A new report by the RSA (Royal Society for the Encouragement of Arts, Manufactures and Commerce) in partnership with online creative marketplace Etsy indicates that the small business boom may be here to stay – and rather than being the sign of doom suggested by some economists, it is a sign our economy can thrive.
Doom and Gloom Predictions
Today, the UK’s 5m micro-businesses (companies with 0-9 employees) account for 33 percent of private sector employment and 19 percent of total output in the UK. While many see this as a positive thing, some economists, termed a ‘vocal minority’ by the RSA, believe this high proportion of micro-businesses indicates an economical step backward, and is a typical feature of a struggling country. Speaking at the RSA’s own Self-employment Summit in February, economist Will Hutton stated that the growth in self-employment is “part of a picture of capitalism that is seriously dysfunctional”.
However, the RSA‘s report, ‘The Second Age of Small: Understanding the economic impact of micro businesses,’ notes: ‘While it is true that rates of self-employment are high in poor countries like Greece and Spain, they are also high in rich countries such as New Zealand and Holland.’
After focussing its research on productivity, innovation and employment, the RSA found that although ‘cursory analysis of the data’ suggests small businesses are on average ‘less productive, produce fewer innovations, and do not create the high-paying jobs that large businesses often can,’ a closer look provides ‘a more nuanced picture.’
Government data says: average productivity (revenue per worker) in larger forms is more than twice that of micro-businesses.
The RSA found: Government data doesn’t take into account that half of all start-ups don’t make it to their third anniversary. It also unearthed some interesting statistics:
micro-companies are more productive than large corporations in 12 of the UK’s 19 fastest growing sectors, including health, education and social work.
when sole traders are excluded, micro businesses have higher productivity levels in nine of the 19 fastest growing industries, scoring particularly well in sectors where relationships are important.
Latest UK Innovation Survery results say: small firms struggle to innovate, with just 13 percent engaging in internal R&D compared with 23 percent of large firms.
The RSA found: small firms are more efficient at innovation, creating more innovations for every unit of R&D expenditure as well as extracting more financial value from developments. Also micro-businesses, with their lower resource requirements, may be better suited to ‘intangible innovation’ (i.e. new concept and design generation) than tangible innovation -, and investment in intangible innovation is growing far faster.
Respected Employers; Satisfied Employees
Conventional wisdom says:Workers in micro-businesses tend to have lower wages, less frequent training and fewer protections and benefits.
The RSA found: The latest results from the Workplace Employment Relations Study indicate that micro business employees are the most satisfied group of workers, scoring highest on issues such as influence over decision-making, business loyalty and even pay satisfaction – and that individuals on the economic margins, including migrants, people with disabilities and the recently unemployed, are more likely to find employment in micro-businesses.
RSA Senior researcher Benedict Dellot commented: “Often people question the value that small firms bring to the economy… Our research has shown that micro-businesses can thrive under the right conditions and provide far greater value to the UK economy than previously thought.”
The RSA points to new technologies, rising skill levels, changing consumer behaviour and government policies that increasingly favour entrepreneurs as principal drivers of the small business boom.
‘The clear message is that the rise of micro businesses is nothing to be feared,’ the report concludes. ‘Rather, this trend should be taken as the sign of a prosperous nation transitioning into a different kind of economy.’
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