Paths of Enterprise: The Future of Small Business [1 ed.] 0415057892, 9780415057899

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Paths of enterprise

After the dramatic flourishing of small-scale enterprise in the 1980s can the coming decade support and sustain the small business? The socioeconomic restructuring of Britain allowed small businesses to thrive but the way ahead looks less than favourable. Factors such as demographic change and technological developments threaten the economic future of the small firm. The analyses provided by this collection give an insight into the rapid expansion that has taken place in small-scale enterprise, and they pinpoint the key issues for the future. While some areas, such as banking, are slowly adapting positively to the increase in small businesses, other factors, like the changing structure of the labour force are likely to erode the stability of the small-scale enterprise. This book shows that new policies need to be developed to ensure that the small firms receive the support they need to succeed in an environment where the risks are increasing. The contributions from well-known academics look at the area from economic and sociological standpoints and cover topics such as ethnic minorities, working from home, gender, franchise relationships and cultural issues. The book will be essential reading for students of smallbusiness studies as well as for policy makers, enterprise agencies, lobby groups and anyone wanting to assess the climate ahead for small-scale enterprise. James Curran is Midland Bank Professor of Small Business Studies at Kingston Polytechnic and Robert A.Blackburn is Midland Bank Research Fellow and Senior Lecturer in Industrial Relations at Kingston Polytechnic. Both editors have worked extensively in the area of smallbusiness research.

SOCIAL ANALYSIS A series in the Social Sciences Edited by Richard Scase, University of Kent Beyond Class Images: Explorations in the Structure of Social Consciousness Howard H.Davies Fundamental Concepts and the Sociological Enterprise C.C.Harris Urban Planning in a Capitalist Society Gwyneth Kirk The State in Western Europe Edited by Richard Scase Autonomy and Control at the Workplace: Contexts for Job Redesign Edited by John E.Kelly and Chris W.Clegg The Entrepreneurial Middle Class Richard Scase and Robert Goffee Capitalism, the State and Industrial Relations: The Case of Britain Dominic Strinati Alcohol, Youth and the State Nicholas Dorn The Evolution of Industrial Systems Timothy Leggatt Sociological Interpretations of Education David Blackledge and Barry Hunt Sociological Approaches to Health and Medicine Myfanwy Morgan, Michael Calnan and Nick Manning School Organisation: A Sociological Perspective William Tyler Entrepreneurship in Europe Edited by Robert Goffee and Richard Scase The Theory and Philosophy of Organizations: Critical Issues and New Perspectives Edited by John Hassard and Denis Pym

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Small Business and Society David Goss Deciphering the Enterprise Culture Roger Burrows

Paths of enterprise The future of the small business

Edited by

James Curran and Robert A.Blackburn

London and New York

First published 1991 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” Simultaneously published in the USA and Canada by Routledge a division of Routledge, Chapman and Hall, Inc. 29 West 35th Street, New York, NY 10001 © 1991 James Curran and Robert A.Blackburn, Paths of enterprise and chap. 9 © Roger Burrows, chap. 1 © John Stanworth and Celia Stanworth, chap. 2 © Robin Ward, chap. 3 © Alan Felstead, chap. 4 © Steve Johnson, chap. 5 © Sheila Allen and Carole Truman, chap. 6 © Ray Oakey, chap. 7 © Martin Binks, chap. 8. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data Paths of enterprise : the future of the small business.— (Social analysis). 1. Small firms I. Curran, J. (James) 1936– II. Blackburn, Robert A. 1957– IV. Series 338.642 ISBN 0-203-97695-9 Master e-book ISBN

ISBN 0-415-05788-4 (Print Edition) ISBN 0-415-05789-2 pbk Library of Congress Cataloging in Publication Data Paths of enterprise : the future of the small business/edited by James Curran and Robert A.Blackburn. p. cm.—(Social analysis series) Includes bibliographical references and index. ISBN 0-415-05788-4 (Print Edition).—ISBN 0-415-05789-2 (pbk.) 1. Small business—Great Britain. I. Curran, James. II. Blackburn, Robert A., 1957– III. Series. HD2346.G7P38 1991 338.6 42 0941–dc20 90–47817 CIP

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Contents

List of figures

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List of tables

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Contributors

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Preface Introduction James Curran and Robert A.Blackburn

xiii 1

1

The discourse of the enterprise culture and the restructuring of Britain: a polemical contribution Roger Burrows

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2

Enterprise 2000: workbase the electronic cottage? John Stanworth and Celia Stanworth

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3

Economic development and ethnic business Robin Ward

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4

Facing up to the fragility of ‘minding your own business’ as a franchisee Alan Felstead

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5

Small firms and the UK labour market: prospects for the 1990s Steve Johnson

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6

Prospects for women’s businesses and selfemployment in the year 2000 Sheila Allen and Carole Truman

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7

Government policy towards high technology: small firms beyond the year 2000 Ray Oakey

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8

Small businesses and their banks in the year 2000 Martin Binks

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9

Changes in the context of enterprise: some socioeconomic and environmental factors facing small firms in the 1990s James Curran and Robert A.Blackburn

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Index

191

Figures

2.1 A typology of home-based work 2.2 A typology of home-based workers 2.3 Summary of homeworking/telecommuting examples in the UK 3.1 Business participation and unemployment rate 5.1a Manufacturing employment by firm size, 1971–86 5.1b Percentage of manufacturing employment in small firms, 1971– 86 5.2 DES projections of new graduates and ‘A’ level holders, 1980– 2000 5.3 VAT registrations, 1980–95 7.1 A complete product life-cycle model 9.1 Emerging patterns of flexibility

36 37 46 58 88 88 95 108 130 168

Tables

3.1 Ethnic minorities: business participation rates 4.1 Business format franchisors: set-up costs, licence fees and royalties 4.2 ‘Minding your own business’ as a franchisee: the high and low points along the continuum 5.1 Self-employment as a proportion of total employment: model estimates, 1966–86 5.2 Recruitment difficulties by industry, size, age and location 5.3 Recruitment difficulties by type of worker 5.4 Factors influencing employment change, 1985 5.5 Factors influencing employment change, 1985–8: responses to unprompted question 5.6 Factors influencing employment change, 1985–8: responses to prompted question 5.7 UK manufacturing employment in small firms in 1995: three scenarios 5.8 Birth and death rates of VAT-registered businesses in the 1990s: three scenarios 5.9 Trends in VAT registrations in the 1990s. Scenario 1: average birth and death rates 5.10 Trends in VAT registrations in the 1990s. Scenario 2: high birth rates, low death rates 5.11 Trends in VAT registrations in the 1990s. Scenario 3: low birth rates, high death rates 7.1 The regional distribution of firms employing sales representatives 7.2 Main source of investment finance 1981–2 and 1985–6 (by region) 9.1 Number of people in self-employment 1980–8 and VAT registrations 1981–9 (000s) 9.2 Distribution of self-employed by industrial sector, 1984 and 1989 9.3 Use of subcontractors

57 70 82 91 97 97 98 99 99 105 107 107 107 107 131 132 161 171 172

Contributors

Sheila Allen is Professor of Sociology at the University of Bradford and a former President of the British Sociological Association. She has researched and published extensively in the areas of work, employment, gender and race and ethnic relations. She is currently director of a study of women and business enterprise. Martin Binks is Lecturer in Economics in the Department of Economics, University of Nottingham. He has been actively engaged in research on small firms since his work on that subject for the Wilson Committee in 1978. More recently his research has focused upon financial constraints confronting new and small firms and in particular the relationship between small firms and their banks. Robert A.Blackburn is Midland Bank Fellow in Small Business Studies at the Kingston Polytechnic Business School. He has been involved in several research projects on the small business, most recently on the attitudes of young people to enterprise. He is currently involved in research on local economy networks and ethnic small businesses as well as a large-scale ESRC survey of small services sector businesses. Roger Burrows is Principal Lecturer in Sociology at Teeside Polytechnic. He is editor of Deciphering the Enterprise Culture: Entrepreneurship, Petty Capitalism and the Restructuring of Britain, Routledge, 1990, and the author or co-author of a number of articles, chapters in books and reports on the sociology of small-scale capital accumulation. James Curran is Midland Bank Professor of Small Business Studies at the Kingston Polytechnic Business School and Director of the ESRC Centre for Research on the Small Service Sector Enterprises. He is a long-established, internationally known researcher on the small enterprise in Britain and has written extensively on the subject in both bookand article form. Alan Felstead is a Research Officer at Nuffield College, Oxford. He is currently directing a research project on the nature of the franchiseefranchisor relationship, focusing upon a number of detailed case studies as well as a more general review of how franchising is practised both domestically and internationally.

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Steve Johnson is Senior Lecturer in the Department of Economics and Public Policy, Leeds Polytechnic. He is also attached to the Policy Research Unit, researching into local economic development. He is widely known for his work on small firms and labour markets and as a major contributor to the debate on the small enterprise and job generation. Ray Oakey is Senior Lecturer at the Heriot-Watt University Business School in Edinburgh. His research interests include the problems of innovation in high technology small firms, the impact of technological change on regional development, and technological change in Eastern Europe. Celia Stanworth is a researcher with the Future of Work Research Group at the London Management Centre at the Polytechnic of Central London. She was formerly a Higher Executive Officer at what is now British Telecom, specializing in the field of personnel management, and has been a management lecturer for twelve years. John Stanworth is Professor at the Polytchnic of Central London and Director of the Future of Work Group at the London Management Centre. He began researching in the field of small business some twentyfive years ago and has been Director of the Small Business Research Trust since 1985. Carole Truman is a Lecturer in Social Policy in the Department of Applied Community Studies, Manchester Polytechnic. She was formerly a Research Fellow undertaking a study of women and business enterprise, funded by the Leverhulme Trust. She has researched and written on many aspects of women’s employment including equal opportunities, flexible work and women returners and new technology. She has a particular interest in the competing demands of paid and unpaid work. Robin Ward is Professor of Corporate Strategy and Head of the European Business Centre at the Nottingham Business School, Nottingham Polytechnic. He has researched and published widely on the subject of ethnic minorities in business and has recently completed a study of ethnic enterprise agencies in the United Kingdom. His current research interests include corporate strategies in the textile industry in Europe and competitive advantage in small firms.

Preface

This book had its origins in a two-day workshop which took place in September 1989 in a hotel in Richmond-upon-Thames, just outside London. ‘The Small Enterprise in the Year 2000’ workshop was organized by the Small Business Research Unit of the Kingston Polytechnic Business School and was sponsored by the Midland Bank plc. The workshop brought together policy-makers, those involved in helping and funding small firms, and leading academic experts on the small business to discuss the future of the small business in the United Kingdom in the years up to 2000 and into the next century. Just over twenty-five people took part in the workshop over the two days, including representatives from the Department of Employment, the Confederation of British Industry, the Midland Bank, the UK’s leading small business consultants, staff of enterprise agencies and academics from over a dozen universities and polytechnics. During the two days the participants heard initial versions of the nine chapters in the book and spent a good deal of time discussing each in depth. Out of these deliberations and the further thinking of the authors themselves came the present book. Because we had the opportunity of being able to invite some of the most knowledgeable and experienced observers of the small business sector in the United Kingdom, we believe the book presents the most detailed assessment to date of the way the small business sector in Britain is likely to develop and the changes in the environment it is likely to face, over the next ten years or so. We are grateful to those who took part in the workshop for their contributions and especially to the authors of the papers upon which the chapters of this book are based. They have stuck their necks out and committed their predictions of the future to cold print—something academics are usually loath to do and occasionally if not often, live to regret. Finally, we would like to express our gratitude again to the Midland

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Bank for their very generous support of the workshop and the larger research programme of which it formed a part. James Curran and Robert A.Blackburn Kingston Business School Kingston Polytechnic

Introduction James Curran and Robert A.Blackburn

The remarkable renaissance of the small business sector in Britain in the 1980s has now been widely documented. Self-employment, for example, rose from under 2m in 1979 to almost 3.5m in 1989 according to Labour Force Survey data (Department of Employment, 1990). Similarly, the number of firms registering for VAT between 1979 and the end of 1988 rose by 285,000 or around 22 per cent, accelerating towards the end of the decade so that by 1988 they were increasing by 1,200 a week.1 It is worth stressing that the dramatic expansion in the small enterprise sector in Britain was as historically unexpected as it was remarkable. From the late 1930s to around the mid-1970s there was a long-term, seemingly inexorable decline in the numbers of small firms and self-employed in Britain and in most other industrial societies. This decline was seen as an indicator of economic progress itself: as industrial societies matured, it was asserted, the small business sector gradually withered before the advance of the super-efficient large firms enjoying ever-increasing economies of scale (Committee of Enquiry on Small Firms, 1971). Looking back on the 1980s, some of the reasons suggested for the reversal of the apparently inescapable historical downward trend in the fortunes of the small business have become widely accepted while others have provoked controversy. First, among the less controversial reasons offered are the changes in the economy itself. The mammoth economic restructuring which has so greatly reduced the size of the primary and manufacturing sectors and led to expansion in services and knowledgebased activities, has greatly increased opportunities for self-employment and small businesses. Barriers to entry and levels of concentration are not only lower in newer sectors of the economy but economies of scale are nothing like as evenly spread or pronounced overall as in older areas of the economy (Burrows and Curran, 1991). Second, several writers have noted the severe recession which went with restructuring in the early 1980s, generating high levels of insecurity as well as unemployment. Recession releases resources—people, plant and funds— and causes larger firms to retreat from some markets (Binks and Jennings, 1986). This offers openings for new firms to try to combine resources and

2 JAMES CURRAN AND ROBERT BLACKBURN

market opportunities profitably. For many, self-employment was an alternative to unemployment or the threat of unemployment (Bevan et al., 1989; Meager, 1989). Government claims that it has helped greatly in the revival of the small enterprise by expanding advice and financial aid to those who start up on their own and more generally by proselytizing hard for a free enterprise economy with self-employment and the small business as the direct expression of such an economy (Edmonds, 1986; Bright, 1987; Dept. of Employment, 1989). Working for yourself has thus become an ambition shared by many of the most able and go-ahead members of society, and government claims it has broken down the barriers to enterprise to allow them to realize their dreams. The link between levels of self-employment and unemployment and insecurity is widely accepted, though some doubts have been expressed about the importance of unemployment as a ‘push’ factor leading people to enter self-employment (Hakim, 1988:431). The significance of government attempts to promote a new ‘spirit of enterprise’ or enterprise culture backed up with aid and advice has promoted much more controversy (Ritchie, 1987; Curran, 1987; Burrows, 1990). The extent to which these influences have led to a substantial rise in levels in selfemployment is much more difficult to estimate and frankly some are doubtful. Third, in many of the longer established areas of the economy there have been changes in managerial strategies and technology which have been argued to have had the effect of enhancing opportunities for smallscale economic activities. A fashionable managerial strategy in the 1980s was for companies to concentrate much more on their core activities and subcontract other activities and even parts of their core activities. Companies, it was argued, should concentrate on what they were best at doing and rid themselves of what others could do better and more cheaply. Catering, cleaning, security and training activities became increasingly subcontracted (Atkinson, 1985; NEDO, 1986). This large enterprise strategy change resulted in more opportunities for smaller firms and individual self-employment. Again, however, doubts have been expressed on the exact increase and importance of subcontracting for small firm creation (Pollert, 1988). New technology is seen to have played a particularly important role in manufacturing—and not only in the form of the high tech small firm—in producing more opportunities for small-scale production. Computer-based flexible production systems, it has been argued, have replaced older, inflexible mass production systems and can be housed in geographically dispersed smaller sized establishments or firms operating as networks of production (Piore and Sabel, 1984; Scott, 1986; Shutt and Whittington, 1987). More crudely, production systems of this kind have been summed

INTRODUCTION 3

up under labels such as the ‘post-Fordist economy’ (to designate the shift away from large-scale mass production systems supposedly pioneered by Henry Ford) or ‘the Benetton economy’ since this company’s operations are often seen as a type case of the way the new flexible economy functions (Murray, 1985). Yet again this thesis has had doubts expressed about its adequacy as a model of the economy emerging for the 1990s. The flexible production thesis has been increasingly questioned, particularly in relation to the UK economy but also for other industrial societies (Storey and Johnson, 1987; Amin, 1989; Rainnie, 1989) and hence its strength as an explanation for the increase in small business numbers in the 1980s is also in doubt. In short, it is accepted that the small business sector has assumed a new unforeseen importance in Britain’s economy in the last ten years; but why and how this trend is likely to develop is more controversial. Few of the explanations offered have received wholehearted acceptance. In the rest of the book several of these explanations are scrutinized in detail for the indications they provide on how the small business sector will fare in the next ten years or so. In addition, however, there are emerging factors or other events already foreseen whose significance for the small enterprise sector needs assessment. For example, there are clear-cut demographic changes which will affect labour markets considerably in the 1990s—something which is examined in depth in two chapters in the book. The open European market may also be expected to have an impact and again this is something addressed later. These changes to come have to be integrated into a wider analysis of the future of the small business with the factors outlined above, in order to arrive at a balanced assessment. In the opening chapter, Roger Burrows goes straight to the heart of the ideological and political aspects of the small enterprise revival in a penetrating examination of what he calls ‘the discourse of the enterprise culture’. What has been the impact of the much vaunted ‘enterprise culture’ on real decisions to set up and run small businesses or opt for selfemployment and what will its influence in the future be? Those on the right have seen the enterprise culture as the keystone of a shift away from a ‘dependency culture’ towards a wider introduction of business and market values throughout society, but their critics have challenged this interpretation. The usual implied causality between culture and economic structure, is, in fact, difficult to establish in any rigorous fashion, and in any event, there is little evidence of any widespread commitment to right-wing versions of the enterprise culture among those in self-employment over the last decade or so (Curran, 1987; Hakim, 1988). Burrows instead opts for a much more sophisticated interpretation of the connections between the

4 JAMES CURRAN AND ROBERT BLACKBURN

enterprise culture and the revival of the small enterprise which fits the available evidence much more snugly. As he points out, although economic change is perpetual, there are periods of exceptionally radical and rapid change. The 1980s was indisputably one such period. Traumatic economic and social changes require interpretation and managing if those affected are to make sense of their experiences and survive them successfully. Such interpretations are cultural phenomena which do not have any neat logical or necessary relationships with the economic changes they purport to ‘explain’. In other words, any given set of changes may be interpreted through a variety of ideological frameworks. The particular formulations of the ‘enterprise culture’ which dominated political discourse in the 1980s were a contingent set of ideological practices which formed part of a larger cultural set which included an emphasis on the ‘market’, the inevitability of market-driven change, and business models of the welfare state. The enterprise culture, in short, was a rationalizing vocabulary whose principal role was to aid the successful achievement of change in a period of acute economic insecurity. Its sources were an imaginary golden past—the nineteenth-century entrepreneurial society and economy—and the need to generate ideas to cope with change. Burrows goes on to suggest that the reason why the enterprise culture is found so rarely among those who might be expected to embody it in their everyday realities, is that its main function was not to serve the needs of small business owners but the wider concerns outlined above. He argues that, ideologically, the enterprise culture will be perceived as increasingly inappropriate in the 1990s as concerns with collective issues—especially those to do with the environment—become more urgent in the public mind. The individualistic and market emphases of the enterprise culture offer a poor interpretation for coping with issues of these kinds. If Burrows’s thesis is accepted, what does this mean for the future of the small enterprise? What it would seem to imply is that apart from the increased consciousness of self-employment as a career alternative, the enterprise culture is not really that important to the small business or its future. The urge to own a small business did not suddenly appear out of nowhere in the 1980s but was quite a widespread aspiration in the 1960s and 1970s (Goldthorpe et al., 1968; Curran, 1978). Aspirations require opportunities and favourable conditions for their realization and it is the latter which are far more important to predicting how the small business will fare in the future. Another much discussed development in the 1980s was the advent of the tele-commuter working from the ‘electronic cottage’ or at least from home. Increasingly, it was argued, people would no longer need to go into crowded urban centres wasting time travelling on busy roads or unreliable

INTRODUCTION 5

public transport to do their work. New technology would make it possible to live almost anywhere and still contribute effectively to the economy. The economy itself would be restructured to allow this change in work patterns. One forecast, from the respected Henley Centre for Forecasting (1988), for example, suggested that 4m people would be tele-commuting by 1995. Celia and John Stanworth in Chapter 2 examine the prospects for an increase in homebased working in the future, much of which could be in the form of the self-employed working as ‘one person enterprises’ or in a partnership with a spouse or even with friends or neighbours. As they point out, homebased working is very far from new and has an enormous variety of forms from making stuffed dolls to systems analysis. Of late, it has been the more glamorous, high tech forms of homeworking which have received attention rather than the older ‘home sweatshop’ varieties. Older forms often involve mainly women—particularly those who find it difficult to work full-time in the formal economy because of domestic ties— whereas the newer varieties are more evenly shared between the genders. One reason why homeworking has received more attention in recent years is that it is a form of flexible production or an example of subcontracting which, as noted earlier, became fashionable management strategies in the 1980s. For larger firms, it is often a cheaper and more efficient use of labour involving fewer overheads than employing people directly. However, homeworking is only suitable for certain kinds of jobs— mainly those which can be broken down into discrete tasks, whose output can be measured easily and where there is no need for an on-site presence on the part of the worker. There are many such jobs but equally there are many that do not fit this description. It is usually assumed that people will leap at the chance to become members of the homebased self-employed but Stanworth and Stanworth suggest that there are downsides as well as the more widely touted advantages. Hours can be long and the job may have to fit in with domestic commitments for women, making the day longer still. Homeworking needs self-discipline and can be isolating for those who value the social interaction accompanying conventional forms of employment. It may also result in getting out of touch with others in the host organization or not keeping up with latest developments in the relevant area of the economy. For the ambitious, homebased self-employment may not always be perceived as a favoured career strategy. It may be seen as a dead end where there are few opportunities for growing the business, and it reduces the chances of getting ahead in the host organization because those working away from the centre of the organization become marginalized. The ethnic-owned small business has become a highly visible and expanding form of small enterprise over the last decade or so in Britain. In fact, statistically, ethnic-owned businesses are only a small part of the

6 JAMES CURRAN AND ROBERT BLACKBURN

small business population in Britain, about 10 per cent of the total (Curran and Burrows, 1988). On the other hand, overall, non-white ethnic minorities show a higher propensity to go into business for themselves than whites: about 16 per cent of non-white ethnic minorities are self-employed compared with 12 per cent of whites (Dept of Employment, 1989:13). Whether this tendency will continue in the future is therefore an interesting question. Robin Ward examines the likely contribution of ethnic minorities to the future of the small enterprise in Chapter 3. He looks closely at the types of business and market situations of ethnic businesses rather than at the supposed special propensities of ethnic minority members for entrepreneurship. He brings out very clearly the differences between the types of business typically engaged in by different non-white minorities such as Asians and Afro-Caribbeans. Overall, he argues that although AfroCaribbeans have shown a lower propensity to enter into business than those from several Asian minorities, paradoxically, their businesses may have greater potential to break out of the limitations of ethnic markets. More important, Ward feels that the younger age structures of nonwhite minorities are favourable to more of their members going into business ownership in the future. Future generations among ethnic minorities will achieve higher levels of education (especially Asians) and should find British society more tractable. But because of the endemic racism of British society they will find it hard to desert the small businesses of their parents for the rewards of conventional employment and the professions, even if they want to do so. Instead, the result is likely to be more effective small business owner-managers and larger, more successful ethnic-owned businesses. One of the fastest-growing forms of small business in the 1980s was the franchised outlet—an independent business run in close association with another host business, the franchisor, to a blueprint developed by the latter. There are problems in defining just what constitutes a franchise arrangement, but using an apparently tightly drawn definition, one estimate is that the number of franchised outlets doubled between 1984 and 1988 to 16,000 employing over 180,000 people (The NatWest/British Franchise Association Survey, 1988:6). Others would argue that franchise businesses are much more common than this over-restrictive definition implies. For example, Hough (1986:11) using a more embracing definition than that used by the British Franchise Association, suggests that the total in 1986 was already much closer to 85,000–90,000 outlets. One major problem here is deciding to what extent the franchised small business is a genuinely independent enterprise.2 Some see it as a sheltered form of small business but nevertheless a genuinely independent business despite close associations with the overseeing franchisor (Stanworth et al., 1984). Alan Felstead in Chapter 4 is much more doubtful, especially

INTRODUCTION 7

about the future, arguing that the franchise relationship is often unstable. Franchisors not infrequently attempt to dominate their nominally independent franchisees through a unilateral redefining of the contractual relationship supporting their efforts with tough sanctions to ensure franchisee compliance. The loss of franchisee independence is most likely to happen where new technology allows the franchisor to, in effect, deskill the procedures which are at the heart of the franchise outlet’s business. This converts the ostensibly independent franchise into a low discretion operation, capable of being performed by almost anybody following a strictly enforced manual of operation devised by the franchisor. One implication of Felstead’s analysis is that new technology may well offer more opportunities for shifting existing and future franchises towards this low discretion pattern and hence reduce the real levels of independence of franchisees and opportunities for small-scale economic independence in the future. One of the strongest influences on the prospects for the small business and self-employment will be the much talked about demographic changes expected in Britain and most other industrial societies over the next few years. Demographic changes are not easy to interpret since their impact is not simply a matter of numbers but also of human decisions. For instance, the number of young people entering the labour market over the next few years is expected to decline sharply because of low birth rates in the early 1970s but could be reduced still further, if, despite the introduction of student loans, larger numbers of young people decide to enter full-time further and higher education. Steve Johnson in Chapter 5 brings an economist’s skills to estimating the impact of demographic change on levels of self-employment. Basically, his view here is that the decision to go into self-employment turns on its relative attractions when compared to the alternatives. In the early 1980s, for example, increasing levels of unemployment and job insecurity made self-employment more attractive than it had been for many years. Over the next few years, however, Johnson does not expect the attractiveness of selfemployment to be maintained: labour and skill shortages will push up the rewards offered by employers and hence, the attractiveness of working for others. Demographic change will also hit small firms as employers. The price of labour will be bid up and larger firms have more resources than small firms to attract the labour they need. They have a particular advantage in terms of fringe benefits, since larger firms can usually offer a wider and more generous package than smaller enterprises. Data from the late 1980s, argues Johnson, show that these problems for small firms have already appeared. The major addition to the labour force over the next few years is expected from women entering the labour market—in fact, women are

8 JAMES CURRAN AND ROBERT BLACKBURN

expected to form 90 per cent of the 1 m increase between now and the year 2000 (Employment Gazette, 1989:159). On the face of it, this should help small firms who are concentrated in services and employ large numbers of women. But again, larger firms will also be interested in recruiting women and again will be able to outbid smaller firms. All in all, therefore, Johnson is pessimistic about the impact of labour market change on the self-employed and small businesses. Small business ownership and ‘entrepreneurship’ have often been seen as exclusively male and certainly it is true that men are much more strongly represented among the self-employed than women. Labour Force Survey data for 1989, for example, indicates that women constitute rather less than one in four of the self-employed and are much more likely to be part-time self-employed as compared to men (Dept of Employment, 1990: Table 3). But these statistics hide a striking increase in women entering self-employment in the recent past: between 1979 and 1988 the number of self-employed women doubled compared with an increase of less than 50 per cent among men (Dept of Employment, 1989:13). As Allen and Truman point out in Chapter 6, the leading growth sectors of the economy are now in services and other non-manufacturing activities, the very areas where women have been most likely to be employed in the past and where many of their gender attributes are assumed to make them especially suitable. For instance, women are thought to be particularly suited to caring activities which should increase sharply in the future as the population ages. Women have gained more economic confidence both as employees and employers in recent years and this has produced more visible and positive role models for other women to follow. Yet, Allen and Truman argue, over-optimism is all too easy about the prospects for women as self-employed and small business owners. Despite the spectacular increases in the 1980s, women are still very much a minority among the self-employed and men may well grab a larger share of the new opportunities emerging. Moreover, women’s domestic commitments have not declined and there is little prospect of them doing so in the future. As recent debates in Parliament and the media show, the argument that women should concentrate on their family and child care commitments remains strong. An ageing population and less stateprovided care for the elderly means more rather than less domestic commitments for women. A breakthrough in women’s participation in the economy including gaining a bigger share of self-employment, would require not only more support from government in the form of more state-provided care for children and dependent relatives but also more opportunities in the economy itself. For instance, women would need to enter self-employment and small business ownership in manufacturing as well as consolidate their

INTRODUCTION 9

presence in services. Overall, Allen and Truman are at best only mildly optimistic that women will gain further ground in their share of the small business sector. One area of small enterprise which has received a disproportionate amount of attention from the media and politicians as well as others, is the high tech small firm. Phrases such as the ‘Cambridge Ring’, ‘the M4 Corridor’ have been used to sum up concentrations of mainly small, high tech firms allegedly spearheading Britain’s manufacturing rejuvenation for the rest of this and the next century. Ray Oakey in Chapter 7 argues that there is now enough evidence to assess whether these hopes are likely to be fulfilled and his conclusion is that the chances are low. The main culprit for this failure in Oakey’s view has been government. Whereas government has been keen to offer resources to promote the small enterprise sector generally, in the high tech area it has allowed its predisposition for market forces to dominate. But high tech is high risk and demands huge resources for research and development. Small firms have found it difficult to garner the resources needed for research and development from private sources such as venture capital institutions. Hence, they have often found it difficult to beget new products fast enough just to stay in business, let alone become the new pacemakers of manufacturing. An alternative model for how the high tech small firm might be cultivated more successfully is provided by Japan, according to Oakey. While Japan is clearly a market-based economy, it does not display the unseeing trust in competition of recent UK governments but recognizes that the market needs bolstering in economically important areas of high risk and expensive R and D with long-term loans and research support. Oakey argues that the US initially adopted a market approach to the development of high tech firms but has gradually and surreptitiously moved closer to the Japanese model in recent years. The prospects for the future of high tech small firms therefore depend on a policy shift towards selective support of those areas of the economy which must develop if Britain is to remain a technologically advanced industrial society. They frequently cannot find resources in the private sector because of the latter’s short termism, where returns must come quickly. If the policy shift does not occur, it is not only the high tech sector which will fall further behind. Manufacturing generally and many nonmanufacturing areas will also deteriorate because the level of technological sophistication and capital resourcing required for economic success is rising rapidly right across the economy. One of the great love-hate relationships in the UK economy is that between small businesses and the high street banks. On the one hand, the banks provide by far the bulk of external funds employed by the small enterprise sector. Large firms can seek funds from a wide range of sources

10 JAMES CURRAN AND ROBERT BLACKBURN

but small firms are very much more restricted. On the other hand, research on small business owner attitudes to the high street banks shows distrust and a failure to understand how banks work. In recent years the banks have made great efforts, particularly through advertising and new ways of packaging their services to small firms, to build closer relations with the small enterprise sector. Martin Binks has made a special study of the relations between financial institutions and the small business and in Chapter 8 he looks at the prospects for further improvements in their relations and a more efficient financial climate for small enterprise. As he points out, historically the banking system in Britain developed differently than in other modern industrial societies. In Germany and Japan, for example, banks have evolved an ‘industrial banking’ style, that is, they are much more closely involved with business providing equity and long-term investment and not just the rather limited services and ‘hands off’ approach to business customers typical of UK banks. In the UK, bank lending to small businesses is largely based on the carcase value of the business, that is, what would be realized if the business’s tangible assets were sold. In other countries there is more emphasis on the income-generating potential of a business as a basis for lending. This requires the bank to have close knowledge of both the business and the sector of the economy in which it operates. As the European open market becomes a reality, business in Britain will suffer from having a less business-aware banking system at the local level. Binks points out that since the early 1970s there has been a slow shift towards greater competition among the high street banks in the UK. But this tendency has not become very well developed, in spite of the enormous increase in advertising and attempts at offering a range of services more suited to the needs of the small business. The similarities between the banks far outweigh any real differences and where new ideas are introduced they are soon copied by the competition. Looking forward to 2000 and beyond, Binks argues that the small firm sector is becoming a more important source of profits for the high street banks as the personal and corporate banking sectors become more competitive. Closer relations will emerge as the banks explore further how better to understand their small firm customers. For instance, the banks already collect vast amounts of information on the economy and industry which could offer the foundation of a business intelligence service for their small business customers as well as more refined lending criteria. New products are also likely to be introduced by the banks to extend their range of services or improve existing services. But Binks believes that the changes will only come about very slowly. The high street banks have deeply engrained cultures and large staffs whose attitudes need to change; moreover small firms are expensive to service because there are so many

INTRODUCTION 11

and they are so varied. In the short term, therefore, he does not expect dramatic improvements in the relations between small businesses and the banks, though the long term does hold some hope. In the final chapter, Curran and Blackburn introduce some further major issues influencing the future of the small business and they also re-explore some of the themes introduced in earlier chapters, offering some different interpretations to those proffered earlier. They begin with a reprise of the impact of demographic changes on the small enterprise sector, surveying a number of aspects not explored by Johnson in Chapter 5. For instance, they note that the ‘age launch window’ for small business start-up and entry into self-employment is broadly the 25 to 44 age range. The size of this age group is going to increase rather than decrease over the years up to 2000. There will also be an increase in the numbers of those in older age groups—especially among the retired who are now much fitter physically than the retired of earlier generations. More important, cultural definitions of what older people can contribute have also changed—they are expected to be more active and a second career is now becoming more usual. Selfemployment may well be attractive as a second career: perhaps even the realization of a long-held desire. In other words, while labour shortages may cause employers to try to retain employees much more than in recent years, nevertheless the supply of prospective small business owners and the self-employed might well be maintained. Although as Burrows in the opening chapter argued, the importance of the enterprise culture in stimulating higher levels of selfemployment may have been exaggerated, there is little doubt that awareness of self-employment opportunities is not only greater than it was before 1980 but is also viewed much more positively, particularly among the better educated. However, this final chapter concentrates mainly on two areas not explored in detail in previous chapters—economic restructuring and changes in culture and lifestyles—and their implications for the future of the small business. Economic restructuring was a boom area for theory and research in several social sciences in the 1980s (Curran, 1990; Burrows and Curran, 1991). Indeed, it has now become so complex that there is a danger of the debates about the theories and interpretation of research findings obscuring the actualities they seek to explain. Briefly, restructuring theories share the idea that a profound set of economic structural changes has been taking place in all industrial societies, with the possible exception of Japan whose economy already has many of the characteristics of the economies thought to be now emerging in Western capitalist societies. The shift from manufacturing and extractive industries to services and knowledge-based activities and the impact of new technology in manufacturing, has led to the reemergence of the small economic unit and its importance for the economy. There are a

12 JAMES CURRAN AND ROBERT BLACKBURN

several theories and models of the processes of restructuring but all give the small enterprise a more central place in the economy. The overall conclusion is that these changes are positive for the future of the small business in advanced industrial society. The other set of issues addressed in detail in this chapter is the social and cultural changes which are becoming more and more apparent and which also have big implications for the small business. Burrows in the opening chapter discussed the significance of the enterprise culture but there are other wider changes in culture which are also important. One fashionable, if vague label for these changes is ‘Post-modernism’ (Connor, 1989; Harvey, 1989). The latter refers to changes in art (including popular culture such as music and video) and architecture, which also have parallels in consumption and lifestyles. One important result is a fragmentation of taste and consumption patterns. No longer does mass consumption dominate in the way that it did in the 1950s and 1960s: now the emphasis is much more on niche or ‘positional’ goods, that is, consumption which marks off the individual and group from others in society. Further, changes in taste and consumption patterns are now much swifter for all classes and age groups. Post-modernist culture and consumption patterns again have very positive implications for the small firm sector of the economy. The fragmenting and increasingly rapid turnover of consumption requires production to respond quickly to change. Small firms have a better track record than larger enterprises on these counts. Perhaps more realistically, what is likely to happen is a new symmetry between small and large firms in the economy. In the past smaller enterprises often struggled, frequently unsuccessfully, to compete with larger firms and found themselves pushed to the peripheral areas of the economy where profits were harder to earn and life much less secure. In the restructured Post-modernist economy, competition is on a more equal footing: small firms can outperform their large counterparts in some respects while larger firms retain some of the advantages of size. The fashion industry probably provides the best example of this mixed small-large pattern. High street retailing has become dominated by large chains but the goods they sell are still produced largely by smaller enterprises able to respond much more quickly to changes in fashion and consumption. The outlook for the small enterprise sector which emerges from the chapters in this book is therefore rather mixed. The exceptionally favourable combination of factors which produced a remarkable rebirth in the 1980s as the numbers of those entering self-employment and the numbers of new business registrations confirmed, do not look like continuing over the next decade. As each of the chapters has argued, many of the previously positive factors seem likely to go negative or at least lose a good deal of their positive force.

INTRODUCTION 13

What should be stressed very strongly, however, is that none of these predictions of harder times ahead for the small business owner and selfemployed should be taken to suggest a decline in the small enterprise sector in the UK. First, the enormous resilience of those who own and run small businesses or work for themselves has been demonstrated overwhelmingly in Britain’s past. Even in the mid-years of the century, when times were undoubtedly bleak for the small business, they still managed to survive and in numbers which came as a surprise to so many social scientists and politicians who dismissed them as remnants of the past, doomed to disappear as the economy developed. Further, the positive factors supporting the small enterprise sector identified in the earlier chapters may be few but they are likely to be powerful. For instance, economic restructuring is likely to penetrate every area of the economy, overturning the comfortable dominance of large firms and offering new openings for smaller enterprises. Cultural and lifestyle changes with their implications for consumption and marketing of goods and services are unlikely to revert to past mass consumption patterns. The appeal of ‘going it alone’ economically is now culturally salient to increasing numbers of the workforce, and larger enterprises are going to have to put together very attractive packages to counter this appeal. So, overall, a balanced assessment must be that at the margin the small business sector will find the going a good deal tougher than it has in the recent past. Expansion in the numbers of the self-employed and the numbers of registered small businesses may well continue but the rate of expansion is likely to be lower and may even turn negative in some sectors. Historically, however, the small enterprise sector is as healthy as it has been for decades. The chief legacy of the experience of recent years is that the small business is not inevitably doomed by economic progress as so many confidently asserted. Instead, that very same economic progress has made the small enterprise into an economic phoenix which may find the future more difficult, but will undoubtedly survive robustly. NOTES 1 Most VAT-registered enterprises are small—90 per cent have turnovers of less than £1m and most are much smaller than this—and there are many other enterprises whose turnovers are too low for them to need to register for VAT at all. These and most of the other statistics in this paragraph are from the most recent official summary of data on the small enterprise in Britain, Small Firms in Britain, Department of Employment, 1989. 2 Of course, not all franchised outlets are ‘small businesses’ even on the most generous definition of the latter. In some areas of fast foods, for instance, franchised outlets now have relatively high start-up costs which put them

14 JAMES CURRAN AND ROBERT BLACKBURN

well beyond the reach of many would-be small business owners. In other instances, the franchisee may already be a substantially sized company diversifying into franchising.

REFERENCES Amin, A. (1989) ‘Flexible specialisation and small firms in Italy: myths and realities’ in Antipode, Vol. 21, No. 1, pp. 13–34. Atkinson, J. (1985) ‘Flexibility: Planning for an uncertain future’, in Manpower Policy and Practice, 1, Summer. Bevan, J., Clark, G., Bannerji, N., Hakim, C. (1989) Barriers to Start-Up, A Study of the Flow into and Out of Self-Employment, London: Department of Employment. Binks, M. and Jennings, A. (1986) ‘Small firms as a source of economic rejuvenation’, in J.Curran, et al. (eds) The Survival of the Small Firm, The Economics of Survival and Entrepreneurship, Vol. 1, Aldershot: Gower. Bright, R. (1987) Small Business and Nine Years of Enterprise Culture, London: The Conservative Party. Burrows, R. and Curran, J. (1991) ‘Not such a small business: reflections on the rhetoric, the reality and the future of the enterprise culture’ in M. Cross and G.Payne (eds) Work and the Enterprise Culture, Brighton: Falmer Press. Committee of Inquiry on Small Firms (1971) Small Firms, Report of the Committee on Small Firms, London: HMSO. Connor, S. (1989) Postmodernist Culture, An Introduction to Theories of the Contemporary, Oxford: Basil Blackwell. Curran, J. (1978) Attitudes and Behaviour of Workers in Small Firms in Two Industries, Ph.D. Thesis, University of Surrey. Curran, J. (1987) Small Firms and Their Environments: A Report, Kingston upon Thames: Small Business Research Unit, Kingston Polytechnic. Curran, J. (1990) ‘Rethinking economic structure: exploring the role of the small firm and self-employment in the British economy’ in Work, Employment and Society, special edition, May, pp. 124–46. Curran, J. and Burrows, R. (1988) Enterprise in Britain: A National Profile of Small Business Owners and the Self-Employed, London: Small Business Research Trust. Department of Employment (1989) Small Firms in Britain, London: HMSO. Department of Employment (1990) ‘Preliminary results from the 1989 Labour Force Survey for Great Britain and revised employment estimates incorporating these results’, London: Department of Employment. Edmonds, T. (1986) ‘Small firms, background paper’, London: House of Commons Library Research Division, June. Goldthorpe, J., Lockwood, D. Bechhofer, F. and Platt, J. (1968) The Affluent Worker: Industrial Attitudes and Behaviour, Cambridge: Cambridge University Press. Hakim, C. (1988) ‘Self-employment in Britain: recent trends and current issues’ in Work, Employment and Society, Vol. 2, No. 4, December, pp. 421–50. Harvey, D. (1989) The Condition of Postmodernity, Oxford: Basil Blackwell.

INTRODUCTION 15

Henley Centre for Forecasting, (1988) A Cost-Benefit Analysis of Teleworking, Henley-on-Thames: The Henley Centre for Forecasting. Hough, A.J. (1986) Power and Authority and Their Consequences in Franchise Organisations: A Study of the Relationship Between Franchisors and Franchisees, Ph. D. Thesis, Council for National Academic Awards/Polytechnic of Central London. Meager, N. (1989) Who Are the Self-Employed?, Anglo-German Self-Employment Project: Working Paper No. 1, Brighton: Institute of Manpower Studies, University of Sussex. Murray, R. (1985) ‘Benetton Britain’, in Marxism Today, November. NatWest/British Franchise Association Survey, 1988 (1988), London: Power Research Associates. NEDO (1986) (National Economic Development Office) Changing Work Patterns, Report Prepared for NEDO in Association with the Department of Employment, London: NEDO. Piore, M. and Sabel, C. (1984) The Second Industrial Divide: Prospects for Prosperity, New York: Basic Books. Pollert, A. (1988) ‘Dismantling flexibility’, in Capital and Class, Vol. 34, Spring, pp. 42–75. Rainnie, A. (1989) Industrial Relation in Small Firms, Small Isn’t Beautiful, London: Routledge. Ritchie, J. (1987) ‘Explaining enterprise culture’, paper presented at the 10th National Small Firms Policy and Research Conference, Cranfield, November. Scott, A. (1986) ‘High technology industry and territorial development: the rise of the Orange County Complex, 1955–1984’ in Urban Geography, Vol. 7, pp. 3– 45. Shutt, J. and Whittington, R. (1987) ‘Fragmentation strategies and the rise of small units: cases from the North West’, in Regional Studies, 21, 3, pp. 13–23. Stanworth, J. Curran, J. and Hough, J. (1984) ‘The franchised small enterprise: formal and operational dimensions of independence’ in J.Lewis et al. (eds) Success and Failure in Small Business, Aldershot: Gower. Storey, D. and Johnson, S. (1987) Job Generation and Labour Market Change, London: Macmillan.

