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Rt. Hon. Lord Mandelson, First Secretary of State, Secretary of State for Business, Innovation & Skills, Lord President of the Council
Lecture at Cass Business School, London, 08 July 2009
It’s a pleasure and a privilege to be invited to open the Peter Callum Centre for Entrepreneurship. I want to pay tribute to you – and to recognize your immense contribution. Not least in the form of the new seed fund you have established for financial and personal services start-ups. I must say that Peter’s desire, as an entrepreneur who made his fortune in the City , to give something back and help launch the next generation of financial services entrepreneurs, is really an inspiration. I thank him very warmly on behalf of the government for his generosity. It’s in this spirit that I want to say something about entrepreneurship tonight, why it matters and the kind of economy and government that encourages it.
Tonight I want to try and pick out some big trends that I think are shaping or will shape entrepreneurship, and what government needs to do to keep up with these trends. I also want to make the case for a government that is active in its support of enterprise – and what, in my view, that should mean.
As George Bush no doubt eventually found out, entrepreneur is the noun that comes from the French verb ‘entreprendre’, which means to start to do something. In French, the meaning of the word goes much wider than starting a business, but it always implies a choice to act, which is why in English it is often translated as ‘to undertake’. The point is that there is nothing passive about it. That spirit of “choosing to act” is ultimately what powers enterprise in an economy.
About 99% of the UK economy is made up of small and medium sized firms. They employ more than half of British workers. Behind every one of those businesses is an individual with the imagination and guts to make that real personal choice – and it’s a hard one - to go out on their own. That choice is incredibly important in our economy and our society. It is often how new ideas get commercialized. It is how market incumbents get shaken up. It is how jobs get created and how supply chains get built.
If you take just the example of low carbon technologies and processes, the role of new market entrants is going to be critical to driving change: because the really radical new thinking may not come from market incumbents.
If enterprise policy has a single fundamental priority it has to be making it easier to make that choice. That means building a regulatory framework that makes it as easy as possible for new firms to enter the market, recruit staff and start trading. It means putting in place the whole ecosystem that supports it: the access to finance, the digital infrastructure, the education and training that builds both competence and confidence. In large part because of the focus we have put on enterprise education, and encouraging business startups since 1997, the UK now ranks in the top ten economies in the world for ease of starting a business. But I think there are some very big trends that are going to change the way both entrepreneurs and government need to think about entrepreneurialism.
First, entrepreneurship fits well with one of the features of the global economy, which is the increasing fragmenting of value chains, which is turning the global economy into billions of niche markets for which scale is less important than sophistication, speed or innovation. Look, for example, at the growing number of bioscience startups that are being spun off from universities on the back of individual innovations in pharmaceuticals and renewable chemicals.
The old vertically integrated firm may end up – is already - giving way to something like a ‘company cluster’ - a dense network of suppliers, often spread around Europe or the world. To carve out a niche in this world you don’t have to make a better car, you have to make a better component.
Second, entrepreneurship is about asserting a measure of control over your personal economic future. In a globalised economy that leaves many people feeling disempowered, that is important and valuable. With people living and working longer, and as more and more people look for ways to make their working lives more flexible, to fit work around children, or other interests, entrepreneurship is a way of being economically independent without the constraints of a large organisation.
Of course, we also have a large cohort of people affected by the recession, who may be thinking about striking out on their own. I encourage them to do so, as Peter does. There’s no point in waiting until after the upturn has begun to start thinking about creating a business.
So as well as defending labour market flexibility, we’re going to have to junk any idea that entrepreneurship is the exclusive preserve of the young and hungry. Or that entrepreneurialism is something you’re born with. Of course we need to encourage young entrepreneurs, not least because entrepreneurship can be such an important driver of social mobility. But we also need to recognise and support midlife entrepreneurs, post-corporate entrepreneurs, post-retirement entrepreneurs, fighting-the-recession entrepreneurs. And we need to recognise that the motivations for entrepreneurship are far wider than the desire to get rich – they can be a desire for flexibility, independence and control.
Third, I think the way in which people expect public services to be delivered is changing. People don’t want standardized services delivered by monolithic bureaucracies. They want services tailored to local and individual needs and accountable to local communities, and as taxpayers they want them delivered cost effectively.
