Enterprise and Small Business Principles
Chapter summary
This chapter has reviewed some of the data on the incidence of self-employment in the UK. Central to the first part was the rise in self-employment from 1979 to 1990. In particular, male self-employment rose from 1,642,000 to 2,689,000 over that period in the UK - a rise of 63%. The predominant flow into self-employment was from wage employment and the flow was concentrated in industries that favoured the sector (e. g. construction, distribution and services). The decade was also characterised by extensive financial liberalisation, when access to loans became easier, and by explicit government policies aimed at promoting new enterprise.
The major question, of course, is how one interprets all of this evidence to put together a story about the rise in self-employment. There is now clear evidence that it was caused by the coincidence of a number of factors which had not previously been combined in such a setting. The economic recession caused a large number of manufacturing workers to become unemployed, many of whom had redundancy funds to act as collateral in starting new businesses. This inflow was boosted further by government schemes such as the Enterprise Allowance Scheme and Small Firms’ Loan Guarantee Scheme, and later in the decade by unprecedented financial liberalisation. Loans from banks and institutions became simple to obtain and, coupled with a government drive to create an ‘Enterprise Culture’, business start-ups accelerated.
Outflows from the sector still took place, many of which were new small businesses set up by the inexperienced. However, the inflow exceeded the outflow and the numbers continued to rise. Further stimulus was also provided as existing (and surviving) large employers started to sub-contract much of their non-core work. This was done for reasons of taxation and (presumably) to allow for ease of lay-off. Employment (or ‘self-employment’) of this type became the norm in construction, as well as other manufacturing processes.
When the recession hit at the end of the decade the position was rapidly reversed. Loans became very hard to obtain and repossessions and calling in of debt became commonplace. Business confidence started to fail, followed immediately by a greater outflow than inflow in the small self-employed business sector. Whilst the 1979-80 recession hit manufacturing (in particular in the North and the West Midlands) and thus provided a pool of willing potential entrepreneurs, the early 1990s recession hit those industries favouring self-employment and for the first time had a big effect on the South East and London. The demand for the services provided by the self-employed fell and this caused unemployment of these workers in the construction, distribution
and services sectors. Only as the economy has started to pull out of the recession has the position started to improve. The continued problems in the housing market have meant that recovery via construction industry recruitment has been extremely slow.
Prospects for the self-employed were alluded to briefly in the introduction. Many commentators believe that entry to self-employment in the future will be at the margins: entry as a wealthy entrepreneur (the ‘pull’ hypothesis) mixed with entry as reluctant entrepreneurs at the other end of the income spectrum (the ‘push’ hypothesis).
