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6 March 2011

Cameron declares war on the “enemies of enterprise“

He should remember that he's the public-sector workers' Prime Minister, too.

By David Blanchflower

“We are the party of enterprise,” said David Cameron in his Cardiff speech. Well, that’s fine and dandy. The problem is that he then foolishly declared open season on the “enemies of enterprise”. This seems to be pointed directly at the six million people employed in the public sector — or nearly 21 per cent of total employment who are doing the nation’s work. And they are all voters. It’s unclear why he would want to upset them even further just as the austerity measures — ie unemployment — are about to hit the public sector.

So I can announce today that we are taking on the enemies of enterprise.The bureaucrats in government departments who concoct those ridiculous rules and regulations that make life impossible, particularly for small firms. The town hall officials who take forever with those planning decisions that can be make or break for a business — and the investment and jobs that go with it.The public-sector procurement managers who think that the answer to everything is a big contract with a big business and who shut out millions of Britain’s small and medium-sized companies from a massive potential market.

So, let’s get a few things straight here. First, the financial crisis was caused by failures in the private sector that the public sector had to rescue. RBS and Lloyds were moved from the private sector and are now in the public sector. Second, spending cuts that reduce local authority budgets are probably going to increase the amount of time that it takes to deal with planning applications. The procurement officers, also faced with spending cuts, will try to buy goods as cheaply as possible, which will often mean in bulk from one large supplier. Now, Dave is telling them to spend more and buy the goods from lots of small suppliers. Isn’t the coalition supposed to be making efficiency savings? Now, he wants a reduction in the size of such savings. Idiotic.

Third, there are not millions of small to medium-sized companies being squeezed out by bureaucracy. According to the Department of Business Innovation and Skills estimates for 2009, there were only 1.2 million enterprises with any employees at all in total in the UK. So that claim simply is not true. Fourth, despite Cameron’s claims that it is a good idea to give money to the unemployed to set up a business, academic literature suggests that there is little evidence that such programmes work. They do not seem to be good value for money. There is a large, deadweight loss in such schemes, which means many of the successful firms would have been successful anyway. Interestingly, the scale of a deadweight loss was exactly the argument the government used for the abolition of the Future of Jobs Fund. One rule for business and another rule for the young.

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Fifth, there is also little evidence that countries with higher self-employment rates are more successful on any outcome measure. The problem with self-employment is that failure rates are high and for most self-employed people, incomes are low. Indeed, many have negative incomes as they make a loss. So, unlike bankers, they do have pay for performance and, when things go wrong, they make losses. For many, a business failure is devastating, as they have pooled rather than diversified their assets. It often involves loss of business, job, savings, pension, home and sometimes even marriage. For most people, becoming self-employed is a bad idea. Plus, governments are very bad at picking winners.

Finally, there are around six million workers today employed in the public sector, which, since December 2008, includes both RBS and Lloyds. Of these, nearly 60 per cent are union members. Hard to think they will sit idly by in the face of such attacks. You can’t legislate good industrial relations; a disenchanted worker can always drop a spanner into the works. Dave’s remarks are unlikely to motivate public-sector workers arriving at work on Monday. He doesn’t seem to understand that he is everyone’s Prime Minister. No wonder the coalition’s poll ratings are falling.

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