The British Connection

For U.S. small businesspeople, the problems and progress of our English counterparts should be more than a matter of idle curiosity.
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It was a strange place for a small business meeting -- Lancaster House, a magnificent London palace, whose interior, says a fact sheet, "is a brilliant recreation of the decorative art of France in the reign of Louis XV." But if you closed your eyes, mentally changed the accents, and simply listened to what the embattled entrepreneurs present were saying, you might just as well have been visiting Peoria.

The similarity between the English small businesspeople gathering at Lancaster House and their U.S. counterparts is more than a matter of common language. In both countries -- as well as in the rest of Western Europe -- small businesspeople worry about adequate financing, regulatory burdens, unfair competition from low-wage countries, unemployment, and inflation.

Entrepreneurs in the 10 European Community (EC) countries have spotlighted these problems with the creation of the European Year of Small and Medium-Sized Enterprises, or, EYSME (see INC., April, page 140). The occasion for the Lancaster House meeting was a one-day conference to kick off the first of 10 different national EYSME programs. Each EC country will conduct its own round of studies, discussions, and conferences. A December 1983, wind-up session will take place in Strasbourg, where representatives from the 10 countries will try to agree on a charter for the EC's Small and Medium-Sized Enterprises (SMEs).

On the flight over the Atlantic en route to Lancaster House, I wondered why I had agreed to travel 10,000 miles to address the conference on U.S. small business goals and accomplishments. What was I hoping to discover that would make this meeting worth the time and trouble?

I went because I wanted to find out whether EYSME was likely to bring a policy partnership between U.S. small businesspeople and their European counterparts closer to reality. How much can we and small businesspeople in the EC learn from one another? How much can we really do together? The answer is "quite a bit," and in the end I was glad I had agreed to go.

As a ceremonial opening for the United Kingdom's EYSME, the Lancaster conference was all it should have been. A broad-based committee led by outstanding Conservative small business spokespeople as well as British members of the EC Parliament and representatives to the Economic and Social Committee organized an event that attracted small businesspeople from all over the United Kingdom. Best of all was the candor, even eagerness, with which Sir John Hoskyns, a likely key figure in the upcoming election campaign, blasted Conservative defenders of the status quo in British business and government. His remarks were particularly noteworthy, because he had served for more than three years as head of the Prime Minister's Policy Unit. If an underlying political purpose of the conference was to showcase the Conservative government's concern for small business and entrepreneurship in this general election year, one came away feeling that the government was at least sincere.

There are clearly important Conservative leaders prepared to spearhead a fight inside or outside their own party against those who want EYSME to be merely ceremonial. These people apparently include Prime Minister Margaret Thatcher, who served as the official patron of the Lancaster House conference.

But, you may ask, what did the conferees do besides talk? There is no better way to drown out that question than with the cheerful rustle and clink of money. John MacGregor, undersecretary of state for industry, who served as conference president, used the occasion to announce a joint EC and British new loan program for small and medium-size businesses.

The program's first installment is tiny, about $15 million. Small companies will be able to borrow from about $25,000 to $375,000 for up to half of their capital costs. Interest will be at 11.5% for eight years, and there will be a two-year grace period before repayments must begin. Britain and the EC have sponsored loan programs before. But, unlike the others, these new funds will be available for small businesses throughout the United Kingdom and not just in distressed, high-unemployment areas.

England needs all the help it can get if it is to have a larger, healthier small business sector. Bear in mind that bigness has been chewing into British manufacturing from two directions -- private sector mergers and nationalization under the pre-1979 Labour Party governments.

Last October, two thoughtful Britons, both EYSME vice-presidents, were quoted on this subject in the International Herald Tribune. John Bolton, who, in 1971, served as chairman of the Committee on Inquiry of Small Firms, estimated that England will need 150,000 start-ups every year over the next five years to produce jobs for the country's 3 million unemployed. Sir Charles Villiers, chairman of a British Steel Corp. subsidiary that is trying to replace shut-down steel mill plants with small companies of any kind (see INC., May 1981, page 121), forecast that "We need a million new businesses in the next 10 years. This would bring us to about the same number pro rata as in France, Germany, Japan, and the U.S."

Asked why Britain lacks entrepreneurs, Villiers responded:

It goes against the culture. I feel the British are very good at their basic research and very bad at turning it into applied operations. . . . Our culture breeds the reluctant manager. "You know old boy, I've got to collect a few pennies, but of course what I really want to do is go off and shoot a few pheasants."

