14th August 2014
Thinktank the Social Market Foundation is arguing that the UK’s growing number of self employed are not the sort of entrepreneurs who boost economic growth. The SMF considers whether the start up rate of businesses will boost Britain. Unfortunately, Nida Broughton, chief economist, concludes this is not the case.
In a blog published this week, she says: “If we’re interested in whether the surge of self-employment means we can expect a new wave of entrepreneurialism that boosts economic growth, we’re looking in the wrong place.
“There is no link between start-up rates and economic growth. Instead, economic growth is related to the number of people who start-up new businesses out of choice because they have spotted a new opportunity. We have data on this. And it shows that whilst the UK might be the “self-employment capital of Europe”, it certainly isn’t the capital when it comes to the types of entrepreneurs that create economic growth.” The SMF has considered what is stymieing the UK entrepreneurs considered below.
Broughton adds: “These opportunity-driven entrepreneurs are more likely to have ventures that are profitable and businesses that grow over time. They often have existing skills, experience and networks when they start their new businesses – factors that are vital in turning their businesses into a success. It is estimated that over half of new start-up ideas come from previous experience.
“With our current levels of productivity growth, we need to start focusing much more on why we don’t have more growth-boosting entrepreneurs. Recent SMF research finds that fear of failure and an inability to take a risk to household income are the key factors preventing these types of potential entrepreneurs from starting a business. If we want to increase our future economic prosperity, that’s where we need to look.”
The SMF’s report Venturing Forth published earlier this summer is available here.