. Even the biggest, richest corporations have to fight a constant battle now to hold on to their customers’ trust and respect.

Politics is different, once again, because it can’t be walked away from. That’s a recipe for popular frustration.

 

A centuries old and profound trend

This is no recent trend but is, in my view, the outcome of many centuries of shift away from deference to collective authority towards the free choice of the individual. At one stage, parliamentary democracy was a major consequence of this shift as feudal elites in charge by virtue of force and divinity made way for democratic elites chosen by free voting individuals. Now this historic shift is swamping parliamentary democracy itself.

There are two key conclusions. Firstly, no tweaking of MP’s pay arrangements, the discovery of an inspirational new leader or even ‘radical’ change such as the introduction of proportional representation will resolve this deep systemic contradiction. In fact, anyone thinking of going into politics better accept that “I can’t seem to do anything right” sensation as a permanent occupational hazard.

Secondly, the problem will only go away when a new political system emerges that better reflects a world devoid of deference. What that looks like I am not sure. The Conservative MP, Douglas Carswell, has had a shot with a strong emphasis on more direct democracy using internet technologies. I suspect it may be something much deeper than that based on widely distributed personal power rather than concentrated democratic power.

Whatever it is though it will be driven by the intensely strong desire of 21st century individuals to make their own decisions for themselves not by the nervous, self-doubt of the political class.

 

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The economic rebalancing we really need: from big to small business

December 1, 2013 by · 2 Comments
Filed under: Adam Lent, Enterprise 

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.

 

The first report from the RSA’s research project The Power of Small will be published in February 2014. The project is supported by Etsy.

Follow me on Twitter here.

 

 

 

Entrepreneurial Spirit: could the north be catching the south up?

November 17, 2013 by · 2 Comments
Filed under: Adam Lent, Enterprise 

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

Region         2010

per 10,000 population

2012

per 10,000 population

Growth %
North East 552 633 14.6
West Mids 757 835 10.3
Scotland 673 740 9.9
South West 982 1061 8.0
Yorks/Humber 767 820 6.9
London 1188 1266 6.5
East England 1002 1056 5.3
North West 803 835 3.9
South East 1078 1119 3.8
East Mids 838 844 0.7
Wales 784 753 - 3.9
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

Region          2010

000’s

2012

000’s

Growth %
West Mids 333 379 13.8
North East 119 135 13.4
Scotland 290 326 12.4
London 748 841 12.4
South West 427 467 9.3
Yorks/Humber 332 354 6.6
East England 474 505 6.5
North West 453 481 6.1
South East 745 791 6.1
East Mids 307 314 2.2
Wales 193 190 - 1.5
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.

 

Follow me on Twitter: https://twitter.com/adamjlent

The RSA launched its new research project on the rise of micro-business called The Power of Small on 13th November. The project is kindly supported by Etsy.

New Data: why entrepreneurialism exploded after the Crash

November 10, 2013 by · 4 Comments
Filed under: Adam Lent, Enterprise 

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.

Bouncy Business

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.

 

The RSA launches its new research project on the rise of micro-business called The Power of Small on 13th November. The project is kindly supported by Etsy.

You can follow me and get updates about my blogs on Twitter: https://twitter.com/adamjlent

*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.

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