A History of Enterprise Policy

Government, Small Business and Entrepreneurship

Oliver Mallett, Robert Wapshott

• Publisher: Taylor & Francis
• Year: 2020
• Print ISBN: 9781138337305
• eBook ISBN: 9780429809217
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Governments in developed and developing economies have increasingly turned to entrepreneurship and small businesses for economic growth, dynamism and economic and social inclusion. Policies seeking to encourage, support or otherwise influence these forms of economic activity are varied but virtually omnipresent, recommended by organisations such as the OECD and World Bank and implemented by governments of many political ideologies. With a range of activities across government labelled as enterprise policy, it is vital to unpick the different policies, initiatives and interventions and to understand their development in order to subject them to scrutiny and evaluate the actions taken in the name of enterprise.

This book provides the first in-depth, historical analysis of enterprise policy in the United Kingdom. Successive UK governments have been particularly active, with the number of initiatives estimated recently at 3000 and expenditure reaching as high as £12bn, yet facing continuous criticisms for its use, value or relevance. This historical study of UK enterprise policy represents a case study of different forms of enterprise policy and how they have developed, or failed to develop, over time, contributing to understanding of government, small business and entrepreneurship. It will be of value to researchers, academics, policymakers, and students interested in the history of small business and entrepreneurship as well as standing as a history of a specific policy area and the ways in which policies involving many different areas of government develop over time.

1 What Is Enterprise Policy and Why Is it Important?

The classic BBC sitcom Only Fools and Horses features a self-employed market trader (‘Del Boy’) and his work (often within the informal economy) and home life with a younger brother (Rodney) and their elderly grandfather (in later series a great uncle). Del Boy is a stereotypical wheeling and dealing entrepreneur who takes risks, has great ambition and looks for opportunities, seemingly convinced through each scrape and caper that ‘this time next year we’ll be millionaires.’

The first episode of the series, broadcast in 1981, includes a scene where Del Boy explains his attitude towards Value Added Tax, and by extension government in general, to Rodney. Del explains that their business gives nothing to government, no income tax or national insurance, and in return they expect government to give nothing back. The story reflects something of a stereotypical portrayal of small businesses’ and the self-employed’s attitudes towards government: they want to be left alone to get on with their business without the impediments of taxes or other burdens such as ‘red tape.’

Nearly 40 years later, another high-profile (but this time not fictional) UK entrepreneur, Rohan Silva, wrote an article for the Evening Standard newspaper entitled ‘Why is the government making life so tough for small businesses?’ Silva is a very different type of entrepreneur from the fictional Del Boy stereotype, focused on high technology and innovation. He had previously worked as a senior advisor on business support initiatives for the UK government before becoming an entrepreneur and cofounding a social enterprise that provides services to small businesses and entrepreneurs. He also shapes the public perception of small businesses, with newspaper articles and a BBC podcast. In this particular article, Silva argues that the Conservative government is actively hostile to small businesses, giving examples of personal comments from key ministers and also of high taxes and business rates as well as a lack of advice and support.

These apparent tensions between government and small business, selfemployment, entrepreneurship or, more broadly, ‘enterprise’, is perhaps surprising. There is a political consensus in the UK and internationally that these businesses are of central importance to a modern economy. If, for example, we look at UK political manifestoes across the mainstream political spectrum we can see this understanding of the importance of small business consistently hailed as key to economic plans:

The Conservative Party is the party of enterprise and of the entrepreneur.

(Conservative Party, 2017)

... we will put small businesses at the centre of our economic strategy.

(Labour Party, 2017)

... the role of entrepreneurs and small businesses in delivering a thriving economy is fundamental.

(Liberal Democrat Party, 2017)

Suggestions that government does not seek to support small business appear even stranger when we consider that, in the UK, the number of schemes and initiatives targeted at these businesses has reached as many as 3000 (!). Precise figures on expenditure levels and the impacts of such expenditure are fiendishly difficult to pin down, with spending figures typically withheld by governments (Fotopoulos and Storey, 2019), but estimates for UK expenditure have been as high as £8bn or, sometimes, even higher (e.g. Richard, 2008, estimated over £12bn). In this commitment and consensus, the UK is an exemplar of an international trend towards the ‘entrepreneurial economy’ (Gilbert et al., 2004: 313). For example, between 2006 and 2012 the World Bank averaged support of $3bn per year targeted to Small and Medium-sized Enterprises (SMEs) (World Bank, 2014). We believe that this policy agenda, which we will refer to as ‘enterprise policy,’ is a fascinating area to explore in order to try to make sense of these apparent tensions and contradictions.

