338,000 SCOTS FIRMS NOW ‘BAYING AT THE MOON’!

Running a small business, or thinking of starting one? Don’t expect much encouragement from economist and business guru Will Hutton. On BBC Newsnight Scotland last week he sneeringly dismissed the idea that SMEs were a significant factor in our economy as “baying at the moon”.

We’ve got news for him. Despite miserable economic conditions, the total number of businesses in Scotland has climbed by 30,835 or almost 10 per cent to 341,360 in the year to March – the highest since 2000.

And almost all this rise is due to SMEs. According to figures just released by the Scottish government, as at March this year there were 338,110 SMEs in Scotland - together employing 1.08 million. SMEs account for 99.3 per cent of all private sector enterprises, for 54.5 per cent of all private sector employment and for 38 per cent of private sector turnover. As at March 2012 unregistered enterprises represented 53.3 per cent of all private sector enterprises in Scotland.

Some moon. Some baying!

Hutton’s remarks are all too typical of the disdain that Keynesian economists feel for the small business sector. Its enterprise, innovation and entrepreneurialism is constantly underplayed in their economic forecasts and models. Economic growth can only come from public spending inputs and government projects. Only the government is the source of economic uplift! This view permeates the bien pensants of the BBC and the publicly-funded anti-enterprise economic forecasting agencies.

Enterprise is intrinsically about innovation and discovery - new products and services, new markets, new, more efficient methods of production - and the recycling and redeployment of assets of businesses that have failed into new ventures.

It is this discovery process that plays a critical role in turning the business cycle and lifting us into recovery.  The entrepreneur is to be found in that terrain of which Donald Rumsfeld spoke – “things we don’t know we don’t know”.

And here is to be found one of the reasons why the dynamic of enterprise and entrepreneurialism are accorded such low recognition by the macro economists. Their input and their impact cannot be measured or quantified in formal economic models. What cannot be measured or predicted is thus cast aside.

That the forecast is rough we know, due to the long tail legacy of the 2008-09 financial crisis. But this, counter-intuitively, may well be working as an enterprise driver.

Looking at changes in Scottish business stock over time further highlights the potency of the SME sector.

Between 2000 and 2012 the total number of enterprises increased by 42 per cent. This increase was driven by an increase in the smallest unregistered enterprises – the number of unregistered enterprises in Scotland has almost doubled since 2000 – from 91,310 in 2000 to 181,775 in 2012       

Scotland has a lower rate of small businesses (757 small enterprises per 10,000 adults) compared to the UK as a whole (928 small enterprises per 10,000 adults). But Scotland’s business stock between 2011 and 2012 increased at a slightly higher rate compared to the UK as a whole.

The figures provide a compelling backcloth for a new Federation of Small Business (FSB) report arguing that Scotland’s smallest firms could create more jobs and boost further local economies if they were provided with more tailored help.

The study, called “Micros Untapped”, examines the experience of more than 650 of Scotland’s smallest employers and their interaction with government job schemes and agencies.

It finds that there are distinct issues with recruitment in “micro-businesses”, which employ fewer than ten people, and that many of the current national job creation schemes do not work well for them.

Rather, the FSB argues, local schemes designed to meet the smallest businesses’ needs should be rolled out. This new support should be based on more than wage subsidies, the report warns, arguing that specialists should guide businesses through recruitment and employment processes.

Schemes similar to the support advocated in the study have been trialled successfully in Falkirk, the Highlands and Edinburgh. 

The report, conducted during summer and autumn 2012 in conjunction with economic consultancy, Rocket Science, looks at survey evidence from around 600 business owners across Scotland, in addition to evidence from Scottish focus groups, one-to-one interviews with business owners and a UK and Europe-wide literature review.    

Andy Willox, the Federation of Small Businesses’ (FSB) Scottish Policy Convenor, said:  “The potential and sheer number of micro businesses in Scotland means that better support to help them unleash their potential could make a serious dent in the unemployment figures. When a very small business expands its workforce by one or two, the character of the business changes in a way that a large organisation doesn’t and government support should reflect this.The sort of practical help we’re suggesting includes putting together an appropriate job description, advertising, advising people of the legal and regulatory issues associated with employment. However, this help should dovetail with support to help with growing the entire business.”

These are powerful points. But, what with one thing and another, BBC Newsnight may not be listening that closely. When it comes to baying at the moon its own reportage seems well versed.