Business Demographics

Just caught up with some fascinating reports on business demography from the ONS. (HT Chris Dillow.) This one on Business Populations for 2013 has some  interesting charts.

The report notes that the number of businesses in the UK is now at its highest since the ONS started tracking the data in 2000. But what are these businesses like?

The vast majority of them are tiny.

Screen Shot 2013-11-28 at 18.16.41

A very small number of large firms account for half the country’s business turnover and employ three-fifths of its private sector employees.

Furthermore, almost all the growth in the number of businesses over the past decade or so has come from companies that don’t employ anyone apart from the owner.

Screen Shot 2013-11-28 at 18.22.52

This is consistent with the New Policy Institute study from last year. Most of the increase in self-employment is accounted for by people working as sole traders.

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Duncan Weldon wrote a piece earlier this week on investment and GDP. He noted that investment has not risen much since the recession and is way short of where the OBR forecast it would be, just after the election. Whatever all these new businesses are doing, they don’t seem to be investing very much.

Screen Shot 2013-11-28 at 18.50.55

So just because we have a lot of new businesses it doesn’t mean that they are going to create lots of new jobs or invest in the new developments that might boost the economy. Small businesses, and especially one-man-bands, are more reluctant to invest than larger ones. Channelling more of our human capital into such enterprises is unlikely to do much for the economy.

The record number of new businesses is not a Good Thing. It’s a symptom of a weak economy. As John Philpott said, most people aren’t starting up businesses because they’ve got a great new world-beating idea. They are starting businesses because they have nowhere else to go.

Update: Adam Lent has a different view.

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5 Responses to Business Demographics

  1. Pingback: Business Demographics - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. Mil says:

    Reblogged this on http://error451.me and commented:
    Do you agree with Rick or not? Myself, I think the conclusion is generally correct. Plenty of bad things about an economy which must depend on small jack-of-all-traders scrabbling to make a living. In my case, I never found that a work-life balance was terribly compatible with a corporate environment. By working from home, it now is. But I guess – for the moment at least – I’m lucky. And there isn’t too much of the latter going around right now.

  3. The growth of micro businesses relative to others, along with the lesser relative shift between SMEs and large businesses, is surely a major contributor to falling levels of productivity and the corollary of low capital investment. The growth of “bottom feeders” is often a sign of labour-capital substitution, rather than “labour market flexibility”.

    It’s also worth noting that this re-casualisation of labour occurs at all wage levels. Note the scale of growth in the “Sole director of ltd company” cohort in the NPI study – i.e. professionals setting up personal services companies for tax reasons, rather than going sole trader/freelance.

  4. Metatone says:

    I don’t have the energy to argue with Adam Lent – but I really hope you do – because you’re right and he’s wrong – and he’s doing a lot of damage with some bad thinking on the issue.

    The simplest reason for this is that his figures are completely with each crash coinciding with “downsizing” that large companies never undo. And this is what you see on the ground if you study the large companies. After recessions, they grow, but just as our economy isn’t catching up with “trend” neither is employment in large companies. That surplus of people who get sacked in the recession and start their own thing, then remain in their own thing (many as suppliers to their original employer) – but it’s not a sign they are doing so out of choice.

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