DYLAN JONES-EVANS

Having spoken to many companies about the level of business support that they are receiving from WAG, the biggest complaint is the amount of bureaucracy that seems to be stifling the entire system.

Simply put, if WAG is putting in resources to support Welsh businesses, then surely those resources should get out to those businesses as quickly as possible?

Unfortunately, that doesn't seem to be the case.

When the Minister for Economy and Transport was asked what proportion of WAG's Business Support Programme had been expended by 31st October 2009, the answer came back as:

"At the 31 October 2009, the expenditure on the Flexible Support for Business Programmes represented 22% of the overall annual budget for 2009-2010."

Yes, that's right - after six months of the financial year, less than a quarter of the business support budget had been spent and this during the worst recession since the 1920s.

You would have thought spending would be AHEAD of target given that WAG and the Minister have both emphasised the lack of funding available to small firms as the key problem in the economy.

And its gets worse as there is allegedly tens of millions of pounds that remains underspent within the economic development budget with two months to go of the current financial year, and this at a time when businesses are crying out for support.

If that is the case, then it is clear that something is seriously wrong with the entire business support structure within Wales. Given this underspend, there is a strong argument for the Audit Office to examine why there is so much inefficiency within DET when it comes to ensuring that government support reaches our business community quickly.

Otherwise, as this blog and others have argued, WAG should get rid of the majority of business support, focus on those areas of market failure only(start-ups, innovation) and use the rest of the money saved to reduce business rates for the small firm sector.

The Sunday Times business section refers to a fascinating paper from Manchester University’s Centre for Research on Socio-Cultural Change.

Entitled “UNDISCLOSED AND UNSUSTAINABLE: PROBLEMS OF THE UK NATIONAL BUSINESS MODEL”, the paper presents new arguments and evidence about public and private employment creation in the UK.

Its measures of public sector employment count state employees and estimate para-state employees whose private employment is state supported.

On this basis, state and para-state (S&PS) since 1998 account for more than half the job creation nationally in the UK and for much more in the ex-industrial regions.

For example, in London and the South, S&PS accounts for no more than 38-44% of employment growth between 1998 and 2007; while in the Midlands, North, Wales and Scotland S&PS accounts for more than half of the employment growth over the same period.

In Wales, 55 per cent of all new jobs in the decade between 1998 and 2007 have come from the S&PS sector as compared to 45 per cent from the private sector.

Whilst some of the conclusions of the report are contentious, the one point of real discussion is whether public sector expenditure has essentially been hiding a low performing business sector. i.e. that the UK government has been propping up a feeble and untransformed private sector whose problems are now horridly aggravated by bank failure and market crisis which was caused by the financial sector.

If that is the case, then it is clear that the next government, of whatever political colour, must focus its efforts not only on public sector expenditure reduction but, more importantly, on improving the competitiveness of UK businesses.

With provisional Government statistics showing that the UK is finally beginning to emerge out of the worst economic downturn since the 1920s, policymakers will no doubt turn their focus away from recession minimising programmes towards strategies that can help to kick-start the economy quickly.

In previous recessions, an important part of that solution has been the efforts of entrepreneurs in developing new products, processes and services that will stimulate economic growth.

However, a paper I recently wrote with Dr Piers Thompson of the Management School at Uwic suggests that, while important, any economic policy that is primarily aimed towards encouraging more people to enter entrepreneurship for the first time may not be as effective a strategy as many policymakers think.

Utilising data from the Global Entrepreneurship Monitor (GEM) survey, our study analysed interviews with 843 entrepreneurs who were in the process of starting a new business. However, rather than focusing only on those novice entrepreneurs starting a business for the very first time, the research also examined those habitual entrepreneurs who were involved in establishing starting multiple businesses.

Such habitual entrepreneurs include serial entrepreneurs – those who prefer to close one business before starting another (such as Steve Jobs) – and portfolio entrepreneurs – those who run a number of businesses concurrently (such as Richard Branson)

So what have we found out?

