The Real World of the Small Business Owner (Routledge Revivals)

Robert Goffee, Richard Scase

• Publisher: Routledge
• Year: 2015
• eBook ISBN: 9781317571667
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Small businessmen and entrepreneurs came firmly back in fashion when this book was first published in 1980. As the Western economies moved into recession, many governments, particularly Mrs Thatcher's administration, looked to the entrepreneurial spirit of the small businessman to rejuvenate and revitalise Western society.

Stripping away the political rhetoric, this book provides a serious social portrait of the small businessman in the economy at the time in which this book was written. Based upon extensive original research, the detailed analyses focus on the key issues in the small businessmen's life. At a time when there was much argument about the motivation and will to work of Western society, this study of the traditional custodians of capitalism is particularly relevant. Above all it shows how the historical values of the small businessman have survived in the changed circumstances of the advanced economies.

1
The ‘Crisis’ and the Role of Small Businesses

Business owners and entrepreneurs have again become popular figures after years of neglect. This is because they are seen to offer a solution to many of the problems confronting Western economies. According to several contemporary assumptions – many of which are highly questionable – we have become ‘over-governed’ by an increasingly powerful state bureaucracy so that social, personal and job security is now more important than the relentless pursuit of profit. Business proprietors, entrepreneurs and ‘self-made’ men, on the other hand, are regarded as people who are prepared to be self-reliant and to take the risks necessary for a dynamic economy. Indeed, so it is often argued, if only there was a greater spirit of entrepreneurship, more business enterprises would be created and, consequently, greater job opportunities and less unemployment. Furthermore, this same entrepreneurship would contribute to a culture emphasising self-reliance and personal responsibility such that governments could increasingly withdraw from economic management and the provision of a wide range of personal, social and welfare services. For many, then, the example set by entrepreneurs offers a solution to the institutional, attitudinal and cultural ills of present-day Western societies. Thus, it is necessary to return to the core values of Western capitalism, represented as they are by these people.

On the other hand, there are those who remain totally unconvinced by such arguments; indeed, such views are often regarded as downright reactionary. Yet these values have a much wider appeal than conventional liberal opinion would allow and not merely among core supporters of Margaret Thatcher or Ronald Reagan; in other words, rugged individualism continues to persist as a strong undercurrent throughout the whole of the Western world. It explains the widespread hostility towards government intervention, the welfare state and the collectivism of trade union movements and social democratic parties. Further, it accounts for much of the resentment directed towards the unemployed and to various low-income groups; individuals should be responsible for their own personal circumstances.

The popularity of these values is perhaps most evidently reflected in the economic and social polices of the British Conservative Government elected in 1979, which explicitly regards them as a set of principles around which to rejuvenate the economy. The economic strategy of the Conservative Government is based upon certain assumptions about personal incentive, human behaviour and economic motivation that are steeped in notions of individualism and self-help. Sir Keith Joseph, the Minister for Industry, for example, has argued that the British economy will only be revived if entrepreneurship is more adequately rewarded. By this he means that an economic climate must be created so that people will be prepared to take risks in order to create and develop business enterprises. People must be left to stand on their own two feet by severely restricting the protection and security offered by the state. Further, they must be satisfactorily rewarded for the economic risks they are prepared to take. This requires a reduction in the level of direct taxation since, in addition to increasing the incentives for entrepreneurship, resources must be retained for the purposes of further investment. Consequently, employment and economic growth will be generated thereby resolving many of the nation’s problems. Every attempt, then, must be made to re-emphasise the attractions of classical capitalism.

This whole approach is appropriately summed up in the Conservative Party pamphlet, Small Business, Big Future,

It has rarely been as difficult to start or expand a business, or to hand it on to one’s children as a going concern. For many, the pressure of bureaucracy and growth of controls have made their once-prized independence a burden too heavy to be worth carrying for much longer, while tax is destroying the incentive to bear it. Hope is being strangled and as a result those indispensable qualities of imagination, enterprise and drive are being stifled … The aim must be to change the atmosphere and environment for the business community, to create anew conditions in which men and women of independent spirit will see it as worth their while to use their skill and enthusiasm to start or expand profitable enterprises. This must be the goal for all businesses of whatever size, and the whole of Conservative economic strategy should have that purpose … More than one job in three outside the public sector is in small businesses. If they were encouraged to do so they could become the main source for new jobs.¹

If nothing else, this is a new direction by comparison with the economic policies of successive governments during the post-war decades. Over this period, the problems of the British economy have remained stubbornly the same – low economic growth, low investment, limited increases in productivity and outdated factories and machinery. But if the diagnoses of the 1950s and 1960s led to similar observations, the suggested remedies were very different to those of the ‘new’ economic strategy currently pursued by the Conservative Government.

