Rainnie - Industrial relations in small firms small isn’t beautiful

Small firms have come in from the cold. In the 1960s and 1970s economic growth, prosperity and jobs were supposed to be delivered by giant institutions. The grey impersonal machine, which brought together macro-economic demand management and the big corporations, churned out growth (Financial Times, 24 July 1986). The 1980s have completely overturned this approach. Small firms have found themselves, willing or not, thrust to the forefront of economic policy.

Future prosperity will be fed by an enterprise culture which will breed successive generations of entrepreneurs. They will drive the economy on, pulling together resources to use them more efficiently, creating new products, new markets, and new firms, (ibid.)

Small is supposed to be not only beautiful, but also dynamic, efficient, competitive and perhaps most important, a source of new jobs.

Enormous amounts of government time and money, 500 million per year by 1983 (British Business, 19 January 1986), are being spent promoting the image of the entrepreneur as dynamic saviour of a moribund economy, and the small firm as the only hope for reducing the ever-growing ranks of the dole queue. A return to Victorian values, to full red-blooded capitalism, the abolition of the Nanny State, and the re-emergence of individual responsibility and self-reliance are all purported to be embodied in the new entrepreneurialism. To this end, Sir Keith Joseph has written a new introduction to Samuel Smiless Self Help, and required all his civil servants to read what has been described as a ludicrous panegyric to Victorian capitalism {Observer, 19 January 1986).

Great stress is laid on the ability of the small firm sector to create jobs. Mrs Thatcher announced to the House of Commons in 1985 that a major fall in unemployment will come about when our people, instead of relying on increased subsidies, do exactly what is happening in the United States and Japan and set out to create more small businesses themselves (Guardian, 6 March 1986).

Superficially, the empirical data on small firms would seem to support the Prime Ministers enthusiastic exhortation to entrepreneurship. The Small Business Research Trust has reported a more than 10 per cent growth in the number of surviving businesses between 1980 and 1985. In 1980 there were around 1.29 million firms registered for VAT in Britain; by 1983 the stock of surviving firms had risen by 110,000. Between 1980 and 1984 there were 830,000 new registrations, but in the same period nearly 700,000 deregistered. Small firm death rate is high, more than 60 per cent failing in the first three years. Nevertheless work produced by the Research Trust (Bannock, 1985) argues that firms employing less than 100 people created more than half the new jobs in Britain between 1971 and 1981.

Allard (1983) has calculated that in the mid-1970s over 5 million people were employed in small firms; that figure may now be around 6 million (Labour Research Department, 1985).

Small firms are then, far from being marginal. In employment terms they are highly significant. But are Mrs Thatchers hopes of a small-business-led jobs revival realistic? Recent research would suggest not.

Important findings from the Policy Studies Institute have shown that although new small firms, by definition, create some jobs they also contribute far more than their fair share to the ranks of the unemployed. Daniel in reporting the findings of the MSC/PSI (Manpower Services Commission/Policy Studies Institute) survey of the employed concluded that:

A striking feature of the characteristics of the unemployed flow was how disproportionately they were drawn from small establishments. (Daniel, 1985, p. 58)

In other words far from creating jobs, small firms destroy them! However, it is not only in the field of job creation that the swirling mists of mythology that surround and conceal the true nature of small firms are being cleared. One of the main purposes of this book is to cut through the banal platitudes and exaggerated claims (Financial Times, 12 January 1984) that now surround small businesses.

Although there has been little systematic analysis of either the empirical reality or theoretical background to the growth in the small is beautiful bandwagon never mind the policy implications this situation is slowly changing. Mostly in a fragmented and uncoordinated way evidence is amassing that flatly contradicts the cosy family atmosphere often ascribed to small firms.