Britain could have much to learn from Germany. Photo: Jochen Zick-Pool/Getty Images
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A small question of confidence

Much needs to be done, especially when it comes to access to credit.

Flick through the business pages, and you will find countless news articles on the latest share price and quarterly results of the multimillion-pound FTSE-100 companies. It is easy to forget that these businesses account for a small minority of firms in the UK; Britain’s small and medium-sized enterprises (SMEs) are the backbone of our economy.

According to the Department for Business, Innovation and Skills, there were 4.9 million SMEs in the UK at the start of 2013, making up 99.9 per cent of the country’s private-sector businesses. Their combined revenue accounted for £1.6bn, or 48.1 per cent of total private-sector turnover, and they employ about 14.4 million people, corresponding to 59.3 per cent of the private-sector workforce. When SMEs grow, it’s the whole country that prospers, as usually they reinvest their profits, creating more jobs and boosting exports. So, is the government doing enough to support them?

There have been a few steps in the right direction. Business regulation has been reduced and simplified, and under the government’s Employment Allowance scheme, which will start in April this year, SMEs have been granted a £2,000 tax cut on their employer National Insurance contributions.

But still much needs to be done, especially when it comes to access to credit. “A third of our members are repeatedly saying in our quarterly surveys that they are having difficulties accessing adequate finance to grow their businesses,” says Mark Cherry, national policy chairman at the Federation of Small Businesses, the sector lobby group. This is especially worrying at a time when business optimism in the country has picked up – last month it reached its highest level in 22 years, according to research by the advisory firm BDO – because this shows that some of these small businesses will find themselves unable to grow even as the economic environment finally starts to improve.

Some government initiatives to increase lending to small businesses, including the Funding for Lending and Enterprise Finance Guarantee schemes, seem to be having only limited impact on the problem. Figures from the Bank of England show that net lending to businesses fell by £4.3bn in the three months to November 2013. The state-backed British Business Bank, which should become operational next year after it receives state aid approval from the EU, will also support lending to SMEs, but we’ll need to wait and see how big an effect it will have.

Increasing competition in the banking sector should be a priority, as SMEs at present are dependent on a small number of reluctant lenders. Equally important is that this support be sustained in the long term. “Short-term initiatives aren’t really taken up by small businesses because they have to adapt their plans to take advantage of some of these schemes,” Cherry says.

Other countries, notably Germany, Europe’s industrial powerhouse, have done a better job at strengthening their SME sector (what the Germans call their Mittelstand) by providing funding for firms that want to do research to help develop products. Through KfW – Germany’s business bank – the government also provides loans on favourable terms to SMEs that want to export to developing countries or invest in energy-saving programmes.

The British economy grew by 1.9 per cent in 2013, outperforming even Germany. Now just think what would happen if we championed our very own Mittelstand.

This article first appeared in the 13 February 2014 issue of the New Statesman, Can we talk about climate change now?

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Arsène Wenger: how can an intelligent manager preside over such a hollowed-out team?

The Arsenal manager faces a frustrating legacy.

Sport is obviously not all about winning, but it is about justified hope. That ­distinction has provided, until recently, a serious defence of Arsène Wenger’s Act II – the losing part. Arsenal haven’t won anything big for 13 years. But they have been close enough (and this is a personal view) to sustain the experience of investing emotionally in the story. Hope turning to disappointment is fine. It’s when the hope goes, that’s the problem.

Defeat takes many forms. In both 2010 and 2011, Arsenal lost over two legs to Barcelona in the Champions League. Yet these were rich and rewarding sporting experiences. In the two London fixtures of those ties, Arsenal drew 2-2 and won 2-1 against the most dazzling team in the world. Those nights reinvigorated my pride in sport. The Emirates Stadium had the best show in town. Defeat, when it arrived in Barcelona, was softened by gratitude. We’d been entertained, more than entertained.