In the 1960s, small businesses were generally regarded as a relic of the past. Economists and politicians were agreed that the development of modern complex technological processes required large-scale units of production if only because of the economies of scale. Small businesses, on the other hand, were seen as obstacles to economic growth because they could not effectively utilise advanced technological systems. Every effort was made to encourage industrial mergers and amalgamations, for the big fish to eat the little, so that the economic advantages of the new technology could be fully maximised. Indeed, every other aspect of society was subordinated to this overriding goal such that little consideration was given to the social implications of these economic changes. For example, the creation of boring, monotonous jobs in modern large factories was often regarded as the necessary and inevitable cost of higher economic growth.

As part and parcel of this process, priority was given to the creation of a close partnership between industry and the state so that the general planning process could operate more efficiently. Governments could ease the social and economic strains created by market forces by integrating social welfare policies with the general needs of industry. They could also fulfil a positive role in the economic rejuvenation of the country by encouraging mergers and take-overs through such agencies as the Industrial Reorganisation Corporation and later, during the 1970s, the National Enterprise Board. The main purpose of this policy was to create a technologically advanced, capital intensive economy which would be highly competitive in world markets.

Such an industrial strategy assumed the end of a self-interested capitalism characterised by class conflict and the persistence of political ideologies which, in the past, had polarised society. On the contrary, ‘welfare-’ or ‘post-capitalism’ had eroded traditional class divisions and replaced them by a set of shared values which emphasised the desirability of technological progress, economic growth and the raising of living standards. There were few ideological differences between the political parties; both Labour and Conservative were seen to be committed to the corporatist mixed economy and they only differed in the means to be employed.

By the late 1970s this industrial policy was regarded as a failure.

It had not only been unable to solve the problems of the economy but also it had created a wide range of social tensions which could be seen to be the outcome of the economic and social policies of the 1960s. The British economy continued to be characterised by low productivity, non-competitiveness and outdated technology. In addition, ‘structural rationalisation’ had produced social problems which, arguably, were the result of urban renewal and re-housing schemes, population migration and the creation of psychologically unsatisfying work environments. Further, it was held that corporatism was corroding the core values of Western liberal-democratic society; not only were state welfare services killing incentives and the will to work, but economic planning was eroding the ability of businesses to take risks, to innovate and to capture new markets. It was claimed that British society was becoming dominated by mediocrity and bureaucratism and that the freedom of the individual was being subordinated to the state. Britain, in short, was rapidly acquiring the alleged characteristics of East European state socialist countries.

In the late 1970s, therefore, a new direction was sought. There seemed to be only two choices: either to continue to pursue the corporatist road until the East European goal had been achieved, or to bring back classical capitalism. Quite obviously, the Thatcher Conservative Government chose the latter. The state was to be cut back, economic regulations to be diluted if not abandoned, and market forces to be liberated from political interference. The bearers of this new entrepreneurial culture were to be the independent businessmen. If small-scale and family-owned businesses were viewed as inefficient and a constraint upon economic growth in the 1960s, by the late 1970s they were seen by many politicians – not exclusively within the Conservative Party – as a fundamental plank in the programme to bring about a regeneration of not only the economy, but society in general. They are, then, now regarded as the solution to a wide range of economic and social problems; as the means whereby the tensions and failures of the economic strategy of the 1960s can be corrected. This small business panacea, however, is founded upon highly questionable assumptions.

The view that small businesses create employment is based on the notion that for a given level of capital investment more work is created than in large-scale technological enterprises. But, as recent research has shown, small enterprises can be highly capital intensive in certain sectors of the economy; they are small because of this and, consequently, do not create jobs.² Further, the alleged employment attractions of small businesses disregard the lower wages, fewer fringe benefits and inferior working conditions which often prevail.³ Perhaps it is not coincidental that these conditions are often associated with low levels of unionisation among workers in small-scale enterprises.⁴ Indeed, it is possibly because of this that large corporations support the Thatcher government’s small business strategy since it is often cheaper for them to ‘subcontract’ short-term specialist work to small-scale enterprises. The notion, then, that small businesses are autonomous sources of employment that can counter economic recession is largely a myth. On the contrary, they are often heavily dependent upon the requirements of large-scale corporations which use them according to variable market conditions.⁵ In fact, as Small Business, Big Future states, without small firms and the self-employed, ‘large business could not function effectively’.

It is also claimed that small businesses offer a solution to the problems of absenteeism, labour turnover and industrial discontent. According to the Conservative Party, ‘working relationships are easier and happier in small companies. Many of the problems that arise in large enterprises are unknown in firms where the owner-manager knows and is known to all of his employees’.⁶ But once again, the evidence on this is inconclusive and certainly an insufficient basis for industrial policy. Even if we assume that there is a lower incidence of management-worker conflict in smaller enterprises this probably has less to do with the effects of size per se than to other conditions; for example, styles of supervision and employer control.⁷ In small businesses, worker commitment can be encouraged by the cultivation of personal relationships that emphasise the qualities of either egalitarianism or paternalism. With the former, employers establish close links with employees by stressing the team and co-operative nature of their enterprises. With paternalism, on the other hand, employers recognise their responsibilities for the personal welfare of their staff who, in turn, accept that employers have the right to tell them what to do. Whichever strategy is used the effect is likely to be much the same; the level of unionisation will be low and workers will be highly committed to the employer’s goals. For many, this is an appealing proposition since most of Britain’s problems are associated with manager-worker conflict. Small firms, then, are regarded as a ready-made solution to industrial strife.