16

1 The discourse of the enterprise culture and the restructuring of Britain A polemical contribution Roger Burrows

This chapter attempts to explore the nature of the enterprise culture and to ponder its possible future.1 This is no easy task because although the notion is a popular and politically potent one, it remains analytically vague and does not succumb easily to social scientific interrogation (Ritchie, 1991). However, whatever its exact character, its emergence has been a relatively recent one. As Hobbs notes Before…1979 the term entrepreneur was one of abuse…. Entrepreneurship was not mainstream activity but the province of exceptional, often obsessive individuals…. Those doomed romantics …such as John Bloom and Freddie Laker obtained great wealth in a style that was dashing and rather eccentric. Aggressively proletarian in methodology and presentation, they were the very antithesis of the pinstriped paragons of decorum whose gentlemanly good manners could barely hide a smirk of satisfaction when Bloom and Laker finally walked the plank.2 (Hobbs, 1991:107) Clearly, since 1979 things have changed. The discourse of the enterprise culture has become one of the major articulating principles of the age. As Ritchie (1987; 1991) argues, the political project of Thatcherism has involved an attempt to reformulate national history in relation to the fall and rise of a ‘spirit of enterprise’.3 Thus, the post-war years up until 1979 are characterized in terms of the creation of an anti-enterprise culture inspired by social democratic collectivism, leading to indulgence, degeneration and national demise. Thatcherite policies are then presented as a painful but unavoidable ‘cure’ leading to a quasispiritual rebirth of enterprise leading to widespread industriousness, regeneration and hence national recovery. Certainly it has been the case that Britain has been experiencing a profound social (Hamnett et al., 1989; McDowell et al., 1989), economic (Allen and Massey, 1988; Massey and Allen, 1988) and political (Anderson and Cochrane, 1989; Cochrane and Anderson, 1989)

18 ROGER BURROWS

restructuring. However, how best to interpret these changes has been a source of much controversy. A plethora of flatly contradictory attempts to make some sort of sense out of the last decade or so have emerged within the social sciences: liberal (Piore and Sabel, 1984) and Marxian (Aglietta, 1979; Lipietz, 1987) analyses of changes in the dominant mode of production; liberal (Saunders, 1986:289–351) and Marxian (Gamble, 1988) analyses of the supposed incompatibility between market capitalism and more socialized systems of collective consumption giving rise to the hegemony of the New Right; liberal (Hall, 1985) and Marxian (Mandel, 1980) analyses of economic long waves (Marshall, 1987); eclectic models claiming to be able to identify shifts from ‘organized’ towards more ‘disorganized’ forms of capitalism (Lash and Urry, 1987); narrowly ‘culturalist’ representations of recent events, conceptualized in terms of shifts from ‘modernism’ towards ‘postmodernism’ (Harvey, 1989); and so on. To be fair, it has been the case that this babble of theoretical voices has analytically foregrounded small enterprises and self-employment to an extent hitherto unheard of (Burrows and Curran, 1990; Curran, 1990; Rainnie, 1991),4 although not in any consensual manner.5 However, the more general category of ‘enterprise’ has hardly featured at all in any of these accounts of restructuring, much to the annoyance of the sociological New Right (Marsland, 1988:219). The reason for this is clear. Whenever one attempts to give the notion any solidity it melts. As Ritchie puts it, how is the ‘enterprise culture’ to be regarded? Just like some handy little slogan? A simple shorthand way for describing developing small business activity? Some proverbial wisdom about such? Small businesses’ new guiding spirit? Or just some well-promoted party poltical trademark? Maybe the latest populist catchphrase? A carefully sanitized euphemism which glosses over something else? (Ritchie, 1987:1–2) However, this sense of analytic frustration should not tempt us to reject the concept out of hand. Clearly, the emergence of the rhetoric of ‘business-like’ discourse which emerged as a central motif of the 1980s needs accounting for. Not just in private sector organizations has the discourse of enterprise taken grip. In spheres as far removed as education (Ritchie, 1991), policing (Hobbs, 1988; 1990), health and social services (Kelly, 1991), rural development (Pratt, 1990) and other previously nonmarket-based activities, the discourse of business is becoming the legitimating (if not always the operational) basis for organizational calculation. The social world is suddenly full of entrepreneurs,

THE ENTERPRISE CULTURE AND RESTRUCTURING OF BRITAIN 19

intrapreneurs, and the ‘new managerialism’, and the economic and social symbols of earlier epochs of capitalist development have been transformed: deserted colliery wastelands [have] become lush green landscapes; once sprawling, elemental, fiery great steelworks [have] become spacious, tree-lined estates; noisy, bustling shipyards [have] become neat riverside nature parks and marinas; once labyrinthine railway networks [have] become ‘eco-walkways’…the stricken, depressed looking ‘unemployment queues of old’ [have been]…recast as individuals being trained for the better work ‘opportunities’… rundown city centres [have been]…transformed into designer precincts, with festivals and spectacles celebrating their symbolic rebirth. (Ritchie, 1991:21) Thus far there have been few attempts to understand the affiliation between the materiality of the restructuring process and the discourse of the enterprise culture. Just what is the relationship between the profound structural changes that have been occurring within Britain and the discourse of the enterprise culture? Clearly, in order to approach this question we have to concern ourselves with one of the central problems of social theory—how best to conceptualize the relative causal efficacy of structures and discourses? Not surprisingly, the few attempts that have been made to come to terms with this question have been political, rather than analytic, in nature. On the one hand, as we have already noted, the right have viewed the emergence of the discourse of enterprise as an exhilarating ideological force causing the massive socio-economic changes we have been witnessing over the last decade or so.6 On the other hand, many on the left have viewed its emergence as little more than the latest in a long line of mystifications designed to bamboozle the masses into a state of acquiesence whilst new and better forms of capitalist exploitation can take shape.7 Needless to say, the construction of such political and conceptual (idealist versus materialist) polarities has not been very productive analytically. The rightist (idealist) interpretation of restructuring offers a crudely ‘agent-centred’ model, whilst the leftist (materialist) interpretation offers an overly ‘structure-centred’ model. The objections to this dualism are now well documented (Bhaskar, 1979; Giddens, 1984); agent-centred models attempt to reduce the reality of structural formations and power to problems of individual and psychological motivations (i.e. individual enterprise)8 whilst structure-centred models tend to reduce the reality of human agency (in this case, entrepreneurship) to problems of societal exigency.

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The old Marxian truism that people make their own history (agency), but not under circumstances of their own choosing (structure), is worth remembering here. Clearly, an analysis of both agency and structure is required if one is to make any real sense out of the last ten years (and hence the next ten). We must reject both structural determinist and voluntaristic theories, and replace them with a model of social processes in which social structures are recognized as being both the medium and the outcome of human agency, as being both enabling and constraining at the same time. As Bhaskar puts it If society is the condition of human agency, human agency is equally a condition for society, which, in its continuity, it continually reproduces and transforms…society is at once the ever present condition and continually reproduced outcome of human agency: this is the duality of structure. (Bhaskar, 1986:123) The analytic utility of this perspective for analyses of the enterprise culture is illustrated if one considers spatial divisions of enterprise as represented by the geography of new firm formation. As is now well documented, there are substantial spatial variations in new firm formation rates within the UK. This can be seen as a general north-south divide, and, at a more particular level of geographical disaggregation, an urban-rural contrast. Thus, at the regional level the highest rates are in the South East, South West and East Anglia, whilst the lowest rates are in Scotland, the North, Yorkshire and Humberside and the North West. At the county level the figures reveal the existence of a distinct urban-rural dimension with conurbations, apart from Greater London and urban-industrial counties, possessing much lower rates than more rural areas (Mason, 1991). Clearly, explanations which attempt to account for such a gross structural patterning in terms of the ‘enterprise mindedness’ of local populations are unlikely to be of much use. However, at the same time it is unlikely that we will be able to explain all of the variation in new firm formation rates by appeal to purely ‘structural’ factors: to industrial structure; plant-size structure; occupational structure; and so on. As the results from a series of recent ‘locality’ studies have demonstrated (Cooke, 1989), although Britain may have been experiencing a process of socioeconomic restructuring that has its origins in global economic shifts—of which more below—some forms of local (if not always purely individual) responses are possible which are able to mediate such processes. Entrepreneurship9 is thus clearly a function of individual, situational and social variables. For example, after an extensive review of the literature, Mason (1991) suggests that the most important factors influencing variation in new firm formation across localities are: an industrial structure

THE ENTERPRISE CULTURE AND RESTRUCTURING OF BRITAIN 21

that already has an inclination towards small independent economic units; employees working in problem-solving occupations who have close contact with customers, and are thus likely to already possess some technical and market knowledge; a concentration of technically progressive small firms; a high awareness of the past small business activities; banks and other financial institutions sympathetic to the needs of small businesses; the availability of help and advice; an affluent population; and a social climate which favours individualism. The possibility of entrepreneurial praxis is thus clearly historically conditioned and will thus be inherently spatially uneven. Thus, although the enterprise culture is important as a new meaning system from which actors can draw rationalizing ‘vocabularies of motive’ (Mills, 1940) to make sense of their situation, it possesses only a residual explanatory status in accounts of the materiality of restructuring. The confusion about its nature and status is related to its articulation with the wider discourse of Thatcherism (Hall, 1988; Jessop et al., 1988). Although this is obviously not the place to get into an extended discussion of Thatcherism, a brief note is, however, required. It is often implicitly assumed that Thatcherism (within which we include the construction of the discourse of the enterprise culture) has been, in some sense, an independent variable which has had a causal impact upon a range of other dependent variables: small businesses; self-employment; trade unions; manufacturing industry; the public sector; education; welfare; belief systems; and so on. Indeed, the concept, based as it is upon such a gross personification, encourages a fetishism for an analytic individualism of the ‘if only we could get rid of her, things might get back to normal’ kind. Such analyses must be recognized as little more than wishful thinking. Things are much more complex, and this complexity can best be understood by keeping the concepts of restructuring and Thatcherism distinct. There is no need to collapse into a crude economism in order to argue that it is more useful to consider Thatcherism as the political expression of deeper and much more fundamental shifts in the national and the international socio-economic system, than it is to view it as a political force with its own specificity, possessing the sorts of causal powers noted above. Thatcherism has not been an independent force invoking these changes, rather it has represented a contingent set of political and ideological practices which have mediated and given expression to a socio-economic restructuring which—and this is likely to be a controversial argument— would in all probability have occurred, albeit at a different pace and mediated by a different set of political and ideological practices (i.e. not by the discourse of the enterprise cultures and its adjuncts), even if Thatcher, and all that she stands for, had never existed.

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The implications of this line of argument for an analysis of the enterprise culture are clear. It should be regarded as a mediating discourse rather than one which either possesses its own specificity or is a purely ideological construct. So what does it mediate? To what does it attempt to give expression? To answer that the enterprise culture is a discourse which provides a wide-ranging semiotic rationale for the present restructuring is just to shift the conceptual problem. The notion of ‘restructuring’ clearly requires a tighter specification that it has received so far in this polemic. This is no easy task, because, as we have already noted, there are a profusion of accounts available, none of which is uncontentious. Although Britain has obviously been experiencing a period of great socioeconomic change of late, there is obviously some danger in regarding the current changes as representing some kind of fundamental break with the past (Pollert, 1988a; Rainnie, 1991). A key contemporary theoretical problem for the analysis of economic life is how to account for what are clearly important changes without reducing everything to yet another set of historically questionable conceptual polarities (e.g. ‘modernist’ versus ‘post-modernist’ cultural forms; ‘Fordist’ versus ‘post-Fordist’ production paradigms; ‘organized’ versus ‘disorganized’ modes of societal structure; and so on), which tend to hinder our understanding of the inherently uneven development of our society.10 Although by no means universally accepted by all the protagonists in the debate, one of the most influential ways of expressing that socioeconomic changes are occurring without imposing false historical divides upon significant socio-economic continuity has been via a reconsideration of economic long-wave theory (Marshall, 1987). The idea of economic long waves is by no means a new one, being most closely associated with the work of Kondratieff (1935)11 and Schumpeter (1939). Both of these writers claimed to have identified regular patterns of booms and slumps within capitalist economies. Their basic proposition being that capitalism experiences roughly fifty- or sixty-year cycles of development which are highly correlated with processes of technological innovation concentrated within specific geographic areas. Thus, within this framework, the history of the last two hundred or so years of British capitalism (with as much detail as a single paragraph can allow!) can be interpreted as follows (Massey, 1988:82–4). The first British long wave of capitalist development is considered to have begun in the 1780s and to have ended in the 1840s, to have been based upon innovations in the production of iron, the mechanization of cotton and the development of steam power, and to have been largely concentrated in Lancashire, Shropshire and the Black Country. The second wave is considered to have begun in the 1850s and to have ended in the 1890s, to have been based upon innovations in transport, especially the railways, the production of steel, the extraction of coal and steam

THE ENTERPRISE CULTURE AND RESTRUCTURING OF BRITAIN 23

power, and to have been largely concentrated in South Wales, North East England and central Scotland. The third wave is considered to have begun in the 1890s and to have ended in the 1930s, to have been based upon innovations in electricity, chemicals, synthetic materials and the internal combusion engine, and to have been largely concentrated in the West Midlands and Greater London. The fourth wave, and the one which centrally concerns us here, is considered to have begun in the 1940s and, to only now be coming to a conclusion. It is considered to have been based upon electrical and light engineering, petrochemicals and the motor industry, and to have been again largely concentrated in the West Midlands and Greater London. The fifth long wave is considered to be only now getting under way (Hall, 1985), and appears likely to be based upon innovations in microelectronics, information and communication technologies and the like, largely concentrated in the South East of the country, especially around Cambridge and the M4 Corridor—the so-called ‘Sunbelt’ of the emerging economic geography of Britain. Although this model provides a reasonable description of some major developments within the British economy over the past two centuries, it is unclear whether the cyclical patterning which analysts claim to be able to decipher is based on more than historical contingency. However, this need not concern us here because the function that such a framework plays within the present context is to alert us to the observation that dramatic socioeconomic changes are as inherent and as crucial to capitalism as the structural continuities which allow us to identify such societies as capitalist in the first place. The changes in the nature of capitalism we are currently witnessing, from the downwave of the fourth long wave to the upswing of the fifth—if we can maintain this sensitizing framework—have taken us through the most severe period of ‘creative destruction’ (to use Schumpeter’s oxymoron) which British capitalism has experienced. Clearly, such a period of material change requires to be managed on a number of levels, primarily by the state.12 In this instance, the state has encouraged the elective affinity that exists between these changes, the decollectivization of social relations that these changes have invoked (especially in relation to the various strategies developed in response to the so-called ‘fiscal crisis of the state’) and the discourse of individualism that increasingly legitimates so many contemporary social actions. The literature on the socio-economic restructuring of Britain comes from a disparate range of sources. However, of all the social sciences—and it must be said, much to the shame of economics and sociology—it has been geography which has offered the fullest and most sensitive treatment. In order to summarize the key elements of this literature we shall closely follow Martin (1988) in dividing the notion of restructuring into a number of different components.13

24 ROGER BURROWS

The economic level or the ‘accumulation regime’ to use the current argot, is, or so it is claimed, shifting from the essentially monopolistic structure of the fourth Kondratieff wave, towards a generally more ‘flexible’ system of accumulation as we enter the fifth. This supposed shift manifests itself in four areas: the structure of industry; trends in employment patterns; the nature of consumption; and the organization of production. First, in relation to the structure of British industry. The post-war period of British capitalism, up until the early 1970s, was marked by the increasing concentration of capital accompanied by a growth in output and productivity, especially in the consumer durable goods sector. This was coupled with a secular expansion in private, but especially public services. However, since the early 1970s the British economy has been subject to an increasing ‘rationalization’ and ‘modernization’ of established, especially older manufacturing, sectors. This has been coupled with a growth in the ‘hi tech’ sector and producer services, especially in the South East, and of course, a growth in the small firm sector. Second, in relation to changing patterns of employment. The post-war period was marked by low levels of unemployment. There was a growth in the number of jobs in the manufacturing sector up until 1966, and a progressive expansion of both public and private service sector employment. These developments were also associated with the growth of female work and the construction of marked divisions of labour demarcated around ‘skill’. However, since the mid-1970s the economy has been subject to persistent levels of high unemployment and a general contraction in manufacturing employment. The only area of employment growth has been in private sector service jobs (Graham et al., 1989) and in (highly gender specific) part-time and temporary work. Third, in relation to changing patterns of consumption. Although the rise and spread of mass consumption norms for standardized household durables, especially electrical goods and cars, has consolidated itself, and moved into other areas (for example, personal computers, compact disc players, dishwashers and the like), it is also claimed that this form of mass consumption is showing signs of waning as increasingly differentiated consumption patterns for new goods, especially electronics and household services, become the norm.15 Fourth, in relation to changes in the organization of production. It is claimed that we are witnessing shifts away from mass production systems based upon economies of scale and ‘just-in-case’ systems. So-called ‘Fordist’ volume mechanized production processes coupled with functional decentralization and the multi-nationalization of production, are, or so it is claimed, gradually being superseded by systems based upon ‘economies of scope’ and ‘just-in-time’ systems which utilize so-called ‘post-Fordist’ flexible automation. This is resulting in the development of small batch

THE ENTERPRISE CULTURE AND RESTRUCTURING OF BRITAIN 25

specialization coupled with organizational fragmentation (and thus smaller units of production) combined with the internationalization of production. The socio-institutional structures, or ‘modes of regulation’, which have provided the wider geographic, political and social context for the above economic shifts, have also been changing.16 Five key elements may be distinguished: the labour market; the wider social structure; politics generally; the role of the state specifically; and the geography of Britain. First, in relation to changes in the labour market. The post-war period saw the development of a highly collectivist labour market, clearly segmented by skill, with increasingly institutionalized and unionized structures. This resulted in the spread of collective wage bargaining and union successes in relation to employment protection and working conditions. However, more recent years have seen the development of more competitive and increasingly ‘de-unionized’ and ‘de-rigidified’ labour markets. This has led to an increasing dualism between ‘core’ and ‘periphery’ workers, especially in relation to the creation of the large temporary and part-time workforce noted above. Following on from this, collective wage bargaining has gradually been replaced by more localized determination of wages and conditions. Second, in relation to changes in social structure. Patterns of inequality in the post-war years were largely a function of the occupational structure. There was some evidence to suggest that there was a tendency towards homogenization, and, for a time at least, it appeared that income distribution was slowly becoming convergent. However, since the mid-1970s, and especially in the last few years, a new pattern of structured inequality appears to be emerging. Exactly how this new structure should be conceptualized is a source of much debate (Pahl, 1988; Saunders, 1986: 289–351); however, the broad pattern is clear enough. The British social structure is become increasingly trichotomous: with an increasingly wellpaid, securely employed, professional, technical and managerial service class (Goldthorpe, 1982); a reasonably well-off ‘working class’; and an increasingly large group of the dispossessed—an ‘underclass’ of marginalized and unemployed people (often delineated by combinations of factors such as region, skill level, economic sector, age, gender and ethnicity). This is resulting in an increasingly hierarchical social structure with a growing divergence in the distribution of income. Further, there is increasing evidence to suggest that this newly emerging patterning is becoming reinforced by the operation of the housing market (Saunders, 1986:289–351; 1990). Third, in relation to changes in politics generally. The post-war period was marked by a close association between the occupational structure, especially organized labour and patterns of political support. Workingclass politics possessed strong causal powers. However, in recent years it has been claimed that there has been a major de-alignment between socio-

26 ROGER BURROWS

economic bases and political propensities. This has been especially marked in relation to the decline of the influence of working-class political organization and the rise of the service class as perhaps the key social grouping influencing contemporary cultural and political discourse (Lash and Urry, 1987). Fourth, in relation to changes at the level of state intervention and policy implementation. The post-war political period was marked by—indeed almost defined in terms of—a Keynesian-liberal collectivist orientation to economic and social management. As is well known, this involved a regulation of markets, ‘stop-go’ economic demand management, an expansion of the welfare state and the public sector more generally, and the nationalization of capital for the state. This resulted in an essentially corporatist political structure. However, since the mid-1970s, and especially in the 1980s, the state has moved away from Keynesianism towards a ‘free market conservatism’, based upon a monetary and supply side intervention in the economy rather than demand stabilization. This has led to a deregulation of markets, increasing expenditure restraint on welfare, and the public sector more generally, and a privatizing of the state for capital. Clearly, a discourse of individualism and enterprise as an emergent justification for such state action has been crucial in undermining the more collectivist and corporatist mode of legitimation deemed adequate by both Labour and Tory administrations managing the economy prior to the present process of restructuring. Fifth, changes have occurred at the level of geography—perhaps the most concrete manifestation of restructuring. The post-war period was marked by a degree of regional convergence as the regional sectoral specialization inherited from earlier waves of capitalist development were overlaid by new spatial divisions of labour based on functional decentralization and specialization. The period was thus marked by comparatively stable, albeit large, regional differences in terms of unemployment levels, poverty, and so on. However, as is now well documented, the decline of both pre-war and post-war industrial areas (‘sunset’ regions) mainly in the north of the country, and the rise of the new ‘hi-tech’ and producer service industries (‘sunrise regions’) has led to an increasingly polarized spatial division of labour as indicated by the widening of regional and local disparities as gauged by levels of unemployment and other measures of deprivation (Champion and Green, 1988). However, two other general geographic changes have also been occurring which have interacted with these essentially regional shifts—one local and one global. At the local level a complex set of urban-rural shifts have been occurring. On the one hand inner-city areas have experienced profound processes of deindustrialization, whist at the same time experiencing some growth in private sector (especially producer) services. This has led to a sharp spatial juxtaposition of poverty and wealth within

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many British cities of a type and magnitude never before experienced.17 On the other hand, there is some evidence to suggest that some limited forms of rural industrialization have been occurring. At the global level, as is now well documented, a major restructuring of the international division of labour has been occurring (Thrift, 1988). Although the patterns of change are complex, the major shift has involved ‘hyper-mobile’ multinational capital taking advantage of the availability of cheap and ‘green’ labour in the newly industrializing countries of the globe, especially those in south east Asia, and thus shifting capital, production and jobs away from nations such as Britain. Clearly then, the restructuring of Britain refers to a complex set of economic, social and political changes which has to be represented within some new set of meanings (Harvey, 1989; Thrift, 1989), dominant amongst which have been those supplied by the enterprise culture: individualism; independence; ‘flexibility’; anti-collectivism; privatism; selfhelp; and so on. The discourse of the enterprise culture thus presents itself as the justificatory language of social integration for a world characterized by an economic insecurity unknown in the more corporatist and collectivist world of the 1960s and much of the 1970s (Pollert, 1988a). Further, it fulfils this function by way of a semiotic recourse to an imaginary world from which we have supposedly fallen from grace; that of a laissez-faire competitive capitalism populated by large numbers of small firms all equilibrating around some Pareto optimal set of conditions. What then of the future? Given that the enterprise culture has been characterized as a contingent rather than a necesary feature of the present restructuring of Britain, its survival is by no means guaranteed. As a key element of social life within a period of rapid change, it has had an obvious appeal. However, its obligatory recourse to individualistic agent-centred solutions to the inherently structural emergent properties of social life will quickly fetter its current hegemonic importance.18 We confront a complex set of economic and social problems as we enter the final decade of the century. Problems which the discourse of the enterprise culture can only compound. It has now served its prime function as a justificatory discourse for the massive changes which have characterized the restructuring of Britain. The problems that we confront increasingly require the development of meaning systems and rationalizing rhetorics which justify actions in more than individualistic terms. The major crises of the age are now inherently collectivist in nature in that they derive from the emergent properties of aggregated individual actions: the crisis in transport; worries about the environment; the decline of the moral nexus; and so on. The emergence of such issues on the political agenda will require the development of forms of response which accept that there are more elements in social life than simply individual actors. The days of

28 ROGER BURROWS

the petty bourgeoisie being presented as the prime moral subjects of the age are almost numbered. None of this is to deny that higher levels of self-employment and small business ownership than hitherto are going to remain important feature of Britain in the 1990s; this now appears as an inherent feature of the economic structure emerging in many advanced societies (Burrows and Curran, 1990; Curran, 1990). However, it is to argue that the enterprise culture as a legitimating discourse for wider social actions will not for much longer be presented as a panacea for our social and economic ills. NOTES 1 Some of what follows has also appeared in Burrows (1991). 2 See also Hobbs (1988). 3 The account of British industrial history offered by Weiner (1981) has been very influential in this respect. See also Raven (1989). 4 This development is to be greatly welcome because the continuing theoretical influence of the sociological models of Durkheim, Marx and Weber on the analysis of economic life, has tended to fetter the understanding of the role and functioning of small capital within the advanced societies. All three strands of classical social theory, albeit in different ways, have tended to conceptualize small capital as typical of only the early phases of capitalism, doomed to be displaced by the increasing concentration, centralization, and rationalization of capitalist forms of production. This has tended to lead sociologists to give more attention to large capital than it has, in reality deserved (Granovetter, 1984). 5 On the one hand, some accounts (e.g. Atkinson, 1984) have viewed small businesses and the self-employed as dependent, often in subcontracting roles, and largely providing work for the peripheral workforce. On the other, a highly influential institutional economics literature claims to have located the beginnings of a ‘second industrial divide’ in capitalist societies involving the decline of Fordism and the rise of a post-Fordist system of ‘flexible specialization’ (Piore and Sabel, 1984). Both of these models have been largely discredited as being either ideologically driven or hopelessly utopian (Pollert, 1988a; 1988b; Rainnie, 1991). 6 See for example Bright (1987), the Conservative Party (1987) and Young (1986). 7 See for example Clarke (1990), Pollert (1988a), Rainnie (1991). However, this interpretation has not been adhered to by all on the left. Indeed, some have taken an extremely accepting line to recent developments (Hall and Jacques, 1989). For a useful critique of these debates see Rustin (1989). 8 This is not just a minor philosophical point. As is well known, even our Prime Minister believes that ‘there is no such thing as society, only individual men and women and families’. 9 This term is almost as difficult to define as the enterprise culture itself (Dale, 1991). There is no agreed sociological definition of entrepreneurship and as

THE ENTERPRISE CULTURE AND RESTRUCTURING OF BRITAIN 29

10

11

12

13

14

15 16

17

a consequence there is much semantic slippage between it, petty bourgeois class status and self-employment. Such a problem is especially prevalent in relation to the analysis of small businesses (Burrows and Curran, 1990; Curran and Burrows, 1986; Rainnie, 1989; 1991). As Marshall (1987:3) details, the current ‘fetish’ for the work of Kondratieff seems to know no political or ideological boundaries. It is currently the subject of a number of research projects and has been the subject of a major OECD conference. More generally it has been covered in a special issue of the journal Futures (Freeman, 1981) and one of Kondratrieff s papers has been reproduced in Lloyds Bank Review (Kondratieff, 1935). The general theme has also been taken up by commentators as disparate as stock-market analysts (Warren, 1982; Beckman, 1983) and leading representatives of Fourth International Marxism (Mandel, 1980). The present author is thus in disagreement with the recent analysis offered by Weiss (1988). This argues the case for a ‘state-centred’ interpretation of economic development within which the dialectic between capital and labour and capital and capital is subordinated to the actions of an ‘autonomous’ state. Whether the different dimensions of change to be noted should be viewed as being necessarily related, or whether they should be viewed as being connected in only a contingent manner, will have to remain a moot point. This is so because it remains unclear if the notion of restructuring (or its various analogues) should be treated as a nominalist conceptual flag of convenience for a range of otherwise disparate changes, or whether it should be regarded as a realist concept which has managed to capture an ontologically real process of change involving a set of closely articulated causal powers. As already noted above, the notion of ‘flexibility’ has been the subject of extended debates of late. For the most part it appears as just the latest in a series of concepts around which the social analysis of economic life has clustered in recent decades. Crudely, the 1960s and the early 1970s centred around the ‘orientations to work’ debate, whilst the later 1970s and the early 1980s utilized labour process theory. This author would argue that the notion of ‘flexibility’ provides a new ontological security for many analysts seeking to make sense of the current situation, and as such provides something of an academic analogue to the discourse of enterprise in the political sphere. For critical treatments see Allen and Massey (1988), Burrows and Curran (1990), Pollert (1988a; 1988b) and Rainnie (1991). On this controversial argument, especially as it relates to small businesses, see Piore (1986). There is clearly a strong functionalist tinge to this argument. One is left with the impression that the nature of the socio-institutional structure is determined by the ‘needs’ of the accumulation regime. However, despite this, the analysis offered is a good deal less economistic than base/ superstructure models from earlier periods (Rustin, 1989). See Hobbs (1988; 1991) for historical and ethnographic evidence of how the discourse of ‘enterprise’ has played a crucial cultural role in managing this

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juxtaposition of blatant poverty and wealth in the Docklands area of the East End of London. 18 See Hirsch (1977). Many of the more unthinking advocates of the enterprise culture would do well to read this slim volume. It is certainly one of the tragedies of the recent history of ideas that social science lost such an innovative and interdisciplinary thinker so early in his career. What would have been his analysis of Thatcherism and the enterprise culture? See Ellis and Kumar (1983) for a collection of critical essays, some of which are at least suggestive of how his thinking might have developed.

REFERENCES Aglietta, M. (1979) A Theory of Capitalist Regulation: The US Experience London: NLB. Allen, J. and Massey, D. (eds) (1988) The Economy in Question, London: Sage. Anderson, J. and Cochrane, A. (eds) (1989) A State of Crisis, London: Hodder & Stoughton. Atkinson, J (1984) Flexibility, Uncertainty and Manpower Management, Institute of Manpower Studies, Report 89, University of Sussex: Falmer. Beckman, R. (1983) The Downwave: Surviving the Second Great Depression, London: Pan Books. Bhaskar, R. (1979) The Possibility of Naturalism, Brighton: Wheatsheaf. Bhaskar, R. (1986) Scientific Realism and Human Emancipation, London: Verso. Bright, R. (1987) Small Business and Nine Years of Enterprise Culture, London: Conservative Party. Burrows, R. (1990) ‘A socio-economic anatmomy of the British petty bourgeoisie: a multivariate analysis’ in R.Burrows (ed.) Deciphering the Enterprise Culture, London: Routledge. Burrows, R. (1991) ‘Introduction: enterpreneurship, petty capitalism and the restructuring of Britain’ in R.Burrows (ed.) Deciphering the Enterprise Culture, London: Routledge. Burrows, R. and Curran, J. (1989) ‘Sociological research on service sector small businesses: some conceptual considerations’ in Work, Employment and Society, Vol. 3, No. 4. Burrows, R. and Curran, J. (1990) ‘Not such a small business: reflections on the rhetoric, the reality and the future of the enterprise culture’, in M.Cross and G.Payne (eds) Work and the Enterprise Culture, Brighton: Falmer. Champion, A. and Green, A. (1988) Local Prosperity and the North-South Divide: Winners and Losers in 1980s Britain, University of Warwick: Institute of Employment Research. Clarke, S. (1990) ‘What in the F---’s Name is Fordism?’ paper presented at the British Sociological Annual Conference, University of Surrey, Guildford, April. Cochrane, A. and Anderson, J. (eds) (1989) Politics in Transition, London: Sage. Conservative Party (1987) Small Businesses: The Success Story, London: Central Office. Cooke, P. (ed.) (1989) Localities, London: Unwin Hyman.

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Curran, J. (1990) ‘The role of the small firm and self-employment in the British economy’, Work, Employment and Society, Special Issue, May. Curran, J. and Burrows, R. (1986) ‘The sociology of petit capitalism: a trend report’ in Sociology, Vol. 20, No. 2. Dale, A. (1991) ‘Self-employment and entrepreneurship: notes on two problematic concepts’, in R.Burrows (ed.) Deciphering the Enterprise Culture, London: Routledge. Ellis, A. and Kumar, K. (eds) (1983) Dilemmas of Liberal Democracies: Studies in Fred Hirsch’s ‘Social Limits to Growth’, London: Tavistock. Freeman, C. (ed.) (1981) ‘Technical innovation and long waves in world economic development’ in Futures, Vol. 13, No. 4 (Special Theme Issue). Gamble, A. (1988) The Free Economy and the Strong State: The Politics of Thatcherism, London: Macmillan. Giddens, A. (1984) The Constitution of Society, Oxford: Polity. Goldthorpe, J. (1982) ‘On the service class, its formation and future’, in A. Giddens and G.Mackenzie (eds) Social Class and the Division of Labour, Cambridge: Cambridge University Press. Graham, N., Beatson, M. and Wells, W. (1989) ‘1977–1987: a decade of service’, Employment Gazette, Vol. 97, No. 1, pp. 45–54. Granovetter, M. (1984) ‘Small is bountiful: labor markets and establishment size’, in American Sociological Review, Vol. 49. Hall, P. (1985) ‘The geography of the Fifth Kondratieff Cycle’, in P.Hall and A.Markusen (eds) Silicon Landscapes, London: Allen and Unwin. Hall, S. (1988) The Hard Road to Renewal, London: Verso. Hall, S and Jacques, M (1989) New Times: the Changing Face of Politics in the 1990s, London: Lawrence & Wishart/Marxism Today. Hamnett, C. McDowell, L. and Sarre, P. (eds) (1989) The Changing Social Structure, London: Sage. Harvey, D (1989) The Condition of Postmodernity, Oxford: Blackwell. Hirsch, F. (1977) Social Limits to Growth, London: Routledge & Kegan Paul. Hobbs, D. (1988) Doing the Business: Entrepreneurship, the Working Class and Detectives in the East End of London, Oxford: Oxford University Press. Hobbs, D. (1991) ‘Business as a master metaphor: working class entrepreneurship and business-like policing’ in R.Burrows (ed.) Deciphering the Enterprise Culture, London: Routledge. Jessop, B., Bonnett, K., Bromley, S. and Ling, T. (1988) Thatcherism. Oxford: Polity. Kelly, A. (1991) ‘The enterprise culture and the welfare state: restructuring the management of the health and personal social services’ in R.Burrows (ed.) Deciphering the Enterprise Culture, London: Routledge. Kondratieff, N. (1935) ‘The long waves of economic life’, in Review Economic Studies, Vol. 17, No. 6 (Reprinted in the Lloyd Bank Review, 129). Lash, S. and Urry, J. (1987) The End of Organised Capitalism, Oxford: Polity. Lipietz, A. (1987) Mirages and Miracles: the Crises of Global Fordism, London: Verso. Lowe, P. (1990) (ed.) Petit Capitalism in Rural Areas: East-West Perspectives, London: David Fulton. Mandel, E. (1980) Long Waves of Capitalist Development: The Marxist Interpretation, Cambridge: Cambridge University Press.

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Marshall, M. (1987) Long Waves of Regional Development, London: Macmillan. Marsland, D. (1988) Seeds of Bankruptcy: Sociological Bias Against Business and Freedom, London: Claridge Press. Martin, R. (1988) ‘Industrial capitalism in transition: the contemporary reorganisation of the British space-economy’, in D.Massey and J.Allen (eds) Uneven Re-Development: Cities and Regions in Transition, London: Hodder & Stoughton. Mason, C. (1991) ‘Spatial variations in enterprise: the geography of new firm formation’ in R.Burrows (ed.) Deciphering the Enterprise Culture, London: Routledge. Massey, D. (1988) ‘What’s happening to UK manufacturing’, in J.Allen and D.Massey (eds) The Economy in Question, London: Sage. Massey, D. and Allen, J. (eds) (1988) Uneven Re-Development: Cities and Regions in Transition, London: Hodder & Stoughton. McDowell, L. (eds) (1988) Divided Nation, London: Hodder & Stoughton. Mills, C.W. (1940) ‘Situated actions and vocabularies of motive’ in American Sociological Review, Vol. 5 Pahl, R. (1988) ‘Some remarks on informal work, social polarization and the social structure’, in International Journal of Urban and Regional Research, Vol. 12, No. 2. Piore, M. (1986) ‘Crisis, market and small business’, in P.Julien et al., (eds) Les PME en Devenir dans un Monde en Mutation, Quebec: Les Presses De l’Université du Quebec. Piore, M. and Sabel, C. (1984) The Second Industrial Divide: Prospects for Prosperity, New York: Basic Books. Pollert, A. (1988a) ‘Dismantling Flexibility’, in Capital and Class, No. 34, pp. 42– 75. Pollert, A. (1988b) ‘The “flexible firm”: fixation or fact’, in Work, Employment and Society, Vol. 2, No. 3. Pratt, A. (1990) ‘Enterprise culture: rhetoric and reality—the case of “small firms” and “rural” localities’ in P.Lowe et al. (eds) Petit Capitalism in Rural Areas: East-West Perspectives, London: David Fulton. Rainnie, A. (1989) Industrial Relations in Small Firms: Small isn ‘t Beautiful, London: Routledge. Rainnie, A. (1991) ‘Small firms: between the enterprise culture and “New Times”’, in R.Burrows, (ed.) Deciphering the Enterprise Culture, London: Routledge. Raven, J. (1989) ‘British history and the enterprise culture’, in Past and Present, No. 123. Ritchie, J. (1987) ‘Explaining enterprise cultures’, paper presented at the Tenth National Small Firms Policy and Research Conference, Cranfield Institute. Ritchie, J. (1990) ‘Enterprise culture as an educational phenomenon’, paper presented at the British Sociological Annual Conference, University of Surrey, Guildford, April. Ritchie, J. (1991) ‘Enterprise cultures: a frame analysis’ in R.Burrows (ed.) Deciphering the Enterprise Culture, London: Routledge. Rustin, M. (1989) ‘The politics of post-Fordism, or the trouble with “New Times”’, in New Left Review, 175.

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Saunders, P. (1986) Social Theory and the Urban Question (2nd ed), London: Hutchinson. Saunders, P. (1990) A Nation of Home Owners, London: Unwin Hyman. Schumpeter, J. (1939) Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process, London: McGraw Hill. Thrift, N. (1988) ‘The geography of international economic disorder’, in D. Massey and J.Allen (eds) Uneven Re-Development: Cities and Regions in Transition, London: Hodder & Stoughton. Thrift, N. (1989) ‘Images of social change’, in C.Hamnett et al. (eds) The Changing Social Structure, London: Sage. Warren, J. (1982) The Fifty Year Boom-Bust Cycle: The Case of Kondratieff’s Long Wave Theory, Surrey: Warren, Cameron & Co. Weiner, M. (1981) English Culture and the Decline of the Industrial Spirit 1850–1980 Cambridge: Cambridge University Press. Weiss, L. (1988) Creating Capitalism: The State and the Small Business Since 1945, Oxford: Blackwell. Young, Lord (1986) ‘Enterprise—the road to jobs’, London Business School Journal, Vol. 11, No. 1.

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2 Enterprise 2000 Workbase the electronic cottage? John Stanworth and Celia Stanworth

INTRODUCTION Home as a workbase is already familiar to several million people in Britain. In addition to many of the ‘sweated’ occupations traditionally associated with ‘homeworking’, around two-thirds of Britain’s self-employed are oneperson businesses operating mostly from home. Technological changes and demographic trends are now leading to predictions that by the year 2000, a new army of millions of people currently working in large organizations will become home-based, computer-linked ‘teleworkers’, experiencing conditions akin to those experienced already by the many independently self-employed and widely recognized as requiring ‘small business skills’ (Toffler, 1981; CBI, 1988; Henley Centre for Forecasting, 1988). In some cases their legal status will actually be self-employed though in others it will be hybrid. The argument that computer networks with modem and mainframe links could make the modern office largely redundant may be viewed as part of a wider phenomenon of large company divestment. Similarly, it is a method of embracing the concept of entrepreneurship in the service of needs for corporate restructuring. In place of the traditional employee, workers could increasingly start to resemble entrepreneurs ‘telecommuting’ from the ‘electronic cottage’ of the twenty-first century and requiring substantial psychological and attitudinal changes. The move to ‘homeworking’, whether or not it is accompanied by the use of microchip technology, is also associated with debates on the ‘casualization’ of the labour force (Child, 1988; Dale, 1986). The reported growth of ‘distancing’ (Atkinson and Meager 1986), or the ‘subcontracted’ organization (Handy, 1985), may mean that the individual homeworker will have to bear increasing risks in attempts to achieve a secure income flow (Child, 1984).

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Note: The above figure gives some examples of occupations; it is not an exhaustive list. Figure 2.1 A typology of home-based work Source: Hakim, 1987.

TOWARDS A TYPOLOGY OF HOME-BASED WORK The definition adopted by Hakim (1987) of home-based work includes self-employed as well as employees, and those who work from home as a base as well as those working actually at home (see Figure 2.1). By using this very broad definition, a range of different contractual relationships and labour market situations are embraced as well as a diverse range of pay and remuneration (Allen and Wolkowitz, 1987). This tends both to dilute and to hide the particular situation and problems of the ‘traditional’ homeworker or outworker. It also includes an enormous diversity of employment positions, subsumed under the self-employed label, which need to be separated. These range from the truly freelance professional, who enjoys a relatively high degree of control and autonomy over the nature of the product or service provided (Allen and Wolkowitz, 1987), through to the sole trader, subcontractor, outworker and labour-only subcontractor. The two latter positions are typified by low levels of control, autonomy and ownership of the means of production. A study by Mason et al. (1988) of self-employment in Southampton claims that 26 per cent were in fact ‘quasi-employees’.

JOHN STANWORTH AND CELIA STANWORTH 37

Figure 2.2: A typology of home-based workers Source of occupations: Hakim, 1987.

Using Hakim’s occupational examples, a five-fold typology of homebased workers can be constructed (Figure 2.2). This attempts to

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separate out meaningful categories of workers who share similar levels of control and autonomy, employment status, social esteem and occupational structure. 1 Freelances The first category in Figure 2.2, the ‘freelances’, is composed of traditionally home-based workers (authors, artists and musicians) as well as certain ‘newer’ occupations (computer programmers and systems analysts, management consultants, etc.) and professionals (architects and accountants). This group usually work on their own account in relatively high status occupations: there is no formal career structure, but progress may come through peer group and public recognition. They share a high degree of control over the product or service they provide, and its marketing, and could be described as the elite of the home-based workforce. Freelance professionals, often with scarce, transferable skills, are likely to enjoy the advantages claimed by some to flow to everyone who experiences ‘flexible’ status in the labour market: that is, varied, satisfying, well-paid careers, largely organized on their own terms (Atkinson and Meager, 1986). But it should be noted that they are a small minority of the homebased workforce, as well as being only a tiny fraction of the ‘peripheral’ army of workers, of whom most are in lowstatus, low-paid, relatively insecure jobs. 2 Corporate itinerants The second category in Figure 2.2 represents a long-established part of the workforce, usually men working from home as a base. Typical examples are insurance salesmen and sales representatives, who are usually remunerated on a salary plus commission basis. The distinctive attribute of this group is that they are directly employed and have well-established career structures. They are very likely to spend their entire career working from home (Hakim, 1987), unlike many ‘traditional’ homeworkers, who eventually return to on-site employment of some kind. 3 Self-employed itinerants The third category in Figure 2.2 is again mainly male, working on their own account with multiple clients. Most of their working time is spent away from home. Some of this group are part of the 65 per cent of the ‘small

JOHN STANWORTH AND CELIA STANWORTH 39

business’ sector (Curran and Burrows, 1988) who are sole traders and are of particular interest because they are mainly people without separate premises, at the primary stage of self-employment. The evidence suggests that most of these enterprises will remain one-person businesses (Curran and Burrows, 1988) but that there will be a proportion amongst them who will progress to become ‘owner-managers’, at which stage they may also cease to be home based and have separate premises. This group also includes self-employed subcontractors and many labouronly subcontractors, particularly in the building and decorating trades. A study by Marsh, Heady and Matheson (1981) of the construction industry concluded that there is a sharp division between labouronly subcontractors and self-employed construction workers who work directly for the public and take responsibility for all aspects of a job, sometimes ‘employing’ the former on a contract basis. Thus, for many men, as well as women homebased workers, there is little to distinguish the labour process of employees and self-employed (Dale, 1986). In terms of the implications of different employment statuses, it could be argued that this category should itself be subdivided. 4 Personal services/own account The fourth category is distinctive because members work in their own homes, often with multiple clients, and the services they offer are of a distinctly personal nature, such as private tutoring, dressmaking and childminding. Childminders have sometimes been excluded from definitions of homeworkers because ‘their problems are rather different from those of homeworkers’ (Bisset and Huws, 1984:4), but it is arguable that they share with other groups in the personal services category the wear and tear on their domestic premises, personal relationships with clients and ‘careerlessness’. Another shared feature of this predominantly female grouping is that many would be currently constrained in their occupational choice by their responsibilities for bringing up young children. Many subsequently return to ‘on-site’, direct employment. This group would also fall into the category of self employed in official statistics, although few, if any, would have employees or invest substantial amounts of capital. They are closer to ‘sole-traders’ than ‘freelances’. 5 Traditional homeworkers The last category, with the lowest work status, is ‘traditional homeworkers’ and, paradoxically, includes small numbers doing ‘new’ homework jobs or

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‘teleworking’. This grouping is distinctive because of its particular relationship with employers (Allen and Wolkowitz, 1987). Many are paid piece-rates. They also share the tendency to be paid less than equivalent ‘on-site’ workers doing similar tasks and because they are nominally selfemployed and work intermittently and part time, they tend not to be covered by employment protection legislation. Thus this group have few, if any, of the advantages of employee status, with no evidence of the advantages of self-employment either (Hakim, 1984). The best-known occupations associated with ‘traditional’ homeworking are in the manufacturing sector, but white-collar and service sector homeworking jobs are on the increase, according to official figures (Hakim, 1987). However, many homeworkers may be left out of official statistics, so that actual numbers may be much higher (Pugh, 1984). They are likely to be underrepresented because they are so ‘casualized’ and have such ambiguous status that they do not see themselves as part of the workforce (Cragg and Dawson, 1981). Also in some cases, underreporting is due to fear of DSS disclosure. Claims of a decline in manufacturing homework have been disputed by Allen and Wolkowitz (1987). This grouping shares with the ‘personal services’ category the tendency to be predominantly female. Many are constrained by domestic responsibilities into the homeworking workforce and trade flexibility for pay (Hakim, 1987). They may later return to on-site working, sometimes doing similar work, but often in an entirely different occupation. EXISTING TELEWORKING SCHEMES Despite the predictions that more than four million people will be ‘teleworking’ by 1995 (Henley Centre for Forecasting, 1988), the literature on existing schemes in the UK tends to focus heavily on just four examples: Rank-Xerox, International Computers Limited (ICL), FI plc, and the Department of Trade and Industry Remote Work Units Project for Disabled Workers (Kinsman, 1987; Dale, 1986; Shirley, 1987; Huws, 1984; Judkins et al., 1985). These examples between them employ only around 1,500 people. There appear to be other small-scale experiments in companies such as Texaco UK (Bailyn, 1988), but generally, rhetoric appears to be running far ahead of reality in this field. The purpose of this chapter is not to describe existing experiments in detail, since this has been done very adequately elsewhere (Kinsman, 1987). It will instead consider them in terms of the earlier typology of home-based workers (Figure 2.2), and examine whether the initial degree of autonomy and status position of the workgroups involved is a more accurate indicator of the effect of the ‘new’ technology upon them rather than any intrinsic characteristics of technical innovation per se (Child, 1986).

