RED TAPE AND SMALL BUSINESS

Earlier this year, the Dragon's Den panelist and entrepreneur James Caan was highly critical of the way in which government had been creating unnecessary rules for small businesses in the UK.

In a wide ranging assault on the destructive nature of red-tape in the economy, he suggested that many of the regulations were nonsensical and overly-bureaucratic, such as requiring a £35 poisons licence to sell toilet descaler or ant killer and needing an alcohol licence to sell chocolate liqueurs.

He also noted that there were barriers to getting businesses off the ground and creating jobs. For example, whilst opening a new warehouse in Germany took only four months, he claimed that the delay in Britain could be as long as 18 months, thus disincentivising potential investors.

Whilst some in government circles dismissed his comments, they will not be a surprise to many businesspeople and lobbying groups. Recent surveys from the Federation of Small Businesses (FSB) have suggested that small firms spend as much as two days per week dealing with compliance and legislation, whilst a report from the British Chambers of Commerce concluded that the perception of many small firms was that they were being increasingly choked by government regulation.

The result, of course, is that this burden of excessive red tape can often affect the potential job creating ability of many firms, with entrepreneurs spending a disproportionate amount of their time dealing with paperwork rather then creating wealth and employment in the economy by seeking new customers, developing new products or services and growing their business. With politicians looking to kick start the economy, it is surprising that reducing and streamlining the regulatory process is not as much of a priority as it could be.

To be fair to the UK Government, it has begun to address this issue although many will argue that the process is still taking too long and is not filtering through to other levels of government, especially at a local and regional level.

That is why, as I argued last week, there are lessons to be learnt from the way in which the fifty state legislatures in the USA are looking to support their regional economies. Whilst they have developed specific programmes to boost the levels of entrepreneurial activity, they are also looking to find ways of reducing the amount of paperwork that local businesses have to undertake, with a significant number of US governors introducing legislation that are focused on reducing the burden on local business.

Of course, the legislative and taxation powers of the Welsh Government are somewhat different to what is found within individual states in the USA but it must be remembered that Cardiff Bay did gain extra powers in a number of areas last year, powers which those of us who supported the Yes campaign were hopeful could be used to create a more vibrant Welsh economy.

Yet, nearly eighteen months on, there is little indication that any new legislation will be introduced soon that will have any significant effect on the Welsh economy or will be used to boost the competitiveness of Welsh business. Compare this situation with the examples highlighted in the “Growing State Economies” report, where individual states are rushing out new pro-business laws to help their local business communities.

For example, North Carolina has completed a statewide examination of its regulations, getting rid of nine hundred rules that were deemed unnecessary or expensive. Similarly, Colorado has begun a rigorous review to identify unnecessary regulation and eliminate red tape in the near future.

In New Jersey, a law was recently passed requiring state legislators to consider the economic impact of new regulations. They would have to ensure that rules that exceed national standards would be prohibited, thus ensuring that local businesses were in no way disadvantaged by local regulation.

I am sure that businesspeople across Wales will be envious of such developments and would be delighted if our policymakers undertook similar exercises to not only identify where regulations could be reduced, but also to determine whether these are currently negatively affecting small businesses.

Of course, the Welsh Government has indicated that it will have a comprehensive legislative programme over the next four years in various areas. But whilst new laws on organ donations and mental health may be worthy, it is equally important, at this time more than ever, that these new additional powers are used to help create a more competitive environment for the Welsh business community.

It is surprising that business groups such as the CBI, IOD and FSB have not been pressing for a detailed review to be undertaken to examine where unnecessary regulation can be cut back within the Welsh Government and other public bodies.

But this shouldn't have to be an exercise for external lobbying groups alone, especially as politicians are so keen to call small firms 'the backbone of the economy' at any available opportunity. Given this, shouldn't at least one Assembly Member, with unanimous cross-party support, prioritise the introduction of a bill that would help reduce the legislative burden on tens of thousands of small businesses and help them move from pushing paper to creating jobs?