Further, it is claimed that small businesses offer a cure to the problems of inner urban areas. Hence, recent Tory proposals for the creation of enterprise zones which, by diluting various statutory regulations, are intended to attract small, labour-intensive businesses in order to reverse the long-term pauperisation of the metropolitan conurbations. However, critics have argued that the real attraction of this policy is the opportunity it provides for using low-paid labour. Consequently, local small employers can take advantage of, for instance, women in unskilled and semi-skilled jobs who, because of family commitments, are often unable to travel to better-paid work. But are small employers the real beneficiaries? When they are little more than subcontractors to large-scale corporations producing short runs of specialist commodities, the real gains of enterprise zones would seem to accrue to big rather than small businesses.

In view of these remarks we are in a better position to understand the appeal for many people of the government’s small business strategy. In a nutshell, it offers a solution to one of the major problems confronting industry as diagnosed by employers, managers and politicians; that is, the management of labour. If large-scale corporations have created circumstances in which unionism and working-class consciousness flourishes, small businesses are seen as a means by which this alleged ‘imbalance’ of power can be redressed. In addition, they offer numerous possibilities whereby a wide range of legislation enacted to improve the conditions of employees cannot be effectively enforced. There is an insufficient number of factory inspectors, health and safety officers, and so on, to guarantee that the statutory requirements in these enterprises are fully implemented.

However, the attractions of small-scale enterprises are not only economic but also symbolic and cultural. This is linked to the widely-held assumption that entrepreneurs, business owners and ‘self-made’ men in general, built Western capitalism. Through determination and considerable self-sacrifice they are often considered to be the founding fathers of the world’s most successful economic order. Furthermore, their admirers would lead us to believe that by their efforts, the basis for free, liberal-democratic society was created. This is not only because their self-interested entrepreneurship destroyed traditional agrarian society but that they established the essential democratic rights of individuals in the ‘new’ society. According to popular mythology – most strongly expressed in the United States and by successful entrepreneurs themselves – capitalism provides everyone with the potential to become a capitalist. In other words, life is a race in which all start as equals; those who are prepared to work hard and make the necessary effort can ‘make it’ while the rest ‘go to the wall’. But if everyone can be a capitalist who provides the labour? The rhetoric says little about this except that such people tend to be less ‘able’, ‘enterprising’ and ‘intelligent’ since otherwise they, too, would be entrepreneurs. But again the desirable qualities of Western capitalism are confirmed; while everyone is given the opportunity to become a capitalist, work and material sustenance are given to those less successful in the race. Implicitly, therefore, there has always been a strong undercurrent of thought in Western countries – especially in the United States – which claims that the low-paid are, in many ways, intellectually inferior to others. By contrast, entrepreneurs embody society’s greatest virtues; they are ‘enterprising’ and the pioneers of economic progress. Further, they are ‘generous’ people; witness their much publicised acts of benevolence and charity.⁸

Such, then, is the popular image of the early entrepreneurs as it persists today. Indeed, this essentially ‘romantic’ view has been able to withstand the criticism that the material fortunes of the few are built upon the exploitation of the many. But to regard entrepreneurs as exploiters goes against the grain. In the folklore of the middle classes in the West, the ideological battle between nineteenth-century entrepreneurs and the twentieth-century critics has been lost – by the critics.

But where are the entrepreneurs of contemporary capitalism? Despite their romantic appeal how important are they as an economic force? Many would argue that corporatism not only in Britain but throughout the Western world has destroyed the opportunities for entrepreneurial endeavour. While ‘structural rationalisation’ has reinforced the domination of large-scale business corporations, the social democratic path – favoured until recently by politicians of both major political parties – has strengthened the pow...

Table of contents

• Cover
• Title
• Copyright
• Original Title
• Original Copyright
• CONTENTS
• Preface
• 1. The ‘Crisis’ and the Role of Small Businesses
• 2. Small Business Owners in the Modern Economy
• 3. People Who Start Their Own Businesses
• 4. Taxation, Personal Incentive and Business Growth
• 5. The Managerial Problems of Business Owners
• 6. Coping with the Market
• 7. Family, Consumption and Styles of Life
• 8. What’s Wrong with Britain? Business Owners’ Attitudes on the State and Economy
• 9. Business Experience and Personal Beliefs: Five Portraits
• 10. Conclusions