JOHN STANWORTH AND CELIA STANWORTH 41

Child also tentatively links any moves to homeworking with the tendency for homeworkers to become self-employed subcontractors. He hypothesizes that the trend may lead to further growth of the ‘peripheral’ labour market, with homeworkers having to bear the risk for themselves of achieving a secure future income flow. These new self-employed subcontractors may have either primary or secondary labour market standing. That is, they may have skills and attributes which enjoy a high market value outside the employing firm (primary) or may have firmspecific skills, and be therefore tied (however tenuously in terms of employment status) to their existing organization (secondary). The examples of existing schemes will also be examined to investigate this hypothesis. 1 Rank Xerox UK This much-researched ‘networking’ scheme involved 60–70 ‘networkers’, and was implemented during the recession of the early 1980s when Rank Xerox was fighting for survival. The firm had been ‘targeted’ by Japanese competition and it was decided to slim down the operation in order to cut costs (Hornby, 1988). The ‘networkers’ involved were all middle or senior managers in the fields of marketing, finance, personnel, management services and corporate affairs (Judkins et al., 1985), and a small group of five women used the scheme as a ‘career-break’ mechanism. Therefore the group, as employees, would have generally enjoyed considerable autonomy and control in the workplace, as well as high occupational status. Rank Xerox is also described as ‘aggressively entrepreneurial’—one might rather say ‘intrapreneurial’ with employees virtually running their own semiautonomous businesses and referring to colleagues as ‘internal’ customers and ‘suppliers’ (Kinsman, 1987). Thus the organizational culture heightens the importance of independence and risk-taking. ‘New’ technology, in this case, was used to establish the ‘networkers’ as ‘freelance homeworkers, on the initiative, and with the financial support, of their former employer’ (Dale, 1986). Each individual formed a limited company and, for a period of 1–3 years until full independence was established, was cushioned by a contract with Rank Xerox for up to half the expected turnover of the fledgling company. As well as this, Rank Xerox provided its networkers with office furniture and microelectronic equipment at a reduced price, and provided counselling facilities in ‘small business’ skills. This group could therefore be categorized as ‘freelances’, since they own their means of production, invest more than ‘non-trivial’ amounts of capital (Hakim, 1987) and experience a high degree of autonomy over the

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work process (Dale, 1986). They also appear to be successfully making the transition from ‘self-employed’ to small business ownermanagers because their companies now themselves employ about 150 people between them. In this case involving high-level specialists able to secure work on their own account, contracting has shifted the networkers from the internal to the external labour market, while retaining a primary market standing (Child, 1988). 2 International Computers Limited (ICL) The home-based Contract Programming Service (CPS) of ICL was started in 1969 as a ‘career-break’ scheme ‘to permit women with scarce computer skills to continue to serve the company part time and to keep up their skills and involvement with work’ (Bailyn, 1988). The group are still predominantly female with a great deal (average fifteen years) of previous on-site experience with the company. Although CPS has become a semiautonomous subsidiary of ICL, the homeworkers are directly employed, enjoy similar fringe benefits to on-site workers and use (but do not own) ICL equipment. Most work part time, are hourly paid and, if there should be no work, are retained with payment for sixteen hours per month (Kinsman, 1987). Thus, certain elements of their employment contracts differentiate them from their on-site counterparts. Bailyn (1988) reports in her survey of CPS workers that the homeworking group ‘are grateful to be allowed to work and to keep up their skills’. They are well aware that the computer market is very volatile and that, if they leave, it is extremely difficult to ‘catch up’ again. On the other hand, it is also to the employer’s advantage to retain such valuable skills. The relationship could be characterized as ‘symbiotic’. In the case of the CPS group, ‘new’ technology was always an integral part of the workgroup’s occupation within the computer industry. In terms of the move to homeworking, it has retained these workers on an employment contract, with secondary market standing. Their skills and experience are closely linked with their employing organization, and they form a flexible and dependable labour supply in a rapidly changing market. Therefore the CPS homeworkers are closer in character to the ‘traditional homeworker’ than to the ‘freelance’ category although, as direct employees, they enjoy fringe benefits and employment protection superior to the bulk of outworkers. They have a labour market advantage over most outworkers in that they offer relatively scarce skills in a highly paid sector of the labour market.

JOHN STANWORTH AND CELIA STANWORTH 43

3 ‘FI’ plc FI is a UK computer software house, employing about 750 ‘panel members’ or homeworkers, who are predominantly women (93 per cent) (Shirley, 1987) with domestic responsibilities. The organization has a management hierarchy, most of whom are salaried employees, but the 77 per cent who are homeworkers are part time and nominally self-employed, subcontracted to FI, and therefore do not receive employeetype benefits such as sick pay, holiday pay or superannuation. Homeworkers must have at least four years’ prior experience of the work in question, be prepared to work at least twenty hours a week, and be available to visit clients’ premises. ‘Panel members’ are hourly paid, and paid a lower rate for travel time. Their work is closely monitored: each project is split up into time segments, and progress is monitored at each stage. Detailed productivity measures are kept, including monitoring of client visits and time spent ‘online’ using a computer. As with the ICL scheme, working with computers is an integral part of FI jobs. Their nominally self-employed status, subcontracted wholly to FI, puts them into the external labour market, providing the company with a flexible, part-time labour force. The fact that they are subcontracted to FI means they have secondary standing, and are not truly freelance, unlike the Rank Xerox ‘networkers’. Although FI ‘panel members’ are better paid than the bulk of homeworkers, in terms of their relationship with their employer, they can be most accurately classed among ‘traditional homeworkers’. 4 Department of Trade and Industry (DTI) Remote Work Units Project This scheme was set up in 1982 by the DTI. The first phase ran until 1984 and the second phase until 1986 (Kinsman, 1987). Ninety-five work units involving disabled people were set up over the two phases. DTI and the European Social Fund provide funding for equipment and consultancy. The jobs had to provide normal conditions of service, require no less than twenty hours’ work a week and have long-term prospects and pay in line with similar on-site jobs. Since 1987 the scheme has been run by the Disablement Advisory Service. The scheme involves teleworking with the employees linked, by modem and telephone, to a central point. It involves training inputs both from the employing organization and from the Manpower Services Commission (now the Employment Department Group) and most of the participants are still working. The least successful were individuals set up as self-

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employed. Evaluation of the scheme indicated that employers were willing to take part in the scheme, given funding incentives and the back-up of government agencies. It could be argued that such work for the disabled would not have been created without such a scheme. In this case the homeworking project has been aimed at a specific group of workers who, because of a lack of physical mobility, are in a relatively weak market situation. It has been used to give them direct employment (internal labour market) with secondary status. It is questionable whether this scheme, with its special aims and resources, could be directly compared with the other examples, which are more exposed to the exigencies of the open market. 5 Texaco UK The field force of Texaco UK comprises sales representatives and professionals covering the fields of surveying, property buying and selling, and construction. Pilot projects giving the sales force head-officelinked home computers, and transforming the professionals into homeworkers, were studied by Bailyn (1988). The sales group had already been operating in ‘output mode’. That is, they were judged by their output and not subject to direct surveillance over time or mode of working. One effect of the introduction of a computer link-up was to make it possible for superiors to time computer usage. This gave sales representatives a feeling of rather less autonomy in their work patterns than previously. A second reported effect was to give representatives fuller access to information on which price and credit decisions could be made. Potentially this could make it possible to delegate more authority to them to make decisions (job enrichment). The professional groups’ move to homeworking proved less satisfactory, in that they felt more burdened by extra clerical duties after the move to ‘telecommuting’. However, they also reported a greater freedom to organize their own time, which they felt was an advantage. In both the Texaco experiments, the developments retained the workgroups in the firm’s internal labour market. In this case, so far at least, the move to homeworking for the professionals, and to teleworking amongst the salesmen, has not led the employer to redefine the workgroups as self-employed subcontractors or ‘quasi-employees’ (Curran and Burrows, 1988).

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CONCLUSIONS A table summarizing aspects of the five examples of homeworking involving the use of micro-electronic technology is presented in Figure 2.3. What is clear is that the employers’ motivation for using IT and homeworking is very varied. Information technology can obviously be operationalized in many different ways, sometimes with outcomes which enrich jobs and sometimes with job-degrading consequences. For women homeworkers with domestic commitments, it is this lifecycle constraint which appears more salient in explaining their current market situation than their qualifications, previous on-site experience or IT skills. Their overriding need for flexibility leads them to take homeworking jobs, sometimes with lower pay and lesser fringe benefits than on-site workers. Homeworking, of itself, using these limited examples, does not appear to have a determining effect on the employment status of the groups involved. Figure 2.3 shows that they can be retained as direct employees, or become nominally self-employed subcontractors (‘quasi-employees’) or, alternatively, launched as potential stand-alone small business ownermanagers. Future growth of outwork/homework The salient characteristics of outwork are the purchase of labour in discrete and variable amounts; payment related directly to output; and an absence of direct supervision. Outwork is generally used to avoid the overhead costs associated with direct employment, and to exploit sources of low-paid labour. In terms of future growth patterns in homeworking in general, and teleworking in particular, the economy will inevitably continue to produce occupations with these characteristics and enable employers to increase workforce flexibility whilst minimizing costs. ‘New’ technology will itself create opportunities for employers to create new forms of homeworking by ‘disintegrating’ the work process (for example in the printing and publishing industry). If computer hardware continues to become available at lower cost in the future, its home use by routine clerical or technical workers could soon become an economic proposition. The supply of workers for homeworking is often associated only with unskilled labour, but in fact this is misleading. Employers often use carefully selected ex-employees as homeworkers, relying on their firmspecific skills. Workers undertake outwork for various reasons, sometimes because it is the only work available, or as an alternative to parttime work, or they are disabled, retired, engaged in child care or caring for dependent relatives. They have relatively poor opportunities in the wage-

Source: Adapted from Kinsman, 187, p. 68.

Figure 2.3 Summary of homeworking/telecommuting examples in the UK

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JOHN STANWORTH AND CELIA STANWORTH 47

labour market, and are more likely to aim for ‘target’ earnings than for high recompense for their labour (Rubery and Wilkinson, 1981). As long as such a labour supply exists, there are opportunities for homeworking. The demographic ‘cliff’ of the 1990s, may affect this reserve homeworking army. The shortage of young people entering the labour market may lead employers to provide new opportunities for women workers with young children to remain in ‘core’ on-site employment (McRae, 1988). Alternatively, they may seek to recruit and retain women on home-based, career-break schemes, some of which may involve teleworking. There may also be more newly retired potential homeworkers as the population ages, which could provide an alternative employment source. Teleworking and occupational status Homeworking and teleworking may well have very different outcomes for the higher level managerial or professional worker, compared to the routine clerical or technical worker. Much confusion has been created by writers not clearly differentiating between these two types of employee (Bailyn, 1988). However, there is evidence that, even within the ‘service class’ of higher managerial and professional occupations, some groups may experience advantages in terms of the control they have over ‘new’ technology and what kind of homeworker they become. The presence of uncertainty, high social standing, non-routine aspects within a job, or a direct relationship with clients/external parties, reduces the likelihood of ‘new’ technology being used to substitute for their labour (Child, 1986). Groups of workers in such occupations might be more likely to be transformed into ‘freelance’ teleworkers or, if they are employed as ‘homeworking employees’, may have greater discretion and autonomy as a result of operationalizing microchip technology. For clerical and technical occupations, which already embody a considerable routine element, the move to teleworking might be more likely to transform them into traditional homeworkers or outworkers, who are nominally self-employed subcontractors to their employers (quasiemployees), and become part of the secondary or peripheral workforce. Or ‘new’ technology might tend to be used to reduce the autonomy and independence of the job, and to monitor performance more closely. Managing distance workers Teleworking, as one type of distance working, needs a different type of managerial control. There is a shift from managing input (i.e. controlling methods of working) to managing output (i.e. judgement by results)

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(Bailyn, 1988). Even with high-status employees, the freeing of work from traditional locational and time constraints seems to pose a difficult problem for managers and supervisors. They often wish to continue to control the hours their subordinates work, rather than give them autonomy over their own time and thus fully exploit the potential flexibility of teleworking. As with job-enrichment, one group’s enlarged area of freedom frequently means a corresponding reduction of control for another. Rothwell (1987) believes that the slow development of teleworking may stem as much from managers’ fears and lack of flexibility as from the shortcomings of the technical infrastructure. Delegational skills are needed when managing distance workers. This requires an ability to trust an individual to complete a task after jointly agreeing the tasks or objectives to be met and methods to be used. New skills for drawing up these ‘internal contracts’ need to be developed. Selection of distance workers In our research interviews with a sample of ten home-based workers, we encountered problems associated with organizing one’s own time, separating work from domestic pressures, and feelings of isolation. In just the same way, teleworkers need personal competences to cope with independent working, so they need not only technical skills and knowledge, but also the ability to ‘self-start’, use small business skills, and cope with isolation. Extroverts with high affiliation needs may, for example, be unsuitable to become teleworkers or self-employed consultants (Rothwell, 1987). For organizations to take advantage of the opportunities that distanceworking provides, such as retaining or recruiting people with scarce skills, managers need to consider training and developing teleworkers as carefully as on-site workers (Rothwell, 1987). This tends to contrast with the manager’s current perception of distance workers as a means of avoiding expenditure in this area. Marginalization of teleworkers Although studies show that many occupations are suitable for adaptation to teleworking (e.g. Henley Centre for Forecasting, 1988), the fact remains that employees generally resist the home move. They believe that they will be marginalized from important aspects of the work organization. There are legitimate fears that being home based will result in exclusion from the organization’s career ladder and isolation from the social and political life of the workplace. Home-based work of all kinds has a low social standing because of its associations with low-paid, unskilled occupations, and quasi-employee status, where many advantages of

JOHN STANWORTH AND CELIA STANWORTH 49

employee status are lost, and the individual homeworker is obliged to share the risks of fluctuating demand for the goods or services provided. Managers may therefore face problems in introducing teleworking schemes, particularly amongst high status employees, unless they take steps to recruit the right individuals, train and develop them and provide good communication channels, initiate regular meetings and other schemes to prevent isolation from the organizational culture. For high status employees, teleworking may not be a cheap or easy option and this probably explains why it is still a relatively rare and novel work arrangement (Hakim, 1987). For this group, instead of full-time teleworking, mixtures of on-site and distance-working will probably continue to grow in popularity. Teleworking is already an addition to some executives’ working week, for example financial analysts and software maintenance engineers (Shirley, 1987), or teleworking and office work could be part of a mixedlocation contract. REFERENCES Allen, S. and Wolkowitz, C. (1987) Homeworking: Myths and Realities, London: Macmillan Education. Atkinson, J. and Meager, N. (1986) ‘Is flexibility just a flash in the pan?’, in Personnel Management, September. Bailyn, L. (1988) ‘Freeing work from the constraints of location and time’, in New Technology, Work and Employment, Vol. 3, No. 2, Autumn. Bisset, L. and Huws, U. (1984) Sweated Labour: Homeworking in Britain Today, Low Pay Unit. Child, J. (1984) Organisation: A Guide to Problems and Practice, Second Edition, London: Harper & Row. Child, J. (1986) ‘New technology and the service class’, in K.Purcell, Wood, S., Waton, A. and Allen, S. The Changing Experience of Employment: Restructuring and Recession, London: Macmillan. Child, J. (1988) ‘Managerial strategies, new technology and the labour process’, in R.Pahl, (ed.) ‘On Work’ Oxford: Basil Blackwell. Confederation of British Industry (1988) ‘Home is where the workplace will be— technology willing’, in Financial Times, 15 September. Cragg, A. and Dawson, T. (1981) Qualitative Research Among Homeworkers, London: Department of Employment Research Paper No. 21. Curran, J. and Burrows, R. (1988) Enterprise in Britain: A National Profile of Small Business Owners and the Self-Employed, London: Small Business Research Trust. Dale, A. (1986) ‘Social class and the self-employed’ in Sociology, Vol. 20, No. 3, August. Handy, C. (1985) The Future of Work, Oxford: Basil Blackwell.

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Hakim, C. (1984) ‘Employers’ use of homework, outwork and freelances’, in Employment Gazette, April. Hakim, C. (1987) Home-Based Work in Britain, London: Department of Employment Research Paper No. 60. Hartmann, H., Krant, R. and Tilly, L. (eds) (1986) Computer Chips and Paper Clips: Technology and Women’s Employment, Vol. 1 of the Report of the Panel on Technology and Women’s Employment, Committee on Women’s Employment and Related Social Issues, Commission on Behavioural and Social Sciences and Education, National Research Council, Washington DC: National Academy Press. Henley Centre for Forecasting (1988) A Cost Benefit Analysis of Teleworking, Henley: The Henley Centre for Forecasting. Hornby, D. (1988) Speech at ‘Managers in the Making’ Conference, Cambridge, 29 June. Huws, U. (1984) The New Homeworkers. London: Low Pay Unit. Judkins, P., West, D., and Drew, J. (1985) Networking in Organisations, Aldershot: Gower Press. Kinsman, F. (1987) The Telecommuters, London: John Wiley and Sons. Marsh, A. Heady, P. and Matheson, J. (1981), Labour Mobility in the Construction Industry, London: HMSO. Mason, C., Pinch, S., and Storey, A. (1988) Small Business Owners and the SelfEmployed in Southampton: An Analysis of Household Survey Data, paper given to the 11th National Small Firms Policy and Research Conference, Cardiff Business School, November. McRae, H. (1988) ‘It may seem far-fetched, but what if we could work from choice and not necessity’, in Frontiers Extra, Future of Work, the Guardian, 22 December. Pugh, H. (1984) Estimating the Extent of Homeworking, City University Social Statistics Research Unit Working Paper No. 15. Rothwell, S. (1987) ‘How to manage from a distance’, in Personnel Management, September. Rubery, J. and Wilkinson, F. (1981) ‘Outwork and segmented labour markets’, in Wilkinson, F. (ed.), The Dynamics of Labour Market Segmentation, London: Academic Press. Shirley, S. (1987) The Distributed Office, paper given to the Royal Society of Arts, February. Toffler, A. (1981) The Third Wave, London: Pan Books.

3 Economic development and ethnic business Robin Ward

INTRODUCTION A feature of the resurgence of small firms in the UK economy in recent years is the growing involvement of members of ethnic minority communities in business ownership. While the vast majority of the UK population that originated in the Caribbean or South Asia came over in order to find jobs, or are the children of labour migrants, the spread of business ownership has reached the point where more than one-fifth of Asians in employment are now employers or self-employed (Department of Employment, 1988:167). Explanations of the emergence of ‘ethnic business’ differ: on the one hand, the sharp contraction of the labour market has, it is said, made business ownership the only available avenue of economic mobility for many, while racial discrimination in access to jobs has constrained opportunities even further; on the other hand, Asian business, it is argued, shows what is possible when a community is culturally oriented to business, and has a family structure to support this. Whatever interpretation is put forward, statistical trends in business participation rates among ethnic minorities in the UK suggest that by the year 2000 a significant segment of the small business population will be within the ethnic sector. The aim of this chapter is to analyse the contribution to economic activity in the UK made by ethnic minority business owners in a way which begins to identify likely developments in the coming years. The pattern of business ownership in the main ethnic minority communities is examined, and this is followed by a consideration of sources of competitive advantage in ethnic business. First, however, it is necessary to review the main changes in the business environment and the key factors underlying the growth of small firms in order to provide a context for the analysis of ethnic enterprise.

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THE CHANGING BUSINESS ENVIRONMENT A review of the contribution of members of ethnic minorities to the UK economy has to start with the period of economic expansion of the 1950s and early 1960s. During this phase in the reconstruction of the post-war economy, consumer demand was still largely oriented towards the purchase of products with relatively standard characteristics. This was achieved by large firms employing economies of scale to produce goods with the features of commodities at the lowest available price. Processes were still heavily labour intensive and the competitiveness of traditional manufacturing industries was sufficient not only to maintain full employment for much of the time but to lead employers to a global search for labour. In consequence, a high proportion of the ethnic minority population of the UK arrived to fill the least attractive jobs in the economic upswings of the mid-1950s and early 1960s. While migrant labour on the Continent was recruited almost exclusively for paid employment and on contracts which tied migrants to employment, recruitment in the UK of New Commonwealth workers was primarily to fill vacancies, but on terms which gave immigrants freedom to switch between jobs or from employment into self-employment. The business environment of the 1980s experienced a fundamental change. Competition in most traditional manufacturing industries is now global and consumer demand has been shifting away from commodities sold on price towards products which are more differentiated in terms of attributes, fashionality, and quality, for which higher prices are acceptable. This twin change, together with the rapid switch towards capital-intensive operations, has transformed the shape of the industrial sector towards smaller, more flexible organizations, concentrating on their core operations and transferring to subcontractors the risks associated with volatile demand, the incorporation of new technologies outside core areas, and the problems of managing a labour force maintaining traditional attitudes and with legal protection. While recent technological developments have done much to make customization compatible with mass production (Davis, 1987), the logic of holding together the value chain in manufacturing processes by maintaining control without ownership has continued to apply. Further forces underlying the switch away from large-scale manufacturing industry towards a wider variety of small-scale operations have been the growth of opportunities to develop novel products and processes through exploiting new knowledge, and the steady growth of the service sector, where small-scale independent businesses have always been more typical. Large-scale immigration of ethnic minorities, together with the increase in expenditure on goods and services from other ethnic traditions, has also greatly differentiated the pattern of demand, reducing

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the scope for the sale of standard products and offering many new niches for small firms to occupy (Boissevain, 1984). THE SMALL ENTERPRISE IN THE CONTEMPORARY ECONOMY The changes reviewed in the previous section have allowed small firms to comprise a much more significant sector within the UK economy in the 1980s. The rationalization of independent units in traditional areas such as the petty retailing of commodity items has continued. But there has been a substantially greater increase in other retail segments offering higher priced, more differentiated products and in services. Selling goods and services as an independent business to a local market continues, therefore, to represent a major strand within the small firms’ population. At the same time, there has been a great increase in the numbers of small firms working with other businesses in operational chains or providing support services. Much of this has taken the form of long-term subcontracting relationships, often involving close proximity between main contractor and supplier, in which there is a premium on operational efficiency. In other cases, value chains consist of intensive cooperation between small firms grouped within ‘industrial districts’. While this form of working has always been typical of some industries, such as haute couture, the greatly increased importance of fashionality in many sectors and the search for competitive advantage through the ability to innovate and respond flexibly to fluctuations in demand has led to this form of business cooperation becoming much more widespread. Finally, while many large firms have switched to subcontracting component manufacture, subassembly, and in some cases all aspects of manufacturing as well as business services on the input side, there has also been a marked trend towards franchising, especially in the distribution of goods and services. While this process is in its infancy compared with the US economy, it still provides opportunities for many small firms to become locked into operational cycles in association with large firms in a relationship that, as with subcontracting, is not wholly free of exploitation but generally carries benefits for both parties. It should be stressed, however, that these patterns of effective small firm operations are not randomly distributed but concentrated in particular locations and among particular categories of owners. The locational factor has been explored by Storey and Johnson (1987) in their exposition of the Boston, Bologna and Birmingham models of small firm growth. It should be noted that the distinctions between different types of small firm strategy set out above are essentially the same as those on which Storey and Johnson’s typology is based. Boston is presented as an economy where small, knowledge-based firms have worked effectively as subcontractors in

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developing high value added products and processes and, despite high turnover among the firms involved, have produced a great deal of wealth. It is not clear how far subcontracting takes the form of stable long-term relations with a large firm and how far it consists of constellations of small firms involved in close networking. Whatever the case, there is in consequence a high level of disposable income in the local economy among owners and employees that supports a great variety of small local firms that provide high-quality, highly differentiated goods and services, particularly in the leisure sector. The Bologna model represents the pattern of intensive networking among small firms, not in this case in knowledge-based products but largely in more traditional consumer goods. In fact, the label ‘Bologna’ is somewhat misleading, since the purest examples of ‘industrial districts’ occur in much smaller towns where a single industry sector dominates the economy, such as Prato in the case of woven clothing and Carpi in knitwear. While the forms of networking among family businesses in Italian small towns who are one generation from peasant farming (Bamford, 1987) and among the intellectual elite who run high tech firms in science parks may not be immediately obvious, Lorenzoni and Ornati (1988) have pointed to basic similarities in their ways of operating. By contrast, the Birmingham model is set out to show the futility of expecting small firms to emerge so as to transform an industrial economy ravaged by recession and a sharp decline in competitiveness in traditional sectors. Similarly, ownership is not randomly distributed among the whole population of potential business owners. Indeed, the prospects for success in small business ownership seem to depend on particular combinations of owners who possess or have access to specific sources of competitive advantage which relate to specific market features. For example, independent local firms will continue to operate wherever there is a small pocket of demand (the village shop is a classic example) and the incumbent is usually able to mobilize sufficient support on the rare occasions when their effective monopoly is threatened. There are other niches where owners have privileged access to specialized markets, for example on the basis of ethnic or linguistic or religious ties. Even within such niches, however, the level of competition may be sufficient to depress margins all round and drive out many competitors. This applies as much to Pakistani greengrocers competing in the same inner city shopping parade as it does to video rental establishments operating in the open market. This allows us to draw a basic distinction between those independent local firms which are protected by the skill or expertise of the owner and staff, and those where competitiveness is based on other factors. In the former case, the skill provides a barrier to entry which restricts the emergence of competitors, though even here skills, and products based on

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skills, may need to be constantly enhanced for the business to remain competitive. In the latter case, where barriers to entry are low, as in the case of the retailing of petty commodities, for example, there is some scope for differentiation in the service provided to customers (allowing credit, making deliveries, hours of opening, sales of non-standard quantities, etc). But much of the competitiveness of owners in such sectors derives from ties of ascription with suppliers, labour and those controlling access to other factors of production, and customers. Independent retailers and many small service businesses rely heavily on a supply of cheap, flexible and trusted labour: qualities which tend not to be found in combination except within families or other relationships of ascription (Ward, 1987b: 166–7). Well-developed business networks, allowing relations of trust with others in the same trade and suppliers, cut down the transaction cost of getting supplies as well as the unit cost through joint purchasing. Close ties with customers also serve to protect custom against competitive threats. Small firms acting as established subcontractors to larger firms also benefit from the development of relations of trust, but in this case it is frequently based on achievement rather than ascription, on accumulated experience of working together rather than prior relationships helping to establish the link in the first place and underpinning the quality of service provided. In the case of the subcontracting of knowledge-based products, it is frequently the knowledge which acts as a barrier to protect the firm from other competitors, though such knowledge tends to become diffused and in general contractors look to their suppliers for efficient operations, shown in cost and consistency and reliability of supplies. Subcontractors in industrial districts have to be competitive on price, too, but their prime source of competitiveness is frequently an ability to carry out a particular operation at short notice to an agreed specification. Whereas subcontracting to large firms in engineering is normally based on formal documentation, in industrial districts the need for a quick and flexible response and the idiosyncratic nature of the work to be done does not allow such formalities. Indeed, the essence of subcontracting in these circumstances is verbal agreements in a context of trust (Dei Ottati, 1986). Finally, successful franchisees may benefit from some of the sources of competitive advantage noted above: skills may be important, close ties with potential clients may be a bonus in attracting custom. But in many cases the chief source of advantage is efficient operations, which allow the franchising recipe to be implemented at a minimum cost and with consistent quality (see Chapter 4). We return to these distinctions when we examine sources of competitive advantage in ethnic minority firms. First, however, it is necessary to sketch in the development of ethnic enterprise in the UK.

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ECONOMIC RESTRUCTURING AND THE EXPANSION OF ETHNIC BUSINESS A full analysis of ethnic minorities in business calls for a detailed examination of (i) the statistical pattern of business ownership, (ii) the alternative avenues of economic achievement and the returns to be gained from each, and (iii) a qualitative analysis of how firms in the ethnic sector operate. Such a task is beyond the scope of this paper (a comprehensive and up-to-date overview is contained in Waldinger, Aldrich and Ward, 1990). In this section, we focus on the statistical analysis of ethnic business in the UK, with a brief comment on the main alternatives. The way in which Asian and Afro-Caribbean firms operate is considered in the following section. The first reasonably reliable figures for self-employment in the ethnic minority population in the UK come from the 1971 Census, taken almost ten years after the end of free immigration from the New Commonwealth. This showed that Asian immigrants from India, Pakistan and Bangladesh were significantly less likely to be self-employed than the total population, with those from the Caribbean even less likely to be in business (Reeves and Ward, 1984). By the time of the National Dwelling and Housing Survey in 1977–8, fifteen years after the end of large-scale immigration to the UK and more than five years after the arrival of Asians expelled from Uganda, the proportion of Asians in business was still no higher than for the overall population, while that for Afro-Caribbeans was rising but still much lower. It was only in 1982 that a national survey undertaken by Political and Economic Planning showed Asians in Britain to be overrepresented in the business population. Using a broad definition of self-employment, which showed 14 per cent of white males to be in this category, they found the equivalent figure for Asian males to be 18 per cent, while Afro-Caribbeans were still underrepresented at 7 per cent (Ward, 1987a: 85). The fact that it took twenty years of participation in the UK economy to show a statistical overrepresentation of Asians in selfemployment supports the view that they saw themselves as workers rather than business people, and leads us to question the view that there is a natural affinity for business involvement among those from India and Pakistan. The most reliable figures for business participation rates among ethnic minorities in the UK, as well as the most recent, are those contained in the Department of Employment Gazette for March 1988, based on a reanalysis of statistics from the Labour Force Survey for 1984–6. The figures contained in Table 3.1 have been derived from this source. They used a more restrictive definition of self-employment (including business ownership) which showed 11 per cent of the whole population of working

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Table 3.1 Ethnic minorities: business participation rates

Source: Figures derived from Department of Employment (1988:167).

age in employment to be self-employed; the same figure was found for the white population in this category. By 1986, however, the proportion of the Indian population in selfemployment was up to 19 per cent, and that for those from Pakistan and Bangladesh to 23 per cent. Thus, the overall figure for the Asian working population was about twice that for the white population. Meanwhile only 5 per cent of those of Afro-Caribbean ethnic origins were self-employed. Taken together, and in association with those from 1982, these figures suggest that the impetus to business ownership among the South Asian population was the sharp and sustained rise in unemployment of the late 1970s and 1980s, rather than a predisposition for entrepreneurship, and that, while Afro-Caribbeans shared the experience of Asians of large-scale redundancy, they have not been able to respond by a significant move into self-employment. However, the position is slightly more complex than this. It can be shown, for instance, that all four of the main ‘ethnic’

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categories have their own distinctive position in the economy. Whites have low unemployment and low self-employment, implying a relative preoccupation with, and easier access to, jobs. Afro-Caribbeans have a high unemployment rate but low self-employment, suggesting constrained access to jobs, but without business providing a feasible alternative for most of those affected. Those originating in Pakistan and Bangladesh also have a high unemployment rate, but in their case this goes with a high selfemployment rate, suggesting that business has provided opportunities for substantial numbers of those losing their jobs but insufficient to provide an overall alternative. Finally, those from India share with the whites a relatively low unemployment rate but have a high figure for selfemployment, implying that business has been able to provide opportunities for most of those affected by the deterioration in the job market. This complex pattern, summarized below, suggests that different ethnic minorities have not only had diverse experiences in the labour market but that their opportunities for business formation have been similarly differentiated. Table 3.1 also shows that, out of a total of about 2.5m described as selfemployed, 115,290 are from ethnic minorities, including 54,340 from India, 21,390 from Pakistan or Bangladesh and 11,350 from the Caribbean. Ethnic minority business owners are heavily concentrated in large urban areas; indeed, if it is assumed that the proportions of selfemployed from each ethnic minority in the Greater London and West Midlands former metropolitan county areas are the same as for the national average, over half are in Greater London and over 70 per cent in London and the West Midlands urban core. While nationally only about 1 in 20 owners was from one of the ethnic minority communities in 1986, in London this rises to 1 in 8, and given the apparent continuation of the upward trend in ethnic business together with the increasing proportion of the working population from ethnic minorities, it seems likely that this will rise to 1 in 6 in the foreseeable future. The pattern shown above to some extent replicates that found in the US where there is a longer tradition of Black and ethnic minority business ownership. There, too, Asians are overrepresented in business, while Blacks are underrepresented. But the process of economic mobility in ethnic minority communities has had longer to develop, with the result that some of the communities with the highest business participation rates in earlier years, such as Chinese and Japanese Americans, are now more likely to be found in employment, but in professional and managerial jobs, which are widely seen as preferable to working long hours to make a small return in a

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family business (Waldinger, Aldrich and Ward, 1990). It seems quite likely that this phenomenon will repeat itself in the UK, given the educational motivation and achievements of Asian children, despite the relatively unfavourable conditions in the labour market. SOURCES OF COMPETITIVE ADVANTAGE IN ETHNIC BUSINESS We have seen evidence of a rapid growth in the numbers of Asian-owned firms, and a rising but still small Afro-Caribbean business population. What factors underlie these differences and in what ways are ethnic firms different from those in the wider business population? Some insights into these questions can be obtained by examining the distribution of ethnic minority owners over the different types of small firms identified above. It is assumed that there are patterned differences in the resources needed to address particular kinds of markets effectively, and that owners vary in the extent to which they possess or can obtain on favourable terms the resources needed to maintain a competitive advantage in any particular sector. Members of particular minorities are differentiated in terms of their chances of maintaining a competitive business on the basis of this analysis. The concept of competitive advantage is taken from Porter (1980; 1985), whose pioneering work in this area has given rise to a great deal of further elaboration (see Quinn, Mintzberg and James, 1988). However, it is striking that both Porter’s formulation and subsequent developments concentrate virtually entirely on large firms and that the fundamental distinctions contained within Porter’s approach have not been widely used in exploring how small firms can sustain a competitive advantage. Porter first defines a category of firms which obtain a competitive advantage by employing a generic strategy of achieving cost leadership which is as far as possible consistently pursued throughout the value chain. Other firms, by contrast, seek to achieve a competitive advantage by differentiation, which may take a variety of forms, all of which imply that the product has a distinctive appeal which justifies a premium price compared to its valuefor-money, generic alternative. He further distinguishes a third generic strategy, described as focus, where competitive advantage is achieved by selecting a narrow industry segment and tailoring strategy to serve that sector. This can again be achieved through cost leadership or by differentiation. For the purposes of this analysis, those distinctions have been regrouped and defined in more basic, but essentially identical terms. Success in small firm operations is seen as being based on advantages in terms of price, product or service, or some combination of these. The notion of price advantages equates with Porter’s cost leadership, while differentiation is

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divided between firms whose products are distinctive and those which, whatever their products, provide a distinctive service. The insights underlying Porter’s definition of focus strategy are retained by recognizing that small firms frequently survive by locating in small niches where they may sell on price or product or service. By contrast, they have great difficulty competing head on against large firms in open markets. Indeed, common observation leads to the conclusion that this is only possible where idiosyncratic circumstances lead to particularly low-cost structures, or where small firms produce goods or services so distinctive that this becomes a separate, specialized market niche, protected from open competition in which large firms can base their advantages on economies of scale. Using these distinctions we can now notionally allocate Asian and AfroCaribbean businesses within the typology of small firms identified and begin to understand the sources of competitive advantage that underlie the highly divergent patterns found in these two categories. This is seen as a preliminary to a systematic examination of survey data on ethnic minority businesses (see, for example, Reeves and Ward, 1984; Wilson, 1983; Wilson and Stanworth, 1985; and for the most comprehensive overview Waldinger, Aldrich and Ward, 1990). However, examination of the available studies suggests that the two patterns set out here, while not based on a rigorous empirical analysis, are widely supported. Asian businesses seem to be largely concentrated within two of the small firm types identified. First, many of these are small, independent local businesses. Some are competing within relatively small, protected ethnic markets. Others are selling ethnic products (food, for example) on the open market. In both cases, barriers to entry are typically quite low and competition with other ethnic owners very high. This leads firms to attempt to undercut competitors on price, to minimize their costs by depending largely on family labour or to attempt to differentiate their products when imitators crowd in and turn a differentiated product (such as a curry) into a virtual commodity. Other Asian firms are selling nonethnic products on the open market and to do this successfully again have to use all their community resources so as to minimize costs. Many other Asian firms are to be found within ‘industrial districts’ in which large numbers of Asian owners are closely involved in networking along the lines noted above in North East Italy (Dei Ottati, 1986; Lorenzoni and Ornati, 1988). In these districts, typically concentrating on one segment within clothing and knitwear manufacturing, the privileged access to ethnic sources of labour, finance, premises and markets gives a significant competitive advantage in lowering the cost of transactions between firms and enabling them to respond quickly and flexibly to fluctuations in consumer demand (Werbner, 1984; Waldinger, 1986).

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A rather small proportion of Asian firms seem to achieve the status of subcontractors to large firms. This is most common in clothing and knitwear manufacturing, but even here the transition from the ethnic enclave to working with chain stores is full of pitfalls and frequently leads to business failure (Ward, 1987b:167–8). The strengths needed to survive as a subcontractor to Marks and Spencer, for example, call for quite different resources compared with selling to Asian wholesalers. In particular, there is a much greater emphasis on the operative skills and management processes needed to maintain a consistently high quality of production. Finally, there appear to be relatively few Asians in franchising, a business form which in most cases puts a premium on operational efficiency and in which friendly contacts in the trade and an approach to business management of informal entrepreneuring are often unhelpful and may be counterproductive (see Chapter 4). Generalizing from these sub-patterns, we can conclude that Asian businesses are frequently found in sectors where they can draw fully on family and community resources either to minimize costs or to provide a flexible service. In many cases, these advantages are embodied in the business-to-business relations in which they are involved and concentrated in sectors where transaction costs can be kept low in consequence. While Asian firms came to the UK from highly distinctive cultural backgrounds, rather few of them seem to compete by ethnic differentiation of their products; competition in the production of ethnic goods and services is typically intense and the fundamental competitive advantage may lie in the ability to minimize costs or utilize generic ways of differentiating their products or the service they provide to customers. By contrast, Afro-Caribbean businesses are rarely to be found in the UK in industrial districts similar to those of Asians. Nor do they frequently act as subcontractors to large firms, though the provision of business services is an area where there is scope for stable subcontracting relationships to develop. While there also seem to be relatively few Black-owned franchises at the moment, this clearly is an area of opportunity. In the US there is a tradition of operating franchises in the Black population, both in Black residential areas and downtown sites. This way of developing AfroCaribbean business is also being considered in Nottinghamshire following an analysis of ethnic minority business in the county (Gretton, 1988). In fact, the great majority of Black-owned firms in the UK are independent local operations. However, their location within this broad category of small firms is very different from that of Asian businesses. AfroCaribbean enterprises which are involved in direct competition with Asians in petty retailing of commodity items seem to find it very difficult to survive. Indeed, retailing in general is much less common among Black firms and where it is successful it is frequently protected by product

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differentiation (as in specialized record shops) or by vertical integration between retailing and the manufacture of the items retailed (such as hot bread, fashion or hand-made shoes) (Ward, 1987b:170). Indeed, it has been argued that many such retail outlets are really manufacturing businesses in disguise, the competitiveness coming from the skill and knowledge underlying the manufacturing rather than the retailing end of the operations (Ward, 1987b). It is clear that many of the most successful and longest-established AfroCaribbean businesses are in the service sector, where again it can be argued that effective provision of the service calls for experience and expertise in varying combinations. These act as barriers to entry, restricting the intensity of competition, though the fairly widespread possession of many of the skills underlying Black businesses and easy access to training may render such barriers insubstantial. Thus, those who five years ago had a clear field in selling services based on ethnic expertise (such as take-aways) now have to find more generic ways of differentiating their services to retain a competitive advantage. It is conceptually easy to relate the differential distribution of AfroCaribbean and Asian businesses over the small firms population to such factors as: family system (that is, the extent to which the owner can call on the labour of wife and children and other relatives to support the business etc.); the employment status of wives (most small ethnic firms being owned by males); skills, expertise and experience relevant to business operations; orientation to business as an avenue of economic mobility; and access to business networks, etc. Distinctions between typical AfroCaribbean and Asian families on such factors can go far towards explaining the different resources which owners bring to the business (as well as helping explain the prior question of whether business or the labour market is seen as the preferred route to achievement). These distinctions take on a greater significance, however, when they are set alongside an understanding of how they provide the basis for the kinds of competitive advantage considered above and how, in turn, particular competitive advantages underpin effective performance in different kinds of small business. Thus, it is argued that Afro-Caribbeans typically bring to the business skills and experience which serve as barriers to entry in sectors where owners are selling differentiated products to local customers. Where competition becomes intense, such firms frequently have to look for cost and/or service advantages to supplement the appeal of their products, or to enhance their skills/expertise to produce more highly differentiated goods and services. However, it is suggested that there may be potential for AfroCaribbeans to move into areas better protected from competition, such as business services and franchising, where efficiency in operations may be

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more important than privileged access to ethnic resources or entrepreneurial flair. By contrast, it is proposed that Asians typically bring such privileged access to business resources and markets to the business through their involvement in family and ethnic networks. This allows them both to minimize the cost of transactions with other businesses, enhancing cost competitiveness, and to provide a better service through their ability to respond flexibly to volatile demand. They are found much less in businesses which depend on cost-effective operations and consistent high levels of quality. CONCLUSION It is clear from the foregoing analysis that ethnic business is making an important and growing contribution to the UK economy in the small firms sector, especially in large urban-industrial centres, and above all in London and Birmingham. What other trends can be identified which point to the role that ethnic-owned firms will play in the national economy by the year 2000? Demographic trends Demographic trends within ethnic minority communities in the UK favour a further increase in the size of the ethnic business sector. In particular, the relative youth of the population implies a growing number of people looking for ways of making a living in the coming decade. Despite the declining numbers of school-leavers overall projected for the 1990s, no doubt some of the extra demand will turn towards small business ownership. Certainly recent studies of the operations of enterprise agencies in areas of Afro-Caribbean settlement show a high level of interest in business ownership on the part of young Blacks (Ward, Randall and Wilson, forthcoming). Length of settlement The business participation profile of ethnic minorities in the UK and the US has changed markedly with increasing length of settlement. In many cases the children of new settlers who turned to self-employment as a way of making a living have acquired at school the educational qualifications equipping them for entry to professional and managerial jobs. As the children of those who came to find work in the UK acquire education and training in professional and technical subjects and in business and management, they face the same choices, though the pervasiveness of racial discrimination and high rates of unemployment heavily constrain

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opportunities in the labour market. There is likely therefore to be a continuing interest in self-employment as a way of making a living, despite the attractions of employment utilizing their credentials. The more advanced knowledge they possess in the form of professional, technical and business education will equip them better than their parents to run knowledge-based firms which subcontract to larger corporations and to manage franchise operations. Increasing penetration of these sectors would bring ethnic-owned firms more into the mainstream of the British economy. Structure of small business Given that ethnic minority businesses are not evenly scattered over the small firms sector, the evolution of each of the types of business discussed above will affect the opportunities for ethnic enterprise. The main factors underlying recent trends, especially the growth of knowledge-based firms, the expansion of the service sector and business fragmentation, with its implications for subcontracting and franchising, seem likely to continue. Thus there are likely to be opportunities for new entrants to use their education and training in small business management. The structure of opportunities is also being affected by the completion of the single market in the EC. This is likely to expose many small niches to greater competition, making it harder for small firms in some sections to survive, particularly in areas of public procurement and in industries where increasing cost competition makes competitiveness even harder to sustain. However, the ability to offer a flexible quick response is likely to remain an important source of advantage, with Asian businesses continuing to use their resources to survive in such sectors. In addition, there will always be opportunities for lowest cost firms to address marginal markets which offer a low return, and relative disadvantages in the labour market will make ethnic minorities more dependent on such niches. Public policy and ethnic business Ethnic business has for many years been an area of direct intervention by government (Waldinger, Aldrich and Ward, 1990; Ward, 1987b). While British and American contexts are notably different in some basic respects, there is a broad similarity in the kinds of measures being adopted to support ethnic enterprise. Although it is beyond the scope of this chapter to go into detail, there is little to suggest that programmes to help in the development of the ethnic sector will decline. Indeed, to the extent that they are becoming more widespread, there is a further reason for expecting

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a numerical increase in the numbers of small firm owners from ethnic minorities. REFERENCES Bamford, J. (1987) ‘The development of small firms, the traditional family and agrarian patterns in Italy’ in R.Goffee and R.Scase (eds), Entrepreneurship in Europe Beckenham: Croom Helm, pp. 12–25. Boissevain, J. (1984) ‘Small entrepreneurs in contemporary Europe’, in R.Ward and R.Jenkins (eds), Ethnic Communities in Business, Cambridge: Cambridge University Press, pp. 20–38. Davis, S. (1987) Future Perfect, Boston, Mass.: Addison-Wesley. Dei Ottati, G. (1986) ‘Distretto industriale, problemi delle transazioni e mercato communitario: prime considerazioni’, in Economia & Politica Industriale, vol. 51, pp. 93–121. Department of Employment (1988) Employment Gazette, March, pp. 164–77. Gretton, E. (1988) ‘Black business development in Nottinghamshire’, Report and Action Plan, Nottinghamshire County Council. Lorenzoni, G. and Ornati, O. (1988) ‘Constellations of firms and new ventures’, in Journal of Business Venturing, vol. 3, pp. 41–57. Porter, M. (1980) Competitive Strategy: Techniques for Analysing Industries and Competitors, New York: Free Press. Porter, M. (1985) Competitive Advantage: Creating and Sustaining Superior Performance, New York: Free Press. Quinn, J., Mintzberg, H. and James, R. (1988) The Strategy Process (eds) New Jersey: Prentice-Hall. Reeves, F. and Ward, R. (1984) ‘West Indian business in Britain’ in R.Ward and R.Jenkins (eds) Ethnic Communities in Business, Cambridge: Cambridge University Press, pp. 125–46. Storey, D. and Johnson, S. (1987) Job Generation and Labour Market Change, Basingstoke: Macmillan. Waldinger, R. (1986) Through the Eye of the Needle: Immigrants and Enterprise in New York’s Garment Trades, New York: New York University Press. Waldinger, R., Aldrich, H. and Ward, R. (1990) Ethnic Entrepreneurs: Immigrant Business in Industrial Societies, London: Sage. Ward, R. (1987a) ‘Ethnic entrepreneurs in Britain and Europe’ in R.Goffee and R.Scase (eds) Entrepreneurship in Europe, Beckenham: Croom Helm, pp. 83– 104. Ward, R. (1987b) ‘Resistance, accommodation and advantage: strategic development in ethnic business’ in G.Lee and R.Loveridge (eds) The Manufacture of Disadvantage, Milton Keynes: Open University Press, pp. 159– 75. Ward, R., Randall, R. and Wilson, T. (forthcoming) ‘Enterprise Agencies and Black Business Development in Britain’, Nottingham Business School. Werbner, P. (1984) ‘Business on trust: Pakistani entrepreneurship in the Manchester garment industry’, in R.Ward and R.Jenkins (eds), Ethnic Communities in Business, Cambridge: Cambridge University Press, pp. 166–88.

