Q&A With Kent Professor & Great Britain Microbusiness White Paper Author

 | 9 min read

Q&A With Kent Professor & Great Britain Microbusiness White Paper Author

Professor George Saridakis, Professor of Entrepreneurship and Small Business at Kent Business School (KBS), sat down to explain the Great Britain Microbusiness White Paper in more depth for those hoping to learn more about the goals and concept behind the initiative and study.

In your view, what does the research spotlight as the most compelling insight about the value that microbusinesses bring to the financial health of local communities?

The results show strong evidence of job creation across the board, which in turn adds to the financial health of communities. The job creation findings are particularly salient in more disadvantaged locations, suggesting that online microbusiness venturing plays an important role in developing and strengthening business activity of these locations. Consequently, given the strong evidence in the literature between entrepreneurial activity and growth, it is likely that these locations are able to increase their prosperity position and thus, economic conditions and well-being.

Has there been a significant increase in the number of new ventures since both the pandemic and Brexit began and are there one or two key factors at play from a socio-economic standpoint as to why?

The overall number of online microbusiness accounts increased by about 3.7 percent during the period Sep 2019 – Apr 2020. However, the number of healthy/active online microbusiness ventures over the same period actually declined by 6.3 percent. Therefore, there is no clear indication that the environment benefited online microbusiness business creation across locations. Nevertheless, the overall growth of online microbusiness accounts may be suggestive of expectations of a movement to an online business environment (e.g., news of covid infections spreading around the world and speculations of imminent lockdowns). Hence, on the one hand, there is the negative effect of Brexit (e.g., migration restriction, business closures), but on the other hand the speculation of businesses moving online to maintain the service of customers. We found high venture densities in both prosperous and deprived areas, which suggests multiple mechanisms lie behind them. This makes it difficult to isolate key socio-economic factors.

How much has venture density impacted median household income in terms of the overall areas studied? Do any trends stand out in why some areas did particularly better, versus particularly worse?

The data provide concrete evidence of the benefits of increases in online microbusiness density on employment and business turnover. The data also provide strong evidence that online microbusiness density increase benefits the prosperity of disadvantaged neighbourhoods in several indicators, such as jobs, income, and living environment. At the aggregate level, individuals living in regions with high venture density are more likely to report above the mean (gross) monthly income than individuals living in regions with less venture density. However, it seems more likely that median incomes are higher in areas which are more conducive to starting up an online venture, rather than median income being driven by venture density (given that we do see areas with high venture density but also high turnover suggesting that many ventures are not long-lived).

Is there evidence that areas with higher venture density were more resilient to COVID and the departure of the UK from the EU?

The results indicate that increased online microbusiness venturing activity has benefited certain areas more than others. However, this does not suggest a zero-sum game, since online microbusiness venture density increase is overall beneficial to local communities (particularly to those relatively more disadvantaged). Therefore, this could be interpreted as evidence of increased resilience, even if the dual shock of Brexit and COVID might have affected local communities differently (difference in difference effects).

While higher density usually tracks with areas that are more urban, more educated and with higher incomes, venture density in Wales consistently grew more in rural areas than in urban ones. Why, do you think? Is there evidence to show digital resources make it possible to build more prosperous communities and further economic opportunity?

To understand the rural-urban effects in Wales one needs to understand the cultural heritage of the country and the national industrial policies of the 19th century. For example, Prof. Robert Huggins of the University of Cardiff has researched the topic intensively (https://www.cardiff.ac.uk/people/view/363247-huggins-robert). In short, what research finds is that there are sticky community cultural practices that persist even after a century, which influence lower engagement with education and entrepreneurial activity. Moreover, there is evidence of a local association between strong collective action and limited autonomy a repetitiveness of employment that act as a deterrent to self-direction. This influences self-employment and entrepreneurial aspirations. However, the further one goes from the urban cities and towns, the weaker these associations. The result is that two centuries later, the relatively more rural areas exhibit stronger self-employment activity compared to the more urban areas. It is likely that the expansion of digital infrastructure has benefited rural areas allowing them to reach customers beyond local markets.

Tandridge stood out for a number of reasons. Tell me the story behind the data.

This is an interesting local district. We would have not suspected that there would be anything particularly interesting with this district. While it is part of the county of Surrey, which has invested heavily on digital infrastructure and superfast broadband, the district of Tandridge is a relatively residential area of above-average incomes, with most of the land falling within the Metropolitan Green Belt, which means construction is limited (urban expansion). Nevertheless, the district of Tandridge borders the fast-developing borough of Croydon and sits close to Gatwick airport (15-20 minutes drive). Politically the district is also an interesting case, since it’s the local government consists largely of independent political agents. The data shows that a large proportion of the online microbusiness accounts of Tandridge are not healthy/active ventures (~85 percent). While these online microbusinesses can become active at a later point, the fact that the venture density of Tandridge increased during the later part of the period (e.g., after Jan 2020), might suggest a level of speculative entrepreneurship seeking to take advantage of the foreseeable future changes (i.e., Brexit and/or pandemic lockdown). Another possibility could be associated with some online web developing business moving to Tandridge from another location.

