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Public Policy
Marc Cowling
Brighton Business School
Types of Entrepreneurs
Policy Aims
•
•
•
•
Job creation
Efficiency gains (capital per worker)
Exporting
Innovation (creating new things or doing
things differently)
• New technology adoption
• More business starts
• More (fast) growth businesses
Entrepreneur Aims
• Pecuniary – income (profit)
• Non-pecuniary
- independence
- flexibility
- need for achievement
- to avoid unemployment
U = f (pecuniary + non-pecuniary)
Intervention
• When there is a case to be made that the
public returns to intervening in the market to
fill a ‘gap’ will create additional positive
returns that go above and beyond what the
market (i.e private sector) can appropriate
• When there is a case to be made that there is
a ‘missing’ market and government
intervention can have a ‘demonstration’ effect
Typical interventions
• Building human capital (skills and
competencies)
• Debt gaps (soft loans, grants, partial credit
guarantees)
• Equity gaps (seed capital, early stage, growth
capital)
• Unemployment to self-employment (training
and ‘wage’ subsidy)
Measuring success
•
•
•
•
What would have happened if?
What is an appropriate comparator?
When should we evaluate (timing)?
What are our measures of success?
Performance
Assisted firm
Unassisted firm
Time
Performance
Unassisted
firm
Assisted
firm
Time
Entrepreneur
and Firm
capabilities
Intermediate
outcomes
Final outcomes
Intervention
Time
BL Health Checks
• Background
• Health Checks provide a free and impartial assessment of business
performance and managerial and strategic competencies.
• The service is delivered through a national network of Business Link
Advisers who aim to identify areas where a lack of capacity makes
SMEs more vulnerable to the effects of the current economic
downturn.
• The key characteristics of the Health Check include the provision of
a business diagnostic service, identification of areas for
improvement and help accessing the full range of government
assistance and the services of other providers where it is deemed
appropriate.
• By August 2009, Health Checks have supported over 80,000
businesses, the vast majority being SMEs.
The journey
• The journey through the Health Check process
• More than two-thirds (69 per cent) of businesses
accessing Health Checks wanted basic advice, and 32
per cent sought longer-term, in-depth, assistance.
• The ‘typical’ business accessing a Health Check was
looking for support in four areas of business and
strategic management. The most popular areas of
support sought related to finding out more about
grants and other financial support (sought by 71 per
cent of assisted businesses), help with improving
marketing (54 per cent) and help with increasing their
customer base (53 per cent).
Impacts
•
Impact of Health Checks on business behaviours and outcomes
• As a result of the Health Check, 65 per cent of businesses had a better
understanding of areas for development and improvement in their
businesses. 64 per cent had new ideas for future actions to help improve
their business.
• Overall, three-fifths (59 per cent) of businesses were making significant
changes to their business practices as a direct result of the Health Check.
• Nearly two-fifths of assisted businesses experienced at least some
additional gain to their business as a result of the help they received
through the Health Check and a further fifth will achieve similar outcomes
but more quickly.
• In terms of immediate impacts, 52 per cent of assisted businesses
reported that they were better positioned to take advantage of an
economic upturn, 46 per cent that they had improved their marketing
capabilities, 43 per cent were better positioned to cope with the economic
downturn and 45 per cent better at business planning. In general, younger
and smaller businesses had the most positive immediate impacts.
SFLG (now EFG)
• Objectives of SFLG
• The SFLG was the government’s primary debt finance instrument, which
was established in 1981. SFLG seeks to address the market failure in the
provision of debt finance by providing a Government guarantee to banks
in cases where a business with a viable business plan is unable to raise
finance because they can not offer security for their debt and/ or lack a
track record.
• Over the last decade, take up of the scheme has averaged around 4,500
loans per year, although there have been fluctuations between individual
years.
• In January 2009, SFLG was replaced by the Enterprise Finance Guarantee
(EFG), which opened the scheme to a wider number of businesses, with
the specific objective to facilitate new bank lending in response to the
Credit Crunch.
Impact
• Scheme impacts:
• Holding business characteristics constant, SFLG businesses:
• Are 6% more likely to export than similar non-borrowing
businesses.
• Are 17% more likely to use new technology, and 24% more likely to
use “cutting edge technology” than similar borrowing firms
• Grew at a similar rate to other businesses in terms of sales, but
grew more quickly in terms of employment than businesses that did
not borrow. At the sample mean, this equates to 1.45 additional
jobs.
• Furthermore, ethnic minorities led businesses and those located in
deprived areas are overrepresented in SFLG compared to similar
businesses that borrow.
Economic benefits
• Benefit to the economy
• Even with conservative assumptions, SFLG is
found to have a net benefit to the economy
over the first two years of businesses receiving
an SFLG loan. For every £1 spent, there is a
return of £1.05 to the economy through
additional economic output as measured by
GVA.
Looking forward
• Government intervention can have an effect
• But these effects are not equally distributed
across entrepreneurs and firms (targeting is
important)
• Timing is critical as we have to allow time for
the effects to fully play out
• Setting up a system of management
information before an intervention becomes
operational is key