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Wilson, P. (1983) Black Business Enterprise in Britain: A Survey of Afro-Caribbean and Asian Small Business in Brent, London: Runnymede Trust. Wilson, P. and Stanworth, J. (1985) Black Business in Brent, London: Small Business Research Trust.

4 Facing up to the fragility of ‘minding your own business’ as a franchisee Alan Felstead1

INTRODUCTION The recent upturn in those recorded as self-employed and the growth of the small business sector more generally has led many commentators to herald these changes as bearing testimony to the emergence of ‘the enterprise culture’. Firms are seen to be keen to seek out greater levels of flexibility through the use of so-called ‘peripheral’ workers, and workers, in turn, apparently more willing to take on the increased levels of uncertainty which this entails (Atkinson, 1984 and 1987). Yet despite the attention paid to the alleged changes in employers’ employment strategies in the 1980s, there is little evidence to suggest that the rise in self-employment is the result of the status conversion of previously directly employed workers to that of self-employed (Hakim, 1988; Creigh et al., 1986; for extended critique see Pollert, 1991). Involuntary recruits to the ranks of the self-employed appear to be relatively small. Instead, most come forth as voluntary recruits, whether engaged in activities previously conducted in-house, in areas/activities previously not serviced or else serving the domestic market. Indeed, research on the motivations prompting the move towards self-employment consistently cites the benefits of independence and the ability to exercise control over one’s own work environment as the main motivators (Bevan et al., 1989). Furthermore, the desire to become self-employed more often than not pre-dates any specific business idea. Promotors of franchising (e.g. Dutfield, 1988) have often argued that these two factors have provided fertile ground for the growth of franchising in the 1980s, and can be expected to do so in the years beyond. Such a view is based on the argument that by granting franchisees a licence to use a proven business format, the hurdle of finding a specific and viable business idea is surmounted, thus giving many more people the opportunity of ‘being their own boss’. While it is undoubtedly the case that franchising in the UK has grown rapidly over the last decade—sales have almost trebled and the number ‘employed’ either directly or indirectly has almost doubled

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over the last three years (Power Research Associates, 1988)—the claim that the franchise route offers entrants a chance to ‘mind their own business’ is, however, more questionable. Before critically evaluating such a claim it is important to distinguish between two main types of franchise arrangement in commercial use, so as to avoid any confusion as to the focus of this chapter. The first is known as product or trade mark franchising and refers to the situation where the franchisor is typically a manufacturer or wholesaler seeking outlets for its branded products. Under this arrangement the franchisor may provide some advertising, management assistance and training, but the franchisee generally conducts business as an independent distributor acquiring the identity of the franchisor through the trade mark. This type of arrangement has a long commercial heritage in the UK, and for this reason is often referred to as ‘first generation’ franchising. The brewer’s system of ‘tying’ their tenants to the purchase of the brewer’s own brands of beer and other drinks is a classic example of this type of franchise arrangement. Examples can also be found in petrol retailing, vehicle dealerships and soft drink bottling, and is used by companies such as Coca-Cola, Seven Up, VG and Mace. The business format franchisor, on the other hand, is typically an operating retailer of a serice or product who has experienced a level of success sufficient to suggest that if other retailer franchisees were to reproduce the franchisor’s formula and systems in similar locations, they would also succeed. The franchisees, therefore, not only receive the right to use the franchisor’s trade mark, but also operate under specific guidelines covering all aspects of the business, including marketing, operations, accounting, finance, the design of the premises/van and even the colour of the uniforms worn. The franchisor also provides training in the operation and methods of the business prior to opening, and continues to offer ongoing advice and assistance in the areas of staff training, management, advertising, research and development, and so on. Some of these elements are to be found in product or trade mark franchising. However, the business format franchise differs in four important respects. First, the franchise relates to the entire business not just to the product. Second, franchisees follow stipulated procedures extending far beyond the method of distribution. Third, in return for providing this step-by-step approach, franchisees pay ongoing payments to the franchisor. This commonly takes the form of a percentage of gross turnover and/or a mark-up on goods supplied. Finally, business format franchising is geared towards helping aspiring entrepreneurs in startup situations, whereas product franchising usually relies on either recruiting franchisees with existing businesses or filling vacant franchisee positions in ongoing businesses.

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However, despite the apparent clarity in the franchise literature (Vaughn, 1979: Ch. 1; US Department of Commerce, 1988:1–5), the distinction between product and business format franchising is becoming increasingly difficult to detect in practice. Some franchisors who might at one time have been classified as product franchisors by virtue of the fact that they granted to independent operators the right to retail products manufactured by the franchisor, have since provided more intensive support to their retail franchisees. Shell and Esso, for example, now provide some of their filling station franchisees with comprehensive and detailed manuals covering the operation of forecourt shops (cf. Monopolies and Mergers Commission, 1990:367–71; Motor Trader, 11 February 1989). By the same token, a number of those classified as business format franchisors have since vertically integrated backwards into the manufacture of the products they supply to franchisees. The Body Shop, for example, originally supplied products to franchisees on a wholesale basis, but has recently begun to manufacture an increasing proportion of the products it supplies to franchisees. Nevertheless, this paper is focused upon so-called business format franchise opportunities for two reasons. First, such opportunities are commonly targeted at aspiring small business entrepreneurs seeking to ‘mind their own business’, yet having little idea of what business that might be. Secondly, this type of franchise is expected to account for an increasing proportion of franchise sales and outlets in the years ahead. In the US, for example, business format franchising currently accounts for a lower percentage of total franchise sales than does product franchising, yet there are nearly twice as many business format franchising outlets and total business format franchising sales are growing twice as fast (Kaufmann and Leibenstein, 1988; US Department of Commerce, 1988:1–5). Unlike some of the conventional product franchises such as vehicle dealerships or soft drink bottling, business format franchising is characterized by relatively low entry costs. However, there is enormous variation between business sectors (see Table 4.1). In the case of the fast food and restaurants category, for example, average set-up costs amount to around £125,000 compared to around £16,000 for a franchise in building maintenance. Variations can also be found in the level of ongoing royalty payments and the licence fee payable on entry. The preferential treatment given by the banks to those wishing to take a franchise (see Stern and Stanworth, 1988), the use of savings and/or redundancy payments, together with the ability many have to take out a second mortgage on their home, makes business format franchising affordable to large numbers of people.

70 THE FRAGILITY OF ‘MINDING YOUR OWN BUSINESS’

Table 4.1 Business format franchisors: set-up costs, licence fees and royalties*

* Ranked according to average set-up costs. Source: Adapted version of table 2 in Felstead (1991), but compiled originally from data supplied by 238 business format franchisors (three-fifths to the author directly, the remainder taken from the Directory of Franchising, 1989).

By providing the innovation spark in the form of the concept or business idea, business format franchisors are active in advocating the attractions that pull many into self-employment. Their prospectuses often emphasize the independence of ownership, the ability to control one’s own working environment, the freedom to choose when to work and for whom, and so

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on. These sentiments are more often than not summed up for the prospective franchisee in the catchphrases ‘be your own boss’ and ‘mind your own business’. This chapter examines the nature of these claims by reporting on the preliminary results of a case study of a franchising company investigated by the author. The analysis takes its framework from work reported elsewhere (Felstead, 1990 and 1991). This requires a comprehensive analysis of the relations of production under which franchisees operate. The following elements need to be considered: the control over the productive process; the distribution of the revenues generated in production; and the ownership of the means of production. The case study material reveals that a significant tightening of the relationship along all three dimensions was proposed following a takeover and the issuing of new contractual terms. The fragility of the claim that franchisees are able to ‘mind their own businesses’ is therefore illustrated in a striking fashion. Indeed a majority decided to break away en masse rather than face the prospect, as one franchisee put it, of becoming ‘an employee in all but name, with none of an employee’s advantages’ (written by respondent no. 34). The chapter concludes by urging those who consider franchising as a route into small business (and predictions suggest that increasing numbers will follow this route before the turn of the century), to remain aware that some franchises offer greater scope to ‘mind your own business’ than others. Moreover, the case study reveals the fragility of the level of independence granted as it can be unilaterally modified or withdrawn at a moment’s notice should the franchisor make contractual changes, be the subject of a takeover, or even close the operation down. RESEARCH METHOD Choosing a research method involves making judgements about both what issues the researcher feels to be important, and the circumstances of the research. It is helpful, therefore, to preface a description of the method adopted here, with some background information about the company under scrutiny (but in order to protect its identity pseudonyms are used throughout). CarCo was established as one of the earliest business format franchisors in the UK in the late 1960s. It was a family-run business, offering a convenient mobile car tuning service to customers at home or their place of work. The amount of investment required was very modest (even by franchising standards) as franchisees operated from home, and could be lowered still further if franchisees took up the option to lease both their van and equipment. In 1987 CarCo was bought by Vehicle Dealers Limited, a much larger company with interests in the import and sale of foreign cars in the UK.

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The new owners quickly presented new contractual terms to the fleet. Unwilling to sign the new contract, 76 of the 113 CarCo franchisees left to form AutoCo, a rival franchise network, 4 retired or else went independent, 32 signed the new agreement and 1 remained with CarCo on the terms of the old agreement. Legal battles then ensued as VDL, new owners of CarCo, tried to enforce a number of restrictive clauses on the activities of the breakaway group. These actions were largely successful on the grounds that those clauses were too widely drawn to be enforceable. In the main, this was as far as reports in the trade press went (e.g. Franchise World, May-July 1988; The Franchise Magazine, Autumn 1988). Even from these reports, it appeared that research into the origins of the AutoCo breakaway would provide a ‘critical case’ for a study that focuses on the dynamics of the frachisee-franchisor relationship. After all, twothirds of the fleet were clearly dissatisfied with the new terms and conditions they were offered. They voted with their feet and decided to collectively breakaway, risking the consequences of litigation. The research was conducted at two levels. First, the main players in CarCo, VDL and AutoCar were interviewed on a semi-structured basis. Other interested parties such as consultants and the industry’s trade body were also interviewed with regard to their particular input or influence on the episode. In all, six major players were interviewed at this level. A wealth of court proceedings, sworn affidavits, franchise agreements (new and old) and correspondence were also considered. The second level involved approaching those at the sharp end of the proposed changes. How did they see their relationship with CarCo before the takeover? What difference did they think the proposed changes would make? With the help of one of the directors of AutoCo (the breakaway grouping), a postal questionnaire was developed and sent to all franchisees. Prior to this, the author was introduced to the fleet at its annual conference. A letter of introduction from one of the directors accompanied the questionnaire. It explained that the project had his support but that it was being independently conducted. After two further mailings a usable response rate of nearly 85 per cent was achieved (i.e. 61 usable cases from a total population of 74). A further 11 follow-up interviews were also conducted on a face-to-face basis to flesh out the quantitative data obtained from the survey returns. Interviewees were selected so as to yield a cross-section of franchisees. They ranged from relative newcomers to the more experienced operator, and from the relatively low to the relatively high performers. This added greater depth to the results, enabling the citation of specific examples and illustrative quotes. Initially the intention was to make a comparison between the views of franchisees who had broken away to those who had remained and signed the new contract. However, CarCo refused to supply a list of its

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franchisees, without confirmation that similar approaches would not be made to AutoCo franchisees. These conditions could not be met since approaches to the AutoCo fleet were already well advanced. Nevertheless a few CarCo franchisees who had signed the new contract but had since resigned were tracked down and interviewed on a face-to-face basis. MINDING YOUR OWN BUSINESS? The way in which CarCo franchisees thought the new contract would affect the way they managed their businesses is best seen by adopting a ‘before and after’ approach. This section compares the way in which franchisees operated prior to the takeover with the changes they thought would ensue from the new contract. A number of dimensions are considered: the conditions under which tuning itself was carried out; the ongoing payments made to the franchisor; and an examination of who owned the vans, equipment and telephone lines. Under the old contract Definitions of business format franchising (such as the one given at the beginning of this chapter) often refer to the supports provided by the franchisor to ensure that the franchisee is able to duplicate the success of the franchisor. Indeed the British Franchise Association requires that its members have successfully piloted their operation before being admitted to membership. However, CarCo never piloted its operation, nor was any territory ever run by the company to keep track of developments in the market. Furthermore, many of the supports that should theoretically have been provided by the franchisor were never provided, or else were reported to be of a poor quality. Over 50 per cent of our sample, for example, reported training to be poor to the extent that one franchise remarked that it ‘was marginally better than pathetic’ (respondent no. 12). Instead franchisees often made private arrangements to obtain training in order to keep themselves abreast with the rapid changes in engine technology. The operations manual—theoretically thought to lay down guidelines covering all aspects of the business—was similarly less than extensive and was reported to cover just four pages. Only after pressure from the fleet through the Franchise Advisory Board was a technical manual covering mobile vehicle tuning produced. Even then it was written by some of the franchisees, and was simply edited and circulated by CarCo. Field support was virtually non-existent with almost three-quarters of our respondents reporting that it was either poor or simply not provided by the franchisor. Forty per cent believed CarCo employed no one to visit franchisees in the field, while over 50 per cent reported that they had either never received a

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visit or that these had taken place at yearly or longer intervals (most visits coming in their last year). This raises an important issue for would-be franchisees: what should be expected from a franchisor? Unfortunately, the publicity brochures and the franchise contracts themselves do little to clarify the position. Often they are vague when it comes to detailing the services to be provided by the franchisor. Commitments to provide an operations manual, ongoing support, training and technical advice can be minimally fulfilled. Franchisors need only prepare a flimsy manual, provide training only at the time of entry, and respond reactively, rather than proactively, to franchisees’ technical and business enquiries. This makes for the possibility of a serious mismatch of expectations between franchisees and franchisors as to what support services the franchisor will provide in practice, and has consequently been the most common source of disputes in the past (and one suspects in the future too). This is compounded further by the fact that any verbal commitments given by the franchisor detailing the more specific support services to be provided are not enforceable in law.2 The lack of a detailed operations manual, the lack of regular visits and the nature of the work itself gave CarCo franchisees significant scope to tune cars in whatever way they saw fit. Rather than providing a tried and tested formula or system of operation, CarCo franchisees were often ‘told to get out tuning’ (respondent no. 46) and many simply learnt on the job. The changing nature of the work also favoured reliance on the ‘know how’ acquired by franchisees. The increased use of electronics in many new cars has broadened the skills required of engine tuners from a process of repairing and adjustment to a process of component replacement. As yet affordable tuning equipment capable of removing much of the discretion and skills associated with the increasingly varied diagnostic process is not within sight. Area testing rather than detailed testing is the best the equipment can do, leaving the exact pinpointing of faults to the skills acquired by the tuner. As one franchisee put it: …engine tuning is not like cooking a burger, or a fried chicken, or even selling cars. I’ve been tuning since 1974 and I’ll never stop learning. Most franchise operations can be learnt in a very short time, this one can’t. (Respondent no. 12). The comparison with other sectors where franchising has taken root is particularly interesting since, in most, the labour process has become increasingly deskilled. This is most striking in fast food and many of the retail-type franchises where stores are ‘fitted out’ with automated equipment (such as electronic point-of-sale tills and automated cookers),

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and where many of the products supplied are prepared by manufacturers before they reach the store (cf. Bluestone and Huff Stevenson, 1981; Levitt, 1972; Dunne, 1988). Even the small amount of discretion that remains is closely monitored through an analysis of franchisees’ inventory and sales reports, which can in turn be used to determine whether the store is getting the appropriate yields. In short, the separation of conception and execution of tasks is most sharply delineated in these types of franchise, whereas in engine tuning the division appears, if anything, to be increasingly blurred. CarCo franchisees were further able to exercise a high degree of autonomy over the tuning process itself because they were granted an exclusive territory within which to work. In order to expand their business without buying neighbouring territories, franchisees were allowed to increase the number of vans they had on the road by taking on suboperators. Under this arrangement, the franchise holder could pyramid his/ her (almost invariably his) territory to a second tier of operators who would be supplied with vans, equipment and work directly from the franchisee. The sub-operator would typically retain 45 per cent of the labour cost of the tune, the franchisee would receive 45 per cent and CarCo the remaining 10 per cent (as it would have if the tune had been performed by the franchisee). The recruitment of sub-operators was the franchisee’s responsibility subject to CarCo’s approval, while their training was solely the responsibility of the franchisee. The three-way relationship between franchisor, franchisee and suboperator has clear parallels with territorial or master franchising. Under the latter arrangement a franchisor sells an exclusive area, either a country or state, to a master/territorial franchisee. While the franchisor might be obliged to provide some very basic assistance in setting up the first operation and some fundamental training concerning the system of operation, most of the initial fees collected from the master/ territorial franchisee drop to the franchising company’s bottom line. Master/ territorial franchisees then sell parts of their territory to a second tier of operators, collecting up-front fees from each one. Although the suboperator structure operated by CarCo did not entail the sale of territories, its systemwide effects were similar to that generated by the sale of master/ territorial franchises.3 This had a number of consequences. First, this structure made it extremely difficult to exert central control over the development of the network. Large territorial franchisees could either increase the number of vans operating in their area or else remain a one-person van operation. The franchisor had little control over this, despite the fact that its income rose and fell according to the numbers of tunes completed. Even a well-developed territory presented the franchisor a ‘blessing in disguise’, in that ‘so-called baron operators emerged wielding a great deal of power, influence and large amounts of turnover within the

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fleet’ (respondent no. 13). Or as one franchisee put it, the sub-operator structure made for ‘an uncontrollable feudal-type franchise’ (respondent no. 46). Second, by training sub-operators themselves, franchisees could inculcate them with their own particular methods and practices and hence add a further tier over which the franchisor had little or no operational control. Given the situation outlined above, it is perhaps rather unsurprising that when asked to rate the level of independence they enjoyed under the original regime, over 80 per cent gave scores of 1 or 2 on a scale ranging from 1 (total independence) to 5 (manager in all but name). Similarly, almost 70 per cent of our respondents reported that they exercised ‘a great deal of freedom in running their business’, while the remainder reported that they exercised ‘a reasonable amount within guidelines’. Respondents were further asked to give a score between 1 and 6 to indicate where the burden of responsibility lay on seven key strategic business decisions—hours of operation, bookkeeping systems, product range, local advertising, price setting, the number of sub-operators and the terms under which they were required to operate. A score of 1 indicated that CarCo had complete responsibility, a score of 6 that the franchisee had complete responsibility, and there were gradations in between these two extremes. For all but two of the seven decisions —price setting and the terms and conditions on which sub-operators worked—franchisees claimed to have more responsibility than their franchisor. This forced one respondent to write: ‘I suspect we were given too much freedom for CarCo to exist as a true franchise’ (respondent no. 5). Indeed it may not be too wide of the mark to suggest that CarCo franchisees ‘behaved more like “licensees” than franchisees’ in that they received little or no ongoing operational support (quote taken from a circular letter from VDL to all members of the CarCo fleet shortly after the takeover). In spite of being operationally alone, franchisees still remained part of a much wider process of capital accumulation. Although franchisees retained most of their own profits, they also continued to contribute to the profits of the franchisor. CarCo levied a 10 per cent royalty on the labour content of each tune and marked-up or else retained the commission it received on the products and services it supplied to its franchisees (such as spares, insurance, equipment and out-of-guarantee repairs). It was recognized by the fleet that while ‘the 10 per cent was theoretically for a lot of things, in reality it simply gave eight letters down the side of the van and technical back-up if required’ (respondent no. 70). In other words, the franchise amounted to little more than a rent-a-name scheme. Once the name had been promoted by the franchisee in his/her territory, though, the 10 per cent royalty plus markups represented retainers on the use of a trade name they had themselves helped to promote. This was less so for ‘baron’

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operators since their sub-operators paid the 10 per cent royalty charge to CarCo in any case. The link between franchisor and franchisee is commonly buttressed by the franchisor taking propriety rights over some aspects of the business in addition to the trade name. Typically this amounts to a contractual clause which attempts to maintain the franchisor’s propriety rights over the ‘knowhow’ or intellectual property associated with the business. As a consequence, former franchisees are prohibited from competing directly with the franchisor or the company’s franchisees for a specified period of time within a clearly defined geographical area (known as the ‘noncompete’ clause). However, without a secret process or the use of secret equipment this clause is weak to the point of being unenforceable. In the case of CarCo, the use of a piece of car tuning equipment that could be readily found in other mobile car tuning organizations as well as in garages and tuning centres hardly constituted a trade secret. Franchisors often seek to strengthen their control over the franchisee, through the ownership of some of the physical as opposed to mental means of production. In premises-based franchises, this commonly takes the form of franchisors taking the head-lease and offering franchisees an underlease. In countries with greater land availability, such as the United States, this process has been taken one step further with the outright ownership of the property and land on which outlets are built. McDonald’s provides a classic example of this sort of strengthened tie, and the enhanced control which this gave the company over its franchisees was not lost on the chain’s founder, Ray Kroc: It [the franchisee’s sublease] says that if at any time McDonald’s System Inc. notifies Franchise Realty Corporation that the operation does not conform in every way to the McDonald’s standards of quality and service, this lease will be cancelled on thirty-day notice. Now we have a club over them, and by God, there will be no more pampering or fiddling with them. We will do the ordering instead of going around and begging them to co-operate. (Love, 1987:157) Other examples can also be drawn from the US: Dunkin’ Donuts, for example, controls the real estate from which two-thirds of its franchisees operate either through outright ownership, holding the head lease for property and/or the land on which its outlets are built (Kaufmann, 1988). However, available evidence for the UK suggests that franchisors are more often tenants of landlords than their franchisees (only 17 per cent of the Power sample reported themselves to be tenants of their franchisor, Power Research Associates, 1987:29). However, two points must be borne in mind. First, the reliability of this data is questionable, given what the

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survey defines as a franchise and the low level of response it was able to elicit.4 Second, the data covers mobile operations (such as this particular case study company) as well as those business formats for which no special premises are required, and so the proportion of premises-based franchisees who have their franchisor as their landlord may be underestimated. CarCo’s policies to control franchisees through the ownership of some of the physical means of production remained weak. Only those franchisees with limited capital resources were ‘tied’ to CarCo through the restrictive clauses written in to the leasing agreements on vans and equipment which lowered the capital threshold on entry and/or expansion. Such clauses gave CarCo the right to remove or repossess any equipment under lease in the event that the franchise agreement was terminated for any reason.5 More importantly, however, telephone numbers were the property of the franchisee. Since these represent the ‘front door’ for mobile tuners (and many home-based franchises for that matter), CarCo’s lack of control over such a ‘life-line’ (respondent no. 13) severely diluted its control over franchisees. As soon as a franchisee ceased to remain with CarCo for whatever reason, the goodwill associated with the original telephone number was retained by the franchisee and lost by the franchisor. On considering the productive process, revenue links with the franchisor and ownership of the means of production. CarCo franchisees exercised a level of independence not often found in other franchise environments (e.g. fast food). Indeed the changing nature of engine tuning led franchisees to develop the view that their skills had become increasingly valuable. In the light of this, we now consider the fragility of ‘minding your own business’ under a franchise arrangement by examining how the new CarCo contract appeared to signify a tightening of the reins along all three dimensions of the relationship. Under the new contract Research on forms of working, such as homeworking, once considered anachronistic to the twentieth century, has revealed that close supervision need not be the only way to organize production with a view to maximizing profits (e.g. Rubery and Wilkinson, 1981; Allen and Wolkowitz, 1986; Stanworth and Stanworth, 1989). Indeed, compared with working arrangements in the factory or office, the mechanisms (such as payment by results) which determine the homeworker’s pace and quality of work are comparatively indirect. A similar argument can be applied to franchising. By granting franchisees property rights in the business, franchisors hope to benefit indirectly— through royalties and/or mark-up on goods and services supplied—from the increased effort and greater attention to detail this may bring.

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However, granting exclusive territories to franchisees can be a mixed blessing as they may reach ‘comfort levels’ from which they are unwilling to expand and develop their territories any further. The determination of territories according to a geographical yardstick is, in any case, fraught with difficulties. Shifts in population, and thus changes in the potential customer base, may distort territorial viability, diminishing one while increasing another. Under the old contract, the only control CarCo had over the development of a territory was the setting of a minimum number of tunes to be completed per month one year after setting up. This was set at 40 tunes per month; a level widely recognized within AutoCo to be low, to the point of it being difficult to keep the business afloat. CarCo’s right to terminate the franchise contract should the number of tunes fall below this level was therefore something of an empty threat as bankruptcy probably loomed much larger. The new contract, on the other hand, contained much stronger powers to penalize those who failed to develop their territories to the levels demanded by the franchisor. Existing territories were carved up into primary and secondary areas, and performance targets were set for the retention of the primary area and the right to put another van on the road to develop the secondary area more fully.6 Should these targets not be met, the franchisor reserved the unilateral right to place a van in the franchisee’s secondary area and reduce the size of the primary area (albeit with compensation per tune in the area reclaimed). The effect of determining the size of territory according to the number of tunes completed was considered to have two interrelated consequences. The first was that the quality of the service to the customer would suffer. The incentive to take as read many of the checks necessary for a thorough engine tune would be increased. First-order and even second-order faults found on verification would go unnoticed as franchisees sought to meet monthly tuning targets. Secondly, a franchisee’s security of territorial tenure would be severely undermined, it would be ‘a case of heads they win, tails you lose’ (respondent no. 31). The contract gave the franchisor the powers constantly to reset targets that were met at higher and higher levels, while those who failed to reach these targets would face the prospect of having their “‘undeveloped” territories [and even their primary area] confiscated’ (written by respondent no. 75) and then sold for a further one-off franchise fee to a new recruit. The new contract also attempted to raise the franchisor’s revenue more directly by increasing the royalty from 10 per cent to 12.5 per cent and by adding a 5 per cent advertising levy. Initially this was the most visible change proposed. The enhanced back-up this was supposed to provide was left unspecified, and in the light of past experience many felt the increased charges ‘were more to do with the franchisor’s bank balance than

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development of the business’ (respondent no. 5). However, ‘it soon became the least of our worries as our independence was threatened far more in other ways’ (respondent no. 31). One of these ways concerned the proposed ownership arrangements for the business telephone line, vans and equipment. Under the new contract, CarCo would be the sole subscriber for all telephone lines used by its franchisees for business purposes. Franchisees were fearful that ‘by taking our phone lines—our life-line—the franchisor would be able to pull the plug at any time, if they so desired’ (respondent no. 12). However, the concern was compounded by the clause committing franchisees to participate in the setting-up of a regionalized or centralized booking office should the franchisor deem it appropriate. If implemented, regionalized or centralized booking offices were thought to have two consequences. First, they would break the link between the customer and the tuner since all customer calls would go through a third party. As a result the personal touch would be diluted, and the number of call-backs increased as queries could no longer be directly dealt with over the telephone by the tuner. Second, for many franchisees who broke away the prospect of centralized booking offices meant that CarCo had the ‘makings of becoming another AA-type service, with head office taking the calls, farming it out to patrol men who would then do the work’ (respondent no. 70). Franchisees would be left with little control over the planning of their working day, what cars they were prepared to tune, what areas they were prepared to work, and for how long. Even holidays would have to be booked in advance. In short: We wouldn’t really control our own businesses, but would instead be controlled by an anonymous person. We had become franchisees to control our own destiny, and so we didn’t want to be told what, when and where to do our next tune. (respondent no. 74) It was also reported that CarCo would prefer franchisees either to lease their vans and equipment through its financing arm or else to rent them from CarCo. Both would ensure that franchisees did not hold outright ownership of the operating equipment, thereby further enhancing their dependence on CarCo. Fixed costs would also be raised, prompting higher turnover (hence higher royalties) for any given level of profit. However, this preference could only be pursued with new recruits to the fleet or existing operators who qualified for expansion. Overall, the new contract tightened the controls the franchisor was able to wield over its franchisees quite considerably:

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The contract was very draconian, they’d thought of every way they could to pin you down, everything about it was designed to keep us under control. They were talking about partnership, but the contract meant that we’d lose control over our businesses. (respondent no. 74) The controls were considered so tight that for many it would have represented ‘no more working for yourself than working for British Leyland, yet with none of the benefits of employee status and all of the disadvantages of self-employment’ (respondent no. 32). Under these circumstances the fragility of ‘minding your own business’ as a franchisee is brought into sharp relief. CONCLUSION Independence from external control is often taken as one of the defining characteristics that separate small firms from the larger units of a larger enterprise (and the self-employed from the directly employed, see Rainbird, 1991). In the words of the Bolton Committee: ‘the ownermanager should be free from outside control in taking their principal decisions’ (Bolton, 1971:1). However, as the Committee itself pointed out, the independence of even the conventional small business is always less than total and often difficult to assess accurately in practice. For example, widely dispersed networks of small clothing manufacturers often produce for one large retailer who in turn lays down the exact specifications for an acceptable item—the number of stitches to an inch; the number of inches to a hem; dates for delivery; and the price for the completed item. In return for acceptance of these disciplines, suppliers are rewarded with long production runs (Rainnie, 1989; Stanworth, 1988). These constitute severe limitations on the independence of the small entrepreneur in practice, without in any way compromising the nominal or legal independence they are deemed to enjoy. The ability to exercise independence, ‘be your own boss’ or ‘mind your own business’ are not dichotomous notions, but rather relative concepts with some small firms enjoying more, and some less, than others. A similar argument applies to the sub-set of franchised businesses. Only by examining the relations of production under which franchisees operate can one locate the franchise along this continuum. To this end, one must consider the controls on and nature of the production process, the revenue links with the franchisor, and the ownership of both the mental and physical means of production. This procedure has begun to highlight some of the more specific factors one should look for in making such an assessment.

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Table 4.2 ‘Minding your own business’ as a franchisee: the high and low points along the continuum

Table 4.2 outlines a set of binary oppositions between hypothetical franchise systems at either end of the continuum. The scope to ‘mind your own business’ appears to be greatest, in terms of the productive process, in those franchises granting exclusive territories, providing a high service (or intangible) component, requiring high levels of operational expertise and reliant on a locally promoted brand image. Relatively low payments to the franchisor expressed as a percentage of franchisee turnover; the use of equipment, processes and products widely available outside the franchise; and weak ‘ties’ over the physical means of production; further enhance a franchisee’s ability to ‘mind his/her own business’. If all these factors are found be at the other extreme, such an ability becomes minimal. In practice, most franchise systems come somewhere in between these two ideal types.

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Wherever a franchise is located along this continuum, the level of independence enjoyed by franchisees is fragile. It can be unilaterally modified or even withdrawn at a moment’s notice. While the risks commonly associated with small business formation might be reduced through franchising, the risks associated with reliance on another party are significantly enhanced should the franchisor seek unilateral contractual changes, be the subject of a takeover, or even close the operation down. The case study reported in this chapter highlights the risks to which franchisees are exposed. In addition to the uncertainties generated by a change in franchisor ownership, the new contractual terms attempted to lower the discretion that franchisees would in the future enjoy, thereby narrowing the scope in which they could ‘mind their own businesses’. Similar uncertainties currently face Wimpy, Perfect Pizza, Midas, The Maids, Apollo Window Blinds, and Curtainz franchisees following the takeover of their respective franchisors (Financial Times, 9 August 1989; Streetwise Business Franchising, Autumn 1989). More seriously, Curtain Dream franchisees are at present without a franchisor, since the previous owner of the system called in the receivers in July 1989. Should a buyer be found, franchisees are almost certain to be asked to sign a new franchise agreement. Only time will tell whether changes in the ownership of these franchise systems will, in addition, prompt a tightening of control over these networks, similar to that which took place in our case study. However, not all franchisees have to face up to the ambiguity of their status in such a dramatic fashion. Instead the tightening of controls either does not take place or else is achieved more subtly through the introduction of advanced equipment, the supply of more and more factoryprepared products, the issuing of additional and more detailed operational procedures, and/or the introduction of contractual changes only at time of rewrite. This chapter has shown that ‘minding your own business’ as a franchisee is not an all-or-nothing concept, nor is it static. Instead there are levels of independence and a fluidity as to exactly where this level is pitched. Both should be uppermost in the minds of those attracted by the slogans attached to the increasing number of franchise opportunities now on offer, and to the many more predicted to be on offer in the 1990s and beyond. NOTES 1 The research on which this chapter is based is supported by the Edward Heath Charitable Trust. It forms part of a much wider programme of research on the nature of the franchisee-franchisor relationship which focuses upon a number of detailed case studies and a more general review of

84 THE FRAGILITY OF ‘MINDING YOUR OWN BUSINESS’

2

3

4

5

6

how franchising is practised both domestically and internationally. I would like to thank all those who were willing to be interviewed about this particular case study and to all those who completed the postal questionnaire; but for reasons of confidentiality their names must remain anonymous. Finally, I would like to extend my thanks to Andrew Scott for his comments on an earlier draft of this paper. The usual caveat applies. For example, it was reported that several computer retail franchisees were given verbal assurances that should their businesses turn sour, the franchisor would launch a ‘lifeboat’ operation to ensure that not a single store would close (Sunday Times, 18 January 1987). All fifteen stores have since closed and the franchisor is no longer operating in the UK. Product/trade mark franchises have experienced similar difficulties with territorial franchising. Coca-Cola, for example, originally gave the bottling rights for practically all parts of the US (apart from New England, Texas and Mississippi) to Messrs Thomas and Whitehead. Both emerged as parent bottlers managing a tier of sub-bottlers below. This diluted the link between Coca-Cola and the actual bottlers, but was only curtailed when Coca-Cola finally bought out Thomas in 1975. In response to the criticisms levelled at previous Power Report surveys, only bona fide business format franchise systems were included and a more comprehensive listing of franchisees was compiled for the 1988 survey (Power Research Associates, 1988:8–9). The result was that 48 per cent (119) of franchisors mailed and 24 per cent (248) of franchisees responded to the survey (ibid.: 46). This compares very favourably with the 1987 response rate of 23 per cent (87) of franchisors mailed and 16 per cent (84) of franchisees (Power Research Associates, 1987: Appendix B). However, questions on the ownership of property were not repeated in 1988. Because the old franchise agreement did not contain provisions for the franchisor to assign the agreement, all franchisees were asked to sign a letter of novation shortly before the VDL takeover. This legally transferred their contracts from CarCo Ltd to CarCo (UK) Ltd. However, since the leasing agreements ‘tied’ franchisees to CarCo Ltd not CarCo (UK) Ltd, clauses relating to the removal and repossession of equipment under lease were no longer enforceable. This meant forfeiting the ‘tie’ on 46 per cent of the vans and 35 per cent of the tuning equipment which franchisees took with them to form AutoCo. Something similar is practised in the drain cleaning franchise, Dyno-Rod, and the mobile tool sales franchise, Snap-On-Tools.

REFERENCES Allen, S. and Wolkowitz, C. (1986) ‘The control of women’s labour: the case of homeworking’, in Feminist Review, No. 22, Spring, pp. 25–51. Atkinson, J. (1984) ‘Manpower strategies for flexible organisations’, in Personnel Management, Vol. 16, August, pp. 28–31.

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Atkinson, J. (1987) ‘Flexibility or fragmentation? The United Kingdom labour market in the eighties’, in Labour and Society, Vol. 12, No. 1, January, pp. 87– 105. Bevan, J., Clark, G., Banerji, N. and Hakim, C. (1989) Barriers to Business StartUps, Research Paper No. 71, London: Department of Employment. Bluestone, B. and Huff Stevenson, M. (1981) ‘Industrial transformation and the evolution of dual labour markets: the case of retail trade in the United States’, in The Dynamics of Labour Market Segmentation, ed. F.Wilkinson, London: Academic Press. Bolton, J.E. (1971) Report of the Committee of Enquiry on Small Firms (referred to as the Bolton Report), Cmnd 4811 London: HMSO. Creigh, S., Roberts, C., Gorman, A. and Sawyer, P. (1986) ‘Self-employment in Britain’, in Employment Gazette, Vol. 94, No. 6, June, pp. 381–91. Dunne, J.P. (1988) ‘The structure of service employment in the UK’, in The British Economy After Oil: Manufacturing or Services? eds T.S.Barker and J.P.Dunne, London: Croom Helm. Dutfield, T. (1988) ‘Franchising comes of age’, in Employment Gazette, Vol. 96, No. 2, February, pp. 70–74. Felstead, A. (1990) ‘A chance to be your own boss? The myth or reality of franchise ownership’, in New Forms of Ownership: Management and Development, eds M.Poole and G.Jenkins, London: Routledge. Felstead, A. (1991) ‘Franchising: a testimony to the “enterprise economy” and economic restructuring in the 1980s?’, in Farewell to ‘Flexibility’? Questions of Restructuring Work and Employment, ed. A.Pollert, Oxford: Basil Blackwell. Franchise World (1989) Directory of Franchising, 1989 London: Franchise World Publications. Hakim, C. (1988) ‘Self-employment in Britain: a review of recent trends and current issues’, in Work, Employment and Society, Vol. 2, No. 4, December, pp. 421–50. Kaufmann, P.J. (1988) Dunkin’ Donuts: 1988 Distribution Strategies Boston: Harvard Business School. Kaufmann, P.J. and Leibenstein, H. (1988) ‘International business format franchising and retail entrepreneurship: a possible source of retail knowhow for developing countries’, in Journal of Development Planning, No. 18, pp. 165– 79. Levitt, T. (1972) ‘Production-line approach to service’, in Harvard Business Review, Vol. 50, No. 5, September–October, pp. 41–52. Love, J.F. (1987) McDonald’s: Behind the Arches, London: Bantam Press. Monopolies and Mergers Commission (1990) The Supply of Petrol, Cm 972, London: HMSO. Pollert, A. (ed.) (1991) Farewell to ‘Flexibility’? Questions of Restructuring Work and Employment, Oxford: Basil Blackwell. Power Research Associates (1987) Business Format Franchising in the UK London: Power Research Associates. Power Research Associates (1988) The NatWest/British Franchise Association Franchise Survey, 1988, London: Power Research Associates.

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Rainbird, H. (1991) ‘Self-employment: a form of disguised waged labour?’ in Farewell to ‘Flexibility’? Questions of Restructuring Work and Employment, ed. A.Pollert, Oxford: Basil Blackwell. Rainnie, A.F. (1989) Industrial Relations in the Small Firm: Small Isn’t Beautiful, London: Routledge. Rubery, J. and Wilkinson, F. (1981) ‘Outwork and segmented labour markets’, in The Dynamics of Labour Market Segmentation, ed. F.Wilkinson, London: Academic Press. Stanworth, J. (1988) ‘Socio-economic factors in franchising’, paper presented to the World-Wide Situations and Franchising Development Conference, Universata Degli Studi di Pisa, 11–13 May. Stanworth, J. and Stanworth, C. (1989) ‘There’s no place like home—for working’, the Guardian, 16 July. Stern, P. and Stanworth, J. (1988) ‘The development of franchising in Britain’, National Westminster Quarterly Bank Review, May, pp. 38–48. US Department of Commerce (1988) Franchising in the Economy, 1986–88, Washington D.C: Department of Commerce, International Trade Administration. Vaughn, C.L. (1979) Franchising: Its Nature, Scope, Advantages and Development, Lexington: Lexington Books.

