Written by Leigh Sear.
In the late 1970s, David Birch – an economist at MIT in America, proposed that small businesses were the most important source of job creation in the US economy1. The research undertaken by David Birch highlighted that 66 per cent of all net new jobs in the United States during 1969-1976 were created by businesses with less 20 employees and 81.5 per cent were created by businesses with less than 100 employees.
His work had a profound impact not only on the research community and their interest in small business development but also amongst politicians and policy makers. In the UK, for example, Margaret Thatcher drew upon the work of David Birch to shape a discourse around developing an enterprise culture and building a stronger economy through individuals starting their own businesses. In turn, the Conservative governments of the 1980s and 1990s introduced a range of policies to encourage people to start and grow their own business.
As a result, in the UK, the Conservative Party is often associated with being the party of the small business owner-manager and entrepreneur. This was evident in the reaction to the announcement within the recent Budget about increasing national insurance contributions for the self-employed. However, a different perspective on small business policy is offered by the late Richard Beresford2 in an article that unpacks the relationship between the Labour Party and small businesses.
Drawing upon a range of secondary sources, Richard outlines a number of interesting issues including:
- There is a complex relationship between the Labour Party and small business which goes beyond the typical stereotypes within the Labour movement of small businesses seen as profit seeking ventures which exploit staff and other resources for their own gain
- The Labour Party was the first party to make reference to small businesses within a manifesto – back in 1906!
- There was recognition of the issues related to the regulatory burden and small businesses by the Labour government of the 1930s, as well as issues related to small business access to finance in the 1970s. Both of these challenges have since become central tenets of policies introduced by the Conservative Party when in Government
- There are important differences between the notion of ‘enterprise’ and small business development within recent Labour Party policies
- There has been a recognition in Labour Party policies of the need to support the learning and skills development of staff in small businesses, as well as the development of the business
- Policies to support the development of small business need to be part of wider policies focused on creating sustainable economic development at a local and regional level.
In addition, Richard suggests that the impact of policies on the geography of enterprise within the United Kingdom has been somewhat limited, with rates of new firm formation and business growth in traditional industrial areas still lagging behind national averages. This is a particularly interesting observation in light of the Brexit decision and future access to European sources of funding such as ERDF and ESF.
As with Richard’s other work, this article on the relationship between the Labour Party and small business sheds lights on a topic that has been under-researched to date as well as raising a number of issues which help us reflect on the role for policy in supporting the development of small businesses.
The full article can be accessed here.
CEO, SFEDI Solutions
1 For further information on the research of David Birch see https://www.forbes.com/forbes/2009/1116/careers-small-businesses-unemployment-hunting-for-gazelles.html