What’s the most important finding you discovered, that could be of real- world utility to policymakers?

One of the most important current topics in the policy-making of the UK is the inclusive element of the leveling up agenda. Our findings consistently show the strong link between online microbusiness venturing activity and a beneficial effect on several factors that improve the living conditions of locations (income, employment, living environment), particularly those more disadvantaged. This is a finding that should be of strong interest to local governments, since even the most prosperous counties and boroughs have local authority districts with deprived neighbourhoods. It is these deprived neighbourhoods that we find benefit the most from higher online microbusiness density, which suggests that leveling up policies should consider the factors that support online microbusiness venturing.

Does venture density drive economic activity, or is it the other way around? And does this mean increasing venture density is only an effective strategy for areas that are already prospering?

The evidence suggests that online microbusiness venturing is conductive to overall local business activity and supportive of local economic growth. One would expect that the nature of microbusinesses does not occupy a large proportion of the local business turnover and therefore any effect would be minimal. Indeed, the results show that the effect of the overall local economic activity (i.e., business turnover) has a larger impact on the increase of online microbusiness venture density, which suggests the interlinked effect of economic prosperity and business activity. Nevertheless, the effect of online microbusiness venture density on local economic prosperity remains statistically significant, even if much smaller. This indicates that there are still supplementary benefits being transmitted from online microbusiness ventures to the local community. Combined with the significant benefits we identify in relatively more deprived areas, the results are suggestive of important linkages between economic prosperity and online microbusiness activity.

It seems there’s a lot of variability between the success of ventures in various locations. Are there any policies that would help turbocharge entrepreneurialism across the board? (e.g. access to capital, tax incentives, skills training, or increased availability of broadband)

In part the variability of the success of ventures across different locations reflects differences in local economic conditions and trajectories; in terms of self-employment rates, there is evidence that different regions grow at different rates, with some tending to converge to a local average while others like London follow their own path (see for example the study by Saridakis et al. in the Annals of Regional Science).

The most effective policies would comprise of a mix of all the factors mentioned above. In most developed countries there are institutions in place to support early-stage entrepreneurship with advice, workshops, networks, access to capital, etc. It is often the case that aspiring entrepreneurs lack the cultural capital to assess and then take the necessary risks associated with letting go of the relative safety of the salaried work environment and start their own business. As Elon Musk famously described in an interview, starting a business is like staring into the abyss and eating glass. Nevertheless, recent changes in laws and regulations have made the risk of switching to self-employment easier and closing a business later is now less painful. The emergence of the sharing economy and multiple e-commerce platforms have added to the ease of starting an online business for those familiar with the functioning of the web. Policies that consider the widespread availability of fast broadband and digital skills training are necessary for an inclusive leveling up.

What policies would help Wales and other places with low venture density? Is increased availability of broadband a common denominator?

As explained earlier, Wales is a rather particular case that above all needs policies that can encourage entrepreneurship and the change in the cultural perspective that fosters the entrepreneurial mindset. Other places that generally do not suffer from a lack of entrepreneurial aspirations would benefit from training in the use of digital technologies and skills relevant to e-commerce and operating an online business. Without the skills to set up an online business, having access to fast broadband can only increase awareness of opportunities, but will not offer any help beyond that. Moreover, support and knowledge transfer of how to effectively navigate the online business world with the myriad of e-commerce platforms and practically infinite information is critical for the survivability of new businesses. While the unavailability of broadband is an impediment, the entrepreneurial mindset is such that solutions for the application of speculatively profitable business ideas will be sought (e.g., moving to a place with fast broadband). Infrastructure without the ability to access the advantages it offers is like a car without gasoline.

How important is it for local / regional policymakers to ensure a robust technology infrastructure is accessible for residents in terms of furthering employment, job creation and sustainable economic growth?

The recent events have shown how important access to online buying and selling capabilities is for absorbing negative shocks (e.g., COVID lockdown). Businesses best positioned in e-commerce were able not only to survive the negative shock but also gain from it. Nassim Taleb calls the occurrence of businesses that gain from uncertainty antifragility. One could argue that access to robust infrastructure together with training to develop digital and other entrepreneurial skills and knowledge allows businesses to be antifragile. This would equip entrepreneurs to be able to adapt to changes in consumer behaviours and in circumstances and even gain from opportunities arising during a pandemic or other major exogenous shocks. It can be argued that an entrepreneur after all is someone who can identify opportunities even under adverse market conditions and uncertainty. This highlights the role for the online channel in supporting and complementing offline channels such as stores for established firms of any size, as well as a channel to support start-ups. A robust technology infrastructure cannot on its own guarantee job creation or sustainable economic growth, but it can (and does) support the sustainability and antifragility of a local economy.