5 Small firms and the UK labour market Prospects for the 1990s1 Steve Johnson

INTRODUCTION The ‘small business sector’ is an extremely important employer within the UK economy. For instance, businesses with less than 100 employees accounted for just under one quarter of all manufacturing employment in 1986. The relative importance of small manufacturing firms within the UK labour market has undoubtedly increased since the early 1970s, although it is unclear whether the absolute level of small firm employment has increased to such a large extent (see Figures 5.1(a) and 5.1(b)). Figures for employment by firm size outside the manufacturing sector are unavailable on a time-series basis, though the 1986 New Earnings Survey (see Hakim, 1989a) does provide a snapshot of employment by firm size for all sectors. In the absence of such time-series information, reliance has been placed by researchers and policy-makers upon proxy measures of small firm employment, for example numbers of self-employed people and the number of businesses registered for Value Added Tax. Data based on these measures can at best provide only a rough guide to employment trends within the small business sector. Many people who are included within the ‘self-employment’ category fall outside even the broadest definition of a ‘small business’. In particular, many individuals may be described as ‘nominally’ self-employed, a group which might include labour-only subcontractors within the building industry and sales people working on a commission-only basis. The indications are that the proportion of self-employed people who do not employ other people has grown in recent years (see for instance, Creigh et al., 1986). Clearly, organizations which are registered for VAT may, almost without exception, be described as ‘businesses’ (although not all of them are small). However, the VAT data provide no indication of the numbers of people employed by the businesses, and are therefore of limited use in an analysis of employment trends within small businesses. It is conceivable, for instance, that an increase in the number of businesses

88 SMALL FIRMS AND THE UK LABOUR MARKET

Figure 5.1a Manufacturing employment by firm size, 1971–86 Source: Annual census of production, UK, various years.

may be accompanied by a decline in the overall level of employment and vice versa. None the less, the small business sector is clearly an important component of the UK labour market. Moreover, the labour market situation which has pertained in the UK throughout most of the 1980s has been highly advantageous (in relative terms at least) to the small business sector, for several reasons. 1 The extremely high rates of job loss and consequent high unemployment of the early 1980s created a large pool of potential entrepreneurs in the UK. 2 High unemployment and contracting job opportunities within the large firm sector and the public sector meant that a larger number of people were able and willing to work for smaller employers. 3 An increasing proportion of women have entered self-employment or are participating in the labour force as employees. 4 Sectoral trends in employment patterns have tended to favour services, within which small businesses are dominant. 5 The economic uncertainty of the early 1980s led some larger firms to spread risks by subcontracting some of their activities to smaller businesses and self-employed individuals. Clearly, the labour market is only one of many factors—including changing policy stances, lower taxation levels, the changed ideological

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Note: ‘Small firms’ defined as 100 employees Figure 5.1b Percentage of manufacturing employment in small firms, 1971–86 Source: Annual census of production, UK, various years

climate and technological change—which have contributed to the recent growth in the numbers of self-employed, in VAT registrations and in the relative importance of small firms within manufacturing employment. However, this chapter aims to demonstrate that labour market factors, and in particular the level of unemployment within the economy, have played a key role in influencing the development of the small firm sector within the UK. But it will be argued that the UK labour market in the 1990s will be very different to that of the 1980s, with generally adverse effects on the small business sector, as most of the factors noted above are reversed. We treat each of these labour market variables in turn in the following sections. UNEMPLOYMENT AND NEW FIRM FORMATION Many writers have postulated a positive relationship between the level of unemployment in the economy and the rate of new firm formation. An economist’s view of the new firm formation process, which is summarized neatly by Johnson (1986) and Rees and Shah (1986) would suggest that the individual bases the decision as to whether to enter self-employment upon a comparison of the discounted flow of expected future income from self-

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employment with that from other courses of action. In a situation of high unemployment and limited job prospects, the relative attraction of selfemployment (assumed for the moment to be a proxy for new business formation) increases as individuals take into account the relatively low probability of obtaining conventional employment and the depressed level of wages resulting from high unemployment. Thus, self-employment might be described as a ‘cyclical escape from unemployment’ (Linder, 1983). Surveys of small business founders, such as those by Storey (1982), have indicated that between 25 and 50 per cent of founders had reported being unemployed prior to the formation of their business. An analysis of the Labour Force Survey by Hakim (1989b) suggests that just over 20 per cent of those who entered self-employment in 1987 and 1988 were unemployed one year earlier. A survey which was undertaken by the current author for the Occupations Study Group (OSG) in 1985 found that around 40 per cent of respondents reported being unemployed or under threat of unemployment immediately prior to starting their business. Indeed, redundancy provides many individuals with the stimulus, and in many cases the capital, to start up a business. These findings are echoed by research into new ‘recruits’ to self-employment which is reported by Hakim (1989b). It would seem therefore that, ceteris paribus, an increase in the level of unemployment (and in particular an increase in the rate of job loss and redundancy) would be expected to be associated with higher rates of new firm formation and vice versa. However, the empirical time-series evidence, is relatively sparse largely due to the paucity of aggregate time-series data on firm formation rates and/or self-employment. Unfortunately, the VAT data base dates only from the introduction of VAT in 1973 and is of limited use in this context. Hamilton (1986; 1989) has demonstrated a positive relationship between company registrations and unemployment for Scotland between 1950 and 1984, and Hudson (1984) found similar results for Great Britain. Work by Binks and Jennings (1986) has, however, questioned the direction of causation within this relationship. In 1988 the present author, together with two colleagues from the Institute for Employment Research (Johnson, Lindley and Bourlakis, 1988), undertook an exploratory analysis of trends in self-employment between 1966 and 1986, using data supplied by the Department of Employment. Some results from the econometric modelling exercise are presented in Table 5.1. These results suggest that self-employment is positively and significantly correlated with the rate of unemployment (LUNP) over this period.

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Table 5.1 Self-employment as a proportion of total employment: model estimates 1966–86

Other important factors influencing self-employment include an indicator of the industrial composition of employment (LSI), a cyclical indicator of output within the economy (LCI), a dummy variable to take

92 SMALL FIRMS AND THE UK LABOUR MARKET

account of the effects of Selective Employment Tax (D6673), which was a tax paid by employers on service sector employees, and the influence of the Enterprise Allowance Scheme (LEAS, D8386). Further analysis of the data for selected sub-periods suggested the existence of a significant structural break in the model, which seems to occur around the end of the 1970s. In particular, the coefficient on the structural indicator (LSI) variable becomes negative and significant for the 1966–79 sub-period. However, the positive influence of unemployment on the proportion of people who are self-employed is evident in all of the models which were estimated during this exercise. It does appear to be the case that, over the latter half of the 1980s, whilst registered unemployment has declined from over 3 million to less than 2 million, growth in the number of self-employed people and in the rate of new business registrations has continued at the pace of the early 1980s. According to the estimates from the Labour Force Survey, the number of self-employed people in Great Britain grew from 2,567,000 in 1986 to 3,182,000 in 1989, an increase of 24 per cent over three years. This compares with an 8 per cent increase in employees in employment, and a 33 per cent decline in unemployment (on the definition adopted by the LFS) over the same period. There are several possible explanations for this. 1 The relationship between unemployment and new firm formation has indeed changed, perhaps due to the emergence of a strong ‘enterprise culture’ within the UK. 2 The registered unemployment figures can no longer be regarded as a true indicator of labour market pressure and/or a proxy for the probability of obtaining a job. This may be due to changes in the way in which unemployment is measured, and the fact that many of the unemployed have moved into short-term ‘schemes’ rather than permanent full-time employment. 3 There is a lag in the adjustment process, as people take some time to become aware of the changed circumstances within the labour market. 4 The negative impact of reduced unemployment levels upon new firm formation have been offset by the positive effects of strong economic growth, increasing profit levels and lower rates of taxation. 5 There are significant sectoral effects in operation, which are tending to distort the overall picture. A particularly important sector in this context is the construction industry, which accounts for almost 40 per cent of the estimated growth in self-employment between 1986 and 1989 (Employment Department, 1990). Whilst it is too early to determine the relative weight of these effects there are a priori reasons to expect that elements of all five are in operation. Many

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medium-term economic forecasts of the British economy suggest that the period of the early 1990s will be one of slowly falling unemployment and that the economy is unlikely to witness another shakeout of labour on the same scale as that which occurred in the late 1970s and early 1980s. Thus, the supply of people who are in a situation whereby they are ‘pushed’ (or strongly encouraged by government schemes) into self-employment may decline over the coming few years. Reduced unemployment is also likely to be associated with higher wage levels, more secure jobs and greater fringe benefits, as employers begin to compete more vigorously for labour at all skill levels. Many groups within the unemployed population are likely to be able to obtain employment with much less difficulty than was the case in the early to mid-1980s, and fewer employed people will feel under threat of job loss. Returning to the economic model of new business formation which was outlined above, the implication is that the discounted flow of net benefits from employee status will be higher for unemployed people, those with jobs, and the self-employed than has been the case until recently. In the absence of any other changes in those factors that influence the new firm formation process, this should lead to a reduced flow of people from unemployment and employee status into self-employment and an increased flow of people out of self-employment and into ‘conventional’ jobs. Clearly, the overall net effect of these processes will depend upon the precise extent of the fall in unemployment and the impact upon wages and benefits for employees. Other labour market changes which will take place simultaneously, most notably changes in the labour market participation of women and in the employment practices of larger organizations, will also have an impact upon the growth of self-employment and the small business sector. These changes are discussed later in the chapter. UNEMPLOYMENT, SKILL SHORTAGES AND SMALL BUSINESSES The Institute for Employment Research (1989) forecast that almost two million net new jobs would be created in the UK economy between 1987 and 1995, at a time when the flow of school- and college-leavers on to the labour market is declining. For example, Figure 5.2 illustrates the projections of the Department of Education and Science regarding the flow of new graduates and ‘A’ level holders, who are likely to form the bulk of new managerial, professional, engineering and scientific staff in the 1990s. The trend for 16-year-old school-leavers is similarly set to decline, but at a faster rate (see Chapter 9). It is clear, therefore, that employers are likely to be competing vigorously for staff, particularly for those with specific skills and qualifications, during the coming decade. This competition will largely take the form of price (i.e. wage) competition, with evidence even now

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that graduate salaries in particular are increasing very rapidly. Competition will also include inducements in the form of fringe benefits such as cars, health insurance, cheap loans and creche facilities for employees’ children. We have already noted that this trend is likely to have an adverse impact upon the rate of new firm formation, but this tightening of the labour market will also create difficulties for smaller businesses who wish to recruit staff. It is well known that smaller businesses tend to offer inferior employment packages, in terms of wages, fringe benefits, job security and other conditions of employment, compared with larger firms (see, for instance Storey and Johnson, 1987, chapter 6, and Rainnie, 1989). It might be argued that, to some extent, lower wages in the small firm sector are offset by other benefits of working for a small business, such as flexibility of hours and more personalized relations with the employer. To the author’s knowledge, there has been no detailed research into the comparative attributes of employees within small and large businesses, but conventional economic theory would suggest that there will be some relationship between the wage of an individual and his attributes (skills, qualifications, experience, etc.) as perceived from the point of view of the employer. Small businesses might, in general, be expected to attract the less able and less well qualified amongst the workforce. In a ‘slack’ labour market, larger employers are able to demand very high qualifications and standards from new recruits, as competition for jobs is intense. The small business sector will therefore benefit from a ‘filtering down’ effect whereby workers, who would under other circumstances be employed by the ‘better’ employers, are now willing to work for the ‘inferior’ rewards offered by smaller businesses. In terms of segmented labour market analysis, it could be argued that there exists a ‘marginal’ group of workers whose status alternates between ‘primary’ and ‘secondary’ as overall labour market conditions change. The period of high unemployment of the 1980s was one in which it might be expected that these ‘marginal’ workers would be forced into the secondary sector of the labour market, to which most (but not all) small businesses can be said to belong. However, as labour markets begin to tighten, and large employers are forced to lower their entry standards, then smaller businesses will find it more difficult to attract staff. This will be particularly problematic for those firms who are wishing to grow and need to recruit specialist staff in the management (e.g. marketing, finance, personnel), professional (accountants, etc.) and technical (engineering, design, computing) roles which tend to be associated with the growth process. Some indication of the problems which are likely to affect the small business sector in a period of tightening labour markets can be gauged from a comparison of the results of a small business survey carried out by the present author in 1985, on behalf of the Occupations Study Group

Source: Department of Education and Science, 1989, from information supplied by the DES to the author.

Figure 5.2 DES projections of new graduates and ‘A’ level holders, 1980–2000

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(OSG), with those of a follow-up survey conducted in 1988. The 1985 survey interviewed 298 small business owner-managers within six different areas of the UK (Reading, London, Glasgow, Corby, Teesside, Morecambe/Lancaster) chosen to represent different types of labour

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market situation, a wide geographical spread, and different policy environments towards small businesses. The interviews covered various aspects of the development and operation of the business, but focused attention upon the employment situation. Details were collected of employment within the business (disaggregated by full-/part-time status and gender) between 1980 and 1985, and respondents were asked to indicate those factors which they felt to be important in affecting employment levels, and to describe any difficulties which they had with recruitment. Respondents were also asked to forecast what they thought would be the level of employment in their businesses in 1987 and in 1989. In 1988, a follow-up telephone survey was conducted, which attempted to trace those businesses which were surveyed in 1985, and to establish the extent to which actual employment trends up to 1988 had met with respondents’ expectations. More detailed questions were asked about the composition of employment within the business, and respondents were asked again about recruitment difficulties and factors affecting employment. In total, 184 firms (out of the original 298) responded to the follow-up survey. The respondents to both the 1985 and 1988 surveys comprise a broad, but not strictly representative, cross-section of UK small businesses covering all sectors apart from primary industries. Two of the questions that were asked in the 1985 and 1988 surveys are of particular interest in the current context—those on recruitment difficulties and on factors affecting employment change. Of the 298 respondents to the 1985 survey, 22 per cent reported experiencing some difficulties in recruiting staff in the recent past. By 1988 this figure had increased to 38 per cent. In other words, the extent of recruitment difficulty amongst smaller businesses appears to have almost doubled over this three-year period, during which time unemployment had declined and there had been relatively rapid economic growth. Amongst the 1988 respondents, recruitment difficulties were particularly acute in the manufacturing and construction sectors (over 50 per cent of firms reported difficulties in each of these sectors) and in the Reading and Corby areas, which had experienced particularly rapid growth. In contrast, only 9 per cent of firms in the London sample (which contained mainly retail businesses) and 19 per cent of Glasgow respondents reported difficulties (see Table 5.2). The types of workers for which difficulties were being experienced are dominated by the ‘skilled’ category (Table 5.3), but it is worthy of note that 15 per cent of those experiencing problems had found it difficult to recruit young people and/ or YTS trainees. It is this latter category for which the North-South divide is most clearly evident, with very few Teesside or Glasgow firms having any problems recruiting young people. In the Reading and Corby areas, however, there were several complaints that the larger firms were

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Table 5.2 Recruitment difficulties by industry, size, age and location

Note: 8 respondents were unable to say whether recruitment difficulties had been encountered. 22 respondents said that the question did not apply to them. Source: OSG 1988 follow-up study (Johnson, 1989).

‘creaming off the best young people (and skilled workers), leaving the smaller businesses unable to compete. The second question which is of interest in the current context is that relating to the factors which have, according to the respondents, affected employment levels within their businesses. This was asked as an unprompted question in both 1985 and 1988, and in addition respondents to the 1988 survey were prompted with five possible factors. The results are summarized in Tables 5.4, 5.5 and 5.6. Although the 1985 and 1988 responses were coded slightly differently in the respective reports, it is clear that there was a considerable increase between these two years in the percentage of mentions given to problems with recruitment or similar factors. In 1985, only 4 per cent of mentions referred to problems related to employment costs and recruitment, whereas in 1988, 12 per cent of firms mentioned this type of problem, representing 10 per cent of all factors mentioned. To a certain extent, these results reflect the fact that the follow-

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Table 5.3 Recruitment difficulties by type of worker

Note: 64 types of worker were mentioned by 54 firms. Source: OSG 1988 follow-up study (Johnson, 1989). Table 5.4 Factors influencing employment change, 1985

Source: 1985 OSG survey (Johnson and Storey, 1986).

up survey included only firms which were at least three years old (and therefore more likely to have attempted to recruit new staff), whereas 54 (18.5 per cent) of the 1985 sample had been in business for less than three years at the time of the survey. However, it does appear to be the case that the late 1980s have been a more difficult period for small businesses with regard to recruitment than the early 1980s. All of the indications are that these problems will worsen in the 1990s, with difficulties spreading from the south east of the country to embrace the currently less prosperous areas in the North, Scotland and Wales.

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Table 5.5 Factors influencing employment change, 1985–8: responses to unprompted question*

No. of factors mentioned=203 No. of firms responding to question=171 * The question was ‘What would you say have been the main factors which have affected the level of employment in your firm since May 1985?’ Source: 1988 OSG survey (Johnson, 1989).

Forecasts by the Institute for Employment Research (1989) suggest that there will be a particularly rapid growth in the economy in the early 1990s for managers and administrators (1.4 per cent per annum compared with 0.8 per cent for all occupations), professional occupations (2 per cent per annum) and associate professional occupations (2.2. per cent per annum). Table 5.6 Factors influencing employment change, 1985–8: responses to prompted question*

*‘How would you rate the following factors, in terms of their effect on employment over the past three years—very important, quite important, not very important or not at all important?’ Source: 1988 OSG survey (Johnson, 1989).

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It is from these groups that a disproportionate number of new firm founders are ‘recruited’, and these occupations tend to be particularly important to growing businesses within high technology sectors. Shortages of staff in these crucial areas will undoubtedly adversely affect the growth potential of many small firms who will find it increasingly difficult to compete with larger firms for contracts. It will only be those small businesses that can attract staff by offering competitive salaries and/or by offering some offsetting advantages to skilled staff (e.g. more creative freedom, greater challenge) which will be able to compete effectively in the tighter labour market conditions of the 1990s. FEMALE LABOUR FORCE PARTICIPATION There has been a consistent increase in the participation of women in the labour force throughout most of the post-war period. Women now account for 40 per cent of the workforce (employees plus selfemployed) and it is projected that almost half of all jobs will be filled by women by the end of the 1990s. Women have formed an increasing proportion of the self-employed population during the 1980s, although a large proportion of self-employed women (like women employees) work part time. There is little evidence that there are any significant differences in the gender distribution of employment between firms of different sizes. In the 1988 OSG survey, 42 per cent of workers (including the owner/ manager) were female, compared with just under 40 per cent in the economy as a whole. The percentage of part-time employees (19 per cent) was also very close to the figure for the economy as a whole. However, it should be noted that the figure for the economy as a whole includes the public sector, which has a higher than average proportion of both female and part-time employees. It is therefore probable that smaller businesses rely somewhat more heavily upon women workers and upon part-time workers than do their larger counterparts within the private sector, even allowing for sectoral effects. It is not possible to state conclusively whether small firm growth has caused an increase in female (and often part-time) labour force participation by offering employment which is more suited to many women (part time, flexible hours, located closer to residential areas) or whether the direction of causation runs the other way. However, it appears to be the case that women, for many reasons which are outside the scope of this paper, are prepared to accept lower wages and lower levels of job security than men, and this increases the attractiveness of women to many small business employers. Thus, increasing female labour force

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participation may be said to have disproportionately benefited the small business sector by providing a source of labour which meets the needs of many small employers. However, reducing levels of unemployment and labour shortages in many parts of the country have meant that some larger employers, particularly in sectors such as banking and retailing, have started to look towards groups such as women with children and older women to provide the workforce of the future. Employers such as the Midland Bank, Gateway Supermarkets and many local authorities are now offering inducements such as improved salaries, flexible hours, career breaks and even workplace creche facilities in order to attract women into employment in an effort to offset the effects of demographic change. It might be argued that women, particularly those who have left careers in order to bring up children, represent another section of the ‘marginal’ part of the labour force which alternates over time between the primary and secondary segments of the labour market, depending upon personal circumstances and the needs of employers. This is another potential source of both entrepreneurs and small firm employees which is beginning to dry up as the 1990s approach (see also Chapters 6 and 9). THE SECTORAL COMPOSITION OF EMPLOYMENT One trend which will tend to favour the small business sector in the 1990s is the continuing shift in employment patterns away from the manufacturing sector and towards the service sector. IER projections suggest that the level of employment in the manufacturing sector will fall by 230,000 by 1995, at a rate of 0.5 per cent per annum, whereas ‘business and miscellaneous services’ will grow by over 1.2 million (2.7 per cent per annum). Hotels and catering, an industry which is dominated by small businesses, is expected to grow at 2.8 per cent per annum between now and 1995. These trends, which are brought about by increasing levels of productivity growth within the manufacturing sector and changing patterns of consumer demand, will tend to increase the demand for the services of smaller specialist businesses within the service sector. However, there are likely to be some changes in organizational and ownership structures within the service sector. For instance, the years since the introduction of the Financial Services Act have seen major changes in the structure of estate agency businesses, with the industry becoming increasingly dominated by a small number of very large building societies and insurance companies. Moreover, the prospect of the Single European Market in 1992 may mean that many parts of the service sector, particularly business services, will be more open to foreign competition and liable to takeover by foreign firms. As markets for information-based

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services become more globalized, small businesses may find it more difficult to compete with their larger counterparts. The precise implications of 1992 for the small business sector are outside the scope of this chapter (see Chapter 9 for a more substantive discussion), but the increased international freedom of movement of labour which is already a reality within much of the European Community may adversely affect the ability of small businesses in specialist sectors such as fashion, design, computing and consultancy services to compete with the generally higher salaries offered on the Continent. Notwithstanding these comments, the continuing trend towards employment within the service rather than the manufacturing sector will, ceteris paribus, tend to favour the growth of the small business sector. CHANGING EMPLOYMENT PRACTICES OF LARGER BUSINESSES According to many commentators, large firms appear to have undergone a profound change in their employment practices, shifting from mainly permanent full-time employment, towards the segmentation of the workforce into ‘core’ and ‘periphery’ groups. Associated with this is an increased use of small subcontractors to perform specialist tasks within the production process, and also to undertake many tasks which are not central to the core activity of the business itself, such as transport, cleaning, catering and the provision of business services such as accountancy, recruitment, advertising and computer services. Atkinson (1985) and Hakim (1987) have chronicled the growth of the ‘flexible firm’ and the ‘flexible workforce’ throughout the 1980s. The Confederation of British Industry (1985) has also produced a number of case studies which suggest that many businesses have undergone major changes in the organization of work, in the direction of a more ‘flexible’ approach. Shutt and Whittington (1987) have suggested that large firms, faced with problems of extreme uncertainty in the early 1980s, transferred much of the work relating to activities such as research and development to smaller businesses through a process of subcontracting. It is this fragmentation process which, according to Shutt and Whittington, played a key role in the growth of the relative importance of small businesses in the early 1980s. Despite the widespread acceptance of the ‘flexible firm’ thesis, the evidence to support the hypothesis that small business growth can be wholly or even largely attributed to the fragmentation strategies of larger firms is extremely thin. The ‘flexible firm’ thesis has been built largely upon case study evidence involving very few firms—with Bennetton and Marks and Spencer being two prime examples. Whilst it is true that many large firms have increased their level of subcontracting over the period of

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the 1980s, this process can only account for a very small proportion of the overall growth in the number of small businesses within the UK. In addition, it is often quite large businesses which win contracts for the provision of cleaning, catering, transport and other services for larger organizations. A large proportion of subcontracting which takes place within the economy occurs within the small firm sector itself, rather than between large and small firms. It is, therefore, contended here that changing employment and organizational practices amongst some larger organizations, whilst being an interesting phenomenon, has been only a very minor direct contributor towards the growth of the small business sector during the 1980s. The indirect effects of the job shedding and increased insecurity which accompanies large firm restructuring have been much more important factors. As large businesses begin to face a world which is less uncertain than was the case in the early 1980s, and one in which workers and trade unions are less willing to accept organizational changes which lead to lower wages and greater insecurity, it might be contended that the 1990s will see a reversal of the trend towards the ‘flexible firm’. If this is the case, then the impact upon the small business sector will be negative, but fairly insignificant in volume terms. SOME POSSIBLE SCENARIOS FOR THE EARLY 1990s It will be clear from the foregoing discussion that there are a number of aspects of labour market change which have affected the development of the small business sector during the 1980s, and which will have an important influence throughout the 1990s. It is a difficult task both to disentangle the separate effects of these factors and to provide firm projections for the future. It has been emphasized, for instance, that the rate of new firm formation and/or the total number of businesses in operation may be an extremely imperfect guide to the ‘health’ of the small business sector. It is becoming increasingly recognized that it is the growth of existing small businesses (and in particular that of the rapidly growing minority of businesses) which is the key to the ‘success’ of the small business sector, at least in terms of employment generation. The impact of labour market factors upon new firm formation is still not fully understood, but there has been some progress in identifying the processes at work. In contrast, very little is known about the influence of the labour market (as opposed, for instance, to financial factors) upon the survival and growth of small businesses. Growing businesses invariably need to recruit new staff, and the availability, cost and calibre of such staff can be crucial to the success of

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the business. This is an area which requires much more research, and any forecasts must be treated with great caution. However, the argument of this chapter is that a priori reasoning and the limited evidence of surveys and econometric studies, suggest that likely trends in the labour market during the 1990s will act to depress the rate of new firm formation and/or self-employment and to create considerable difficulties for existing businesses, particularly in the recruitment of skilled and qualified staff. Given the difficulties involved in producing accurate forecasts, the approach adopted here is to produce a series of scenarios for the size distribution of manufacturing employment and the number of VAT registrations per sector, based upon possible outcomes in terms of the continuation (or otherwise) of the trends of the 1980s. The forecasts produced by the Institute for Employment Research (1988) are used as a guideline. (i) Manufacturing employment by firm size Table 5.7 presents three possible scenarios for the size structure of manufacturing employment, based upon the forecasts of industrial employment made in the 1988/9 Occupational Assessment produced by the Institute for Employment Research (IER). The scenarios have been built as follows: The IER estimates of UK employment by industry group for 1987 have been combined with the figures from the Annual Census of Production (ACOP) on the percentage of employees in firms with less than 100 employees for 1986, to provide an estimate of small firm employment for 1987. The IER forecasts of employment by industry group in 1995 have been combined with three possible outcomes for the percentage of employment in small firms at industry group level. The possible outcomes are as follows: A The percentage of employees in small firms returns to its 1980 level as rising economic growth means that more small firms grow into the large category and less large firms decline into the small size bracket. The net effect of lower unemployment and growing profitability on new manufacturing firm formation is indeterminate. B The percentage of employees in small manufacturing firms remains at its 1986/7 level within each industry group. C The percentage of employees in small firms continues to increase at the rate at which it increased between 1980 and 1986/7. This assumes that the factors which have led to the increased importance of small

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Table 5.7 UK manufacturing employment in small firms in 1995: three scenarios

*See text for description of scenarios A, B and C. +Small firms are defined as those with fewer than 100 employees. Note: See text for basis of estimates.

manufacturing firms throughout the 1980s continue to operate into the 1990s. The results of the application of these three scenarios are illustrated in Table 5.7. Under scenario A, both the absolute level of, and the relative importance of, small manufacturing firms decline and firms with less than 100 employees accounting for less than 20 per cent of employment in 1995. Under scenario B, as might be expected, the relative importance of small businesses remains approximately constant, with a slight decrease due to a shift in the structure of employment towards groups in which smaller firms are more important. The absolute level of employment in small manufacturing firms declines slightly, in line with manufacturing

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employment as a whole. Under scenario C, the absolute level of small firm employment increases by 25 per cent, leading to an increase in the proportion of small firm employees from one-quarter to almost one-third. (iii) VAT registrations The rate of registration and deregistration for VAT varies considerably between sectors and over time. This section considers these differences and examines the consequences for trends in VAT registrations in the first half of the 1990s of two ‘extreme’ assumptions and one ‘central’ assumption about rates of registration and deregistration by sector. These assumptions are outlined in Table 5.8. Scenario 1 considers the case where annual rates of registration and deregistration by sector are at their average level over the period 1980–7. In scenario 2, the highest annual ‘birth’ rate and the lowest annual ‘death’ rate are combined to create the highest likely rates of increase in the total number of VAT-registered businesses. Conversely, scenario 3 takes the lowest birth rates which occurred between 1980–7 and the highest death rates, to provide a lower bound estimate for likely growth in VAT registrations. The results of applying these different sets of assumptions to the latest available figures for VAT registrations by sector (for the middle of 1988) are presented in Tables 5.9 to 5.11. It can be seen that there is a wide range of possible outcomes for the period 1989–95. Even under the most ‘pessimistic’ assumptions regarding birth and death rates (scenario 3), the total number of businesses registered for VAT will decline only very slightly, with financial and other services still experiencing strong growth. It is also important to note that there would still be almost 190,000 new registrations every year, even assuming the lowest likely registration rates for each sector. Under the most ‘optimistic’ assumptions (Scenario 2) all sectors experience a growth in the number of VAT registrations, with the number of firms in the ‘other’ category almost doubling. There would be almost 350,000 new registrations per year. The implications of the three scenarios for total VAT registrations are summarized in Figure 5.3. Clearly it is not possible to make unambiguous statements regarding the implications of these trends in VAT registrations for total employment in the small firm sector. It is conceivable that the total number of businesses may increase without any increase in total numbers employed. Equally, a decline in the number of businesses does not necessarily imply a reduction in employment levels. Unfortunately the VAT figures do not give any indication of employment in newly registered firms, nor do they allow any assessment of the employment performance of existing businesses or job

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Table 5.8 Birth and death rates of VAT-registered businesses in the 1990s: three scenarios

BR: New registrations during the year as a percentage of total number of businesses registered for VAT at the beginning of the year. DR: Deregistrations during the year as a percentage of total number of businesses registered for VAT at the begining of the year. Source: Based on VAT returns (British Business, 1989). Table 5.9 Trends in VAT registrations in the 1990s. Scenario 1: average birth and death rates

Note: Author’s estimates based on VAT data.

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Table 5.10 Trends in VAT registrations in the 1990s. Scenario 2: high birth rates, low death rates

Note: Author’s estimates based on VAT data.

losses in businesses which deregister. However, the fact that such large numbers of businesses are created each year has important implications for skill requirements and training provision, regardless of the impact upon overall employment levels. CONCLUDING REMARKS The discussion in this chapter has suggested that, apart from the continuing relative growth of the service sector, the labour market situation will tend to shift the rate of new firm formation downwards and will mean considerable recruitment difficulties for firms who wish to grow. The most likely outcome, therefore, is one nearest to scenario 3, leading to a small decline in the total numbers of VAT registrations. Clearly the overall net effects of the various factors that influence the development of the small business sector are extremely difficult to predict, given the current state of our knowledge. But the inescapable conclusion of this chapter is that small businesses will find the labour market of the 1990s much more difficult than the situation which has faced them throughout most of the 1980s.

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Table 5.11 Trends in VAT registrations in the 1990s. Scenario 3: low birth rates, high death rates

Note: Author’s estimates based on VAT data.

NOTES 1 An earlier version of this chapter was presented to the workshop ‘The Small Enterprise in the Year 2000’ at Kingston Polytechnic, September 1989. I am grateful to the participants at the workshop for helpful comments and suggestions. The empirical work reported in this chapter was undertaken whilst the author was Research Fellow at the Institute for Employment Research, University of Warwick. Funding from the Occupations Study Group, Employment Department and the Training Agency is gratefully acknowledged. However, the author is solely responsible for the views expressed in this chapter.

REFERENCES Atkinson, J. (1985) ‘Flexibility: Planning for an uncertain future’, in Manpower Policy and Practice, Vol. 1, pp. 26–9. Binks, M. and Jennings, A. (1986) ‘Small firms as a source of economic rejuvenation’, in J.Curran, J.Stanworth and D.Watkins (eds) The Survival of the Small Firm, Vol. 1. Aldershot: Gower. British Business (1989) ‘VAT registrations and deregistrations of UK businesses’, 9 June, pp. 32–5. Confederation of British Industry (1985) Managing Change: the Organisation of Work. London: CBI. Creigh, S., Roberts, C., Gorman, A. and Sawyer, P. (1986) ‘Self-employment in Britain: results from the Labour Force Surveys 1981–1984’, in Employment Gazette, June, pp. 183–94.

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Figure 5.3 VAT registrations, 1980–95 Source: Author’s estimates based on VAT data

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Employment Department (1990) ‘Preliminary results from the 1989 Labour Force Survey for Great Britain and revised employment estimates incorporating these results’, Press Notice No. 72/90, 9 March. Hakim, C. (1987) Trends in the flexible workforce’, in Employment Gazette, November, pp. 549–60. Hakim, C. (1989a) ‘Identifying fast growth small firms’, in Employment Gazette, January, pp. 29–41. Hakim, C. (1989b) ‘New recruits to self-employment in the 1980s’, in Employment Gazette June, pp. 286–97. Hamilton, R.T. (1986) ‘The influence of unemployment on the level and rate of company formation in Scotland, 1950–84’, in Environment and Planning A, Vol. 18, pp. 1401–4. Hamilton, R.T. (1989) ‘Unemployment and business formation rates: reconciling time-series and cross-section evidence’, in Environment and Planning A, Vol. 21, pp. 249–55. Hudson, J. (1984) ‘Company births in Great Britain and the institutional environment’, in International Business Journal, Vol. 6, No. 1, pp. 57–69. Institute for Employment Research (1988) Review of the Economy and Employment, Coventry: University of Warwick. Institute for Employment Research (1989) Review of the Economy and Employment, Coventry: University of Warwick. Johnson, P. (1986) New Firms: An Economic Analysis, London: Allen & Unwin. Johnson, S. (1989) Employment change in small businesses: results from a follow-up survey, unpublished report to Department of Employment, Coventry: Institute for Employment Research. Johnson, S., Lindley, R. and Bourlakis, C. (1988) An exploratory time-series analysis of self-employment in Great Britain, Project Report, DE Programme, University of Warwick: Institute for Employment Research. Johnson, S. and Storey, D.J. (1986) Employment and occupations in smaller UK businesses; past trends and projections to 1990, unpublished report to Institute for Manpower Studies/Occupations Study Group, Newcastle: Centre for Urban and Regional Development Studies. Linder, M. (1983) ‘Self-employment as a cyclical escape from unemployment: a case study of the construction industry in the United States during the postwar period’, in Research in the Sociology of Work, Vol. 2, pp. 261–74. Rainnie, A. (1989) Industrial Relations and the Smaller Firm: Small Isn’t Beautiful, London: Routledge. Rees, H. and Shah, A. (1986) ‘An empirical analysis of self-employment in the UK’, Journal of Applied Econometrics, Vol. 1, No. 1, January, pp. 95–108. Shutt, J. and Whittington, R. (1987) ‘Fragmentation strategies and the rise of small units cases from the North West’, in Regional Studies, Vol. 21, pp. 13–23. Storey, D.J. (1982) Entrepreneurship and the New Firm, London: Croom Helm. Storey, D.J. and Johnson, S. (1987) Job Generation and Labour Market Change, London: Macmillan.

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6 Prospects for women’s businesses and self-employment in the year 2000 Sheila Allen and Carole Truman

INTRODUCTION It would seem that almost every day the media report on the increasing contribution by women to the workforce. The proposition has been put by many, but Lady Howe, non-executive director of Woolworth Holdings plc summed up the message in a recent speech: We need to find out what more has to be done to help women realize their full potential as contributors to our economic life. We need to do this because not to do so is to continue to waste an enormous asset which can enrich and stimulate our business by tapping new talent, We need to do it now more than ever because future population trends show that business success and industry is going to have to rely increasingly on women in the 1990s and beyond. (Lady Howe, 1988:3) By the end of the 1990s, it is predicted that women will comprise more than half of those in paid employment. Employers are under pressure to provide incentives for women to return to paid work after having children earlier than in the past. Many large companies have recognized the benefits of Career Break Schemes which attempt to facilitate women undertaking paid work along with their domestic commitments (Truman, 1986). The rate of growth for women entering self-employment far exceeds that of men. The number of women who entered self-employment increased by 70 per cent between 1981 and 1987 (Employment Gazette, 1988). At the same time, the small enterprise sector and the number of people in self-employment have also grown over the 1980s. In this chapter we will examine the evidence on current changes and discuss whether this will lead to a better climate for women to participate in self-employment and the small business sector.

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There is a strong lobby from the Equal Opportunities Commission (EOC, 1988) the Commission of the European Parliament and pressure groups such as Women in Enterprise and the Women’s Enterprise Development Agency (WEDA) to support women’s entry and development in self-employment and the small business sector. WOMEN AND BUSINESS IN THE 1980s Until recently, the literature on female small business owners and selfemployed women has been scarce. Most research has been carried out without giving attention to gender as an issue. Where studies of women have been carried out, there has been a notable absence of any attempt to achieve representativeness in the range of economic sectors in which female business owners operate (Cromie and Hayes, 1988; Goffee and Scase, 1985; 1987; Watkins and Watkins, 1984). Curran and Burrows acknowledge that this problem has been exacerbated by the absence of accessible, accurate sample frames (1988:42). More recent research cites the lack of data as being a central problem in getting a picture of women’s role in business creation (Carter et al. 1988; Halpern, 1989). The assertion that women’s role is increasing is based on incomplete data in all member states of the EEC (Halpern, 1988:17). According to Curran and Burrows, there has been a tendency to overstate the growth of women’s share of self-employment and small business ownership (1988:29). Self-employment and small business ownership has increased for both men and women and there is no evidence in official statistics to suggest that the ratios between men and women have changed. However, the quality of future research may improve following a recent secondary analysis of the General Household Survey (GHS). This will give us a bench mark sample and has provided data to suggest that some of the previously accepted characterisations of female small business owners and self-employed should, despite their apparent plausibility, be questioned closely in further research. (Curran and Burrows, 1988:42) By the year 2000, providing that adequate resources are available for research, there is no reason why a more comprehensive picture of women in small business should emerge. Halpern recognizes that the number of women’s enterprises begins from a much lower baseline in comparison to men’s. Despite official statistics showing considerable growth of women’s businesses in percentage terms, the number of women in business remains small. This, she suggests, means that in practice women’s businesses have remained invisible or at

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best marginal to the overall picture of small business and self-employment. Other writers have pointed to ‘a peculiar eclipsing’ of women’s representation in society (Smith, 1988:17) with a consequence that the volume of women’s economic contribution is consistently underestimated (Allen 1989:245). Apart from women who ‘assist’ in their partner’s business by doing the bookkeeping or taking telephone messages (EEC, 1987), there are many examples of women’s enterprises which may never appear in official statistics. These include those who sell their own produce at the roadside, or who provide bed and breakfast accommodation, or who are responsible for organizing the preparation and serving of food in public houses. Halpern has suggested that there is an imperfect awareness of what is at stake in the socio-economic environment of business creation amongst women. In turn, we are faced with a situation where the heterogeneity of women as a category is understressed. Class, ethnic origin, marital status, the absence or presence of children, levels of education and training, and place of residence are all factors which individually and interactively influence women’s choice of, and access to, business enterprise. The gap in our understanding of the variation in women’s lives has led to an insufficient mobilization of the latent potential in the female population which is in a position to open a business. A particularly problematic area is that of sectoral segregation. It is now well known that women in paid employment are found in a limited number of job classifications, compared with men (Hakim, 1979). There is little evidence to suggest that the growth in women’s participation in paid employment has led to any breakdown of this occupational segregation. Research suggests that the patterns of women’s occupational segregation may be replicated when women are self-employed or running a small business (Curran and Burrows, 1988:56). Carter et al. (1988) however, found that small enterprise undertaken by women was not confined to ‘traditional’ female sectors such as hairdressing, retailing, catering and other elements of the ‘service’ sector. This, they argued, implied that there is nothing inherent in women which confines them to certain occupational sectors. Indeed, Leah Hertz (1986) shows how many female owners of large corporations are found at the head of organizations which are quite ‘non-traditional’ for women. However, despite this evidence, the reality appears to be that the growth experienced in women’s businesses seems to follow the traditional patterns of women’s work whilst male small enterprises operate on a broader occupational base. Women as a group will therefore benefit from the growth in the service sector, because this will lead to a growth in employment opportunities for women. However, changes in the economy must surely favour the group which has the broadest occupational base, which is likely to continue to be men.

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A further feature of women’s businesses is that women spend fewer hours working in their businesses than men. This is almost certainly because of the other demands that women have on their time because they also care for children, the sick and elderly and run homes. The implications of this will be discussed later. A final aspect of women as business owners and as self-employed is that the remuneration they receive is less than that accruing to men. Curran and Burrows (1988) suggest that over time, the gap may decrease and that this may be evidence that women may be gaining access to less marginal forms of self-employment. However, these are very tentative suggestions and if the majority of women remain in marginal sectors of small enterprise, the relative difference in remuneration will remain. WOMEN’S WORK AND WOMEN’S BUSINESS Despite the current imperfections in our knowledge, existing research provides some pointers to the prospects for women’s business and selfemployment in the year 2000. An important starting-point is to look at processes which lead to women setting up small businesses or becoming self-employed. Watkins and Watkins (1984) describe how the background of women entrepreneurs is far more diverse than that of men. They found that unlike men, women set up in business where they have no track record of achievement, or where they have not received vocational training to support their enterprise initiative. They suggest that women, therefore, take more risks because they have less relevant experience to enter the small enterprise sector. However, measure of risk must depend on what is at stake. Whilst a woman who has faced blocks in her career development as an employee, might be taking risks if she decides to ‘go it alone’, other women have different starting points. Many women enter into selfemployment because they have no alternative means of earning a living. Those who cannot find employment elsewhere are forced into selfemployment by economic necessity. Epstein describes how women may be ‘pushed’ or ‘pulled’ into self-employment depending on their economic circumstances. Some might be pulled towards self-employment by the profit it potentially offers; others are pushed into it through a lack of alternative choice (Epstein, 1989:1). Using these data, the prospects for women’s business in the year 2000 might well be influenced by relative opportunities in other sectors of the labour market. If employers offer incentives to women to develop their careers, then there may be fewer women who are ‘pulled’ into the small enterprise sector. On the other hand, if women begin to share in the success of larger, established businesses, and those women who are presently operating successful small enterprises continue, there may for the

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first time in several decades be sufficient role models for younger women to set their sights on being economically independent. The growth in self-employment may be seen in one respect to be a component of a general growth in the flexible workforce (Hakim 1987: 556). Hakim suggests that one-third of the workforce may be considered to be ‘flexible’. There has therefore been a growth in the pool of workers from which the self-employed may be drawn. The characteristics of the ‘flexible’ workforce closely match women’s experience of paid work since it also includes part-time workers and temporary workers—the vast majority of whom are women. At the same time, there is evidence that another characteristic of the ‘flexible’ workforce is that it is low paid and does not enjoy employment protection found in the remainder of jobs. When the realities of the ‘flexible’ workforce are examined, it would seem that women in low-paid employment will be subjected to increasingly casualized work prospects (Hurstfield, 1987). For these women, the attraction of self-employment might be to achieve a relative autonomy which may not be possible through temporary or part-time employment. The long-term viability of enterprise of this type is, however, open to question, as Allen has pointed out: Large established firms are changing patterns of employment by externalising production to smaller units, by creating new subsidiaries, by licensing or franchise agreements and by subcontracting…. Such changes, in effect…increase the number of those working for small firms and increase the self-employed, who are in many cases, in reality, contract workers. (Allen, 1989:244) In such circumstances, the status of employee with any employment protection it might offer, might well be preferable to being in a small enterprise. Women would be extremely vulnerable to downturns in the economy if ‘flexibility’ continues towards the year 2000. Low-paid women have less of an economic risk than those in better paid careers since they have fewer options to start with, but a low starting-point in the small enterprise sector is not necessarily a predictor of long-term vulnerability. In a study of independent employment amongst minority and immigrant women in five EEC states, Morokvasic-Muller stresses that self-employment amongst these women is not new, especially in periods of economic crisis (1988:95). The report describes the various successes achieved by migrant women across Europe who are independently employed. But she also points out that independence is relative to the alternative choices available, and migrant women commonly have less choice than most. In Great Britain, the search for independence masks the impossibility of finding waged work in a given sector. She states that

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‘Independent activity hardly ever results from a real choice. Nevertheless, it is always presented as something that one always wanted to do, as a dream that came true’ (op. cit.: 36). Women undoubtedly face obstacles when they move into the small enterprise sector, but Morokvasic-Muller stresses that they also have advantages: Among the major obstacles that immigrant self-employed women have to overcome is the stereotyped image of women as ‘problems’, together with current prejudices in the societies of immigration… they are not representative of a certain image of miserable, passive, incapable women, assisted and seeking assistance. They are precisely the opposite and their mere existence questions this image. (Morokvasic-Muller, 1988:96, 97) The study found that the availability of formal training or on-the-spot training was the most important influence on women’s choice of sector. It would therefore seem to be of vital importance to continue to support ventures such as Project Fullemploy and the Women’s Enterprise Development Agencies which provide women with the skills and expertise to set up in business. If these initiatives continue into the next century, and successes are widely publicized, the image of ‘the entrepreneur’ could change dramatically. Research by Carter et al. (1988) has provided a broad typology of selfemployed women and small business owners. It describes the behavioural characteristics which women may demonstrate at a particular point in their entrepreneurial lives.1 These characteristics help to account for the variety which exists in female entrepreneurial experience. The women who ‘drifted’ into business as an alternative to unemployment could, by implication, easily drift out again if their initial experiences proved negative. On the other hand, early ambivalences about whether being in business was the best option could be dispelled if early successes were achieved. This is perhaps the most vulnerable type since by definition the formal labour market has failed to provide them with opportunities and the option to work independently was less of a positive choice than a last resort. In contrast, ‘Young Achievers’ begin with a determination that they want to be business owners. For them, life-cycle influences such as the desire to have a family will have as much bearing on the direction of their business as commercial pressures. The presence of children demands different coping strategies from ‘High Achievers’ and ‘Returners’ who found various means of combining motherhood with running a business. The Traditionalist’ business owners tended to be older and so they did not face the choice between how to divide their time between their families and their businesses.