The huge number of enterprise policy schemes and initiatives partly reflects the heterogeneity of categories such as ‘small business,’ for example in terms of targeted sectoral support, as well as the regional nature of some policies. However, it also reflects the complexity of enterprise policy agendas with ‘virtually all organs of government [having] programs which qualify as either EP [entrepreneurship policy] or SMEP [small and medium-sized enterprise policy]’ (Lundström et al., 2014: 946). Governments intervene in a range of ways, acting as ‘... a regulator, incentiviser and facilitator, or as a supplier’ as well as a supporter of other, nongovernmental forms of influence and support (Bennett, 2014: 25). However, the vast number of schemes and initiatives also raises important questions about the effectiveness of such policies. For example, why does deregulation to remove barriers and free up small firms remain a prominent political concern when successive governments have actively pursued deregulation (and later ‘better regulation’) since the 1980s? The UK has an Ease of Doing Business Rank of 9 out of 190 countries (following the US at number 8), reflecting the extent to which the country’s ‘business regulation affords micro and small firms the opportunity to grow, innovate and, when applicable, move from the informal to the formal sector of an economy’ (World Bank, 2019: 1). Given this apparent success, and the extent to which a belief in the importance of small business and entrepreneurship is shared across the political spectrum, it can be surprising the extent to which the present situation is often described as problematic and the position of small businesses as endangered, requiring urgent government action (which will be taken if you vote for whichever party is making this pitch at the next General Election).

We have written this book during the prolonged period of political and economic uncertainty following the UK’s referendum vote to leave the European Union (‘Brexit’) in June 2016. We believe that, at times of such significant political turmoil, there is value in deepening our understanding of important areas of policymaking. Where does a policy agenda come from? How has it developed over time? What unquestioned assumptions are underlying the policy agenda? Can things be done differently? It is in an attempt to answer questions of this sort that we have written a history of enterprise policy in the UK. In this opening chapter, we will set out the aims of this book and the structure we have adopted to address those aims. We define important terms and ideas that we rely on in the book and we highlight the value of an historical perspective that places the development of enterprise policy in a broader political, economic and social context. We conclude the chapter with an overview of the book, which will serve as a quick reference guide to readers seeking a particular focus for their reading.

Aims and Purpose

Before launching into the detail, it is useful to locate ourselves in relation to our research and how we came to write this book. Our starting point for the original research project was a shared interest in how governments provide support for an enterprise and entrepreneurship agenda. We previously wrote a book about management in small businesses (Wapshott and Mallett, 2015) and, in analysing the factors shaping small businesses’ management practices and employment relationships, it became clear how important government policies and initiatives are. Moreover, we have had some involvement with the UK government’s Better Regulation Executive and also delivering content under the growth vouchers scheme. Such activities led us to want greater understanding of the development of enterprise policies.

Developing our understanding of this topic it became apparent that, while associated commonly with the Conservative governments of Margaret Thatcher, and perhaps the Bolton Committee before that, governments had been intervening to assist small businesses for decades earlier. Further, during nearly 100 years of such policies, we became interested in how they were influenced by and were designed to respond to changing economic, political and social contexts. To fully explore these contextual factors, we focus exclusively on the development of enterprise policies in the UK. More specifically, we tend to focus on England—there is sufficient complexity without considering the variations in Scotland, Wales or Northern Ireland (for example in the administration of the European Regional Development Fund, where institutional variations led to more effective working in Scotland), especially after devolution. However, these variations are of interest in their own right and certainly worthy of further future study.

