Is it too late?

As the racing season comes to a Shocking conclusion, the asylum seekers find tough new barrier placings from Malcolm Turnbull, the RBA puts the blinkers on the Lazarus economy and Ken Henry prepares us for a rush to the stewards of taxation reform – is it too late to ask for a recount on the role of micro-enterprises?

What smart companies need now is access to management expertise and leadership skills in innovation through tax credits and the abolition of payroll tax on additional employees in small enterprises rather than an artificially induced coma courtesy of Glenn Stevens.

Gary Morgan’s weekly consumer confidence, under-employment and polling suggests that all sides of politics are just becoming aware that they are creating a new “lost generation” among those who have not been given infrastructure and stimulus subsidies. Gary says the weekly Roy Morgan Consumer Confidence Rating has fallen back to near its level of two weeks ago (down 2.8pts to 125.2) after the RBA’s decision last week to raise interest rates by 0.25% to 3.5%.

“Following the RBA’s decision, now 53% (down 4% – and the largest fall noted in any of the Consumer Confidence indicators) of Australians say now is a ‘good time to buy’ major household items. This is the indicator most closely tied to interest rate movements, and its fall shows the direct impact rising interest rates will have on consumer spending – and therefore retailers – in the months ahead.

“There were falls across all other Consumer Confidence indicators this week with 46% (down 3%) of Australians expecting ‘good times’ financially in the next 12 months and 48% (down 1%) of Australians expecting ‘good times’ economically for the next five years.

Now is the time to recognise and encourage the role of small and medium enterprise in expanding our export capacity at a time when the dollar is going to make exporting harder and import substitution easier. Small businesses already create a vastly disproportionate share of the net new jobs it is reasonable to estimate that over the past 25 years two-thirds of the net new jobs private sector originated among small firms that account for about half of total private employment. Small firms not only create the most net new jobs, they create the most new jobs and destroy the most old jobs.

A study by John Haltiwanger of the University of Maryland and Ron Jarmin and Javier Miranda of the Census Bureau offers support to those arguing that bailouts to floundering corporations and huge public works projects will not create sustainable job growth. Take a look at the graph which shows that new companies, fewer than 50 employees, are not just the major but the most significant source of net job creation. See here.

A young M.I.T. researcher, David L. Birch, provided the initial evidence of the small business jobs phenomenon in The Job Generation Process. Since its publication in 1979, we have learnt more about the dynamics of job generation. The major tenets of Birch’s original research remain intact. Small business is the nation’s job generator here as it is in America, Canada and Western Europe. The fundamental dynamics Birch first reported are still operative.

Small business jobs tend to be created by two types of firms. Birch refers to them as the “mice” and the “gazelles.” The mice are the new, small entries. The gazelles are a comparatively few rapidly growing firms that are responsible for the bulk of small business jobs created through expansions. Birch estimates that 5% of small firms account for three of four new jobs created through expansion and 10% account for almost nine of 10. Significantly, the gazelles appear in virtually every industry, not just in the growing ones

Jobs created from small business births are about two to three times as plentiful as the number created from small business expansions. This proportion seems to vary with the business cycle. Similarly, jobs lost in small businesses are primarily a function of business deaths rather than of business contractions.

The share of net jobs created by small (and large) businesses change from measuring period to measuring period. This variation appears closely tied to the business cycle. Larger firms expand their share of net new employment toward the end of expansions. Small businesses provide a relatively stable supply throughout. Thus, variation in shares is primarily due to variations in large firm employment practices. See here.

Which brings us back to the necessity for Rudd and his COAG colleagues to get the Futures Fund to focus on the trifecta of jobs, jobs and jobs, rather than going off on the rails, roads and revolutions that only offer a future to the big end of town and those that already have a job in subsidised industries. The reality is that job creation rather than job churn is the key to national success, just as it is job retention and rewards that will make the difference for every small business that faces a very difficult post-stimulus readjustment in the brave new year.

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Dr Colin Benjamin, Entrepreneurship and Strategic Thinking Consultant
Marshall Place Associates offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship.

Email dr.colinbenjamin@marshallplace.com.au
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