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These typologies are useful in so far as they describe how all women are not the same. However, they are limited as long as they remain descriptive generalizations of women’s experiences of running a business. There is considerable scope to develop more detailed analyses of the female entrepreneurial experience. Perhaps one of the most important issues highlighted by this research is the importance of life-cycle factors for women. The way in which women enter and run businesses cannot be isolated from these factors and their associated domestic circumstances. Life-cycle issues are largely ignored in most small business research. These must be of fundamental importance to future studies of both men and women business owners. Research findings must be incorporated into policy that relates to business owners who may be women. Carter et al. (1988) have gone some way in exposing the complexities of women in business. Yet, there is clearly plenty of scope to broaden the framework they have used to gain a deeper understanding of how class, occupational sector, and a whole host of other dimensions determine and influence the prospects for women’s business. O’Connor and Riddle (1988) point to the importance of initiatives aimed specifically at stimulating women’s entry into business ownership. Such initiatives are necessary, according to them, because the education and conditioning that women receive rarely equips them with the confidence to take on such a role. Their findings show that once a business is established, For male entrepreneurs, priorities are clearly defined in terms of their business and family, and business roles do not conflict as the wife takes responsibility for the organisation and running of the home. Women entrepreneurs on the other hand, find themselves trying to balance the combined roles of organiser of home life and business person; a situation that often induces both stress and guilt…family support particularly from a spouse, is crucial to success. (O’Connor and Ruddle, 1988:24) It might be hypothesized that one of the major influencing factors on women’s business in the year 2000 will be the availability of alternative sources of domestic support in the home. The evidence seems to suggest that the prospects for women’s businesses might be much more closely aligned to those of men if appropriate support were available, so that domestic commitments no longer rested primarily on the shoulders of women. Initiatives such as the provision of nursery care or tax relief for costs of domestic help would make a great difference to many women in business. Collective child care could be provided by enterprise parks if there were a genuine will to encourage women into business. There is some small amount of evidence

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that practical support for child care may increasingly be provided by employers who need to make it more attractive for women to remain in or return to work in the professions or business organizations. If this trend continues, women might not leave, or they might be lured back to employment rather than risk their chances in small business or selfemployment. Women are not just carers of children, however, and with an ageing population, women will be increasingly called upon to look after elderly relatives—another factor which will limit their potential in small enterprises. A criticism of existing research which focuses on the experiences of women in business is that many of the recommendations that are made to improve the prospects for women would be of equal benefit to men. However, the fundamental conclusions of research studies such as Halpern (1989), O’Connor and Ruddle (1988) and Carter et al. (1988) show that however heterogeneous the category of women is, they all face to varying degrees additional and different obstacles to men when they set up or develop a small business. In the next part of this chapter, we assess the prospects of achieving some of the recommendations and suggestions that are contained in existing research. PROSPECTS FOR WOMEN’S BUSINESS There seems to be agreement that women entrepreneurs need to enjoy greater visibility to stimulate women with entrepreneurial potential and to improve awareness of women’s role in this field. Awareness needs to take place on a number of fronts: quantitative and qualitative research would provide us with a better understanding, but we also need to promote a greater public awareness through the use of the media, including campaigns and exhibitions. There are various parties that can make this possible, including academics, business advisers and the government, as well as pressure groups for women. All of these can bring the media’s attention to the role that women already play in the small enterprise sector. The whole question of image will be an important factor in the recognition of women’s businesses. The accessibility of financial support as a key factor in the progress of women’s businesses has also been pointed out. Both Halpern (1989) and Carter et al. (1988) note that women’s businesses suffer disproportionately from being under-capitalized. Subsidies for high tech ventures and grants for the manufacturing sector will be of limited benefit to women if their businesses are concentrated in low tech areas or the service sector. Financial support needs to be orientated towards the type of businesses women operate and progress will be made when and if funding bodies spread the scope of existing schemes.

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Banks have had a notorious reputation of failing to give women’s businesses the credibility they deserve. There are signs that banks are becoming aware of their poor reputation and have become increasingly interested in women as potential customers. If women get better access to training and support, the process may be accelerated as improved financial planning becomes incorporated into their business plans. There is evidence that women do not have the same access to business advice and support systems as men (EOC, 1988; Martin, 1988; Skinner et al. 1988). Yet businesses need support and advice in the early months and years if they are to survive. There are two schools of thought about how women may access advice. The first believes that women should be offered a completely separate network which is oriented specifically and exclusively to their needs. Others such as Halpern argue that a separate network should not be established but that existing agencies should be reoriented to provide a service for women. Unless this happens, women might be cut off from developments in the range of services to the small business sector. A recent report describes how the network of local enterprise agencies (LEAs) could be made more accessible to a female clientele (Truman, 1989). Achieving this, however, has implications for almost every aspect of the current work of LEAs. The report describes how agencies will need to adapt their monitoring procedures so that they can actually ascertain the proportion of women who use the agency. In most cases, the agencies’ marketing plans would have to be altered so they are able to identify and reach potential female clients. They would probably need to increase the scope of outreach work to make contact with women in the community and consider organizing special events to raise the profile of women’s businesses. More female counsellors are needed in agencies, and all counsellors require training so that they have an understanding of the needs of women in setting up and running a business. Agencies might also support women-only business clubs and provide single-sex training. All agencies should adopt and implement an equal opportunities policy for their agency staff and clients. Obviously, such changes would have implications for the allocation of resources in agencies and this would, in turn, have implications for the private sector sponsors of LEAs. The extent of the changes that need to be made is perhaps indicative of the way in which women as business owners have remained marginal to the overall picture of the small enterprise sector. There now appears to be a will to recognize the importance of providing a support network for women; the next few years may prove to be significant for the future course of events. The prospects for small business generally, but in particular women’s enterprises, will also be dependent upon the actions of government. There is a strong lobby for self-employed women and female small business

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owners to receive tax allowances for the costs they incur in looking after children, the sick or the elderly. For the last ten years, there has been a strong resistance to implement any change in this area, but it may be that by the year 2000, women’s economic contribution will be so important that support for carers will become available. If this should happen, we may see changes in women’s work patterns, including an increase in the number of hours that they can do their business activity. The government has been criticized about the access criteria imposed for financial help under the Enterprise Allowance Scheme. Many women are excluded from the scheme because they are not registered as unemployed in their own right. Again, if these criteria were changed, more women would be able to take advantage of the scheme and move into selfemployment or the small business sector. A further area where government could play a useful role is in providing funding for research into female entrepreneurship. To date, there has only been one major study of female entrepreneurs partially funded by central government (Carter et al. 1988). This indicates a serious lack of commitment to gaining the necessary understanding of the entrepreneurial process as it relates to women. The Single European Act which will lead to the completion of the internal market in 1992 has received considerable attention from European business communities. The European Commission’s study of the social dimensions predicts that social change will be generated or accelerated as a result.2 All reports so far by the Commission, the Economic and Social Committee and the European Parliament have pointed to a markedly poorer situation for women in the member states as a result of the Single European Act.3 Data suggest that the situation of women employed in the ‘vulnerable’ sectors of industry and commerce will worsen and that workers will be subjected to increasingly flexible working arrangements. The problems of flexibility for the self-employed and small business sector have been discussed earlier. If the predictions of the European Commission materialize, it would appear that, by the year 2000, women who are self-employed or who run businesses in marginal sectors will be in an extremely vulnerable position unless support is made available to mitigate their position. Turner (1989) describes enterprise and employment initiatives that have been introduced for women by the EEC Commission. Until recently, the European Social Fund (ESF) has contained specific provisions to support the development of women’s enterprise. Women in Britain gained particular benefit from this provision. However, the new guidelines for the ESF no longer contain specific provision for women as a category and concern has been expressed about this apparent reversal in policy. The only other direct support for women’s enterprise comprise modest start-up grants towards the fixed costs faced by women starting a business and an

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employment subsidy for those women’s businesses wishing to expand by taking on more employees. Inevitably, each financial year sees these small measures being substantially oversubscribed. In the past, Britain has vetoed initiatives which would be of benefit to women, such as the European directive on parental leave (Knowles, 1986). The Single European Act has now removed the power of veto from individual member states. In some areas, such as equal opportunities, child care and social security, European directives now have the potential to bring about changes in legislation that will benefit women in Britain. However, there is little evidence so far to suggest that Europe will develop effective initiatives to mitigate the worst effects of the Single European Act on the sectors in which women’s businesses operate. CONCLUSIONS We are undoubtedly in a period of change in terms of women’s visibility in Britain’s economy. By the year 2000, there will be more women in the paid labour force and trends suggest that they will be more active both as employees and in self-employment and small businesses. There is evidence that employers will provide many incentives to retain trained women workers and this may have a negative effect on the proportions of women who find running a small business, or becoming self-employed, more attractive than having a career as an employee within a larger organization. However, we do not know how many women are in this position of choice and we must look towards more detailed research to give us a better understanding of women with their own businesses. For those women who enter self-employment or set up small businesses out of economic necessity, the future seems less certain. If they become more visible—and research is one mechanism through which this may be achieved—then it is possible that their needs might be recognized and incorporated into policy relating to the small enterprise sector. Existing research shows that there are women who have overcome considerable barriers of poverty, racism and lack of education and training to build successful businesses. If the successes of these women are recognized and publicized, they will provide excellent models as business women and may lead other women towards economic independence. The problem of image is perhaps one of the lesser barriers that will influence women’s business up to and beyond the year 2000. Probably the biggest indicators of whether women’s businesses will progress beyond the margins of the economy will be: 1 If the boundaries which create occupational segregation are broken down so that any growth in women’s businesses is not just a product of the expansion of the service sector. To do this, women must move

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into areas of work such as manufacturing and new technology. Before this can happen, they must have access to the skills and competencies required. This will need to occur as a matter of course, not just as a demand for more trained workers arising from a ‘skills shortage’. A true balance between the sexes would see comparable levels of remuneration between men and women and the development of a service sector not primarily dependent on women. If the expansion of service sector activity slows down further or stops, we may witness a situation where women are pushed out of the workforce once again. In effect, this might lead to a scenario that affects women’s jobs to the same extent that structural changes precipitated male redundancies in heavy engineering twenty years ago. 2 There is an expansion of social provision such as support for those with sick or elderly dependants and facilities for those with children. This would currently benefit women more than men since this work falls on women disproportionately. It would enable them to work a similar number of hours to men in business activity and may be one of the factors leading to improvements in the remunertion of selfemployed women and women with small businesses. 3 Government provisions should address the issue of access to enterprise so that increasing numbers of women are able to join the Enterprise Allowance Scheme. Prospects for women’s business will also be influenced by the accessibility and applicability of support and advice agencies. 4 Protection is needed for women whose businesses are an extension of the ‘flexible’ workforce, which seems likely to expand over the next decade—particularly with the completion of the European internal market. Research is needed urgently to establish the proportions of women who are in effect in business as subcontractors for larger companies. This chapter began with a quotation which stated how women are desperately needed in our workforce and in business. By the year 2000, women may well be much more visibly economically active. But we must end with a cautionary note and ask if perhaps we have witnessed this situation at least once before when, in the 1940s, there was also a deafening cry for women to ‘join’ the workforce. We acknowledge that the circumstances which led to women working in paid employment during the Second World War were somewhat different to the skills shortages of the 1990s. But we must question if, when the demographic cycle moves on, women’s economic activity will retain as high a priority as it has today.

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NOTES 1 Carter et al. use five categories to describe how women reached their present state of self-employment or small business; they are ‘drifters’, ‘young achievers’, ‘high achievers’, ‘returners’ and ‘traditionalists’. These are described in more detail in Chapter 3 of their report. 2 1988 progress report by the Commission’s inter-departmental group, (ISBN 92–825–8257–4). 3 EEC Committee on Women’s Rights meeting of 24.8.88, Document PE 126.071—rapporteur, Mrs M.Van Hemeldonck.

REFERENCES Allen, S. (1989) ‘Flexibility and working time: a gendered approach’, in J.Buber Agassi and S.Heycock (eds) The Redesign of Working Time: Promise or Threat?, Berlin: Sigma. Carter, S., Cannon, T., Rosa, P., Baddon, L., McClure, R. (1988) Female Entrepreneurship, Stirling: Scottish Enterprise Foundation. Cromie, S. and Hayes, J. (1988) ‘Towards a typology of female entrepreneurs’, in Sociological Review, Vol. 36, No. 1, pp. 87–113. Curran, J. and Burrows, R. (1988) Enterprise in Britain: A national profile of small business owners and the self-employed, London: Small Business Research Trust. Employment Gazette (1988) ‘1987 Labour Force Survey—Preliminary Results’, March, pp. 144–58. Epstein, T. (1989) ‘Female entrepreneurs and their multiple roles’, paper presented to the Conference ‘Women Entrepreneurs’, Bradford, March. Equal Opportunities Commission (1988) Women into Business: Strategies for Change, Conference Summary, London, June. European Economic Community (1987) Non-Salaried Working Women in Europe: Women running their own businesses or working independently— Women involved in their husbands’ professional activity. Brussels: CEC. Goffee, R. and Scase, R. (1985) Women in Charge, The Experiences of Female Entrepreneurs, London: George Allen & Unwin. Goffee, R. and Scase, R. (1987) ‘Patterns of business proprietorship among women in Britain’ in R.Goffee and R.Scase (eds) The Social Processes, London: Croom Helm. Hakim, C. (1979) Occupational Segregation, Department of Employment Research Paper, London: HMSO. Hakim, C. (1987) ‘Trends in the flexible workforce’, in Employment Gazette, November, pp. 549–60. Halpern, M (1989) Business Creation By Women: Motivations, Situations and Perspectives, Commission of the European Communities, Brussels. Hertz, L. (1986) The Business Amazons: The Most Successful Women in Business, London: Methuen. Howe, Lady Elspeth; (1988) Introductory address to Business in the Community’s Initiative on Women’s Economic Development, Preston County Hall, 24 November.

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Hurstfield, J. (1987) Part Timers Under Pressure, London: Low Pay Unit. Knowles, W. (1986) ‘Managing the career break’ in Equal Opportunities International, Vol 4, No.3. Martin, F. (1988) ‘Is the small business support network failing female entrepreneurs?’ Paper presented to the 11th National Small Firms Policy and Research Conference, Cardiff, November. Morokvasic-Muller, M. (1988) Minority and Immigrant Women in Self-Employment and Business in France, Great Britain, Italy, Portugal and Federal Republic of Germany, Paris: Centre National de la Recherche Scientifique. O’Connor, J. and Ruddle, H. (1988) Growing Concerns—a study of growth-oriented women entrepreneurs, Dublin: Industrial Development Authority. Skinner, L., Williams, L., Bird, E. Mann, S. (1988) ‘Attention not privileges - the needs of women in small businesses’, paper presented to the 11th Small Firms Policy and Research Conference, Cardiff, November. Smith, D.E. (1988) The Everyday World As Problematic: A Feminist Sociology, Milton Keynes: Open University Press. Truman, C. (1986) Overcoming the Career Break: A Positive Approach, Sheffield: Manpower Services Commission. Truman, C. (1989) Women and Local Enterprise Agencies: guidelines for the development of good practice, London: Report to Business in the Community. Turner, C. (1989) ‘Support for women entrepreneurs across the member states of the EEC’. Paper presented to the conference ‘Women Entrepreneurs’, Bradford. Watkins, D. and Watkins, J. (1984) ‘The female entrepreneur: background and determinants of business choice—some British data’, in International Small Business Journal, Vol 2, No. 4, pp. 21–31.

7 Government policy towards high technology Small firms beyond the year 2000 Ray Oakey

INTRODUCTION The rediscovery of the importance of small firms a decade ago, and the acknowledgement of this size of enterprise as an important part of any national industrial effort, was a welcome balancing of an earlier excessive preoccupation with large firms. In retrospect, however, much of the debate during this period was unprofitably concerned with new firm formation and growth rates, and with ‘picking winners’ in an attempt to measure growth and to describe the attributes of those firms with rapid growth rates (Birch, 1979: Fothergill and Gudgin, 1979; Storey, 1982; Storey and Johnson, 1987). From academic and policy viewpoints, the major shortcoming of this approach was that it tended to view the small firm as a ‘black box’ in the sense that firm performance was observed, and ‘best practice’ management advocated, yet there were few policy prescriptions on ways in which new proactive measures could improve the ‘natural’ rate of small firm formation and growth. This ‘hands-off’ approach of many writings during the early 1980s probably reflected the political reality that any advocation of a higher profile industrial planning strategy on behalf of government would not be taken up in the political climate that existed then, and which continues to exist. Part of the basis for the non-interventionist stance of the government was the perception that entrepreneurially led new small firms in high technology sectors could sustain manufacturing industry in the face of a general decline of industries that had grown in the 1960s (e.g. motor vehicles, electronic consumer goods). However, much of the evidence for small firm growth in general (Birch, 1979) and high technology small firms in particular (Cooper, 1970; Morse, 1976), came from the United States. In Britain, evidence of similar growth was, and remains, unconvincing (Oakey and Rothwell, 1986), and is dependent with unnerving regularity on the achievements of a small science park on the outskirts of Cambridge. However, there can be little doubt that high technology small firms are important to future British national industrial employment growth, both in

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terms of the actual and potential employment they provide or promise in aggregate, and the ‘one-off’ employment gain that can occur when individual small firms grow rapidly and become large (Oakey and Rothwell, 1986). While there is ample evidence of the aggregate employment value of high technology industry in general (Breheny and McQuaid, 1987) and high technology small firms in particular (Oakey, 1984; Oakey et al., 1988), there have been few examples of small British firms that have grown large, and remained British, in recent years. The failure of Sinclair, Inmos and Acorn Computers (Fleck and Garnsey, 1987), underlines this point. However, it should remain a priority that Britain produce a number of new, small, high technology firms that subsequently become large ‘flagship’ firms to lead their emerging sectors through a strong commitment to domestic research and development and production. These firms will provide a platform for future innovation and growth in high technology sectors through growth within, and new firm ‘spin off from, such enterprises (Oakey, 1989). Currently, Celltech in the biotechnology industry has the potential to perform this role for its parent sector. However, given the Conservative government’s free market approach to manufacturing industry, there can be little confidence that foreign acquisition of this national asset would be resisted on national interest grounds, should this possibility arise. However, although the current unwillingness of government to intervene and protect high technology small firms during their passage from small to large independent status may be shortsighted, part of the problem of the dearth of enterprises undergoing the small-large firm transition is that few British small firms achieve the necessary rapid growth. This is certainly true when small British electronics firms are compared with their counterparts in the United States (Rothwell and Zegveld, 1982; Oakey, 1984). PROBLEMS OF INNOVATION AND GROWTH IN HIGH TECHNOLOGY SMALL FIRMS Recent evidence from a research study of small high technology enterprises suggests a possible reason for the lack of rapid growth in such firms (Oakey et al., 1988). However, before presenting this evidence, it is helpful to make a number of general conceptual statements on the nature of innovation in high technology small firms. While there are many myths that relate to the potency of innovation and growth in this type of firm, there is little doubt that most of these enterprises are heavily committed to product innovation. This truth is reflected in the observation that a recent study of 131 British and American high technology small firms employing less than 200 workers discovered that 79 per cent of the study firms performed R & D of a full or part time nature, while 58 per cent possessed a full-time R & D department (Oakey et al., 1988). Whilst such evidence might be

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superficially judged as a surrogate for success, a strong commitment of resources to R & D involves considerable risk of failure at some point during the innovation cycle, which is reflected in the observation that the above study was unable to find any correlation between research and development investment and subsequent growth (measured in a number of ways—see Oakey et al., 1988:120). A synthesis of all the results of this study would suggest that, although the transition from promising small firm to a large, nationally important enterprise of the type discussed above will not occur without R & D investment, such a commitment is a necessary but not sufficient ingredient to successful innovation, when judged in terms of product sales, profits and employment. Risk and introspection in high technology small firms A major reason why innovation in high technology small firms involves risk is the reality that the total production innovation cycle does not merely relate to the conception of a product idea, but is concerned with the whole innovation process from the original concept, through prototype development and full production, to the time when it has achieved successful sales in the marketplace. This process implies that investment in the complete innovation cycle is, in practice, not a single event but a series of temporally well-defined pulses that occur during the innovation cycle. Figure 7.1 graphically demonstrates this process in which R & D, production and marketing are viewed as integral parts of the complete innovation cycle, each stage implying the investment of considerable resources in order to make the total exercise a success. In keeping with the principle that the strength of a chain is embodied in its weakest link, a failure adequately to fund any part of the innovation cycle may result in the demise of the particular project, and perhaps the whole firm. Moreover, since marketing is the final phase in the cycle, when additional capital may be difficult to obtain, there is a tendency in small firms to underfund or omit this important part of the innovation cycle. The poor level of commitment to marketing is indicated in Table 7.1, where 46 per cent of the British and American high technology small firms had no sales staff, which implies a low level of commitment to selling since no member of staff performed the marketing role on a full-time basis. However, this example of introspective and sub-optimal marketing behaviour is only one of the many examples in the above study (Oakey et al., 1988). Other evidence of introspection is contained in Table 7.2, which indicates that a major 73 per cent of the study firms relied on internal profits for their main investment source. Moreover, the bulk of respondents to this survey emphasized that a slower rate of progress was preferable if reliance on ploughed-back profits could preserve internal control of their businesses. This attitude reflected a general belief among

Figure 7.1 A complete product life-cycle model

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Table 7.1 The regional distribution of firms employing sales representatives

N=131 Source: (Oakey et al., 1988).

respondents that the conditions placed upon external loans were excessively onerous, particularly when loss of internal autonomy was involved (see also Chapter 8 for further discussion). An insular attitude also existed in terms of the firm’s research and development effort, with only 14 per cent of firms maintaining significant technological information contacts with external bodies such as universities and commercial research organizations. Moreover, licensing and joint venture arrangements were virtually nonexistent, with a respective 14 per cent and 7 per cent levels of occurrence (see Oakey et al., 1988:128–31). The combined impact of this evidence leads to a strong implication that many high technology small firms in Britain are underachieving in terms of innovation (judged in terms of the complete cycle—see Figure 7.1) and subsequent growth. Although American firms display many features common to their British counterparts, periods of rapid economic growth in the economy of the United States, which is strongly linked to defence spending, tend to filter down to compensate for introspection and so promote rapid growth in high technology small firms (Malecki, 1981; Oakey, 1984; Saxenian, 1985). In Britain, however, there is little sign that the benefits of proportionately similar defence spending reaches small firms to prompt a rapid transition from small to large firm status within British high technology industry. Part of the explanation for this lack of growth among small firms with good products and a desire to grow is the defensive and introverted attitude detected above, and the failure of external government policy to stimulate and ensure growth in such enterprises (Forrester, 1985). It is a central argument of this chapter that part of the blame for this poor success level over the past decade must be attributed to the current non-interventionist approach of the British government, which will be discussed in more detail below.

1981–2 N=174 (1985–6 N=130 Source: (Oakey et al. 1988).

Table 7.2 Main source of investment finance 198 l-2 and 1985-6 (by region)

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THE ‘FREE MARKET’ ETHIC OF THE BRITISH GOVERNMENT AND ITS IMPACT ON HIGH TECHNOLOGY SMALL FIRM GROWTH Economic growth at the macronational and international scale At its most convincing, the argument for a ‘free market’ economy is based on the need for competition as a means of promoting efficient production and the development of products with superior specifications that corner their national and international markets. It is certainly true that many examples from socialist economies can be cited where the absence of competition has led to technological stagnation and subsequent low economic growth (Nove, 1983). However, it is illogical to assert that because a rigorously planned socialist economy is insufficient, an extreme ‘free market’ capitalist alternative is therefore vindicated. In this context, the Japanese approach of ‘workable competition’ perfectly focuses on a central problem contained in the ‘free market’ capitalist approach (see Hadley, 1970:369). Put simply, ‘free market’ competition has at least two major drawbacks in terms of government policy that ‘workable competition’ seeks to eliminate. First, the process of competition is inherently wasteful in that national firms operating in national and international markets may waste precious resources through the competition that produces duplication of effort on product development and resource-sapping takeover battles. Such conflict may weaken both firms, possibly to the advantage of a foreign competitor. The GEC takeover of Plessey might be cited as an example of this phenomenon in which both firms have wasted resources respectively making and rebutting the bid, which has been eventually successful. Secondly, a likely result of uninhibited ‘free market’ competition is a drift towards monopoly power, a growing trend that has been confirmed by the increased number of referrals to the Monopolies and Mergers Commission over the past five years as takeover fever in Britain shows no sign of abating. Apart from monopolies not producing an environment conducive to innovation due to lack of competition, large monopolistic or oligopolistic firms present an industrial planning problem for government in that corporate and national interests may diverge. The Japanese government has, since the war, avoided these twin problems by using the Ministry for International Trade and Industry (MITI) to liaise with the large industrial enterprises they helped to create. In particular, ‘workable competition’, broadly defined as a balancing of the need for competition to ensure technological progress with the need to eliminate wasteful power struggles of the type described above, ensures that corporate conflict does not occur that is to the detriment of the national interest. Although no formal legislated powers exist, the control of

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industrial development through the use of long-term loans and other inducements by MITI is industrial planning on a large scale. Detailed knowledge of this national industrial planning system and evidence of its massive success has been available to government planners in the Western industrialized nations for well over a decade. The obvious reaction to such Japanese government behaviour of ‘fighting fire with fire’ and copying the Japanese success has been inhibited in Britain and the United States by a reactionary enthusiasm during the 1980s for monetarism and a retreat from national and regional industrial planning in favour of the ‘free market’ noninterventionist approach. However, with the recent change of president in the United States, there is some indication that the Americans are beginning to believe that their large industrial firms cannot compete on an equal basis with their Japanese counterparts without strong government support. While ‘lip service’ to the capitalist ethic ensures that the current administration is unwilling to call actual and proposed interventions ‘government industrial planning’, both the Pentagon’s recent 200 million dollar funding of the Sematech semiconductor’s R & D programme in San Antonio, Texas, and the Department of Commerce’s possible £300 million dollar financial backing of a joint government-private sector development programme on highdefinition television, shows signs of a move towards industrial planning and funding on a Japanese scale. Fundamentally, a number of experts with the United States government have begun to realize that the industrial strength of a nation is too important to be entrusted to the whims of private industrial firms. Notwithstanding a strong strategic defence element in the argument for government intervention to protect and nurture the semiconductor industry, there is also a realization through the principle of ‘Team America’. This principle advocates that government must become involved in funding and planning the development of high technology industrial projects in the broader national interest, partly because of the huge sums of investment involved, but also owing to the realization that American firms cannot compete on an equal basis with their Japanese counterparts without the strong financial backing that only governments can provide. Government involvement is particularly necessary, not only due to the size of capital investment programmes needed, but perhaps more importantly, their involvement is essential due to the long leadtimes common for high technology programmes of product innovation, which imply sustained investment over ten- or twenty-year periods. Such investment opportunities remain unattractive to City institutions where ‘long term’ is often deemed to be a maximum of five years. There remains a strong free market group of politicians in Britain and the United States who will argue that such problems can be solved by free market competition. However, such investment opportunities remain largely unattractive. While a number of Japanese industrial policies in recent years

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may have verged on the illegal (e.g. obstructing imports, dumping industrial goods), the strong financial support of large industrial enterprises and astute long-term planning in the national interest are perfectly acceptable government activities. Given this legitimacy, the only way to combat such success is to match or exceed the Japanese government’s efforts, which the Americans seem to be attempting. In Britain, however, the previous bi-partisan transatlantic enthusiasm for free market economics continues intact in the face of mounting evidence that the goal of free and fair competition is unachievable (particularly on an international scale), while the creation of a stable and conducive environment for innovation and growth remains elusive. These twin problems raise a number of detailed issues that relate to the current British government’s policy towards high technology small firms at the microeconomic level. Economic growth at the micro-level within high technology small firms Much of the above macro-level discussion of growth in Japanese and American high technology industry has inevitably centred on large firms. However, many of these issues also have strong relevance to innovation and growth in the small firms of high technology sectors. Although there are probably many more ways in which the ‘free market approach’ of the current British government inhibits the graduation of small high technology firms into desirable large enterprises, the following three negative effects of this policy are of key importance: The predatory acquisition of fast-growing, high technology small firms In the past ten years, there has been a growing trend towards the foreign acquisition of British high technology small or medium-sized firms in which sophisticated technology has been acquired at ‘knocked-down’ prices. The acquisition of Acorn computers by Olivetti and of Inmos by the French company Thomson, are merely high-profile examples of this phenomenon in medium-sized firms on the verge of large-firm status. In both instances, sophisticated high technology product-based firms failed due to the inability of the public and private sectors to keep their nerve and fund these enterprises through a crisis. Although it is unlikely that either of these firms realized their true market value when sold, the willingness of foreign firms to pay substantial sums for the technology on offer testifies to its long-term potential. There are other less dramatic examples of the acquisition of small high technology firms in which fast-growing

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enterprises have been lost to regional and national economies (Smith, 1982; Oakey, 1985). The government’s attitude to acquisition in the large ‘flagship’ firm sector of the economy has been schizophrenic, as witnessed by their allowing the Rowntree-Mackintosh takeover by Nestlé, while recently blocking the Elders bid for Scottish and Newcastle Breweries. An enduring problem for the current government is that the principle of noninterventionism at the heart of the free market approach cannot be maintained when there is a need to ensure adequate competition. The minimum level of acceptable competition has been erratically defined in the responses of the secretary of state to the Monopolies and Mergers Commission reports. However, notwithstanding an inconsistent interpretation of the point at which adequate competition is impaired by a proposed merger, the major problem for the current government is determining the national interest in such transactions, and how this interest should be expressed when it is deemed to be present. The erratic actions of the government in this respect have dismayed many of their own expert supporters in the City of London, simply because government actions are impossible to predict. The basic government dilemma regarding large and small firms stems from the simplistic belief that the national interest is served by allowing the managements of industrial firms to pursue their own interests as if national interests and corporate interests were synonymous. Other nations, including Japan, would view the purist free market approach that there is virtually no role for government in national industrial planning beyond acting as some benign form of referee, as ridiculous (Langlois et al., 1988). However, strategically damaging acquisitions of fast-growing British high technology small firms by foreign competition continues with little government comment. As in the case of Acorn and Inmos, the acquisitions are often the last options open to firms with promising products but who find themselves in short-term financial difficulty. Better financial support for strategically important small firms—involving perhaps the taking of a ‘golden share’ equity stake, used in protecting large firms, in which the national interest could be preserved—would prevent these national assets of great potential economic importance from falling into foreign hands. It is again significant to note that the Japanese government is extremely active in ensuring that strategically important private high technology industrial firms do not fall into foreign hands (Langlois et al., 1988). While many of these arguments on acquisition are stimulated by acquisition pertaining to large firms, most of the arguments on competition, national interest and funding apply equally well to high technology small firms with growth potential. The main difference in government attitude towards large and small firms with regard to acquisition, as witnessed by the Scottish and Newcastle case, is that the acquisition of large firms can cause

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regional and national political damage, while although the loss of small firms through acquisition may be economically damaging in the medium term, the short-term political damage is small. In such circumstances, it is preferable to pursue a general consistent non-interventionist ‘free market’ government industrial strategy, and maintain a consistent, albeit misguided, policy. The degree to which the industrial environment is conducive to innovation and growth While the free market approach does not envisage a direct role for government in the promotion and planning of industrial growth, much emphasis is placed on the need for government to create a favourable environment for entrepreneurship and general industrial prosperity through a ‘lower profile’ facilitative government presence. However, throughout the past decade, most of the economic parameters relevant to a conducive environment for small firm growth have remained consistently adverse. From a very high and damaging level in the early 1980s, the pound has varied widely in the range between one and two dollars. Although a high pound is directly detrimental to exports, a further barrier to exports is the uncertainty engendered by changes in the pound’s value over, say, a six-month to one-year period when buying and selling abroad. This problem is particularly relevant to high technology small firms since they trade extensively with foreign firms through sales and purchases, and dispatch a generally high proportion of their sales to foreign customers (Oakey, 1984; Oakey et al., 1988). The economic volatility of the past ten years shows no sign of abating in the current conditions which are, ironically, partly caused by a growing balance of payments gap, which largely results from a poor national export performance. Thus, there is a degree of circular causation in the current problem. The rise in interest rates in the late 1980s to match those levels experienced in the early 1980s is further evidence that the government’s facilitative role has been unsuccessful. By international standards, the generally high level of real interest rates throughout the past ten years has made investment difficult, and is a possible partial explanation of the reliance on internal profit indicated in Table 7.2. While high interest rates in the early 1980s were attacked due to their undoubted impact on industrial investment, it is revealing to note that the major concern of the media in response to recent successive increases in interest rates has been to decry the increase in mortgage interest rates for its impact on inflation and the household budgets of individual home-owners. Manufacturing industry appears to have been largely forgotten by both the government and the media. There appears to be an implicit assumption that we now live in a ‘post industrial’ society in which services in the form of financial

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services and retailing have taken the place of manufacturing. However, the balance of payments figures continue to indicate true reality, in which British manufacturing industry is failing to compensate for a growing level of foreign manufactured imports. It is a further irony that the recent achievement of the government’s long-standing aim of a reduction of the basic rate of tax to 25 pence in the pound appears not to have stimulated investment in industry, but to have created a consumer boom in which foreign firms have been the major beneficiaries of increased spending on consumer durables. The subsequent attempts to stifle consumer demand by increasing interest rates, however, is likely to further inhibit the recent poor rate of industrial investment and exacerbate the future trade gap as industrial growth and exports fail to materialize. Moreover, in terms of future prospects, there is little evidence that the conducive environment for innovation and growth will occur. Indeed, there is every prospect that inflation, interest rates and the value of the pound will at best be unstable, and at worst remain at levels that are detrimental to industrial confidence and sustained growth. The retreat from industrial planning and assistance The worsening private sector environment for innovation and growth in high technology small firms has been accompanied by a progressive reduction in government assistance to this size and type of firm through a variety of sources. From 1979 onwards, sources of government funding and assistance administered through planning arms of government, represented by regional development assistance through the Department of Trade and Industry, the National Enterprise Board (NEB) and the Regional Development Agencies (particularly the Scottish Development Agency), have been increasingly curtailed in scope. Moreover, the role of these bodies has been changed progressively from one of planning and direction, to that of the ‘pump priming’ of private sector investments. For example, in the case of investment, the SDA has been discouraged from taking equity stakes in private companies. The principle of nonintervention appears to dictate that taxpayers’ money should not be used to compete with private sector bodies (e.g. banks and venture capital organizations). However, evidence from Table 7.2 indicates that the level of venture capital funding in British high technology firms over a five-year study period 1981–5 had disappeared from a very low base in 1981. Other evidence appears to indicate that venture capital firms are finding more attractive investments in other non-manufacturing sectors (e.g. software and retailing) (BVCA, 1986; Financial Times, 1988). There is a tendency to reduce government aid and render it bland and unfocused. A major ethical driving force for this blandness is the extreme distaste the Conservative government has for planning or intervention. By

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ensuring that most current industrial aid is now both discretionary and nationally available there is an implicit denial that the free market is producing imbalances that require intervention to ensure their alleviation. The abolition of automatically available Regional Development Grants (RDG) and their replacement with Regional Selective Assistance (RSA), is a good example of this phenomenon. In other cases, automatically available regional grants have been replaced by nationally available discretionary schemes, ensuring that government assistance to high technology industry is increasing in the over-congested and prosperous South East of Britain (Oakey et al., 1988). This approach appears to deny that there are regional imbalances in industrial prosperity, while at the same time negating the responsibility of government to intervene and correct regional decline or over-heating when it becomes apparent, in the interests of regional equity and economic efficiency. However, beyond the practical level, it is a key conceptual argument of this chapter that this noninterventionist ‘straitjacket’ renders the government reluctant to intervene and eliminate obvious barriers to industrial growth when the ‘free market fails to provide an environment conducive to industrial expansion. THE SCIENCE PARK POLICY CUL-DE-SAC The lack of national government policy towards high technology industrial development in the 1980s has created a policy vacuum in which the science park concept has received excessive emphasis, in terms of both the actual and potential high technology employment growth such developments offer to a major industrial country such as Britain. The present government probably applauds this overemphasis since it both disguises the absence of any coherent national high technology industrial policy, and confirms the success of the government’s attempts to drive universities into the arms of industrialists as a result of cutbacks in university research funding. While there is every reason to support the interaction of universities with high technology manufacturing industry where appropriate—and in any case this occurred before the physical provision of a formal industrial science parks site on or near a campus— the propagating power of university links, or the jobs that are likely to occur from such interactions, should not be exaggerated. There are a number of reasons why science parks are unlikely to be an adequate vehicle for high technology industrial growth in Britain. These points will be summarized here since most of them have been examined at length elsewhere (Oakey, 1985): (i) The major assumption behind the university science park ethos, namely that the American example of impressive growth in high technology small firms around technical universities (e.g. Stanford and the Massachusetts Institute of Technology (MIT)) is due to technical

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information exchange, and that this phenomenon could be a source of innovation and growth in Britain (see Cambridge Science Park Directory, 1983), is not proven for two reasons. First, the evidence that does exist on technical interaction between high technology small firms in Silicon Valley and Stanford University shows the level of contact there to be negligible (Oakey, 1984; Oakey et al., 1988). Second, it is a substantial act of faith, given the widespread enthusiasm for science parks in Britain, to believe that a phenomenon, assumed to be evident in the United States, can be easily replicated here, given the obvious cultural, political and economic differences. These factors combine to create a second major barrier to science park growth in Britain. (ii) A more plausible cause of the growth of high technology small firms in the regions of the US discussed above is the high level of academic entrepreneurship apparent in America. Academic entrepreneurs have ‘spun off’ from both the Stanford and MIT universities over a number of years: Hewlitt and Packard being obvious and early examples of this phenomenon in Silicon Valley. Thus, it is probable that entrepreneurial ‘spin off’ is a more viable candidate for explaining the physical juxtaposition of technical universities and high technology small firm growth in the United States. However, the implications of this assertion for Britain are not encouraging, since it is generally accepted that British academics, due to cultural and contractual differences are less likely to become fully fledged entrepreneurs (Roberts and Faber, 1984). Moreover, this also raises the issue of ‘additionality’, in that science parks are of little additional value if they are merely providing a high status campus environment for high technology small firms, that would have occupied normal industrial parks if science parks had not existed. (iii) Detailed interviews with the management of high technology small firms in Britain and the United States indicate that many logistical barriers stand in the way of technical information interaction between university ‘experts’ and individual firms. University consultants are often unable to work to deadlines when an appropriate contact with relevant knowledge can be found. Moreover, it is simplistic to assume that technical assistance is easily matched to the needs of individual firms. Indeed, many high technology small firms are specialist niche producers where their internal research and development staff are the world’s leading experts in their field. For all these reasons, technical interaction is often not possible. (iv) Evidence from studies of high technology small firms in Britain and the United States indicates that production advantages of areas of the Silicon Valley type are as important to innovation and growth as local technical knowledge or labour skills. In particular, the local availability of input materials and discussion on their application is a major cause of a ‘critical mass’ of technical competence in such areas. The ‘research only’ status of many university science parks denies the opportunity for such

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firms to develop on a single site interrelated R & D and production synergies that are widely acknowledged to be a key to high technology small firm innovation (Rothwell and Zegveld, 1982). (v) Thus, in many cases, it is probable that technical interaction between high-technology small firms and adjacent universities will not be possible. For these firms, the only difference between a science park and normal industrial estate location is the higher price per square metre paid for floorspace! In all other respects, science park firms suffer from all the problems of investment and growth discussed earlier in this chapter. A high prestige Cambridge address and futuristic architecture do not impress bank managers and are no substitute for a set of accounts that show a healthy profit. In terms of nurturing the national and regional growth of high technology small firms into large national enterprises, science parks are a useful component of such a policy, but could never be judged as an adequate substitute for a national government-level policy towards the promotion of high technology industry in general, and high technology small firms in particular. CONCLUSIONS AND POLICY PRESCRIPTION This discussion of policy towards high technology industry has inevitably involved a consideration of both small and large firms, since they clearly interact in high technology chains of production to produce final products sold to the consumer. Moreover, today’s small high technology firms may (hopefully) become the large firms of tomorrow. Any developed economy needs large established firms both to perform large-scale research and development and to act as ‘spin off’ nodes for the creation of new small firms that will challenge their technological received wisdom, and exploit newly emerging niches in high technology markets. However, there is an important sense in which small firms are different from their larger counterparts. This lack of a critical mass of corporate resources means that, although they frequently spend less on innovation (e.g. R & D) than large firms in absolute terms, as a proportion of turnover, research and development investment is frequently much higher, involving greater consequent risks to small firms. While a large firm can often afford one or more product development failures, a failure in a small firm often causes bankruptcy. If government is concerned with the maximization of industrial growth in high technology sectors, the encouragement of small firms is warranted, both on grounds of aggregate small firm output and employment growth, and in terms of the encouragement of individual transition from small- to large-firm status. Emphasis was placed in the earlier passages of this chapter on the role of the Japanese government in planning and assisting high technology

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industrial growth. This interest in the Japanese case might initially be criticized on the grounds that such intervention is predominantly directed at very large firms. However, although the role of small firms in Japanese manufacturing industry has traditionally been non-innovative and concerned with the subcontracting that allows large firms to expand or contract production without hiring or firing workers, British and American small firms have, conversely, a strong tradition of product manufacture through independent invention and innovation. Thus, the limited encouragement of innovation in small firms in Japan may partly be a result of the deliberate relegation of this size of firm to a subservient subcontractor role by MITI, and partly be due to a poor level of Japanese entrepreneurship devoted to product invention and innovation in these firms (NSF, 1976; Rothwell and Zegveld, 1982). It would seem logical for Britain, when seeking to learn from and adopt the lessons learnt in Japan, to realize that this country is fortunate in having a strongly independent and innovative high technology small firm sector that might be expanded by the adoption of modified policies used by the Japanese government towards large firms. For example, with regard to all the main ingredients of the innovation process from initial R & D funding, through the training of skilled labour and the application of ‘state of the art’ technology in production, to final marketing, government support, while both appropriate and advisable for large firms, is of equal or greater relevance to high technology small firms. As mentioned above, such firms have fewer resources with which to withstand financial traumas, and as Tables 7.1–7.2 imply, and are often unable fully to exploit inventions and innovations they produce due to an inability or unwillingness in current conditions vigorously to exploit their products through the acquisition of external resources. The progressive withdrawal of government support over the past decade has not generally led to a filling of the vacuum by private sector funds to exploit the opportunities apparent in the market potential in the products of high technology small firms (Table 7.2). The major problem with the government’s ‘free market’ approach to economic development is that unregulated competition is likely to result in a form of economic anarchy, in which the goals and needs of individuals are pursued and (occasionally) fulfilled, while there is no provision for the achievement of the collective needs of the nation. This point should not be construed as socialist in nature, since for the foreseeable future this country will maintain a large public and private service sector which must be financially supported by the products we can manufacture and sell abroad. Seen in this light, manufacturing industry is of central importance to the economic and social well-being of Britain, and consequently, cannot be dependent on the efficiency (or lack of it) of a random number of personally motivated individuals in the private sector. The role of neutral

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‘referee’ that the government often appears to adopt (i.e. in terms of foreign takeovers of British companies) is a position that cannot be adopted in instances where the destruction of national manufacturing assets will contribute to national economic insolvency. In terms of high technology small firms, support could take the form of a more proactive involvement of government, with the assistance of firms as they move through the complete innovation process, from invention to marketing (see Figure 7.1). In this context, the National Enterprise Board (NEB) in its role as a provider of a package of technical and financial assistance to new enterprises was a short-lived step in the right direction. It is no coincidence that Celltech, one of its final creations, is a rare example from the biotechnology industry of a fast-growing small enterprise that may make the transition from small to large firm status. Clearly, this proposed approach is not likely, in current circumstances, to meet with much government enthusiasm, but the following suggestions are predicated on the assumption that the currently poor level of aggregate high technology small firm growth, together with an absence of firms making the small to large firm transition, cannot continue to be indefinitely tolerated by the government, or any future government that might be confronted by this problem as the year 2000 approaches. The main premise of a greater proactive approach is the clear assertion that treating the high technology small firm as if it were a ‘black box’ in a noninterventionist ‘free market’ manner surrenders responsibility for the rate of industrial growth to individual entrepreneurs. While it is not a call for mass nationalization of high technology small firms, the proposed approach merely argues that if government deems the increased growth of such firms desirable, it must be proactive in achieving such a goal by delivering help to firms experiencing inhibitions to growth, and by removing barriers to innovation. It is insufficient to seek to create a conducive environment for growth (and we will for the moment discount the argument that even this has not been achieved), and ignore the problems of growth on the premise that the ‘free market’ will provide. The argument that there is no major industrial planning role for government is an ideological fetish that currently exists in Britain, but does not encumber other more industrially sucessful countries such as Japan, France or Sweden. In work funded under the Economic and Social Research Council’s New Technologies and the Firm initiative at Heriot Watt University, many of these assertions on the need for a more proactive policy on innovation and growth are currently being tested. Since the previous research noted above (Oakey et al., 1988) discovered that small firms were generally highly reactive, and particularly reactive with regard to marketing, a study is currently underway to investigate the potential for increasing sales in high technology small firms above the suboptimal level that is frequently the result of a widespread reliance on unsolicited orders. It is argued that,

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although government schemes for innovation and growth continue to exist (e.g. the Enterprise Initiative), the only novel attribute of the approach used in this scheme is highly professional television advertising. However, this does not overcome the fact that the delivery system remains reactive, in that its impact depends on entrepreneurs coming forward to apply for funding under a scheme, which is in any case discretionary. Reactive firms and a reactive system of assistance delivery are unlikely to achieve a high rate of incentive delivery in a scheme that is discretionary, implying that the effort of application is not sure of success. However, a more proactive system of policy delivery to high technology small firms might be criticized on two counts. First, that such an approach simply will not work and will not produce increased innovation and growth in assisted firms. Second, that although the approach might be marginally beneficial, it cannot be justified owing to the excessive cost in terms of manpower required to operate such a scheme. Thus, the current research is an experiment to examine if good cost-benefit can be achieved by proactive assistance with marketing under controlled conditions where both the input of resources and the increased sales achieved by such intervention can be accurately measured. In this context the emotive term ‘intervention’ could easily be termed ‘help’ and experience to date certainly confirms that participants in the study are very keen to receive assistance. If this specific market-oriented research is successful, there would be a strong rationale for the replication of such a proactive approach on a more general level by national and regional industrial development agencies. The above research is only one small example of how industrial development agencies could cooperate with small firms. As the year 2000 approaches, it is becoming increasingly clear that the ‘free market’ approach of the current government over the past decade has served manufacturing industry very poorly. Both large and small enterprises have suffered through a lack of government cooperation in planning and funding a national strategy towards the high technology industries that will dominate manufacturing in the twenty-first century. In the final analysis, manfacturing industry will remain the main means by which we will pay our way as a nation after North Sea oil has been exhausted. Indeed, despite the current contribution of North Sea oil, the frightening decline in British manufacturing industry has recently begun to be reflected in a balance of payments deficit that continues to increase. This chapter has argued that, because manufacturing industry and the small firms that contribute significantly to its output is of such crucial importance, it cannot be abandoned to individual industrialists. In their climb out of the economic chaos at the end of the Second World War, the Japanese government understood that there was a fundamental national interest in ensuring that manufacturing industry was successful. In

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Britain, there is little doubt that the central role of industrial planning and support will eventually be re-instated. However, the ‘free market’ experiment of the past ten years, when oil revenues were at their height, is already beginning to appear in retrospect as a decade of wasted industrial planning opportunities. REFERENCES BVCA (1986) British Venture Capital Association; report on investment activity, London. Birch, D.L. (1979) ‘The job generation process’, Working paper, Cambridge, Mass: MIT Program on Neighbourhood and Regional Change. Breheny, M. and McQuaid, W. (1987) ‘High technology UK’: The development of the United Kingdom’s major centre of high technology industry, in M.Breheny and W.McQuaid (eds), The Development of High Technology Industry, London: Croom Helm. Cambridge Science Park Directory (1983) Trinity College, Cambridge, November. Cooper, A.C. (1970) ‘The Palo Alto experience’ in Industrial Research, May, pp. 58–60 Financial Times (1988) ‘Once bitten, twice shy’, 30 November. Fleck, V. and Garnsey, E.W. (1987) ‘Strategy and internal constraints in a high technology firm: the management of growth at Acorn Computers’, Management Science Research Paper No. 2/87. Forrester, J. (1985) Defence Sector Procurement Opportunities for High Technology Small Firms, London: Small Business Research Trust. Fothergill, S. and Gudgin, G. (1979) ‘The job generation process in Britain’ in Centre for Environmental Studies Research Series, Vol. 32, London Hadley, E.M. (1970) Anti-trust in Japan, New Jersey: Princeton University Press. Langlois, R., Pugel, T., Haklisch, C., Nelson, R. and Ehelhoff, W. (1988) Micro Electronics: An industry in transition, Boston: Unwin Hyman. Malecki, E.J. (1981) ‘Government-funded R & D: some regional economic implications’, in Professional Geographer, Vol. 33, pp. 72–82. Morse, R.S. (1976) The Role of New Technical Enterprises in the US Economy, Report of the Technical Advisory Board to the Secretary of Commerce, Washington DC, January. Nove, A. (1983) The Economics of Feasible Socialism, London: Allen & Unwin. NSF (1976) Indicators of International Trends in Technological Innovation, Washington DC: National Science Foundation—6889, April. Oakey, R.P. (1984) High Technology Small Firms, London: Frances Pinter. Oakey, R.P. (1985) ‘British University Science Parks and high technology small firms’, in International Small Business Journal, Vol. 4, No. 1, pp. 58–67. Oakey, R.P. (1989) ‘High technology industry, new firm formation and the role of large firms’, in the Guardian, 9 January. Oakey, R.P. and Rothwell, R. (1986) ‘The contribution of high technology small firms to regional employment growth’, in A.Amin and J.B.Goddard, (eds) Regional Industrial Change, pp. 256–84, London: Allen & Unwin.

