Rethinking the Everyday Economy: Why Improving “Average” Firms Matters Most
In 2018, Rachel Reeves described the “everyday economy” as the ‘services, production, consumption and social goods that sustain all our daily lives’ (Reeves 2018). The term ‘everyday economy’ resurfaced in the new small business strategy published by the government last year (HMSO 2025). One chapter of the strategy focused specifically on SMEs as the ‘crucial pillars’ in this context, providing goods and services central to people’s everyday routines.
Yet there remains a tension at the heart of policy in this space. The everyday economy, which is defined as including care, retail, hospitality and similar sectors, is often treated as socially important, but economically secondary. These everyday businesses do not appear in the ‘IS-8’ – the eight key sectors identified as pivotal to driving growth in the UK’s industrial strategy (UK Government 2025). They are also sometimes implicitly grouped into the so-called ‘long tail’ of low-productivity firms (Nightingale and Coad 2013). If growth is the objective, should we simply look elsewhere?
That conclusion would be a mistake. A growing body of evidence suggests that improving the performance of “average” firms, the median of the distribution, not the frontier, is in fact central to productivity, resilience, and inclusive prosperity.
UK productivity debates have long been shaped by a diffusion problem. As Andy Haldane (2018) argued, the UK is not short of world-class firms; rather, it lacks an effective mechanism to spread best practice across the wider business population. A small group of leading firms pulls ahead, while a large group of “satisficing” firms – those aiming for acceptable rather than optimal performance – lag behind.
Focusing policy on elite firms risks reinforcing this divide. Gains at the frontier do not automatically translate into system-wide improvements in living standards. Productivity growth is not generated by a handful of stars, but by the diffusion of capabilities across thousands of firms (Berlingieri et al. 2025). This shifts the policy question: not “how do we create more top firms?” but “how do we raise the middle?”
Improving typical firms has a larger aggregate effect than concentrating only on high performers. Spanish research for example found laggard industries gained more from exporting than the leading sectors (Salomon and Jin 2008). Even modest productivity gains, when spread across a wide base, can significantly raise national output and wages.
Moreover, broad-based capability building improves resource allocation. Rather than attempting to identify “winners” in advance, policy can be designed to enable a wider population of firms to realise their potential. This enlarges the pool from which high-growth firms may later emerge. In addition to this there is a resilience argument, namely that an economy dependent on a narrow set of sectors or firms is fragile.
One reason to avoid overly narrow sectoral targeting is simple: high growth is not confined to “high-tech” industries. Careful cohort studies show that across all sectors, only 10 per cent of new microbusinesses (businesses born with fewer than 5 jobs) will survive for 15 years (Anyadike-Danes and Hart 2018). Firms which scale and increase jobs and turnover are found in all sectors, not confined to those deemed priority sectors by policymakers (Hart and Bonner 2024). This point is illustrated by the achievements of businesses such as Gymshark, a UK growth success story in the everyday clothing industry.
The implication here is that sector matters less than behaviour. When looking at entrepreneurship, research shows that the intentions of the entrepreneur are crucial (Nason et al. 2026). In the case of Gymshark the entrepreneurial ambition of founder Ben Francis was a key driver of success. And even in high growth potential sectors such as advanced manufacturing, entrepreneurs can hold modest ambitions. Significant performance differences reflected in wage differences exist between firms in the same industry (Berlingieri, Blanchenay and Criscuolo 2024). Consequently, the behaviour of firm managers might matter more than the sector.
It is also important to recognise that the everyday economy is not just a residual category; it underpins the rest of the economic system. Highly paid employees add to demands for everyday services such as hospitality, personal services, leisure and retail. This means when more high-tech jobs are created, this can exacerbate a dual, polarised labour market with both high-paid and low-paid jobs (Lee and Clarke 2017). Ignoring the everyday economy therefore risks deepening inequality. Strengthening it may offer a route to more balanced growth.
The Covid-19 period also revealed something often overlooked: firms in the everyday economy can adapt rapidly when required. Many adopted new technologies, business models, and practices, often learning through local networks and peer communities (Nguyen et al. 2025). In a LinkedIn post last year, Professor Monder Ram (2025) reflected on his research with a group of business owners in Birmingham affected by Covid restrictions, drawing attention to the “quiet innovation” that goes on in the everyday economy “that never makes the business pages but keeps communities alive.” The challenge is sustaining this momentum in “normal” times. Could increasing minimum wage and employment costs pose such a challenge now?
A focus on the median firm also connects directly to the question of job quality. In her paper, Reeves (2018) also highlighted the importance of creating ‘good work’ in the everyday economy. Rodrik and Stantcheva (2021) argue that “good work” cannot be achieved by concentrating solely on a small group of high-growth firms. Doing so risks entrenching job polarisation. Instead, policy must engage sectors where large numbers of people already work. Reeves’ (2018) original framing of the everyday economy emphasised precisely this point: improving everyday jobs is central to improving everyday life.
Rodrik and Stantcheva (2021) also highlighted effective policies to ensuring ‘good work’ based on the experience of local US areas. Effective policy emphasises localised, sector-based training linked to employer demand; customised business support services that build managerial capability; and complementary investments in infrastructure and local amenities (Bartik 2020). The objective is not simply more jobs, but better jobs embedded in firms that are themselves improving.
If the case for focusing on average firms is strong, the implementation challenge is equally clear: how do we engage the majority of satisficing firms? Satisficing combines ‘satisfy’ with ‘suffice’ to aim for a good enough solution. Most firms do not actively seek growth. Herbert Simon’s (1957) notion of “satisficing” behaviour remains highly relevant: firms often aim for stability and manage cognitive overload rather than pursue optimisation.
The issue is behavioural as much as economic. Encouraging change may be driven by local political actors with some combination of opt-in self-selecting programmes. For example, the coalition government’s GrowthAccelerator programme showed a simple set of measures (ambition, capacity, capability) could identify firms with latent ambition. Crucially, this is not about supporting all firms indiscriminately. That would generate large deadweight costs. The aim is to identify and engage those with the capacity and willingness to improve, who are often hidden in plain sight.
The everyday economy may not feature prominently in industrial strategy headlines, but it is central to the UK’s economic future. It is where most people work. It underpins high-tech growth. It contains untapped potential. And it is where improvements can have the greatest aggregate impact. The policy implication is clear: raising productivity and creating good jobs requires a shift in focus; from the exceptional firm to the typical one, from the frontier to the middle. Since in the end, a stronger everyday economy is not just about sustaining daily life; It is about enabling more firms, and more people, to achieve extraordinary outcomes.
Kevin Mole and Vicki Belt, Enterprise Research Centre
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Enterprise Research Centre, its Funders or Advisory Group
