Public Policy Marc Cowling Brighton Business School
Policy Aims • Job creation • Efficiency gains (capital per worker) • Exporting • Innovation (creating new things or doing things differently) • New technology adoption • More business starts • More (fast) growth businesses
Entrepreneur Aims • Pecuniary – income (profit) • Non-pecuniary - independence - flexibility - need for achievement - to avoid unemployment U = f (pecuniary + non-pecuniary)
Intervention • When there is a case to be made that the public returns to intervening in the market to fill a ‘gap’ will create additional positive returns that go above and beyond what the market (i.e private sector) can appropriate • When there is a case to be made that there is a ‘missing’ market and government intervention can have a ‘demonstration’ effect
Typical interventions • Building human capital (skills and competencies) • Debt gaps (soft loans, grants, partial credit guarantees) • Equity gaps (seed capital, early stage, growth capital) • Unemployment to self-employment (training and ‘wage’ subsidy)
Measuring success • What would have happened if? • What is an appropriate comparator? • When should we evaluate (timing)? • What are our measures of success?
Performance Assisted firm Unassisted firm Time
Performance Unassisted firm Assisted firm Time
Entrepreneur and Firm capabilities Intermediate outcomes Final outcomes Intervention Time
BL Health Checks • Background • Health Checks provide a free and impartial assessment of business performance and managerial and strategic competencies. • The service is delivered through a national network of Business Link Advisers who aim to identify areas where a lack of capacity makes SMEs more vulnerable to the effects of the current economic downturn. • The key characteristics of the Health Check include the provision of a business diagnostic service, identification of areas for improvement and help accessing the full range of government assistance and the services of other providers where it is deemed appropriate. • By August 2009, Health Checks have supported over 80,000 businesses, the vast majority being SMEs.
The journey • The journey through the Health Check process • More than two-thirds (69 per cent) of businesses accessing Health Checks wanted basic advice, and 32 per cent sought longer-term, in-depth, assistance. • The ‘typical’ business accessing a Health Check was looking for support in four areas of business and strategic management. The most popular areas of support sought related to finding out more about grants and other financial support (sought by 71 per cent of assisted businesses), help with improving marketing (54 per cent) and help with increasing their customer base (53 per cent).
Impacts • Impact of Health Checks on business behaviours and outcomes • As a result of the Health Check, 65 per cent of businesses had a better understanding of areas for development and improvement in their businesses. 64 per cent had new ideas for future actions to help improve their business. • Overall, three-fifths (59 per cent) of businesses were making significant changes to their business practices as a direct result of the Health Check. • Nearly two-fifths of assisted businesses experienced at least some additional gain to their business as a result of the help they received through the Health Check and a further fifth will achieve similar outcomes but more quickly. • In terms of immediate impacts, 52 per cent of assisted businesses reported that they were better positioned to take advantage of an economic upturn, 46 per cent that they had improved their marketing capabilities, 43 per cent were better positioned to cope with the economic downturn and 45 per cent better at business planning. In general, younger and smaller businesses had the most positive immediate impacts.
SFLG (now EFG) • Objectives of SFLG • The SFLG was the government’s primary debt finance instrument, which was established in 1981. SFLG seeks to address the market failure in the provision of debt finance by providing a Government guarantee to banks in cases where a business with a viable business plan is unable to raise finance because they can not offer security for their debt and/ or lack a track record. • Over the last decade, take up of the scheme has averaged around 4,500 loans per year, although there have been fluctuations between individual years. • In January 2009, SFLG was replaced by the Enterprise Finance Guarantee (EFG), which opened the scheme to a wider number of businesses, with the specific objective to facilitate new bank lending in response to the Credit Crunch.
Impact • Scheme impacts: • Holding business characteristics constant, SFLG businesses: • Are 6% more likely to export than similar non-borrowing businesses. • Are 17% more likely to use new technology, and 24% more likely to use “cutting edge technology” than similar borrowing firms • Grew at a similar rate to other businesses in terms of sales, but grew more quickly in terms of employment than businesses that did not borrow. At the sample mean, this equates to 1.45 additional jobs. • Furthermore, ethnic minorities led businesses and those located in deprived areas are overrepresented in SFLG compared to similar businesses that borrow.
Economic benefits • Benefit to the economy • Even with conservative assumptions, SFLG is found to have a net benefit to the economy over the first two years of businesses receiving an SFLG loan. For every £1 spent, there is a return of £1.05 to the economy through additional economic output as measured by GVA.
Looking forward • Government intervention can have an effect • But these effects are not equally distributed across entrepreneurs and firms (targeting is important) • Timing is critical as we have to allow time for the effects to fully play out • Setting up a system of management information before an intervention becomes operational is key