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Oakey, R.P., Rothwell, R., and Cooper, S. (1988) The Management of Innovation in High Technology Small Firms, London: Frances Pinter. Roberts, A. and Faber, D. (1984) ‘What industry is looking for from universities’, in Times Higher Education Supplement, 18 May. Rothwell, R. and Zegveld, W. (1982) Innovation in the Small and Medium Sized Firm, London: Frances Pinter. Saxenian, A. (1985) ‘Silicon Valley and Route 128: Regional prototypes or historic exceptions’ in M.Castells (ed.), High Technology, Space and Society, pp. 81– 105, Beverley Hills: Sage Publications. Smith, I.J. (1982) ‘Some implications of inward investment through takeover activity’, in Northern Economic Review, 2, pp. 312–20. Storey, D.J. (1982) Entrepreneurship and the Small Firm, London: Croom Helm. Storey, D.J. and Johnson, S. (1987) Job Generation and Labour Market Change, London: Macmillan.

8 Small businesses and their banks in the year 2000 Martin Binks

INTRODUCTION The aim of this chapter is to speculate on the relationship between small businesses and their banks in the UK in the year 2000. Like most predictions or conditional forecasts, the arguments and reasons which underpin the conclusions refer primarily to past and present conditions. The chapter consists of four sections. In Section 1 there is, in the way of a background summary, a brief indication of the historical development of banking in the United Kingdom along with contrasts between this process and that which was experienced in other countries in Europe. There is also an explanation of the major changes which have occurred in the competitive environment within which British banks operate since the introduction of competition and credit control in 1971. In Section 2 some implications of the historical background for the bank-small firm relationship are presented. The section begins therefore by considering what might be expected, given the background of UK banking, and then proceeds to examine certain recent sources of empirical evidence to discover the extent to which that condition actually prevails. In Section 3 we move from what is happening at present to what would be desirable in terms of the bank-small business relationship. We then proceed in Section 4 to predict the extent to which a transition from the present situation to the desirable ideal will actually occur in the British economy by the year 2000. The general thrust of the argument focuses upon the growing malaise of the four main English clearing banks and their increasing vulnerability to external competition and bureaucratic ossification. The bank-small firm environment is of crucial importance to economic progress for a number of reasons. The providers of funds It has long been recognized that the main clearing banks are by far the most important source of external funding for small businesses in the

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United Kingdom (Wilson, 1979). They provide the overdraft facilities and funds which are often critical for the survival and success of small businesses, as the short-term vagaries of market conditions pressurize their cash flow and liquidity. They also provide term loans of varying duration to enable firms to purchase plant and equipment which may be needed either to consolidate their market position or to expand. As firms get larger they gain access to a wider variety of sources of finance. Sources of external equity, development and venture capital become accessible with increasing size. To the small firm, however, the choice is much more restricted for many of the reasons already well documented elsewhere. They have little alternative but to rely upon the banking system for external funding if necessary. Clearly if banking conditions are sufficiently discouraging, then firms may choose not to use these, but rather to expand more slowly on the basis of retained profits and personal assets alone. The bank-small firm relationship A second reason for focusing upon the bank-small firm environment concerns the relationship between the two. Clearly the closer that relationship and the better informed each party is of the constraints under which the other operates, then the greater will be the level of understanding between the two. The higher the quality of information exchanged, the more accurate the assessment of risk in the event of any particular application for funds by the firm. If the relationship is more distant and the information exchange highly imperfect, then clearly the ability of the bank to assess the risks involved for any specific project is greatly reduced. The efficient functioning of the financial market as a vital input to the firm’s production function therefore requires a close and wellinformed relationship between the two parties. The economic contribution of small firms The third reason for emphasizing the bank-small firm relationship is in recognition of the fact that an increasing emphasis has been placed upon the small firm sector and its performance since the Bolton Committee reported in 1971 (Bolton, 1971). Small firms have been seen increasingly as a potential source of positive industrial restructuring and employment creation. The competitive environment with which they are associated is often regarded as engendering a beneficial transfer of resources from the less to the more efficient. Again, the advantages and beneficial aspects of small businesses have been covered and debated in many published sources. The point here is that if the emphasis upon the positive economic contributions of small businesses is justifiable and appropriate, then it is clearly crucial that they have access to the necessary set of financial products

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to ensure their success and viability where it is justified on commercial grounds. 1992 and the single market The final reason provided here for focusing upon the bank-small firm environment refers to the promulgation of the single market in 1992. If British small businesses are to compete on equal terms with their other European counterparts, then it is important that they receive a similar quality of financial provision. If the conditions under which they receive finance are different and inferior, or if the costs are higher, then clearly British firms will be at a competitive disadvantage. Similarly, if European banks in other member states provide superior financial products to those provided by the main clearing banks then one would anticipate a gradual erosion of the small firm-clearing bank relationship in the UK. If the relationship between firms and their banks is very different in other member states, then this may also have implications for the kinds of finance provided in each country. Competition between banks refers primarily to price competition and non-price competition. Price competition refers primarily to interest payments and bank charges. Non-price competition can take a variety of forms. The terms over which money is lent, the flexibility of repayment profiles, the levels of advice and help and support which are made available, are all examples of non-price competition which can be used by banks to differentiate their financial provisions from those of their competitors. The relationship which the bank has with its small firm customer is also an example of non-price competition. The main focus of the points provided in this chapter refers to this relationship and the way it might be expected to change by the year 2000. 1 BACKGROUND Historically induced differences There is a considerable literature which refers to the evolution of the banking system in the UK and the resultant contrasts between the nature of facilities here and those available in other countries, such as Germany and Japan. Whilst banking institutions in the UK developed primarily as deposit protection services, those in other countries were more specifically designed to direct funds to industry. The emphasis in other countries was upon a tradition of industrial banking, where the bank provided the vital intermediary role between private sector saving and

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industrial investment. One commonly accepted definition of industrial banking has been provided by Yao-Su Hu: The provision of long-term finance (long and medium-term debt, or such debt plus equity) to enterprises and entrepreneurs in the industrial and commercial sectors, in the form and combination as most suited to their needs, as distinct from, or in addition to the provision of short-term loans of a self-liquidating nature which has always been the province of commercial and merchant banking; and a sense of purpose, a perceived role of mission, an institutional culture or set of attitudes, which is reflected in: —a readiness to promote, encourage and support industry; —a willingness to accept a measure of responsibility for the performance of industry; and —an ability to understand the problems of industry, due to close relations with the industry and the in-house employment of people with industrial experience and technical expertise, and therefore to accept what would be considered ‘very risky’ business by financiers who are ignorant of industrial realities. (Yao-Su Hu, 1984) Without wishing to become embroiled in the debate as to the differential access to long-term debt which characterizes British firms and their European counterparts in other member states, the main aspect which is relevant from the above refers to the relationship between firms and financial providers. It is argued by many (e.g. Edwards, 1987; Yao-Su Hu, 1984), that the lack of an industrial banking emphasis in the UK has led to a relatively hands-off relationship between firms and their banks. This is in marked contrast to the much closer relationship which tends to prevail in other countries such as Germany. The most significant consequence of this relatively distant relationship in the UK, as opposed to the closer ones experienced in other member states, is the differential loan evaluation criteria which emerge as a result. In the case of the UK traditions, the banks are naturally ignorant of the specific trading conditions and constraints which apply to different firms in their application for funds. Since they are not supposed to be in the business of providing risk capital, the banks require some form of collateral or security in order to be able to advance the funds. Security can simply be divided into two types. The first refers to tangible assets which can be sold in the event of default to cover the value of the loan. The second is a more subtle form of security and refers to the incomegenerating ability of the project itself and the extent to which that guarantees repayment of the loan.

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In the absence of a close relationship and accurate information exchange, UK banks are forced to resort to tangible assets as security. Moreover, in their valuation of assets for security purposes, they have to take a ‘gone concern’ approach. They must assume that in the event of default, they would have to sell the assets on the open market and receive their market value at auction or whatever. It is this emphasis upon the gone concern approach to asset valuation which explains the common term used for such a process; the ‘carcass’ valuation for security purposes. Given the relatively low price which second-hand plant and equipment may command in the event of default, the volume of assets required to secure a loan will often be a considerable multiple of the loan itself in terms of the value involved, calculated on the basis of price paid net of depreciation. Where the ‘carcass’ value falls short of the loan size, personal guarantees and collateral such as house deeds are often required. This erosion of limited liability in the case of companies would naturally be expected to discourage investment in many cases. A natural product of the British traditions, therefore, has been this capital-gearing approach to loan evaluation. This stands in stark contrast to that which is applied in other countries. A closer relationship between bank and firm means a greater emphasis may be placed upon the income-generating potential of the project and the extent to which this will enable repayments to be made. This income-gearing approach to loan evaluation is more positive in its impact upon investment projects, since it refers to the future potential of the business rather than its accumulation of assets in the past. It also means that there may be less requirement for banks to take personal assets and guarantees to secure loans as they do in the UK. Very briefly then, it is clear that the evolution of the British banking system as a deposit protection service rather than as an intermediary between private sector savings and industrial investment has led to a mode of loan project evaluation which is quite different from that available in countries that have experienced a greater tradition of industrial banking. Aside from this relationship point, however, there have also been quite fundamental changes in the competitive environment in which British banks operate. Competition Changes in the competitive environment of UK banks have been well documented elsewhere, but the one of most significance to the present argument occurred in 1971. Prior to this date, the control of the UK money supply relied upon direct controls over bank lending. This meant that there was no effective competition between the banks, since they were not in a position to vary the conditions under which loans were provided. With the advent of competition and credit control (CCC), a more indirect

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method of reserve asset requirements was implemented and competition between banks was, to some extent, facilitated. The necessity for a banking cartel no longer existed. The important point here, however, is that a simple change in the conditions under which competition was regulated could not be expected to provide a rapid response in the form of effective competition. The very large, bureaucratic, centrally organized corporate structures which constitute the main clearing banks imply a tremendous inertia when it comes to change. Many of the senior personnel in the banks received their training under conditions of non-competition in the banking cartel. It was difficult for them to know how to formulate strategies for training that would suddenly transform branch managers into effective competitors in the new environment. The background picture which emerges is therefore one which is likely to cause serious misgivings when considering the competitive position of British small businesses vis-à-vis their counterparts in other member states because UK firms’ relationships with their banks are more distant, and the banks may not compete effectively to provide more appropriate financial products. 2 PREVAILING CONDITIONS The points made in the background above indicate the potential for a number of weaknesses to exist in the relationship between small firms in the UK and their banks. The purpose of this section is to identify what those weaknesses are in theory and then consider certain recent pieces of empirical evidence in order to ascertain the extent to which they exist in practice. The points raised fall into two main categories, the first referring to the relationship between banks and small businesses and the second to the extent of competition between the banks for market shares. The bank-firm relationship From the points raised in the background, it would be expected that a relatively distant or hands-off relationship exists between banks and their small business customers. This might be expected to be reflected in terms of a relatively poor relationship between the two and a highly imperfect information exchange. The bank would be unaware of the operating conditions under which firms trade. This, in turn, would be expected to cause banks to default automatically to the capital-gearing approach to loan application evaluation and the subsequent carcass evaluation of the firms’ assets for security purposes. This would then appear to lead naturally to problems of collateral provision by small businesses and some

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subsequently to provide personal as well as business assets in order to be able to obtain the requisite finance. The competitive environment Given the long tradition of cartelization and a definite lack of competition among the clearing banks, it might be expected that the loan evaluation criteria used by each are very similar. In practice, small businesses would have no real alternative to the Anglo-Saxon banking traditions as epitomized in the capital-gearing approach to project evaluation. Given the bureaucratic environment within which the clearing banks operate, it might be expected that an increase in the desire for competition be reflected in non-price competition, and most apparently in advertising. The natural inertia referred to above, as a resistance to fundamental change, would mean that competition would occur in a more cosmetic manner through advertising and apparent product differentiation, when real differentiation was not attractive nor, in some cases, practical, given existing banking skills and training. Some evidence on the relationship One of the most recent and comprehensive sources of information on the relationship between small businesses and their banks is that of a survey of 3,500 businesses undertaken by the Forum of Private Business in 1987 (Binks et al., 1988). This has resulted in a number of reports with several quite specific points on the small firm-bank relationship. Many of the points made in those reports are also further substantiated by two other recent pieces of work, the first entitled The Quality of the Clearers (Scrimgeour Vickers and Company, 1986) and the other entitled Lending to Small Firms: a Study of Appraisal and Monitoring Methods (NEDC). The full findings of the Forum Survey are presented in the reports referred to above. For the purposes of this argument, the relevant points are as follows. In the Forum Survey, the relationship between banks and small businesses was perceived by a high proportion of respondents to have certain significant shortcomings (Binks et al., 1988). Firms were asked to rank in order of importance a number of characteristics of bank provisions. They were then required to rate their bank from very good to poor on the same characteristics. From this it was possible to derive an index of demand for each characteristic and one of the quality of supply. Mismatches in these could then be reflected in an index of attainment for each characteristic. The characteristics that revealed the most significant shortcomings were those concerned with the knowledge by the bank of the firm’s industry; the knowledge by the bank of the firm’s market; the

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provision of business advice; and the ability to provide cheap money. This tends to substantiate the anticipated poor relationship and imperfect information exchange referred to above. That this is also reflected or accompanied by a capital-gearing approach to loan evaluation; the application of carcass values and subsequent collateral problems is also substantiated by this study. The most significant concerns expressed by firms with respect to bank services were first, the level of bank charges; second, the interest rates charged; third in importance, the collateral required; and fourth, the general availability of credit. Only 11 per cent of firms had no significant concern. More direct support for the carcass approach to lending is provided in each of the other two reports referred to above. Recent evidence on levels of competition The evaluation criteria applied by the various clearing banks are very similar as emerged from the Scrimgeour Vickers Report (1986) and also the NEDC Report (1986). Direct evidence on the perception by small businesses of competition among the banks is also provided from the Forum Survey and published in the second report by the Forum of Private Business (Binks et al., 1989). This compares the clearing banks’ performance according to the responses of firms in each of the areas covered by the questionnaire. The similarity in the responses for each bank is dramatic. As the report indicates, this level of similarity could be explained in a number of different ways. It could reflect intense competition among the clearing banks, with the result that the quality of service is determined almost entirely by the prevailing cost conditions to which each bank is subject. Since it would be expected that cost conditions vary little among banks, then this would explain the almost identical performance as emerged so clearly from the results. The report, however, draws on other evidence and arguments to suggest that the opposite interpretation is the more likely. The similarity arises from the banks’ common ancestry and the previous cartel. The problems which that approach has caused are, therefore, common to all. This brief excursion into empirical evidence tends to substantiate all of those points anticipated from the background material presented earlier. If prevailing conditions are unsatisfactory, then what would the desirable environment look like? In the next section we explore a ‘realistic ideal’ rather than one which could never be achieved in practice.

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3 A DESIRABLE SMALL BUSINESS BANK ENVIRONMENT Many of the characteristics of a desirable small business-bank relationship are interrelated and interdependent. For example, the collection of accurate information for the purposes of loan evaluation relies, to quite a large extent, upon a reasonably close relationship between the two. Such information is in turn a prerequisite for the preferred income-gearing approach. Consider the main characteristics therefore in a sequential format. The relationship A close relationship between the firm and the bank is desirable because it ensures the transmission of accurate information between the two. This means that the bank is aware of the customer’s requirements for short-, medium- and long-term finance. From their considerable experience of other firms’ trading conditions, it is also possible for the bank to provide well-informed advice to the business concerned. Similarly, the business is aware of the loan evaluation criteria which the bank is used to applying and can also perceive the justification for bank advice where it appears initially to conflict with the firm’s plans. In this environment, the firm should be able to make full use of the potential for external financial provision which banks contain. The firm is also free to restrict the closeness of the relationship, if it so chooses, in order to retain full sovereignty over decision-making, even if this is at the expense of access to more flexible financial products. Such relationships would enable banks to take an income-gearing approach to project evaluation, as well as having due regard for the capitalgearing conditions under which the firm is operating. By focusing more on the firm’s prospects, the bank is able to provide a more flexible financial product, given the uncertainty which will often prevail. The greater the knowledge of a firm’s changing financial requirements, given changes in market conditions, the more the repayment patterns of external debt finance can be tailored to the variation in return profile which emerges. The benefits of this integrated and dynamic approach towards the firm’s financial structure means that short-term market fluctuations are less likely to cause liquidity problems of such stringency that the firm is accused, for example, of overtrading and is forced to cease trading as a result, due to purely short-term rather than medium- and long-term aberrations in market trends. A greater recognition of income- rather than capital-gearing conditions will also tend to reduce the need for personal collateral provision and the

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erosion of limited liability status for companies which that creates. Thus, investment projects which might have been discouraged by the conditions of personal collateral submission would be facilitated. This situation would also enable banks to incorporate flexibility, as indicated, in terms of the payback period of the funds lent, the repayment profile and, perhaps most importantly, the type of funds provided. ‘Quasi-equity components’ may be required in order to manipulate the gearing ratios within the balance sheet. Packages which contain equity as well as loan components may be more desirable for both the firm and the bank. Many of the criticisms of the Anglo-Saxon banking traditions refer to the lack of a close relationship between banks and industry as discussed above in the context of small firms. If firms in countries such as Germany, where very different conditions exist, were asked to voice their main criticisms, then this would probably be reflected in an accusation that banks try to involve themselves too much in the trading operations of firms (Anglo German Foundation, 1981). For smaller firms with more entrepreneurial flair, this potential for a large bureaucratic organization to, in some sense, dictate or influence the progress of the business would be highly discouraging. It is therefore important to maintain a balance between the distance of the Anglo-Saxon system and a possible overcloseness in the case of Germany, for example. The system which would result in this more ideal state would be some hybrid falling between the two. Competition It is also important that there is effective competition among banks for the custom of small businesses. This would ensure that firms have realistic alternatives in terms of the permutations of conditions and financial terms which they confront. Greater competition should also ensure that firms which are much higher risk will still have access to loan capital, but possibly at much higher rates of interest. It is noticeable when comparing the American and UK conditions, that the more competitive environment in the US appeared to create a wider spread of interest rates due to a more accurate reflection of the variation of risk between firms (Binks et al., 1988). Finally, a more competitive environment would tend to motivate banks to monitor the changing needs of small firms more closely and also the changing possibilities which technological progress introduces. This would tend to increase the probability of the UK bank-firm relationship incorporating technological progress as it occurred. The rapid innovations which are already evident in the retail market for personal banking would also be encouraged in the case of small corporates. The above represent just some of the many characteristics which might be associated with a more desirable bank-small business relationship. The

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question which this chapter is finally concerned with, however, is the extent to which such an environment is likely to occur, given prevailing conditions and trends. This is explored in more detail in the final section below. 4 THE BANK-FIRM RELATIONSHIP IN THE YEAR 2000 Conditions in the year 2000 will naturally reflect the adjustment path between those which prevail now and those which evolve as a result. Consider the more relevant existent underlying trends: (i) There is a growing recognition in the clearing banks of the need for change. Their trading conditions are changing and they need to respond if they are to survive and prosper. (ii) Competition in the market for personal accounts has increased considerably and margins have been eroded. Similarly, margins in the case of large corporates have been trimmed to levels which are described as razor thin (Bannock in Binks et al., 1988). The small firm sector, therefore, represents an area with the potential for profits when these are diminishing in the other more traditional sectors of retail and corporate banking. (iii) The potential for a gradual increase in external competition for the accounts of small corporates is also growing. This refers both to competition from other institutions in the United Kingdom and also to competition from overseas banks and competing banks in other EEC member states. (iii) Survey information collected by the banks themselves and also published by organizations such as the Forum of Private Business tend to highlight areas of product provision which are perceived by customers to be unsatisfactory. The upshot of these points is that the main clearing banks will almost certainly attempt to improve the quality of their service to small businesses over the next decade. Bank charges will be clearly specified and invoiced, interest rates will be pared down by increased price competition, and there will be a very small, but growing equity component in the provisions by the main clearing banks. This response to market pressures will also be reflected in the continuing marketing battle for the accounts of small businesses. Where new technology can be implemented to give conventional financial products a more hi tech image, this will also occur. It would also be expected, however, that the banks will tend to be involved in a game of leap-frog in the sense that when one innovates a new financial product or image, the others will tend to emulate it after a time-lag.

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The main question that is left unresolved from the predictions made above refers to the relationship between banks and firms and the level of effective competition between the banks. It is inconceivable that the relationships between clearing banks and the vast majority of small firms will become significantly closer than at present. This is so for entirely understandable administrative and practical reasons. The banks do not have sufficient staff to enable such relationships to develop. It would, therefore, be expected that there would be greater selection by the banks of those firms where they will attempt to foster such a relationship. This is already evident in the setting up by most of the main clearing banks of regional banking centres which focus upon ‘progressive’ or rapid-growth smaller firms. This also implies that the traditional underlying evaluation process which banks apply will also remain largely unchanged for the vast majority of firms, with the consequent discouragement of investment due to the erosion of limited liability by the typical process of taking personal guarantees. At present, the vast majority of bank staff have been steeped in the Anglo-Saxon traditions throughout their training and bank practices. The possibility of effective retraining to alter significantly the lending approach adopted and preferred by the existing stock of bank managers is therefore impractical and unrealistic. The particular information requirements that banks have of small firms, arise and vary due to the heterogeneity of the firms concerned. A better informed banking system would require a much higher level of disaggregation in banking services, both by region and industrial sector. Such disaggregation is clearly evident in other European member states such as Germany, France and Italy. Industry and regional-specific banks are not uncommon in these countries. Again, such disaggregation in the context of the highly centralized, concentrated clearing banks is unrealistic and impractical. CONCLUSION The conclusions from the above are necessarily rather pessimistic because it would appear that it is beyond the abilities of the British clearing banks significantly to improve their service to small firms except at relatively superficial or cosmetic levels. This has two fundamental implications, the first for the firms, the second for the clearing banks themselves. For British small firms, it means that their EC member state counterparts may have a competitive advantage in terms of the financial products available to them. This could mean that such firms are more able and better placed to penetrate the British market than British firms are to penetrate other EC member states’ markets. This point is particularly relevant to the case of larger small businesses, and in the case of marketing

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investment, where advertising in other member states is required prior to market penetration. The capital-gearing approach to such investment would tend to preclude it, whereas the income-gearing view might actually encourage it as a necessary and recognized prerequisite for a successful market penetration and therefore return on that capital invested in the future. For the banks, there appears to be the prospect of a decline in the portfolio of accounts to small corporates, first because of the decline of those corporates under the impact of competition from other member states, but also because of the impact of competition from other banks. Whilst most evidence indicates quite clearly a high level of resistance by British small firms to the prospect of changing their bank, this traditional attitude might very easily change over the space of ten years if other banks use effective marketing methods to communicate the advantages which their services contain. It can be argued, therefore, that the very sector upon which so much emphasis and reliance has been placed over the last decade may be subject to more intensive and destructive competitive pressure in the next, in part due to deficiencies in the bank-small firm relationship. REFERENCES Anglo German Foundation (1981) ‘The British and German banking system: a comparative study’, London. Binks, M.R., Ennew, C.T. and Reed, G.V. (1988) The Survey by the Forum of Private Businesses on Banks and Small Firms. London: FPB. Binks, M.R., Ennew, C.T. and Reed, G.V. (1989) Small Businesses and Banks: an Interbank Comparison, London: FPB. Bolton, J. (1971) ‘Small Firms’, Report of the Committee of Inquiry on Small Firms. Nov., Cmnd. 4811, London: HMSO. Edwards, G.T. (1987) The Role of Banks in Economic Development, London: Macmillan. NEDC (1986) ‘Lending to small firms. A study of appraisal and monitoring methods’, Committee of Finance For Industry, London. Scrimgeour Vickers & Co. (1986) The Quality of the Clearers (Private Circulation). Wilson, H. (Chairman) (1979) ‘The financing of small firms’, report of the Committee to Review the Functioning of Financial Institutions. Cmnd. 7503. London: HMSO. Yao-Su Hu (1984) ‘Industrial banking and special credit institutions: a comparative study’, London: Policy Studies Institute.

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9 Changes in the context of enterprise Some socio-economic and environmental factors facing small firms in the 1990s James Curran and Robert A.Blackburn

INTRODUCTION The shift towards small-scale capital in Britain and other Western economies in the 1980s is now well documented (Storey and Johnson, 1987; Steinmetz and Wright, 1989). In Britain in the 1980s there was an increase in self-employment from 1.9 million in 1979 (7.7 per cent of total employment) to 3.4 million in 1989 (Hakim, 1989; Department of Employment, 1990a) or around 12 per cent of the total labour force. There has also been a steady and consistent net rise in the number of businesses registering for VAT which indicates a rise in the number of independent businesses (see Table 9.1). Table 9.1 Number of people in self-employment 1980–8 and VAT registrations 1981–9, (000s)

*Based on Labour Force Survey data (e.g. Employment Gazette, 1989a; Department of Employment, 1990), except for 1980 and 1982 (Department of Employment figures in Storey and Johnson, 1987). ** Based on VAT registrations and deregistration 1980–7 (British Business, 1989). 1989 figures based pm Department of Employment (1990b).

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The causes of this marked shift towards small-scale enterprise remain debatable (see for example, Keeble and Wever, 1986; Storey and Johnson, 1987; Mason, 1989). The main ‘macro’ factors suggested in the literature include: the fragmentation strategies of large firms and the rise of ‘Post Fordism’ (Murray, 1983; Shutt and Whittington, 1987; Allen and Massey, 1988); the growth of flexible specialization (Piore and Sabel, 1984); the impact of recession on new-firm formation rates (Storey, 1982; Binks and Coyne, 1983; Foreman-Peck, 1985); and technological change especially through the impact of the microprocessor (Martin and Norman, 1970; Oakey, 1984; Keeble and Kelly, 1986; Rothwell, 1986). Will the revival of small-scale economic activity continue to the end of the century and into the next? To what extent has the 1980s, now sometimes labelled the ‘decade of enterprise’ experienced a long-term structural shift or been merely a temporary phenomenon? These questions are clearly important for a number of reasons. First, smaller businesses are interesting in their own right as political, social and economic phenomena. Their persistence, if not regeneration, in advanced industrial societies, in contrast to many predictions of decline and extinction in the past, requires further investigation (Curran, 1989). Second, although influencing the performance of small firms, large private sector organizations, by their purchasing, marketing and employment activities, will also be affected by the size of the small business sector. The fate of both large and small firms is inextricably bound together. Third, private and public policy-makers will benefit from an informed view of the conditions facing smaller businesses to the end of the century, to help them devise their policy prescriptions and realize their aims. For example, banks require information on the possible problems faced by small firms in the 1990s in order to tailor their policies accordingly. The 1990s will produce a number of structural changes which will impinge on the activities of small firms, such as demographic changes and modifications in the regulatory environment with the liberalization of trade, labour and capital movements in 1992. In this chapter we consider a range of such contextual factors, often ignored in the analysis of the small business, including: demographic changes; industrial restructuring; the growth of the service sector; developments in the regulatory sphere; and changes in the social and cultural environment. DEMOGRAPHIC CHANGES A significant factor affecting small-scale economic activities is the changes in the demographic composition of the adult population and labour force. We can examine these issues in terms of the likely effects on the supply of

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potential new business founders and the supply of employees to smaller businesses (see Chapter 5 for a more substantive discussion of the latter). Estimates of the civilian labour force for Great Britain suggest that it is expected to rise by one million between 1988 and 2000, in contrast to two million in the ten years up to 1987 (see Chapter 5; Employment Gazette, 1989a).1 The projections on which this analysis are based assumes a constant unemployment rate based on the January 1989 level of 1.9 million (Employment Gazette, 1989a: 168). Such estimates are, however, sensitive to revision because of the expected inverse relationship between the unemployment rate and activity rates.2 Compositional changes in the labour force also have significant but different implications for small businesses than those connected to levels of unemployment, although the two effects may be linked. It is important to isolate these two distinct phenomena and sharpen the focus of the analysis because our projections for the supply of labour to small businesses and the flow of new entrants into small business ownership and selfemployment are very different. The impact of demographic changes on the supply of labour to small firms The expected net numerical changes in the labour force outlined above suggest that changes in the composition of the labour force will not be beneficial overall for small businesses. Research shows that smaller firms tend to employ less full-time and less well-qualified staff and higher proportions of younger people and females (Storey and Johnson, 1987). This parallels evidence from the USA, Japan and Canada (Feldman, 1986). There is a projected fall of 1.3 million in the civilian labour force aged under 25 over the next few years (Employment Gazette, 1989a: 160–1). More specifically, analysis shows that the steep reduction in school-leavers observed from 1982–3 will bottom out in 1993–4. From 1993 the numbers will then begin to rise modestly to 1996 but will become static to the year 2000–1 (Employment Gazette, 1989b: 365–6). The numbers of minimum age school-leavers (16 year olds) available to enter the labour market will also decline from a peak of 503,000 in 1980–1 to 330,000 in 1992–3. This group will then increase slowly to 359,000 in 1995–6 and continue upwards thereafter (Employment Gazette, 1989b:368– 9).3 However, the numbers entering the labour market in the next decade never reach those attained during the 1980s and, hence, smaller firms will experience a drying-up of an important component of their traditional labour pool: the young. There will also be fewer entrants to the labour market with less than five ‘O’ levels or the equivalent. In 1987, 480,000 school-leavers in Britain had

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less than five ‘O’ levels, compared with a projected 350,000 in 1994, a decline of over 27 per cent (Employment Gazette, 1988a: 270). This is reinforced by the Government’s declared aim of increasing the numbers entering higher education ‘from an estimated 13.9 per cent in 1985 to 18.5 per cent in the year 2000’ (Employment Gazette, 1988a: 268).4 Thus, not only will there be a reduction in young people entering the labour market, but they will also be better qualified academically. Smaller businesses may have difficulties recruiting such entrants to the labour market because larger firms show strong preferences for qualified labour. From the view of smaller employers, there are some positive aspects in the labour force projections for younger age groups. One redeeming feature may be the shift from grants to loans. There may be a move towards the patterns in the United States where students commonly enter part-time employment to pay for their education. This may benefit smaller businesses, particularly in services, by providing a supply of young, parttime employees. Second, and of more importance, is the rise in the proportion of women in the labour market. About 90 per cent (0.9m) ‘of the projected increase in the labour force is among women’ (Employment Gazette, 1989a: 159). Women have been an important source of labour for smaller businesses with some surveys estimating that they constitute over 40 per cent of their total employment (Storey and Johnson, 1987:192). If there are labour shortages in the 1990s, large firms will look to women to form a growing proportion of their labour force. Larger firms are already introducing careerbreak and return-to-work schemes as well as creche facilities (see Chapter 5; Atkinson, 1989). Thus, although there will be more females in the labour market, much depends on the response of large firms for small business opportunities to recruit females. A third distinctive change of importance to the supply of labour to smaller businesses is the growth of the older population. Although the 55+ age group has increased in size, the participation rate of this group fell in the 1980s primarily because of trends to lower retirement ages, the increasing availability of pensions and other forms of income (OECD, 1988:63–70) and redundancy and early retirement schemes of companies during the early 1980s. But, given the predicted tightening of the labour market in the 1990s, older people will be looked upon as a source of labour (Goetschin, 1987). Thus, the growth in the older population may be partially absorbed by the economy as the redundancy and retirement policies of the 1980s are reversed by policies of recruitment and retention in the 1990s.5 Older people could, however, suit the labour requirements of smaller businesses, which tend to rely on a local labour force provided they overcome their tendency to ‘ageism’ shown in surveys in the 1970s and 1980s (Naylor, 1988).

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In summary, projected changes in the supply of labour to the year 2000 will have both positive and negative effects on the supply of labour for small businesses. The most salient negative aspect appears to be the decline in the number of young people entering the labour market. The impact of a growth in educational involvement and attainment also appears to pose recruitment problems for small business owners. The impact on the entry to self-employment and new firm formation Any changes in the composition of the labour force will also have implications for the flow into self-employment as opposed to the flow of employees into small firms discussed above. The major focus of attention will be on the impact on the numbers in the ‘age launch window’ and the increase in females in the working population. The 25–44 age group has been shown by previous research to be the most likely to launch small businesses (Curran and Burrows, 1988:35). Projections for the 1990s reveal an increase in the number of people in that age group. Therefore, there is no demographic downturn for the age group which has the highest propensity to start their own businesses. There are, however, important differences between males and females. Trends in the male population in this age group show that between 1990 and 1998 they increase by 2.6 per cent, but then decline by 1.9 per cent by 2000. For women, however, the increase is upward for the whole period. Female entry into self-employment rose dramatically in the 1980s: between 1979 and 1988 self-employment among women more than doubled compared with under 50 per cent among men (Department of Employment, 1989:13) and this more rapid rate of expansion could continue. Much depends here on the personnel strategies of larger businesses. If larger businesses offer female staff better remuneration, fringe benefits and especially promotion prospects, this may reduce the ‘glass ceiling effect’6 and women may opt for self-employment less frequently. The growth in the number of older people may also lead to a rise in their numbers owning a business. Certainly, this group is more likely than younger people to have sufficient capital accumulated over their working lives; to have their own house which can act as a source of capital; to have less family commitments; and to have extensive work, if not management, experience. The rise in educational qualifications amongst new entrants to the labour force may also have an adverse effect on entry into self-employment and new firm formation. Past studies of small business owners have suggested that they are less academically qualified than the rest of the working population (Bolton Report, 1971; Curran and Burrows, 1989).7 But there are hints that the inverse relationship between educational attainment and

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the propensity to self-employment may be breaking down (Meager, 1989). Many of the newer kinds of small enterprise and self-employment are in knowledge-based activities. Further and higher education has changed in the 1980s, with the development of new vocationally orientated courses in business studies. Not only are such courses more inclined to sensitize those in education to small business issues, but the quality of students on such courses has been high. Thus, although in the past there has tended to be a negative relationship between educational attainment and small business ownership or self-employment, this relationship may weaken in the 1990s.8 ECONOMIC RESTRUCTURING AND THE SMALLER BUSINESS The major external factor affecting the performance of the small business is the character and performance of the economy within which it operates. The revival of smaller businesses was a central element in the industrial restructuring of the economy throughout the 1980s. Yet, there is some debate about the origin and nature of the restructuring taking place and the continuing role of small enterprise within this process. Nor have analysts found it easy to characterize the restructuring: different writers have used different terms and emphasized different aspects of the processes involved. Probably the most common characterization of these changes is the ‘Fordism-Post Fordism’ distinction (see for example, Murray, 1989). Put at its simplest, this suggests that the dominant economic form in industrial economies from the early 1900s was mass production, summed up under the label ‘Fordism’.9 This went with a mass consumerism—acquiring a car, refrigerator, television set, etc.—in which people strove to achieve standards of living largely expressed in terms of the possession of a wide range of mass-produced goods. This era came to an end in the 1970s, when possession of mass-produced goods had reached near saturation in advanced industrial societies. The decline of mass production as the dominant production form led in part to the emergence of ‘Post Fordism’. The precise character of ‘Post Fordism’ is not agreed but, essentially, it is concerned with the production of goods and services which are tailored to specific markets. New technologies have emerged to accommodate this new style of production which nevertheless also allow economies of scale to be achieved. Instead of consumers striving to have the same range of consumer goods as each other to show they have achieved a high standard of living, in the ‘Post Fordist’ economy consumers strive to show how they differ from others in order to indicate their distinctiveness as individuals. In short, in production and consumption there has been a shift towards more fragmented patterns: mass production and mass consumption remain but they no longer dominate.

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The responses by large firms and the reorganization of their production and labour activities for the ‘Post Fordist’ era will inevitably affect small firms. However, there is some debate about the origin and nature of the restructuring taking place and the role of small enterprise within this process. Models of economic restructuring One main thesis currently offered is the ‘flexible specialization model’ (Piore and Sabel, 1984). This has three main features: new flexible, manufacturing technology reducing costs; a renewed craft tradition which provides workers with some autonomy over decisions; and the breakup of mass markets and resurgence of regional economies. It is argued that this has provided small businesses with new market opportunities which accords them some market independence (Figure 9.1). The model suggests that small firms may have a much more central role in the economy and a relatively secure future compared with alternative models proposed (for example, that of Rainnie, 1989) which suggests that flexibility comes through the numerical expansion or death of small firms. The most commonly cited examples of the flexible specialization model are to be found in the industrial districts of Emilia-Romagna, Italy (Brusco and Sabel, 1981; Goodman et al., 1988). This model has, however, been criticized as ‘utopian’ (Murray, 1987) or as, in fact, having little real empirical support beyond a few, much-cited, illustrations (Amin, 1989). The assertion that the break-up of mass markets paves the way for small businesses has also undergone criticism. Mass producers may be able to adopt strategies to differentiate their products while continuing to use standardized components (Williams et al., 1987). Finally, this model may not fit Britain’s recent economic experiences very well. Hirst (1989) finds little support for the flexible specialization model in Britain, chiefly because of the social and institutional context within which firms are situated. Elsewhere, Storey and Johnson (1987, Ch. 5) in a close examination of areas of Britain also find little supporting evidence. Another alternative to this is the ‘fragmentation thesis’ or the ‘contracting-out thesis’. This suggests that the shift towards small-scale enterprise is chiefly a result of large firm strategies. Explanations of the need to fragment production include: the desire to reassert control over the production process; the need to minimize innovation risk; and to mitigate the impact of demand vacillations (Shutt and Whittington, 1987). One variant of the latter is the ‘core-periphery’ model of the economy which focuses on the growing ‘numerical’ and ‘functional’ flexible labour requirements of large firms (NEDO, 1986). This divides the workforce of a company into a core and a periphery. Subcontractors, and by implication

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Figure 9.1 Emerging patterns of flexibility

the self-employed, are situated in the periphery together with temporary and part-time workers. According to this model, smaller firms are inherently bound to the performance and activities of the contractingout firms, have less autonomy than under the flexible specialization model, and provide jobs which tend to be of an inferior quality to those in large firms (Figure 9.1). The fragmentation model has been well illustrated by Rainnie (1989) in his study of the UK clothing industry and has international empirical support from other studies (e.g. Mattera, 1985; Murray, 1987). Although having an intuitive appeal for radical writers, what evidence there is for the UK suggests that its growth is less widespread than originally thought and is more evident in services than manufacturing (Imrie and Morris, 1988; Marginson et al., 1988). The ‘core-periphery model’ has also received further criticisms both on conceptual grounds and for the lack of systematic evidence. First, the model may be described as too crude. Not all recipients of outside contracts are small companies and neither do all small or self-employed businesses operate in marginal sectors of the economy. Many small firms provide specialist functions which large firms cannot themselves perform. It has also been argued that contracting-out is not a new form of inter-firm relationship (Pahl, 1984; Pollert, 1988).

