The events of the last few months have reminded us all of the impact of economic growth – or the lack of it – on our everyday lives. Beyond the tragedy of COVID-19 in terms of the physical and mental health for individuals, families and communities directly impacted, we are all involved in the resulting economic fallout.
However, as we continually hear distressing news of lay-offs, business closures and economic hardship, more than ever we probably need to start to assess in what ways can we be sure to maximise business potential for economies such as the UK to move as rapidly as possible to a stronger period of GDP growth when wider circumstances permit. More than ever, all avenues should be explored.
While this may sound a logical approach, economic history is littered with best intended plans to “pick winners” to drive economic growth. A favourite of mine is a 1931 proposal for the UK government to purchase huge stocks of guano in the South Atlantic as the foundation of a new UK growth industry centred on organic fertiliser. Needless to say, the UK Treasury had a dim view of taxpayer funds being used to purchase bird droppings!
Thankfully, things have moved on since then and we are used to policy discussions linked to key industries and technologies. Government policy at a national level on growth is mainly concerned with skills development and funding enabling research, while at a sub national level in England at least we have Growth Hubs in partnership with local authorities and the private sector to deliver firm-level assistance (supported by macroeconomic and tax policies).
Nevertheless, as we move into a period of post COVID-19 economic recovery we should not be blinkered on ways to maximise growth potential from the UK business sector and look for new ways to support this objective. A recent CREME research project in collaboration with Aston based colleagues of the Enterprise Research Centre and supported by the Federation of Small Businesses may have provided us with a new approach. This work has looked at a wide range of measures of business dynamics for the UK economy split by ethnic group to identify – amongst other things – patterns of sales growth so we can compare out-turns for ethnic-led SMEs and the rest of the small business sector.
More directly, are SMEs owned and led by a person from an ethnic minority more or less likely than other businesses to be reporting sales growth? The data was sourced from the UK Longitudinal Small Business Survey (LSBS) for both 2015 and 2018. This is a large telephone-based survey commissioned by the UK government. The choice of the two specific years was made as each had a sample boost to enable the analysis of ethnic origin in more detail. We were also able to look at a snapshot of events either side of the 2016 Brexit referendum.
The results when looked at in terms of sales growth in the last 12 months in the run up to the 2015 surveys were very clear. EMB-led firms – even after adjusting for all other factors – were more likely to report sales growth than other firms. This finding was also consistent across all the main ethnic sub groups. For example, Asian-led (31% reporting growth) and Black-led (39%) both reported a higher number of firms with sales growth than non EMB-led firms (28%), with the results from the mixed/other ethnic-led business population (31%) between the main ethnic groups as well.
On top of this, when looking at growth aspirations for the future, EMB-led firms were also more ambitious than non-EMB firms. Again, looking at 2018 results this time, 69% of EMB-led firms reported an ambition to grow sales in the following three years, compared with 56% of non-EMB firms. This pattern also held up again when looking at each of the main ethnic sub groups.
While all these business plans made between 2015 and 2018 have been overtaken by more recent economic events, the survey results illustrate that another route to finding firms that are looking to grow and achieving growth may also come from working more closely with specific groups of people (rather than sectors, technologies or broad regions). One such group would appear to be EMB-led firms across a range of business sectors and local markets. Such activity could supplement existing growth programmes but operate in hard to reach communities (who are already in sharper political focus anyway given the upsurge of national debate around inequality); as well, it would provide a wider government commitment to SME’s more generally (who often argue government schemes in this area overlook them anyway).
At one level, the higher percentage of growing SME’s which are EMB-led should not be a surprising finding. We know from long-standing academic studies across different continents about the positive impact of migration as well as economic necessity in driving the work ethic. To a significant degree, a boost to UK enterprise activity from a generation which has seen higher levels of immigration may well be driving the key results from our new research. Indeed, longer established and settled ethnic communities do not share the same enterprise outcomes as other ethnic groups and immigrant communities. For example, UK born Asian male self-employment rates are similar to equivalent results for UK-born white males; many Asian families have now used the UK education system to enable children to enter corporate management programmes or the professions.
How this new element to UK growth policy of working more closely with ambitious EMB-led firms could be implemented is clearly a matter for debate. Picking up on a 1960s – but still operating -US government funded scheme for a dedicated national Minority Business Development Agency, UK policy makers looked at a similar idea in the 1980s but the idea was dropped. In the contemporary policy framework, it may be more easily achieved by a renewed effort to engage with and mentor especially younger ambitious entrepreneurs from the minority business community, perhaps over a number of years.
However, a word of caution. The time for such an initiative is upon us. It would be unwise to delay too long. First, we know than both from a health and – looking at the industries in which many EMB-led firms operate (food/hospitality, transport and retail) – economic perspective, COVID-19 has hit ethnic communities very hard. Second, the business optimism of EMB-led firms in 2018 is now a long time ago. Indeed, even between 2015 and 2018 our study suggests that EMB-led firms were actually doing less well overall. In 2018, while EMB-led firms in most ethnic sub groups still reported a higher percentage with rising sales than amongst non-EMB firms, this was no longer the case for black-led firms; indeed, a higher percentage of businesses across all EMB groups contracted as well, pointing to greater volatility in performance than in the non-EMB-led community. This perhaps reflected rising uncertainty about immigration status and the future as the Brexit debate and the referendum results came in. We need to work quickly to salvage what we can to ensure the underlying spirit of enterprise amongst ethnic communities is not extinguished as we move away from a COVID-19 recession to one which is built on the rules of a post Brexit economy.
Professor Richard Roberts
Professorial Research Fellow
Centre for Research in Ethnic Minority Entrepreneurship
Please note that the views expressed in this blog belong to the individual blogger and do not represent the official view of the
Enterprise Research Centre, its Funders or Advisory Group