So to my mind one of the big goals of our enterprise policy should be encouraging entrepreneurs to think about innovative ways to provide public services. This is something we are encouraging through our reform of the Small Business Research Initiative, which encourages SMEs to deliver niche services in an innovative way. We are also making it easier for SMEs to compete for billions of pounds worth of public procurement contracts.
The potential that entrepreneurialism offers in this area is really exemplified in the huge and growing strength of the social enterprise sector in the UK, which testifies to the way in which entrepreneurs can make a living coming up with innovative ways to contribute to and enrich our civic life.
Finally, the digital economy seems to me certain hugely to shake up entrepreneurship in the same way that it is shaking up the workplace, and the way business and finance work. Networked business tips the balance in favour of entrepreneurs and small businesses in many ways.
What do I mean by that? Well, I came across many examples in my time as European Trade Commissioner. I would be in Guangzhou or Chengdu or Sao Paulo and I’d meet small British companies who had recognised that a website in Britain could be a shop window in Brazil or China. That their firms could potentially be global from the day they were founded.
But also that the same process worked in reverse. So they could build cost competitiveness by sourcing inputs from around the world. And you can, at a pinch, pretty much run the first stages of this business model from your kitchen table with a broadband connection.
Even where SMEs remain local and relatively low tech – as most of them will - they are still going to increasingly draw on the internet to reach and communicate with customers and suppliers. The key reason that my department has built up the online resources available to startups and small companies at businesslink.gov is because it is the basic way modern small businesses engage with the world. They often don’t visit a bank manager with a business plan before they start up. They don’t always have an accountant. So they probably won’t have wandered into a government business advisory service.
So: a changing global economy, changing attitudes to lifestyle and public services, the digital economy. All changing the landscape for entrepreneurs. The challenge for government is keeping up, and making sure the enterprise environment in the UK and Europe keeps up. And that forces us to think about what an enterprise economy has to look like.
Now, most entrepreneurs, when asked what the government can best do for them are of course going to say: get out of the way. I certainly have no quibble with that. Entrepreneurialism is first and foremost an individual attitude. But an enterprise economy is not an economy defined by the absence of government as such. It is an economy where the government knows when to get out of the way, and how and when public policy can actually unlock greater productivity or potential.
It needs government to think about the things entrepreneurs build on when they build businesses. One of the things that you learn from day one when you handle trade policy with sub-Saharan African countries, is that the problem for most of these economies is certainly not a lack of entrepreneurialism. They have it in spades. You see entrepreneurialism on every corner: market stalls, micro-businesses, mobile phone banking.
The problem is roads – or the lack of them. It’s the fact that three quarters of a business’ profits disappear into the costs of running generators because the electricity supply doesn’t work. It’s illiteracy, and a lack of the necessary expertise to meet export requirements for the EU and the US. It’s education and infrastructure, and something that operates a lot like infrastructure in a modern economy and is just as fundamental: credit. What these countries need is not governments that get out of the way, but governments with the resources to help create and then nurture an enterprise economy in the first place.
Now it might seem odd, even in bad taste, to compare sub-Saharan Africa to the UK. But the basic logic of capacity building to support enterprise applies here as well. And that is the point of my argument. An enterprise economy needs well designed regulation that keeps the burden on growing small businesses as light as possible, easy to navigate company law, an intellectual property regime that helps new market entrants protect and exploit their ideas quickly.
A trade policy that keeps markets open so that exports can flow out and inputs are easy to import. This is more of a challenge than it sounds, because a lot of post-war trade policy- anti-dumping rules for example - still echoes the assumption that goods are not produced across borders.
But it is not just legal and commercial frameworks. It is also the resources that businesses draw on. Three make the point well: innovation, infrastructure and credit. I’ll look at each in turn.
First, innovation. The high tech entrepreneur who commercialises an innovative new low carbon technology has not usually thought the whole thing up from scratch and built it in her garden shed. She is building on a technological education or perhaps the skills she learnt in further education. She is drawing on the UK’s basic science base, she often needs access to funding to support trials of pre-commercial technology. For a range of reasons these things won’t be supplied by the market alone: because of the spillovers, the risk and the lack of profit incentives. So the government is going to have to complement the market.
In the New Industry New Jobs strategy we launched in April we set out how the government should do this. Continuing to protect our basic investment in our science base, even through the downturn. And supporting more businesses in using that expertise to drive innovation. Building a skills system that helps people learn new skills and reshape careers right through their lives and keeping that skills system going through the recession. Increasing funding to business-run bodies like the Technology Strategy Board that fund innovative technology trials as the Chancellor did, by £50million, in the Budget.