Arsenal’s 5-1 surrender to Bayern Munich on 15 February was very different. In this capitulation by instalments, the fascination was macabre rather than dramatic. Having long given up on discerning signs of life, we began the post-mortem mid-match. As we pored over the entrails, the curiosity lay in the extent of the malady that had brought down the body. The same question, over and over: how could such an intelligent, deep-thinking manager preside over a hollowed-out team? How could failings so obvious to outsiders, the absence of steel and resilience, evade the judgement of the boss?

There is a saying in rugby union that forwards (the hard men) determine who wins, and the backs (the glamour boys) decide by how much. Here is a footballing equivalent: midfielders define matches, attacking players adorn them and defenders get the blame. Yet Arsenal’s players as good as vacated the midfield. It is hard to judge how well Bayern’s playmakers performed because they were operating in a vacuum; it looked like a morale-boosting training-ground drill, free from the annoying presence of opponents.

I have always been suspicious of the ­default English critique which posits that mentally fragile teams can be turned around by licensed on-field violence – a good kicking, basically. Sporting “character” takes many forms; physical assertiveness is only one dimension.

Still, it remains baffling, Wenger’s blind spot. He indulges artistry, especially the mercurial Mesut Özil, beyond the point where it serves the player. Yet he won’t protect the magicians by surrounding them with effective but down-to-earth talents. It has become a diet of collapsing soufflés.

What held back Wenger from buying the linchpin midfielder he has lacked for many years? Money is only part of the explanation. All added up, Arsenal do spend: their collective wage bill is the fourth-highest in the League. But Wenger has always been reluctant to lavish cash on a single star player, let alone a steely one. Rather two nice players than one great one.

The power of habit has become debilitating. Like a wealthy but conservative shopper who keeps going back to the same clothes shop, Wenger habituates the same strata of the transfer market. When he can’t get what he needs, he’s happy to come back home with something he’s already got, ­usually an elegant midfielder, tidy passer, gets bounced in big games, prone to going missing. Another button-down blue shirt for a drawer that is well stuffed.

It is almost universally accepted that, as a business, Arsenal are England’s leading club. Where their rivals rely on bailouts from oligarchs or highly leveraged debt, Arsenal took tough choices early and now appear financially secure – helped by their manager’s ability to engineer qualification for the Champions League every season while avoiding excessive transfer costs. Does that count for anything?

After the financial crisis, I had a revealing conversation with the owner of a private bank that had sailed through the turmoil. Being cautious and Swiss, he explained, he had always kept more capital reserves than the norm. As a result, the bank had made less money in boom years. “If I’d been a normal chief executive, I’d have been fired by the board,” he said. Instead, when the economic winds turned, he was much better placed than more bullish rivals. As a competitive strategy, his winning hand was only laid bare by the arrival of harder times.

In football, however, the crash never came. We all wrote that football’s insane spending couldn’t go on but the pace has only quickened. Even the Premier League’s bosses confessed to being surprised by the last extravagant round of television deals – the cash that eventually flows into the hands of managers and then the pockets of players and their agents.

By refusing to splash out on the players he needed, whatever the cost, Wenger was hedged for a downturn that never arrived.

What an irony it would be if football’s bust comes after he has departed. Imagine the scenario. The oligarchs move on, finding fresh ways of achieving fame, respectability and the protection achieved by entering the English establishment. The clubs loaded with debt are forced to cut their spending. Arsenal, benefiting from their solid business model, sail into an outright lead, mopping up star talent and trophies all round.

It’s often said that Wenger – early to invest in data analytics and worldwide scouts; a pioneer of player fitness and lifestyle – was overtaken by imitators. There is a second dimension to the question of time and circumstance. He helped to create and build Arsenal’s off-field robustness, even though football’s crazy economics haven’t yet proved its underlying value.

If the wind turns, Arsène Wenger may face a frustrating legacy: yesterday’s man and yet twice ahead of his time. 

Ed Smith is a journalist and author, most recently of Luck. He is a former professional cricketer and played for both Middlesex and England.

This article first appeared in the 24 February 2017 issue of the New Statesman, The world after Brexit