At the very least, it would demonstrate that our elected representatives in Cardiff Bay, regardless of political affiliations, can work together to help the Welsh economy and get people back to work within a small business sector that wants to create jobs if it was allowed to do so.

DEVELOPING ENTREPRENEURSHIP POLICY IN WALES - LEARNING FROM THE USA

In an earlier blog post, I discussed the development of a new economic approach by the governors of the individual states that make up the USA .

Having had the opportunity this week to fully digest the “Growing State Economies” report which sets out the priorities for such a strategy, it was heartening to note that the message was clear to those involved in economic development at a state level that they should stop competing against each other to attract investment from larger companies and move towards a more bottom-up approach to start and develop their own local businesses.

This is not going to be easy.

Data shows that individual states are, on average, still looking to spend twenty seven per cent more next year on strategic business attraction. And this is despite statistics that demonstrate that only two per cent of annual job gains across the individual states can be attributed to business relocations. Fortunately, for those keen to promote entrepreneurship at a local level in the USA, the message is slowly getting through to politicians and policymakers.

Indeed, the evidence suggests that in addition to attracting firms to a region, there is also an increasing focus by state policymakers on launching new companies and supporting existing businesses, with a growing appreciation that helping entrepreneurs start, grow, and renew businesses is one of the most important things a state or regional government can do to create jobs and raise living standards. In fact, funds for entrepreneurial development programmes by individual states will have grown by almost thirty per cent between 2012 and 2013 and, in the last year alone, over a third of US governors have introduced legislation or started specific programmes that are focused on boosting the numbers of startup companies.

So are there other lessons from the report for regional governments on this side of the Atlantic?

Are there key questions that need to be asked in relation to developing a clear policy agenda towards creating an entrepreneurially led economic recovery?

First of all, policymakers need to ask themselves whether their resources and attention are focused towards bringing in firms from elsewhere or towards growing their own entrepreneurs? Of course, this is a debate that has been going on for at least twenty years in Wales and yet we are no closer to the answer when it comes understanding the priorities of our Government.

For example, has the new office recently opened in London been established as a location to attract in new investment into Wales or as a place where Welsh firms can link in with potential clients based in one of the most prosperous and dynamic cities in the World?

Secondly, do policymakers have an agreed view of what they define as entrepreneurship and, more importantly, do they distinguish between the various types of entrepreneurs that can contribute to the economy? It is generally recognised that working with startups, where the focus is on developing products and finding customers, is very different to working with growing firms that struggle with quite different issues such as such as strategic planning, market diversification, and operational efficiencies. Yet, there is generally a lack of appreciation by policymakers of the different needs of business as they grow and develop with a more generalised approach to business support being the norm.

Thirdly, do politicians and their civil servants make use of insights gained directly from entrepreneurs and those who work with them? This is the one area in which it could be argued that Wales has made great strides recently with the creation of various industry panels to advise the Minister on key sectoral developments, as well as specific groups to develop policies in areas such as microbusinesses, business rates and city regions. Yet whilst such strategies are important, the real value is when they are put into action and that, as policymakers in the US have discovered, is not as simple as it sounds given that the imperatives of entrepreneurs may be in contrast to those of government officials.

Finally, do all the economic initiatives developed to support entrepreneurs take advantage of the complementarities between policies? This is a particular challenge for Wales where, historically, we have seen a very tribal approach to economic and business development, driven by a silo mentality where individuals “protect their patch” in terms of policy developments.

For example, we have a range of different programmes to support innovative businesses across Wales and to link them into the university sector. Yet, there seems to be little co-ordination between these programmes, resulting in the unacceptable situation where organisations are competing with each other for clients using the same pot of public funding.

Therefore, as the report from the governors of the different American states has shown, there are key challenges in developing a coherent policy framework to support entrepreneurship. One can only hope that regional governments in the UK, and indeed Europe, are up to this challenge in creating a more enterprise focused approached to economic development.