Investing in demonstrator facilities for new platform technologies like renewable chemicals and providing a fund that enables startups to use these facilities, as we announced last month. And as we have been doing with ultra low carbon demonstration models this year. And you will see more such investments in the months ahead, especially when we launch our Low Carbon Industrial Strategy next week.
Second, digital infrastructure. This will be as important to the twenty first century British entrepreneur as the roads and canals were to the nineteenth century British industrialist. The commitments the Government made in its Digital Britain report, brought together by Lord Carter, to ensuring that pretty much every home and businesses in the UK has access to high speed broadband by the middle of this decade are testament to that. Laying the bulk of that infrastructure will be funded by commercial incentives, but the final third will require a strategic investment from government, which is what the Digital Britain strategy designed.
Finally, credit and venture capital. This room may be full of market fundamentalists who believe that if you can’t find a bank or a venture capitalist to fund it, then an idea by definition isn’t viable. Something tells me not.
Obviously finance is a critical test for an entrepreneur. But we also know that there are equity gaps in the UK market, especially for startups and firms at the first expansion phase, often because the sums of money required are too small to justify the due diligence. In the US, more than 30% of investment goes into venture capital, while only 4% does here – which means that as a country we are largely not putting our money where our mouth is on supporting innovative companies. This means that innovative ideas are going to the US for commercialization and capital investment. And at the moment with a lot of Business Angels retrenching and focusing on their existing investments, and the cost and availability of bank credit volatile, then there is a very strong case for public policy that tries to leverage private funds into investing in startups.
In Building Britain’s Future we addressed this by launching the Innovation Investment Fund, which will use £150million in public funds first to leverage matched funding from private investors, but ultimately to generate up to a billion pounds over the next decade for venture capital investments.
One of our persistent problems in the UK is producing middle sized companies out of small ones. There is a range of reasons why this might be the case, but part of the problem is an equity gap for early stage growth capital. Which is why as part of New Industry New Jobs we also launched a review of ways of addressing this, possibly through the creation of a new Industrial and Commercial Finance Company similar to the one created in the 1940s to fund UK growth firms. This review, which is being led by Christopher Rowlands will report in time for the Pre Budget in the autumn.
The point I want to make by focusing on these areas where enterprise depends on the right approaches from government is pretty basic. Like any economic activity, enterprise and entrepreneurialism need the right frameworks from government. It is possible and necessary to think about activist government supporting enterprise without going down the road of national ownership of industry, blocking trade competition or trying to build national champions.
This was the case we made in New Industry New Jobs and which will be one of the core frameworks for the new department of Business, Innovation and Skills.
It turns the traditional and frankly rather retrograde logic of government industrial policy on its head by investing not in particular jobs, but in individual people. Not in individual enterprises, but in the enterprise environment.
This kind of approach to investing in the UK’s future economic strengths is directly relevant to entrepreneurs, no matter how small, because it shapes the resources they can draw on in making their vision a reality. It means providing the education and skills entrepreneurs need. Building the infrastructure to support them, especially for a digital economy. Making sure that there is venture capital out there to fund good ideas. Making sure that innovative firms have the resources to trial pre-commercial technologies.
The right place for most of this government activism is down in the superstructure of the economy. It’s not up in lights, but it’s an integral and fundamental part of what ultimately makes UK firms economically competitive.
This kind of approach is not only critical to returning the UK economy to growth, but for our long term prosperity in a global economy where we don’t have the luxury of wasting the potential of a single one of Britain’s people.
Of course entrepreneurialism is not just about national competitiveness. It’s a driver of social mobility, a way of injecting life into local economies and social enterprises, a source of pride and self determination, a way of extending or diversifying a working life. It’s an attitude we can’t lose by cultivating in Britain. Which is why although my title is Secretary of State for Business, I have always seen my core role as defending and promoting enterprise in the widest sense, which is not just about the needs of existing businesses, but the businesses that don’t yet exist, but are going to exist tomorrow, next month, next year. And it’s pondering on that, that I can again say how pleased I am to have a chance to inaugurate officially the Centre for Entrepreneurship, and that I believe that so much of what I have described tonight will be embodied and championed here.