When one begins to study the history of enterprise policy something that jumps out very quickly is the recurring themes. As we will discuss throughout the book, the core areas of enterprise policymaking (financial assistance, regional focus, management guidance and support) were established in the 1930s and have been somewhat persistent areas of focus ever since. Taking a long view of government actions targeting small businesses and entrepreneurship captures the repeated framing of small businesses as struggling, for instance in accessing finance or with government ‘red tape’ and regulations, and the ongoing efforts of governments to support these ventures. Building an account of enterprise policy in the UK over 100 years offers an opportunity to understand the development of approaches to support small businesses and entrepreneurs and, in light of persistent concerns about the lack of effectiveness of many of these approaches, potentially identify lessons from past experiences.

To this end, we are not political history scholars but rather researchers of small business and enterprise who have developed an interest in the past in order to understand more fully a central aspect of our field. As authors, this project has been about advancing our understanding of how enterprise policy has developed in order to provide insights that can help us to navigate the contemporary landscape. The Methodological Appendix sets out the different kinds of sources we have consulted and the specific assistance from which we have benefited. For our readers, we hope that we have achieved our objective and communicated our work effectively in order to stimulate further discussion and inquiry.

The Story of UK Enterprise Policy

The traditional disinclination of UK governments to become involved in matters of industry (Millward, 1995) began to change after the First World War and then underwent a significant shift during the 1930s and 1940s when, dealing with war and economic crises, there were wideranging changes in the relationship between government and industry. In broad terms, post–Second World War and through to the late 1960s, ‘big was still seen as beautiful and growth was seen as the key to the treasures of increased economies of scale’ (Curran and Stanworth, 1982: 3; Gray, 1998). In this environment, while early examples of enterprise policies existed, small businesses were not a major concern of national governments, even as their numbers declined.

By the mid-1960s, attitudes towards small businesses among politicians appeared to be changing with increased prominence in Parliamentary debates (Beesley and Wilson, 1981). Business owners were concerned about the decline of their relative status (Middlemas, 1986) and the development of ‘a small business sector consciousness’ (Middlemas, 1990: 182) established a more vocal constituency seeking to protect its interests. Following a short period of pressure building for some action addressing the complaints of small business owners, the government launched its Committee of Inquiry on Small Firms (1969–1971) chaired by John Bolton. The Report of the Bolton Committee was published in autumn 1971 and has been credited with playing a significant role in the emergence and development of government policy towards small businesses in the UK (Curran and Stanworth, 1982a; Gray, 1998; Dannreuther and Perren, 2013). Described as forming ‘the bedrock of virtually all research, analysis and policy making’ relating to small businesses in the subsequent decade (Curran and Stanworth, 1982: 3), the Bolton Report (1971) both reflected and contributed to an increasing interest in small firms.

Economic restructuring and other political, social and economic changes in the 1970s and 1980s led to an increase in the number and prominence of small and medium-sized enterprises, with implications for the working lives of many people who were now more likely to work as self-employed, freelancers or members of smaller organisations. The Conservative governments of the 1980s under Margret Thatcher embraced and encouraged these changes, promoting a new ‘enterprise culture.’ This prominence of small business and forms of self-employment has continued, in many ways, to the present day: according to the most recently available Business Population Estimates from the Department of Business, Energy & Industrial Strategy (BEIS, 2018), SMEs represent 99.9% of all private sector businesses, contributing 60% of total private sector employment and 52% of total private sector turnover (where SMEs are defined as having 0–249 employees).

The complexity characterising enterprise policy throughout this period is reflected in the sheer numbers of different interventions, although marked by changes in the emphases placed on small businesses and entrepreneurs as forming a politically significant constituency and the ends to which policies affecting these enterprises have been deployed (Beesley and Wilson, 1981; Greene et al., 2008; Dannreuther and Perren, 2013). Keeping track of these interventions has been complicated by a tendency for interventions to be ‘piled on top of each other with little policy termination’ (Bennett, 2014: 85), leading to a ‘“patchwork quilt” of policies’ (Storey, 1994: 304). This is a point not lost on government, for example then-Chancellor of the Exchequer Gordon Brown announced in the Labour government’s March 2006 budget (HM Treasury, 2006):

There is concern at all levels that the proliferation of business support schemes has created a complex picture making it difficult and time consuming for businesses to access relevant support. The Government will work with RDAs [Regional Development Agencies, see Chapter 11] and other local and national bodies to reduce the number of business support services from around 3,000 now, to no more than 100 by 2010.