During the Lancaster House conference three months later, these comments came to mind as. I listened to Sir John Hoskyns. As Sir John described it, the underlying issue in Britain is "whether a very conservative Conservative Party and a very conservative Civil Service led by a rather radical Prime Minister with one or two fairly radical colleagues can actually do what is necessary to be done over the next five, six, seven years." (When Hoskyns says "radical," he means a readiness to make sharp breaks with previous practices, policies, and leadership.)

Sir John pointed out that "most people in public life do find the ambience, the style, the trappings of big business very reassuring -- the dining rooms, the imposing offices, and perhaps most important of all, the sense of remoteness from anything which could be ernbarrassing or undignified, in particular things like customers, competitors, and cash."

He spoke admiringly of people who "choose to be paid by results, by performance, by achievement," as against those who just want to get paid. He mentioned that in big business and in big government there is the same desire to "drift toward Head Office where life is rather safer, rather like being on the General Staff in World War I." Like Sir Charles he called for a "break out of this culture in which people settle for a way of life rather than a life of achievement."

Barry Baldwin, of Price Waterhouse, peppered Lancaster House with more data, confirming the plight of Britain's small business sector. "Japan, with twice our population, has five times as many small firms as we do," said Baldwin. "Although the relative economies of the United Kingdom and West Germany are about the same size, West Germany has over 40% more small businesses than we have in the U.K. . . . Central and local government expenditure of all kinds in the United Kingdom now accounts for about 50% of our gross domestic product." He was tough and direct on opponents of small business procurement setasides. And he proposed a barrage of tax and loan policy recommendations.

Still, three interesting developments, reported in the London press within days of the conference, may indicate that the U.K. entrepreneurial climate may be changing. First, a British Venture Capital Association, modeled on the U.S. National Venture Capital Association, has just been organized. Second, the work load of the Monopolies and Mergers Commission, modeled on our Federal Trade Commission, is expected to soar, both because of pending mergers and because the government has asked it to conduct "efficiency audits" of at least half a dozen nationalized industries every year. If these industries are not efficient, they will either be made efficient or be turned over to private industry. Third, one of the major government workers' unions is planning to organize private sector employees. These union leaders obviously think Mrs. Thatcher has put an end to future government growth and expect the private sector to expand. (Pretty heady news for a visitor from the United States, where government worker unions are still overwhelmingly the fastest-growing segment of the labor movement.)

If you have trouble seeing the connection between a change in another country's entrepreneurial climate and your own business, think of Hoskyns's "customers, competition, and cash." At one time, U.S. companies had to worry only about U.S. customers and competitors and the cash flow of U.S. banks and businesses. Now all of these concerns are part of an intricate worldwide web. If, for example, large banks in the United States and Western Europe lend enormous sums of money to Third World countries, there are far fewer funds available for small businesses at home. Doing anything about that situation means influencing central banks in all of the lending countries involved. To do this would take a level of international small business cooperation that does not exist yet.

The EC countries, the United States, and Japan are probably going down parallel economic railroad tracks. Sometimes one of us reaches a policy station, a turn, or a crossing before the others. This fact alone is reason enough for each of us to watch the progress of the others more carefully. It is one way of anticipating what probably lies ahead. Our awareness of others' progress also helps ensure that no one of us is going to jump the track, sideswipe, or crash into the others.

A March 3 announcement by the United Kingdom's EYSME organizing committee shows how we learn from one another to read thye worldwide small business map more accurately. Acting on a suggestion from this side of the Atlantic, the committee is sponsoring a comparative study of the small business climate in the 10 EC countries. The Economist magazine's research group, the Economist Intelligence Unit, has been retained to do the work. The group will use both statistical and interview data, and results will be evaluated by a three-member committee: Vernon Weaver, banker and ex-SBA administrator; Diarmid McLaughlin, a senior EC staff official; and W. G., Poeton, convener of the Lancaster House conference and chairman of a medium-size electroplating company with three plants in the United Kingdom and one in Germany.

The committee's announcement generously credits this writer with suggesting the project. It points out that INC. has completed two comparative studies of the small business climate in the United States.

On the day I learned of this development The Washington Post carried a front-page article under the headline: "Basic Revisions in Trade Laws Sought by U.S." As the story reported:

The United States has instigated private talks with some, but not all, of its major allies seeking a basic overhaul of international trading rules, because the existing system is not coping with growing tensions worldwide. . . . The administration's move is directed at the 88-nation General Agreement on Tariffs and Trade, which was formed after World War II to regulate international trade.

Maybe next time around, small business will be ready to take a hand in shaping important foreign economic policy. Certainly it has yet to play any role in talks such as these. But can U.S. small business afford to take on protectionism, the international monetary system, and other difficult issues when it has not yet won its critical fights at home? It has no choice. The home issues are themselves becoming internationalized.

Last updated: May 1, 1983




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