EEntrepreneurs are false gods. We are giving them billions of pounds worth of tax breaks and subsidies, even though research shows that once most people get their hands on cash, it does little to help British companies prosper. money, and lots of goodwill.
Academic research shows that small business owners, despite being an important part of the economy and a source of employment, do not care for innovation or the well-being (not to mention the health and safety) of the workers they employ. It does little to encourage increased productivity. (It's even worse for small businesses).
If you're looking for innovation and creativity, a successful type of startup, such as a large company with deep expertise or an independent subsidiary protected by a university or private equity firm, is a better option. is.
These companies are worthy of being targeted for state support. On the other hand, the idea that entrepreneurs are the preeminent wealth creators is at best unproven and at worst completely misguided.
It is important to pay attention to the academic literature, as entrepreneurship underpins the neoliberal narrative that has dominated politics for the past four decades and still forms the basis of mainstream economic thought. In the absence of supporting empirical evidence, this belief means that nearly every entrepreneur benefits from the earnest hope that they might be able to build Microsoft or Amazon.
At the beginning of 2023, there were 1.4 million small businesses (1-49 employees) and 36,900 medium-sized businesses (50-249 employees) in the UK. The National Audit Office (NAO) last month identified 39 relief measures aimed at increasing business investment. The 29 claims, mostly targeted at small and medium-sized enterprises (SMEs), are estimated at £16.6 billion.
How much did the government get in return? The NAO said: “The more the Treasury and HMRC understand whether the bailout is too expensive or is achieving its intended economic impact, the more Remedies have not been closely monitored or evaluated.”
Entrepreneur relief costs around £3 billion a year and aims to encourage people to start or join growing companies by reducing the rate of capital gains tax they pay when they sell a business. A 2019 study by Adam Corlett of the Resolution Foundation reached similar conclusions as the NAO. It is understood that 52,000 people applied for relief between 2015 and 2016, each receiving an average benefit of £75,000, but it is not known whether they received any benefit. The companies were high-tech startups and restaurant chains.
There are other tax breaks for businesses, including the Enterprise Zone, but little is understood about the benefits of such a huge state gift.
Paul Nightingale, professor of strategy at the University of Sussex, says the UK is not alone. Most governments fail to provide rigorous analysis of the impact of small businesses on economic productivity and growth.
Nightingale co-wrote a paper with Alex Code, a professor at Waseda University Business School in Tokyo, that categorized small and medium-sized enterprises into “gazelles” and “muppets” (those below a threshold size and underperforming).
Calling them “Muppets” may seem harsh, but Andy Haldane, a former Bank of England economist and member of the Treasury's economic advisory committee, is even less flattering when he calls them “zombies.” There wasn't.
“Despite the almost universally held belief outside academia that entrepreneurial activity is a positive engine of the economy, the accumulated evidence is largely inconclusive,” the scholars say. “While a small number of high-performing companies drive most of the innovation, wealth creation, and new job creation, most companies, including the median small and medium-sized enterprises and startups, have only a modest impact.”
The economist most closely associated with the narrative that small businesses can be creative, innovative, and disruptive is Joseph Schumpeter, free market evangelist Friedrich Hayek, and advisor to Ronald Reagan. It has been recognized as a touchstone by Margaret Thatcher and Margaret Thatcher. Coad says their position is almost religious in that it is based on faith rather than relying on evidence.
Mariana Mazzucato, a professor of economics at University College London, attacks the problem from a different angle. Her books on industrial policy; public purposeit can be seen that most “gazelles” are raised by the state, with consistent and ongoing support from state institutions rather than indiscriminate subsidies.
Rather than squeezing a dynamic private sector, she argues that public investment has supported many of the great innovations of our time. But politicians believe that profound creativity only happens in the garden sheds of genius entrepreneurs.
Now we have to put up with Alan Sugar, star of apprentice – The 18th episode of the series is currently airing on BBC One – introducing us to the people who are said to be boosting Britain’s economic potential.
As a young entrepreneur, Lord Sugar created the Amstrad series of computers built into machines from pre-assembled components that eventually became a footnote in IT history. However, like many British businessmen, he derived most of his fortune from real estate. I have no doubt that most of his disciples will follow the same path.
In next month's budget, Jeremy Hunt will praise entrepreneurs and Labor will do the same. Before that, it would be nice to have some evidence of their cheerleading.