Clearly, in the face of such size and complexity, any endeavour to tell a history of each and every enterprise policy intervention would fall far short of completeness. Instead, our focus is to develop a cohesive overview of the different approaches to enterprise policy across the past 100 years, focusing on particularly significant examples and placing the developing enterprise policy agenda in its economic, political and social contexts.

Is Enterprise Policy Effective?

Enterprise policy has been deployed to address a wide range of economic and social problems, from the consequences of industrial restructuring and regional unemployment (Hudson, 2000) to objectives such as ‘social and community cohesion’ (Bridge, 2010: 6), poverty alleviation (Hart, 2003) and ‘cutting off the corners of regional disadvantage’ (Greene et al., 2008: 79). However, despite significant efforts and expenditure, enterprise policies have been challenged as to their effectiveness in achieving the aims of policymakers (Bridge, 2010; Fotopoulos and Storey, 2019) and as to whether these policies represent value-for-money (Curran, 2000). Critical considerations of specific policies have identified fundamental problems with displacement and deadweight effects (Curran and Storey, 2002) as well as a lack of understanding of the challenges identified (Nightingale and Coad, 2016) or of the available research evidence (Arshed et al., 2014). For example, if government intervenes to address a specific problem (say, incentivising businesses to hire new employees in an area of high unemployment), it is often unclear whether any jobs created are truly additive (i.e. a result of the intervention and would not have been created anyway), whether the intervention really tackles the underlying problems and whether such a policy is evidence-based and fully evaluated. Consequently, government ministers and policymakers have faced questions regarding whether they are well-placed to intervene effectively (Bennett, 2008).

Blackburn and Schaper (2012) present three persistent obstacles to the development of effective enterprise policy: a lack of progress due to poor learning from previous experience; poor use of the evidence base or rigorous evaluation of policies; and poor collaboration and information sharing between relevant actors. Greene et al. (2008: 4) identify ‘a distinct tendency to recycle particular interventions even when they were not successful when they were tried previously.’ As Curran and Storey (2002: 168) describe it: ‘The blinding hegemonic dazzle surrounding “entrepreneurship”, “enterprise”, and “the enterprise culture” has placed them almost beyond question and resulted in policies not being scrutinized as closely as might normally happen.’ The result is what Nightingale and Coad (2016) discuss in terms of a fixation on a core set of assumptions that drive enterprise policy and an inability to look critically at the past. It is this critically informed understanding of the past and of the development of enterprise policy that we seek to achieve with this book.

Historical Institutionalism

To guide our research and analysis we have adopted an historical institutionalist perspective. Institutions can be understood as ‘sets of regularized practices with a rule-like quality [that] structure the behavior of political and economic actors’ (Hall, 2009: 204). Analytically, institutions provide a useful way of segmenting the normative order. Combinations of formal institutions, such as rules and regulations, and informal institutions, such as norms, values or codes of behaviour, are therefore understood as ‘... activities, beliefs, and attitudes [which] have come to acquire taken-for-granted or rule-like status ... thus in turn enabling and constraining entrepreneurship’ (Bruton et al., 2010: 423). For example, a heavily regulated economy might deter a business from taking on employees...

Table of contents

• Cover
• Half Title
• Series Title
• Title
• Copyright
• Contents
• Acknowledgements
• 1 What Is Enterprise Policy and Why Is it Important?
• 2 Government, Small Firms and Entrepreneurship in the Nineteenth Century
• 3 Filling the Finance Gap
• 4 Regional Enterprise Policy
• 5 Early Lobbying and Debating the Role of Government
• 6 Taxation, Lobbying and a Voice for Small Business
• 7 The Europeanisation of Enterprise Policy
• 8 Neoliberalism and Enterprise Culture
• 9 Market Liberalisation and Deregulation
• 10 Tackling Deadweight and Displacement Through Consultancy
• 11 Enterprise Policy as an Answer to Deprivation and Exclusion
• 12 Conclusion
• Methodological Appendix
• References
• Index