Article taken from LM3 Online. To view article click here This month, the UK's Federation of Small Businesses (FSB) released a 'Five Point Plan' for economic recovery, demonstrating that the public sector could generate four times as many jobs than currently planned by shifting more of its spending to small businesses. The FSB's report follows on the heels of the UK government's own policy review, Accelerating the SME economic engine, which champions the role of small and medium sized businesses (SMEs) in delivering economic growth. With new research showing that the SME sector is taking on a growing proportion of the UK's employment, and more than a trillion USD worth of stimulus packages at stake across North America and Europe, understanding exactly where money will have the greatest impact is essential.
Regional and local governments are now crafting strategies to address the recession in their area, and stimulating the local economy by shifting expenditure to local businesses is top of the list for most. What the FSB report highlights is the difference between protectionism and localisation, a crucial difference in effectively combating recession without sending the world into depression. Simply promoting a shift of spending to local businesses takes no account of where those businesses spend money. Evidence presented in the reports The Money Trail and Public Spending for Public Benefit shows that businesses based outside your local economy might not necessarily spend less locally; the rule is that you cannot assume until you have asked the question. The FSB report advocates using an LM3-style approach to understand the value of SMEs to your community, using an earlier pilot assessing how much of every GBP SMEs re-spent locally. This approach means that it is not just the public sector, but also businesses, that must take responsibility for where they spend money.
The FSB's recommendation is based on recent empirical evidence generated by the University of Westminster, Small Business in the UK: New Perspectives on Evidence and Policy, which empirically analysed the role of small businesses in the UK's social and economic development. The study confirmed and expanded on some of the historically recognised roles of small businesses. For example, the study found that small businesses employ 13.5 million people or 59 percent of the private sector workforce and account for 52 percent of GDP. The more surprising and more critical evidence generated was that small businesses have been increasing their share of the private sector workforce. Between 2000 and 2006, the UK has experienced a decrease in workforce amongst the nation's largest businesses from 44.9 to 41.1 percent, while the nation's smallest businesses have grown from 13.5 to 15.9 percent of the private sector workforce.
These findings come at a time when the UK and other western nations are beginning to implement multi-billion USD stimulus packages to fight the growing recessionary economy. Can we afford not to ask the question: Where will your area's spending go?
The Money Trail and Public Spending for Public Benefit are both available to download for free from the LM3 Online website. For more information about the FSB's 'Five Point Plan' click here