It has been a rollercoaster of a year for Scotland’s small businesses which, let’s face it, means just about the entire business sector. Of the 365,000 enterprises in existence in Scotland as of March 2017, more than 70 per cent were sole traders. They accounted for less than 5 per cent of private-sector turnover.
At the other end of the scale, only about 1 per cent of Scottish companies have more than 250 employees. They account for about 60 per cent of private turnover. I am indebted to the Hunter Centre for Entrepreneurship at Strathclyde University for the figures.
The centre for the study, research and encouragement of entrepreneurship was established by Sir Tom Hunter, Scotland’s first self-made billionaire and philanthropist who has been on a one-man mission to turbo-charge Scotland’s economy since he sold his first pair of trainers from the back of a van in Ayrshire. He was at it again last week with a timely piece of research entitled Raising Scotland’s Economic Growth Rate, which pointed out the gaping disparity in Scotland’s GDP compared with the small independent nations with which the government loves to align Scotland.
Scotland’s GDP per head, at less than £31,000, is 44 per cent of Singapore’s level, 48 per cent of Ireland’s, 68 per cent of Norway’s and 75 per cent of Denmark’s. The gap with the rest of the UK is 8 per cent, although Scotland fares better than other regions if London is out of the equation. According to Hunter: “Scotland would need to make changes equivalent in their impact to creating business comparable in size with Google’s total global output to bring its GDP per head up to the level of Norway.”
It’s a daunting thought. Ultimately, all a business is is a dream, a dream an entrepreneur is willing to risk their own money and time to pull off. Nobody ever dreamt of creating a £180 billion behemoth. To most entrepreneurs, that is a nightmare, but these kinds of monolithic businesses are a fantasy for a certain kind of politician, nearly always one who has never had a sleepless night over whether they can pay the wage bill or where the next growth channel is coming from.
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What a nationalist government in power for 14 years fails to realise is that the uncertainty over independence and the complete lack of economic preparedness for separation, coupled with higher levels of taxation than the rest of the UK, makes chief executives of large enterprises nervous.
But between the sole traders and the large enterprises are the true lifeblood of the Scottish economy — small and medium sized businesses (SMEs) with between one and 49 employees. They represent about 25 per cent of Scottish businesses.
It has been a torrid year for these companies as they have fought to keep their staff and customers in the face of the pandemic and the upheaval caused by Brexit. Many have pivoted, reinvented themselves, made the most of opportunities and thrived. They may be exhausted and battered but they are still here.
And while many have benefited from Rishi Sunak’s furlough scheme and government-underwritten bounce-back loans, the lack of investment from the Scottish government and the complete failure of vision and leadership from Scottish Enterprise has undoubtedly reduced their potential.
A guarantee by Nicola Sturgeon in 2016 to distribute £500 million of bank loans over three years has fallen short by more than 30 per cent. Scottish Enterprise has proved to be a bloated and inefficient body that ought to be disbanded. The Scottish Investment Bank has failed to live up to the hype. Those in charge of these agencies have little experience of the kind of mindset needed to succeed in scaling a small business.
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The only way Scotland’s sluggish economy and lacklustre GDP will improve will be if Scotland’s SMEs are encouraged and helped to scale. Most entrepreneurs don’t need much — they are self-starters and highly motivated — but they have been saddled with red tape, extra costs and business grants that seem to have been designed by Kafka. All of which are presided over by a government which has no real understanding that without unfettered economic growth, all its promises — from free cornflakes for kids to a carbon-neutral environment — cannot be sustained because they cannot be paid for. Not now and certainly not in an independent Scotland with no access to Barnett formula funding.
As we come out of the pandemic, the combination of job losses and a re-evaluation of lifestyles means that now is the perfect time to encourage and fund entrepreneurship. But that takes vision, courage and calculated risk, which is in short supply in the government and the self-serving and bloated agencies charged with growing the Scottish economy.
Even if Scotland were to produce a Google-sized enterprise, it is just as likely to cripple the country as boost it, as RBS almost did in 2008. Instead of chasing unicorns, the government should invest in, and more importantly believe in, its SMEs.
They are the economic equivalent of the defibrillator required to spark some life into the Scottish economy. But while the government maintains its low-octane, low-voltage approach to business, there is little hope for economic growth.