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In summary, there appears to be no consensus on the implications of restructuring for small firms in the UK. For those smaller firms which are integrated into the activities of large-scale capital, there can be no general, unequivocal statement on their future. For small firms fitting the ‘fragmentation model’ much depends on whether the current strategies of large-scale capital are a short-term or a more fundamental, long-term response. For those firms equating to Piore and Sabel’s ‘flexible specialization’ model, a more optimistic future is likely as it suggests that small and large firms are in a position of interdependence rather than a dependence of the former on the latter. On balance, our judgement would be that whatever the imprecision of the various restructuring theses, overall they point to a more central role for the small firm in the economy and more opportunities for small-scale enterprise in the 1990s. The growth rate of the economy in the 1990s The relationship between new firm formation rates and business cycles has received some attention in the literature and is covered in more detail in Chapter 5. The recession of the late 1970s and 1980s may have stimulated new firm formation as unemployed and redundant employees looked for alternative employment. Certainly, there were massive redundancies at the time when entry to self-employment and new firm formation expanded. Between 1979 and 1985, there were 2.4 million notified redundancies involving ten or more workers in Great Britain (Employment Gazette, 1986) and unemployment peaked in 1986 at 3.3 million people. Start-ups may have been helped by cheap, second-hand equipment put on the market by companies suffering from recession (Cooper, 1973; Harrison and Hart, 1983; Storey, 1982; Binks and Jennings, 1986). Entry into selfemployment was also supported by government schemes (such as the Enterprise Allowance Scheme) which, since its inception in 1981, has sponsored over 500,000 start-ups. In one study of entry into self-employment, a quarter of the respondents had done so primarily because of unemployment (Hakim, 1989). However, these may not all be reluctant entrants since unemployment may have been a catalyst for entry into self-employment (Hakim, 1989:290). The analysis concluded that only a minority of entrants into selfemployment in the 1980s were involuntary. Revival in the economy in the 1990s may have an adverse effect on the number of self-employed: first, because individuals may not experience the ‘catalyst’ of redundancy or unemployment on the same scale as in the 1980s and, second, larger businesses may attract the self-employed back by offering superior remuneration and fringe benefit packages. Caution must, however, be exercised when extrapolating from the past to the future. First, the above observations refer to the whole economy and

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to a particular economic structure. Studies of regional differences in new firm formation rates have sometimes shown a negative relationship between unemployment rates and new firm formation rates because of compounding factors such as previous employment status of redundant workers, industrial structure and average plant size (Mason, 1987). A reduction in unemployment, therefore, may not have a negative impact on the rate of new firm formation in some regions. Second, productive activities are much more decentralized than in the past. Thus, an upturn in the economy may have a positive impact on those firms involved in contract or fragmented production or service activities. If the new economic structures that have emerged in the 1980s are long-term fixtures, a rise in aggregate demand will lead to a rise in the demand for goods and services from smaller businesses directly, through their sales to consumers, and via their interaction with larger firms as suppliers of components or finished goods or services. The growth of the service sector The smaller business and the service sector are inextricably linked. The majority of self-employed and smaller businesses are in services (Curran and Burrows, 1988). It is, therefore, crucial in any analysis of the small firm in the 1990s to focus on this sector: two major schools of thought exist: one projecting a continued shift towards service sector employment, the other predicting ‘jobless expansion’ in services as capital attempts to improve productivity to match that in manufacturing. Labour Force Survey data suggest that the contraction in manufacturing continued throughout the 1980s. In 1988, for example, it employed just over 5 million people or 23 per cent of those in employment (Department of Employment, 1990). Whilst this has led to a great deal of concern about ‘deindustrialization’ (Blackaby, 1979; Ballance, 1987; Allen and Massey, 1988), this development has favoured small-scale enterprise. Employment growth in the services in the 1960s and early 1970s was attributed mainly to a rise in public sector activity but its expansion in the 1980s has been in the private sector (Allen and Massey, 1988:98; Martin, 1988). Although self-employment has increased in services, it should be stressed that it has not grown as a proportion of total service sector employment (Graham et al., 1989). The sectors producing the most dramatic increase in self-employment in the 1980s were in construction, business and financial services, technical advice, cleaning and catering (Institute for Employment Research, 1987:25). A more detailed picture of 1989 is shown in Table 9.2.10 The question therefore remains: to what extent is the shift towards small service sector employment in Britain a long-term structural movement? The increase in small businesses in the service sector in Britain may be

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Table 9.2 Distribution of self-employed by industrial sector, 1984 and 1989

Source: Employment Gazette (1988b, March: 161; Department of Employment, 1990).

attributed mainly to relatively low barriers to entry and the local nature of their markets. One distinguishing, though not exclusive, feature of a service sector good, is that consumption often takes place at the point of purchase, in contrast to a manufactured good, and distribution therefore often needs to be localized.11 Other influences which could lead to increases in service sector employment include more demand for labour-intensive services such as health care provision for the elderly. This could be provided by the public or private sectors. Which sector shows most growth will depend, in part, on the political composition of government. It may be argued that the ageing of the population will create opportunities for private sector small firms regardless of who is in government since the public sector will not be able to provide for all of the increase in services needed. The Employer’s Labour Use Strategies Survey (ELUS) provides evidence of the subcontracting of services to some extent validating the ‘fragmentation thesis’ discussed earlier. Self-employed personnel accounted for only 2.3 per cent of the workforce of establishments of over 25 people. Twenty-six per cent of establishments were using self-employed staff compared with only 18 per cent four years earlier (Wood and Smith, 1988). The majority of work contracted out constituted service work (Table 9.3).

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Table 9.3 Use of subcontractors

n=877 Source: Wood and Smith (1989: Table 6.7).

Unfortunately, the report fails to distinguish whether the firms receiving contracts were small independents or other large organizations. Other evidence on the growth of the contracting-out of services comes from other studies of medium and large plants (Imrie and Morris, 1988; Marginson et al., 1988); the motor vehicle industry in the West Midlands (Marshall, 1989); and on the subcontracting of work from the service sector itself such as banks, building societies and publishing (Hirschhorn, 1988). Again these studies fail to provide evidence on the size of firms receiving contracts rendering an assessment of the impact on small firms difficult. Some evidence exists to suggest that it may be other specialist large firms which receive the work and there may be a trend towards larger firms claiming more of the market. For example, contract cleaning is becoming increasingly concentrated in only a few companies (Labour Research, 1988; Mason et al., 1988). Thus, although there is evidence to support this aspect of the restructuring thesis, it remains incomplete and partial. Wood and Smith (1989) take the view that an increase in the demand for services is chiefly a result of a wealthier economy. This is based on the types of self-employment that have grown. In 1989, ‘distribution, hotel and catering’ (SIC Division 6) had 824,000 self-employed or 25.9 per cent of the total self-employed population (Table 9.2). The fastest rate of growth in self-employment, however, between 1977 and 1989 appeared in ‘banking, insurance and finance’ (SIC Division 8) followed closely by ‘other services’ (SIC Division 9).12 They argue that those sectors in which growth has taken place are ‘unlikely to benefit from contracting-out’ (1989: 55). These sectors include distribution, recreation, education and health services. With regard to the contractingout thesis, therefore, they argue: although it may be one factor contributing to the employment increases in the service sector, contracting-out is unlikely to have been responsible for more than a minor proportion of the employment growth of 2.4 million.

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(Wood and Smith, 1989:50) It is difficult to accept such an argument uncritically, since there is evidence elsewhere to suggest that it is within some of these very sectors that substantial contracting-out takes place as shown in Table 9.3. What sort of predictions can be made on the performance of small service sector firms in the 1990s? Three main possible threats to small independents require investigation. First, to what extent are the relations between large and small service firms developed in the 1970s and 1980s a temporary phenomenon? Second, to what extent can those small producer service companies not dependent on contract work, that is those which have their own specific market niches, continue to dominate such markets? And finally, to what extent can those small firms that supply ‘consumer service’ markets continue to prosper? Historically, product and process standardization has been a major factor behind the demise of the small firm as direct supplier of goods and services (Porter, 1984). Mature markets and the standardization of products have enabled the development of mass-production and capitalintensive production processes. Examples from manufacturing are plentiful and include the car industry, electrical goods and even new technology industries such as computer hardware. If such developments are to be mirrored in the service sector, then small firms may decline and increasingly take the form of a dependent stratum as economic activity undergoes a process of vertical integration. This may spell the contraction of those small service sector firms which have developed to service large firms’ productive activities. Concentration of service sector activities may also pose a further threat to the formation and continuance of small service firms. This is linked to our first point. As technology develops, there may be an increase in takeovers and diversification. This view is expressed strongly by Rajan (1987), who argues that in all industries it appears to be large companies which are adopting new technologies, giving them a strong competitive advantage. The implications for small businesses may prove catastrophic: As a result, intra-industry job displacement has been occurring, adversely affecting small firms in most cases. It is not surprising, therefore that in building societies and retailing, for example, small firms are gradually disappearing. Equally, it is not surprising that business services and hotels and catering are experiencing the fastest growth: their fragmentary nature has prevented large-scale technological applications and has indirectly assisted small firms and self-employment. Over time, however, as industrial concentration occurs in these industries due to competitive diversification by large firms, their rate of job creation, too, will cease.

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(Rajan, 1987:41–2) This view has received further support from recent developments in financial services, property selling and contract cleaning (Labour Research, 1988). In summary, the future of the small, service sector enterprise appears uncertain. Although comprising the overwhelming majority of small businesses and undergoing rapid growth in the 1980s, the economic structure to emerge in the 1990s may not provide an environment conducive to further expansion. One basic factor influencing this is a fall in growth in the service sector in the 1990s. Small firm growth has reflected the expansion in the service sector. If the sector experiences a slow-down in demand, then this will undoubtedly affect the opportunities for new firm formation and the survival of smaller businesses. CHANGES IN REGULATORY STRUCTURES UK government initiatives UK governments in the 1980s provided a regulatory environment which was seen as conducive to new firm formation and growth. Since 1979, governments have introduced over 200 legislative initiatives. Major schemes include the Loan Guarantee Scheme, the Business Expansion Scheme, Small Engineering Firms Investment Scheme and the Enterprise Allowance Scheme. Specific industrial sectors also have initiatives designed to stimulate small business activity.13 What additional economic activity has been generated by schemes such as these? Investigations into the additionality (that is, the net addition to the overall level of economic activity) associated with the Loan Guarantee Scheme (LGS) for example, suggest that well over a half of firms would not have gone ahead were it not for the scheme. Additionality was estimated to range from a minimum of 56 per cent of loans to a maximum of 81 per cent (Robson Rhodes, 1984). A more recent investigation reinforced this finding: Taking account of displacement effects14 which are difficult to estimate, perhaps 70 per cent of the additional activity in sample firms represented additional small firms sector activity. (Ridyard et al., 1989:417). Recent changes in government policy have centred around the Department of Trade and Industry’s Enterprise Initiative (Department of Trade and Industry, 1988). There are indications, however, that the

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impetus towards policy innovations to promote small-scale enterprise may be slowing. Small firm policies are being subsumed under wider policies to help all firms rather than only the smallest. In other words, small firm policies on the scale we have seen in the 1980s may not have a guaranteed future. Certainly, if the arguments for selectivity (Storey and Johnson, 1987) for example, are accepted by government, and aid is concentrated on the relatively few firms likely to grow, this would have a negative impact on the number of new starts. The European dimension An important regulatory change that has affected the small business is the single European market of 1992. Views on the impact of this regulatory change on smaller businesses vary considerably. On the positive side, the single market opens up 320 million consumers and eliminates tariff and non-tariff trade barriers. Optimistically, the biggest single losers from the tariff barriers in Europe before 1992 include small and medium-sized businesses. A survey of 11,000 businesses in six major European Community member states (Cecchini et al., 1988) found that the cost of form-filling checks, VAT, excise payments and health and veterinary controls was around 1.5 per cent of the average consignment value. For smaller and medium-sized businesses, that is companies of up to 250 employees, customs costs per consignment can be up to 30 per cent to 45 per cent higher than for larger companies (Cecchini, 1988: 9). The removal of these barriers, it is argued, would be beneficial to those small businesses that export. The study also found that smaller firms with less than 50 employees expected both an increase in exports and imports after the removal of trade barriers. However, this analysis may be somewhat optimistic. The great majority of smaller businesses do not export and their activities are tied closely to mainly local markets. A survey in 1987, for example, found that in all economic sectors of the UK, 94 per cent of small firms did not export and only 4 per cent exported more than 10 per cent of their output (Storey and Johnson, 1987). In other words, the potential single market advantages may not be present for smaller businesses because of the nature of their business activities. The main reason why small firms mainly serve local markets is because the overwhelming majority are in services, but even the impact on the manufacturing small firm is likely to be minimal. An analysis of the sectors in which small firms (less than twenty persons) have more than 25 per cent of the market for manufactured goods in the European Community found that: ‘the achievement of the internal market should have a limited impact, except in so far as it might change the rules of the competitive game and encourage a changeover to mass production of standardized products’ (European Commission, 1988:135).

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Finally, small businesses themselves show little indication of preparing for the internal market. A survey in Britain of 50,000 small and mediumsized companies found that only 7 per cent of firms are pursuing a ‘single market strategy’ (Financial Times, 14 March 1989). Conversely, the ‘single market’ could pose threats to some smaller businesses. The biggest appears to be the possible erosion of local market niches by specialist large firms who can reap the benefits of economies of scale and enter markets previously protected, albeit inadvertently, by tariff barriers. Cross-border mergers (Financial Times, 21 November 1988) may not affect small businesses directly because they mainly involve mergers and acquisitions amongst the corporate sector. But indirectly they may have some impact through the rationalization of suppliers once industrial concentration takes place. Finally, the single European market may pose a threat to small subcontractors. If wages and other costs are lower in other member states, corporate sector contracts may be switched to low-wage regions, paralleling the ‘new international’ division of labour. This movement would not only reduce the opportunities for smaller businesses but would adversely affect the whole economy of Great Britain and benefit the southern European members which have lower wage costs. In summary, the climate for enterprise in the 1980s was supported by government initiatives and these undoubtedly had a positive effect on a minority of small businesses through direct financial assistance. However, this type of assistance may not continue into the 1990s and already there are some indications that small firm policies are less central to the government’s thinking. In addition, whilst most political parties are supportive of small firms, should a Labour administration be elected in the next decade, then it may be expected that it would be less energetic than the governments of the 1980s in supporting small firms. The analysis has also shown that the most likely impact of 1992 on small firms in the 1990s will be minimal over the short term at least, though it may have greater impact in the longer term. SOCIAL AND CULTURAL DEVELOPMENTS IN THE 1990s Wider social and cultural changes in society provide an important and often neglected context within which small businesses have to operate. The 1980s saw a substantial restructuring in consumer patterns and cultural trends. Indeed, there are close links between the economic and these other changes and their impact on small firms. The implications of these cultural and lifestyle changes are, we believe, potentially very important for the small firm.

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The enterprise culture If the revival of small firms is to be a long-term trend, then it must have its roots in the aspirations and economic beliefs of the population. The 1980s saw a strong commitment to encouraging an enterprise culture by government. However, the extent to which this has now become an inherent element in British culture remains contestable (see also Chapter 1). One problem is defining what is meant by the ‘enterprise culture’. Ritchie (1987), for example, argues that there are several ‘enterprise cultures’ depending on the standpoint taken and sectional interest being addressed. The versions government has been so enthusiastically promoting are what he terms ‘believer driven’ but, as he shows, it is not hard to find versions which are almost wholly negative in the connotations they attach to the phrase. Elsewhere, the enterprise culture has been suggested as ‘embodying rewards for individual effort, entrepreneurship and the assumption of responsibility, and disapproval of reliance on the state’ (Jowell et al. 1988:21). Coupled to the problem of definition is the problem of measurement. Culture cannot be quantified easily. Instead, we can only turn to views on the subject from surveys, intentions and observable outcomes such as the number of people starting a business with a positive desire rather than for negative reasons such as unemployment. However, there is a dearth of research on these phenomena. Whether there has been an increase in the ‘enterprise culture’ in the 1980s and whether it has been adopted by a significant proportion of the population, remain open questions. Using their own definition, the British Social Attitudes Survey researchers found that over the 1980s, or at least since 1983 when the survey started, ‘British public opinion has become alienated from many of the goals of an enterprise culture’ (Jowell et al., 1988:121). This conclusion is surprising given the amount of publicity and resources devoted to the promotion of the virtues of the concept. In contrast, Bannock (1988:17) has little doubt that ‘the growth of the enterprise culture accelerated after 1979’. He does admit it is difficult to measure these alleged changes and that he had ‘not been able to find any statistical attitude measurement series that go back far enough in time for us to assess when the turning point was’ (1988:17). To help remedy this deficiency, Bannock has developed an ‘enterprise barometer’ which relies on the views of survey respondents. In response to the question ‘How strongly do you agree that there is a new enterprise culture in this country?’, 82 per cent of respondents in an Investors In Industry survey agreed that there was such a cultural change (Bannock, 1988). Methodologically, however, this finding is problematic: it could be argued that the question is a leading one and nor do we know the respondents ‘interpretation of the phrase ‘enterprise culture’.

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While Bannock and others would assert that the rise in the numbers of self-employed in the 1980s is a reflection of a new enterprise culture in Britain, others have been less sanguine. One piece of research on the attitudes and values of those in self-employment compared with employees in 1985 displayed ‘no evidence of any fundamental differences between employees and the self-employed in the basic work ethic’ (Hakim, 1988: 435, emphasis in the original). With regard to younger people, there is evidence to suggest that an ‘intergenerational effect’, that is, a high propensity for the offspring of parents who run a business to do so themselves. This is important, for although there may be growth in the number of people in the ‘age-launch window’ in the 1990s, this does not guarantee entry to business ownership. Goldthorpe (1987) found evidence of an ‘intergenerational effect’ in the early 1970s and this appears to have continued in the 1980s (Curran and Burrows, 1988; Stanworth et al., 1989) and given the rise in the number of small businesses in the 1980s, more of the younger population will have been exposed to running a business. This will almost certainly have a positive effect on the number of new businesses starting in the 1990s. Curran and Blackburn (1989) in their survey of 16 to 19 year olds’ attitudes to enterprise, for example, reported that respondents with parents or relatives in business for themselves were much more likely to feel that they would eventually have a business of their own than those young people from families with no connections with small business ownership or self-employment. Therefore, the high rates of new firm formation and entry to self-employment in the 1980s are likely to have a positive influence on new firm formation rates in the 1990s. Polls of younger people have shown positive attitudes towards the ‘enterprise culture’ (Independent, 1989) but such surveys are often situated within a strong pro-enterprise perspective. The ‘Livewire’ organization has gone further in claiming an upsurge in young enterprise. In a recent report (Project North East, 1989) on a survey of around 1,000 young entrepreneurs aged between 16 and 25, of whom 75 per cent were trading at the time of the survey, it was claimed ‘A new phenomenon has come of age in the 1980s. The rise of the enterprise culture has created an environment in which young people can explore the potential for taking their futures into their own hands’ (Project North East, 1989:ii). Other surveys have provided a more restrained view of the presence of an enterprise culture among younger people. MacDonald (1990), in his survey of young business owners in the North East found what he described as a ‘culture of survival’ rather than one of enterprise. Curran and Blackburn (1990) surveyed over 800 young people in the 16 to 19 age group in sixth forms in a wide range of schools across England. They situated their questions about attitudes to enterprise in the context of a

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discussion about the young respondents’ future careers. They found that just under 25 per cent of their sample thought it likely that they would run their own business eventually, a figure which reflected almost exactly the proportion of parents in the sample who were self-employed or business owners. In short, among adults, there has clearly been an upsurge in selfemployment and small business ownership but this cannot by itself be taken as evidence of a radical increase in any ‘enterprise culture’: behaviour and the meanings associated with it are never logically contingent. Attempts directly to assess the strength of anything resembling the version of the enterprise culture promoted by governments in the 1980s have not demonstrated any such increase in a clear fashion. The evidence on young people is inconclusive though it offers a basis for some optimism. We have no base of comparison of the level of attitudes prior to 1979 since questions on the subject were not put to young people in the 1960s and 1970s. While young people show a reasonable level of enterprise awareness (and there has probably been a real increase in the 1980s), it is difficult to conclude confidently that this represents a radical break with the past or that it will produce high levels of small enterprise ownership and self-employment in the 1990s. Wider cultural changes in society Wider cultural changes are taking place in society which may have implications for smaller businesses in the next decade. The most important concept in the discussion of recent changes in cultural patterns is ‘Post-modernism’. This somewhat elusive concept has been discussed mostly in the realms of aesthetics and culture, but there are a number of discussions which bring the notion closer to everyday economic life and help to bring out its implications for the 1990s’ small firm which we would argue are highly favourable. The term ‘Post-modernism’ is not easy to delineate but incorporates a number of elements (Lash and Urry, 1987; Connor, 1989; Harvey, 1989). Chief among these are the notion of a fragmenting of ideas and lifestyles and the elevation of the importance of symbol over substance in the everyday nexus between material consumption and its associated meanings. The latter manifests itself in a number of forms. Consumption, for example, becomes more centred on the symbols attached to the object rather than any inherent qualities, as in the case of fashion where quite inexpensive clothes are frequently selected to make a statement about the wearer rather than to indicate personal wealth. Other aspects of Post-modernism include the breaking-down of the unity of previously dominant cultural forms such as Classicism or Modernism or the linear narrative form in book, cinema and especially in

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video. These are replaced by a timeless, ‘pick and mix’ aesthetic which, while it may contain elements of previous cultural forms, combines them with each other in new ways. Perhaps the clearest examples of Postmodernism are seen in recent architecture styles, with the supplanting of the modernist, box-like glass skyscraper of the 1960s and 1970s with buildings which attempt to offer a message in their shape (a hotel, for example, shaped like a huge cruise liner) or embody a pastiche of architectural styles drawn from different previous periods, an approach currently much favoured in office building in Britain. At the level of the individual and the group, Post-modernism is said to be manifested by dissolution of the major class formations which dominated earlier stages of industrial society. Instead, people align themselves into fragmented, privatized groups who establish their separate identities from other groups by distinctive symbols—language and cultural patterns which mark them off as separate—and especially by consumption patterns embedded in a need to live for the moment. This adds a previously unmatched fluidity to consumption with ideas constantly changing and any commitment to stability frowned upon as naïve. Conventional political parties and the established party political processes lose their legitimacy for ordinary members of society. It is not only the cynicism and distrust which hastens this disengagement but also the inability of public nationwide processes to engage with the increasingly privatized values and ways of life of people. The successful political movements become those linked to single issues or issue which are perceived as outside conventional politics such as the Green Movement. Indeed, the latter come to replace or challenge conventional party politics which—unlike in earlier periods of challenge by ideas from outside the system—has found it difficult to incorporate such issues convincingly. The above simplified and overstated account of Post-modernism may be easily criticized,15 but to the extent that it captures some of the cultural changes which have manifested themselves in the 1980s, it has important implications for the economy. This theme has been picked up by, among others, Lash and Urry (1987) in their detailed analysis of ‘disorganized capitalism’ and its links with Post-modernism in five industrial societies including Britain (Lash and Urry, 1987: Ch. 9). While the authors do not draw out the implications of these changes for the small enterprise sector, there are obvious ways in which the small enterprise is likely to be influenced. As cultural tastes have become fragmented, or more pluralistic, this has a disorganizing impact on the economy which should hurt larger enterprises and prove beneficial for small firms. There will be a trend away from mass production consumption goods towards ‘niche’ or ‘positional’ goods (Hirsch, 1978). Within this period of ‘disorganized capitalism’ there will be a decline of distinct regional and national economies but a growth of small urban

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agglomerations and demand in rural areas (Lash and Urry, 1987). Again this should prove beneficial for small-scale economic activity. This also has links with the ‘Post Fordist’ and ‘flexible specialization’ models of the economy discussed earlier, where small firms exert some market independence and control within a locality. The thesis suggests therefore, that there will be a growth in the demand for specialist one-offs or bespoke goods: the very type of markets which small businesses have tended to dominate in the past. In other words, there may be a renaissance of the small business emanating from the new culture of ‘Post-modernism’ located within this recently emerged ‘disorganized’ phase of capitalism. Care must be exercised in this analysis for fragmented markets do not necessarily lead to a dominance by small-scale producers. As pointed out earlier, Williams et al. (1987) assert that orthodox mass producers can adapt to supply differentiated products using common components with the example of the Benetton chain being of relevance (Murray, 1985). More crudely, concentration may well occur in the servicing of fragmented markets but larger enterprises will face difficulties, especially where they attempt to serve such markets over wide geographical areas and particularly those crossing national boundaries and cultures. Our overall conclusion here is that to the extent that ‘Post-modernism’ has relevance in explaining likely trends in culture and lifestyles in the 1990s, this will be beneficial for small firms in the next decade. CONCLUSION: SMALL BUSINESSES IN THE 1990s— RENAISSANCE OR DECLINE? The 1980s saw a resurgence of the fortunes of small-scale enterprise but what of their prospects to the twenty-first century? This chapter has analysed the climate for self-employed and small businesses and identified a range of positive and negative influences likely to shape the fate of smallscale enterprise in the 1990s. Demographically, changes in the composition of the labour force suggest distinctive implications for small businesses and entry into selfemployment. The greatest effect will be on small businesses as employers, because there will be a fall in the number of young people entering the labour market. Small firms have tended to recruit young people in the past, particularly those not going into full-time education, but if this labour source contracts, they will have to recruit from other age groups, and will probably have to pay higher wages. Much depends on large firm recruitment practices and strategies for retaining staff. Evidence suggests that they are more innovative than small businesses in introducing, for example, creche facilities and in fostering closer links with schools and colleges. In sum, the impact of labour

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changes reveals a pessimistic future for small employers. They will have to display a flexibility in recruiting other age groups not shown previously and overcome the ageism in their recruitment policies if the impact of the downturn in the number of school-leavers is to be minimized. There will, however, be no demographic downturn in the number of people in the ‘age-launch window’ for entry into self-employment and small business ownership, and the projections suggest that there may well be a rise in the number of females within these groups. Although the 1980s have seen a restructuring of the UK economy, no new, dominant pattern of production has emerged. On balance, the reorganization which has taken place has favoured small firms, at least in the short term. The economy is currently a mixture of production types corresponding to ‘Fordist’, or mass production techniques; ‘flexiblespecialization’, where small firms have some autonomy over the control over the labour process and the products and markets they serve; and some elements of vertical disintegration by large firms approximating to the ‘Post Fordist’ and ‘flexible firm’ models, where small firms are confined to a subcontractor role serving large firms. Most of the growth in small firms and the self-employed in the 1980s can be attributed to the shift in economic activity from manufacturing to services. The increase in the numbers of self-employed especially, almost exactly mirrors the growth in employment in this sector. Although employment in services is predicted to continue to expand, it will be at a slower rate. Opportunities for small firms will also grow but increases in concentration in services are likely to reduce these opportunities. This is already taking place in financial and business services and there is no reason to assume that this trend will be reversed in the 1990s. This will adversely affect small firms and the self-employed in a number of ways. Those serving consumers directly may experience an invasion of their markets as large firms absorb smaller firms and become more ubiquitous. Subcontractors may also undergo some turbulence in their markets as mergers lead to a rationalization of subcontract suppliers. Therefore, the overall opportunities for small firms arising from the restructuring of the economy in the services sector may be less in the 1990s than they were in the 1980s. There is also a political dimension to this scenario. Governments in the 1980s attempted vigorously to promote small-scale economic activity both at the level of ideology and through financial assistance as well as policy innovations. Although the overall impact of this has been to increase the number of people entering self-employment, for example through the Enterprise Allowance Scheme, its long-term impact may be less. There is, for instance, no strong evidence that the population has adopted a new enterprise culture of the kind promoted by recent governments.

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There has been widespread speculation about the impact on small firms of the liberalization of labour, capital and trade movements which will result from the the advent of the open European market in 1992. However, it is likely to provide few opportunities for most small firms, the majority of which serve local markets and are tied closely to local cultures and consumption patterns. An internal market will not demolish locally rooted cultures and most small firms, at least well into the next century, may continue to operate on this basis. A potentially more significant but more abstract phenomenon affecting smaller businesses in the next decade is wider culture change and especially the rise of ‘Post-modernist’ culture. A central tenet of this thesis is that a further fragmentation of tastes and lifestyles will occur and this will lead to more heterarchical as opposed to the hierarchical social and cultural structures of the past. This has expected benefits for small firms. The main implication is that ‘Post-modernism’ will lead to a fragmentation of markets which small firms may be ideally placed to serve. In summary, this chapter has examined a range of influences— demographic, economic, sociological and cultural—on the opportunities for small enterprise and self-employment in the 1990s. While several of these influences are predicted to foster a positive environment for the small business sector, the overall balance seems to point towards a more hostile environment than that which witnessed the expansion in selfemployment and small-scale enterprise in the 1980s. NOTES 1 This includes a population effect ‘or the changes which would occur merely due to the changes in the size and age distribution of the population,’ and ‘an activity rate effect due to the changes in the proportion of the population which is in the labour force’ (Employment Gazette, 1989a: 162–3, emphasis added). 2 For example, ‘As a rough rule of thumb, a fall of 100,000 in the number of claimants unemployed would be expected to raise the female labour force by around 30,000 and the male labour force by 20,000’ Employment Gazette (1989a: 169). To appreciate the importance of this influence we need only examine the changes in one year between 1987 and 1988, when projections on the size of the labour force increased by 405,000 (Employment Gazette, 1989a: 170–1) because of changes in the assumed rate of unemployment. 3 Male leavers entering the labour market from school fall from their peak of 356,000 in 1983 to 234,000 in 1992–3, females decline from 301,000 to 195, 000. By 2000–1, 264,000 males are projected to be leaving school and entering the labour market directly compared with 220,000 females (Employment Gazette, 1989b: 369).

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4 This does, however, represent a fall in the number of young people entering higher education from around 124,000 in 1990 to 108,000 in 1995, because of the absolute fall in this age cohort. 5 In comparison with the young, older workers have been described as ‘less mobile, less educated and more likely to be found in older established industries and occupations’ (Wells, 1989:320). It is the first two characteristics which may prove beneficial for smaller businesses. 6 This describes the frustration arising from gender-related career blocks. Women may perceive that they have the ability to progress in an organization but because of gender discrimination they experience a lack of progression and recognition (Hymounts, 1986). 7 These calculations normally exclude the professions where there are also large numbers of self-employed. The reason for this is that the professions are seen as distinct from other kinds of self-employed and small business owners. 8 If this relationship does disintegrate, then this will undoubtedly have a positive effect on the longevity of the self-employed and the survival of small businesses. Studies have revealed that businesses founded by individuals with formal educational qualifications tend to better capitalized and to grow faster (Storey et al., 1989). 9 Even the precise characteristics of the term ‘Fordism’ excites debate (see Clarke, 1990). 10 This ‘sectoral’ effect has also been observed in the United States. In a shiftshare analysis of the growth in the petty bourgeoisie since 1940 in the USA it was found that: The sectoral shift effects on self-employment…are clearly anchored in postindustrial sectors. Business services, legal, engineering, and professional services, and medical services together account for over 55 per cent of the total positive sectoral shift effects on self-employment. (Steinmetz and Wright, 1989:1006) 11 For a discussion of the problems of defining the services sector, particularly in relation to small businesses, see Burrows and Curran (1989). 12 This includes a range of services including security services, cleaning services and refuse disposal, education, social and health care, the arts, and other personal and domestic services. 13 Government expenditure on small firm policies has continued throughout the 1980s. For example, between 1981 and 1989 £700m was spent on supporting 21,000 firms participating in the Loan Guarantee Scheme and between 1982 and 1988, 384,000 people have been helped to start their own business via the Enterprise Allowance Scheme (Employment Gazette, 1988c). 14 ‘Displacement’ here refers to the possibility that the start-up of a new enterprise subsidized in part by government aid may well lower levels of activity among existing firms, even putting some out of business. 15 Besides the lack of precision in the use of the term ‘Post-modernism’ by different writers, there is also an obvious overstatement which parallels that

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in the debates about the extent of economic restructuring in the 1980s. Traditional cultural forms continue to survive in all kinds of ways from the narrative form in the book, film and television play to links between class and party political alignment. Nevertheless, it seems clear that the Postmodernist thesis is touching upon some of the key elements of cultural change present in the 1990s.

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190

Index

academic entrepreneurship 140 accumulation regime 23 additionality 174 advice: for small firms 20; for women in business 120 Afro-Caribbeans, in business 5, 55, 56, 57, 60, 61–4 ‘age launch window’ 10–11, 164, 182 ‘agent-centred’ model of restructuring 18–19 Allen, S. 116 anti-collectivism 26 Asians, in business 5, 50, 55–8, 58, 60– 2 Atkinson, J. 102

Burrows, R. 113, 115 Business Expansion Scheme 174 business format franchising 67–68, 69 business ownership, by ethnic minorities 50, 53, 57–9; see also self-employment business services 101, 102

Bailyn, L. 41 bank charges 153, 157 banks: and small businesses 9–10, 20, 146– 61; and women’s businesses 120 Bannock, G. 177 Bhaskar, R. 19 Binks, M. 89 Birmingham, small firms in 53 Blackburn, R.A. 178 Body Shop 68 Bologna, small firms in 53 Bolton Report (of the Committee of Enquiry on Small Firms) 81 Boston, small firms in 53 British Franchise Association 6, 72 British Social Attitudes Survey 177

Cambridge Ring 8, 22 capital-gearing, and loan evaluation 150, 152, 154, 158 capitalism 17; cycles in 21–3; Post- modernism and 180 ‘carcass’ valuation 150 career breaks, for women 111, 163 Carter, S. 114, 117, 118, 120 casualization of labour force 33 catering industry 1, 101, 173 Celltech 127, 143 chemical industry 22 Child, J. 40 child care 8, 119 childminders 38 clerical workers, and homeworking 45– 7 clothing and knitwear manufacturing, Asians in 60 collective wage bargaining 24 collectivism 27 competition 9, 12; between banks 10, 148, 151, 152, 153–7, 155–9; and business ownership 53–5; in Europe 101;

191

192 INDEX

in a free market 132–5, 134, 135, 142; in manufacturing industries 51; for staff 92, 93 competition and credit control (CCC) 146, 151 competitive advantage 59; in Afro- Caribbean businesses 62; in Asian businesses 60 computer industry, homeworkers and 41–2 computer networks 33 Confederation of British Industry 102 construction industry, self-employed and 38 consumer demand 51, 137 consumption patterns 12, 23–5, 165–9; effect on industrial sector 51; and Post-modernism 179, 180–4 contract cleaning 1, 172, 173 Contract Programming Service (CPS) 41–2 control over franchises 75, 76–78, 79–2 ‘core-periphery’ model 167, 168 corporate itinerants 36 cost leadership 59 cotton industry 22 craft traditions 166 creche facilities 163, 181 cross-border mergers 175 cultural changes 11–12, 13, 176, 179– 4; see also enterprise culture Curran, J. 113, 115, 178 customers, differing service to 54 demographic changes: effect on labour markets 2, 6–7, 161– 7, 181–5; effect on small enterprises 10–11; in ethnic minority communities 62; and homeworking 45 Department of Trade and Industry 43, 138 differentiation, to achieve competitive advantage 59, 60 disabled workers 43

discourse of enterprise culture 15–21, 26–8 distance workers, management of 47–9 division of labour 26 domestic commitments, of women 8, 39, 44, 119 domestic support, for women 119, 121, 123 economic long waves 17, 21–3 economic policy, and high technology small firm growth 136–9 economic restructuring xiv–1, 11, 13; and enterprise culture 17–18, 20–2, 23–5; models of 166–71; and small businesses 165–76 Economic and Social Research Council 143 educational achievement, and selfemployment 165 electricity 22 employers: firms as 7; and homeworkers 39, 41–2 Employer’s Labour Use Strategies Survey 170 employment: changing patterns of 23, 102–5, 116, 181; in manufacturing industries 104–7; in small businesses 86, 89, 93, 94 employment protection 24, 116; for home workers 39 Enterprise Allowance Scheme 121, 123, 174, 184 enterprise culture 1, 2–4, 15–27, 176– 82; and self-employment 11 Enterprise Initiative 143, 174 entrepreneurship 15, 20, 118 Epstein, T. 115 estate agencies 101, 173 ethnic minorities, in small businesses 5– 6, 50–64 European Commission see single European market

INDEX 193

European Social Fund 122 exchange rates 136–9 experience 62 expertise 62 exports 174–8 family businesses 53, 54, 62 family resources, for Asian businesses 60, 61 fashion industry 12 fashionality 51, 52 fast food franchises 68, 74 female entrepreneurship, research in 121 FI plc 42 filling station franchises 68 financial services 101, 172, 173, 182 financial support: for high technology small firms 134, 136; for women’s businesses 120 first generation franchising 67, 68 flexible automation 24 flexible firm 102–5 flexible production systems 2, 4 flexible specialization model 166–70, 180, 182 flexible workforce 102, 116, 124 flexibility 26, 29, 66, 93; for women 39 focus, to achieve competitive advantage 59 ‘Fordism’ 24, 165 foreign acquisition, of small British firms 127, 135–8 Forum of Private Business 152–6 fragmentation of markets 180–4, 182 ‘fragmentation model’ 102, 167, 168 franchising 6, 52, 55, 66–83; Afro- Caribbeans in 61, 62; Asians in 61 free market economy 25; and high technology small firms 132–41, 142, 143, 144 freelance workers 35, 36, 40–1 fringe benefits 7, 92, 93 funding, for small businesses 147;

see also banks, small businesses and Germany, banks in 9 Goldthorpe, J. 177 good will 78 government: and aid to small enterprises 1, 142– 7, 174, 176; and high technology firms 8–9; legislative initiatives of 174; non- intervention by 126, 127, 132– 41; and women’s businesses 121, 123; see also state intervention graduates, projections for 1990s 93, 94 growth, in high technology small firms 127–30, 136–9, 140, 143 Hakim, C. 36, 89, 102, 116 Halpern, M. 113, 114, 120 Hamilton, R.T. 89 Hertz, L. 114 high technology small firms 8–9, 23, 126–47 Hirst, P. 166 Hobbs, D. 15 homeworking 4–5, 33–49 Hough, A.J. 6 Howe, Lady Elspeth 111 Hudson, J. 89 incentives, for women workers 116, 122 income-gearing, and loan evaluation 150, 154–8, 158 independence: from external control, for franchisees 75, 81–4; for women in employment 117 independent local firms 53–5; Afro- Caribbeans and 61–3; Asians and 60 individualism 20, 23, 26 industrial aid 138 industrial development agencies 138, 143–6

194 INDEX

industrial planning 133, 135–8, 138–1, 143 industrial sector, changes in 51 industrial structure, for small firms 20 inequality 24–6 inflation 137 information-based services 101, 102 information exchange, between banks and small firms 147, 150, 152 information technology 22; and homeworkers 40–4 innovation, in high technology small firms 127–30 129, 140, 141–4, 143 insecurity 1, 7, 103 Institute for Employment Research 92, 99, 104 interest rates 137, 155 ‘intergenerational effect’ 177–1 International Computers Limited 41–2 investment, in high technology small firms 129, 137, 141; see also banks, small businesses and Japan: banks in 9; small firms in 141–4; support for high technology small firms in 9, 133, 136 Jennings, A. 89 Johnson, S. 52, 89, 166 ‘just-in-case’ systems 24 ‘just-in-time’ systems 24 knowledge-based firms 53, 54, 63 Kondratieff, N. 21, 28 Kroc, Ray 77 Labour Force Survey 89, 90, 170 labour-intensive services 170 labour market 7, 24; impact of demographic changes on 162–7; and small businesses 54, 89, 92, 93– 7, 103, 106–11; women in 45, 99–3, 115–18, 122, 163, 184 Lash, S. 180

life-cycle factors, importance of for women 44, 118 light engineering 22 Livewire 178 loan evaluation 149–3, 152, 154, 157 Loan Guarantee Scheme 174, 184 local enterprise agencies 120 ‘M4 Corridor’ 8, 22 MacDonald, R. 178 managerial service class 25 manufacturing industry 51, 137, 142, 143, 170; employment in 104–7; homeworkers and 39 market regulation 25 marketing, in high technology small firms 128–2, 143–6 markets: fragmentation of 180–4, 182; specialized 53, 181 Martin, R. 23 Mason, C. 20, 36 mass production systems 24, 51, 165, 172 master franchising 74–7 mergers 175, 182 microelectronics 22 migrant labour 51 ‘modes of regulation’ 24–7 monopoly power 132–5 Morokvasic-Muller M. 117 motor industry 22 National Enterprise Board 138, 143 national interest, and acquisition of firms 135, 136 networking 40–1, 53, 54; Asian business owners and 60 new businesses, foundations of: and unemployment 89–4, 168–2; variations in 19–1, 103–6 new technology 173; and franchising 6; and homeworking 4, 40–2, 45; importance of, for small firms 1–2, 11

INDEX 195

north-south divide 26; in new firm foundations 19; and recruitment problems 96–9 occupational segregation of women 114, 123 Occupations Study Group 89, 94, 99 O’Connor, J. 118 older people: in labour market for small firms 163– 7, 184; and self- employment 11, 164 operations manual, for franchisees 73 outworkers 35, 42, 44, 45 owner-managers 38 ownership of means of production: in franchises 76–9, 78, 81; in networking schemes 41 part-time employment 41; students in 163; women in 99 personal services, and homeworking 38 policy implementation 25 political change 25 political movements, and Postmodernism 180 Porter, M. 59 Post-Fordism 165–9 Post-modernism 11–12, 179–4, 182 price advantage 59 price competition, between banks 148, 157 privatism 26 product franchising 67, 68 production, organization of 24 products, standardization of 172–6 professional workers, and homeworking 45–7 Project Fullemploy 117 propriety rights, held by franchisors 76 public expenditure 25 Rainnie, A. 168 Rajan, A. 173 Rank Xerox UK, networkers in 40–1 recession, in the 1980s 1, 168

recruitment of staff 94–99, 103, 181–5 redundancy, leading to selfemployment 89, 168 Rees, H. 89 regional differences: in economics 26; in new firm foundation rates 169 Regional Selective Assistance 138 research and development 9; in high technology small firms 128, 140 resilience, of small businessmen 12–13 responsibility for business decisions, in franchises 75–8 retailing 52; Afro-Caribbeans in 61–3; Asians in 60 revenue, in franchising 76, 78, 79, 81 risks 51; for high technology small firms 128, 141; for women in business 115, 116, 117 Ritchie, J. 15, 17, 176 Rothwell, S. 47 Ruddle, H. 118 school leavers, in labour market 93, 162–6 Schumpeter, J. 21 science parks 139–3 Scottish Development Agency 138 self-employed itinerants 38 self-employment xiv, 11, 159, 164–8, 177–1; as an alternative to unemployment 1, 7, 89–3, 169; in ethnic minority population 55–8; franchising and 69; homeworking and 4–5, 33, 36, 38; motivations for 66; in service industries 170, 172; women in 8, 99, 111, 115–19, 122– 5 self-help 26 service industries 11; Afro-Caribbeans in 62, 63;

196 INDEX

employment in 101, growth of 23, 26, 169–6, 182; women in 8, 114–17, 123 Shah, A. 89 Shutt, J. 102 single European market: banking and 148; possible effect on small firms 63, 101, 174–9, 182; and women’s businesses 121–4 skills 23, 24, 54, 123 small businesses xiv–13, 51–6; banking and 147–1, 151–6, 154–61; and changing employment practices of larger firms 102–5, 181; and economic restructuring 165–71; employment in 93, 104, 181–5; ethnic minorities in 50, 55, 58–64; expansion in xiv–2, 161; and high technology see high technology small firms: and the labour market 86–107 162– 7; and Post-modernist culture 180–4; prospects for 173, 175, 181–6; in service industries 170–6; staff in 94–98; women in 99–3, 111–26; see also new businesses, foundation of Small Engineering Firms Investment Scheme 174 Smith, P. 172 social structure, changes in 24–6 socio-economic change 3, 15–17, 21, 22, 23–6; Thatcherism and 20–2 soft drink bottling franchises 67, 68 sole traders 38 specialization 24, 181 staff, in small businesses 94–98, 103, 181–5 state intervention 25; in ethnic businesses 63–6 Storey, D. 52, 89, 166

structural change, and the enterprise culture 18, 21, 24–6 ‘structure-centred’ model of restructuring 18–19 subcontracting 1, 51, 102, 175; and Asian firms 60–2; and homeworking 4, 35, 38; and the self-employed 40; in service sector 170–5, 182; small firms and 52, 53, 54, 63 suboperators 74, 75 support for franchisees 73 take-overs 135–8, 173 tangible assets, as security 150 teleworking 4, 33, 39–40, 43–4, 45–9 territorial franchising 74–7 territories, in franchising 78, 79 Texaco UK 43–4 Thatcherism 15, 20–2 trade mark franchising 67, 68 training: for bank managers 151, 157; for franchisees 67, 73, 75; for teleworkers 48; for women in business 117 transport, and industry 22 trust, relations of 54 Turner, C. 122 unemployment 1, 7; among ethnic minorities 57; and new firm foundations 89–4; 168–2; and skill shortages 92–99 United States of America: ethnic minority business ownership in 58, 61; franchising in 68, 77; government support for industry in 133–6; growth of high technology small firms in 129, 139–2 universities, and high technology small firms 139, 140 urban-rural contrast of new firm foundations 19, 26

INDEX 197

Urry, J. 180 value chains 52, 59 VAT registrations 86, 89, 105–106 vehicle dealerships 67, 68 village shops 53 wages, in small businesses 93 Watkins, D. 115 Whittington, R. 102 women: in homeworking 4, 38, 39, 44; in the labour market see labour market, women in; in self-employment see selfemployment, women in; in small businesses see women’s businesses women’s businesses 111–16, 122–6; background of 115; and child care 119, 121; European Commission and 122; financial support for 120; government’s role in 119, 121; help for 120–3; and life-cycle factors 118; prospects for 119–4; and sectoral segregation 114; typology of 117–20 Women in Enterprise 113 Women’s Enterprise Development Agencies 113, 117 Wood, D. 172 work ethic 177 working class 25 Yao-Su Hu 149 young people: enterprise culture and 177–2; in the labour market 7, 163, 164