First of all, we discovered that habitual entrepreneurs make a disproportionate contribution to the level of business start-ups across the UK. Whilst making up less than 1% of the UK population, habitual entrepreneurs set up around one in three start-ups of all the start-ups in the UK. In addition, those with previous entrepreneurial experience are over three times as likely to start a new business as those with no previous experience.

Similarly, those with previous experience are more than twice as likely to be intending to be involved in starting a new business in the future as compared to those with no previous experience.

This may reflect the greater resources which are available to those who previously sold a business, which provides the start-up capital required to make intentions become reality.

Therefore, the study shows what many in business probably know already – that those with previous entrepreneurial experience are more likely to be thinking of and actually starting a new business. However, this still begs the question why enterprise support is focused almost exclusively on getting new entrants into entrepreneurial activity?

Of course, the “holy grail” for policymakers is not the lifestyle business established by the vast majority of those starting a business, but those new businesses that can create can create wealth, employment and innovation in their local economies.

Previous research indicates habitual entrepreneurs may be the solution. They tend to run larger businesses than novice entrepreneurs, which reflects their ability to raise start-up capital from the proceeds of previous businesses or through leverage of existing company assets.

They also utilise their previous track record in business ownership and their entrepreneurial experience to persuade venture capitalists to invest in their business. Not surprisingly, our sample of habitual entrepreneurs had a far higher requirement for start-up finance than novice entrepreneurs. This is particularly the case for portfolio entrepreneurs, where more than a quarter require in excess of £125,000 in capital for their new businesses. This clearly suggests that their focus is on creating high growth firms over a period of time.

The networks and skills developed through prior business ownership also make it likely that up to a certain point, habitual entrepreneurs will be aware of a great quantity and quality of opportunities, and the confidence that such entrepreneurs gain from prior entrepreneurial activity usually leads to future success with other ventures.

Therefore, it should be of no surprise that habitual entrepreneurs expect to create a greater level of employment, higher turnover in both the first and third years of trading, and export a high proportion of their output.

If these expectations are accurate, then it is clear that businesses started by habitual entrepreneurs are exactly those which governments across the world are looking to support, and conform to the “gazelles” concept of the minority of rapidly growing businesses which create a majority of employment in the small business sector.

In particular, portfolio entrepreneurs are also more likely to be running businesses which are providing entirely new products to the market, entering markets where they face no competition, and to a lesser extent using newer processes and technology. This may reflect the use of new business starts by portfolio entrepreneurs to enter high risk growth markets, whilst insulating their existing businesses.

Therefore, given the importance of those with previous ownership experience in generating new businesses, it seems clear that government policies and resources could, and should, be better targeted at supporting proven entrepreneurs rather than increasing start-up levels in general.

Currently, there seems little focus within other UK regions in promoting the entrepreneurial potential of those individuals who have “been there and done it”.

Therefore, if the Welsh Assembly Government wants to accelerate the development of the Welsh economy and ensure a return on its investment, it could focus some of its £250m business support budget on engaging with the 5,000 or so successful Welsh entrepreneurs who are already running fast growth businesses and work alongside them to generate new, innovative businesses to create sustainable wealth and employment in the economy.

There is some depressing news for the economy on BBC Wales this afternoon.

According to various reports, hundreds of further jobs are under threat across Wales, including at Toyota on Deeside and Shops Direct in Powys.

Two local authorities - Swansea and Newport have also stated that they will be considering substantial redundancies to deal with their growing financial problems.

I was speaking to a very senior partner in one of Wales' top accountancy companies at a dinner before Christmas. I asked him whether he through the economy would recover in a year and if companies would start hiring again.

His answer?

"Dylan, the last few months have been a precursor to a far worse economic situation and we ain't seen nothing yet. Many companies have just been holding on to jobs until the Christmas period is over and it looks like we should all get ready for a Tsunami of business closures over the next few months".

Unfortunately for the Welsh economy, that tsunami may just be about to hit.

We can only hope that the predictions of someone who has his finger firmly on the pulse of the Welsh business sector, and who is rarely wrong about such matters, has made the wrong call this time.

I originally thought it was a deliberate leak but from what I hear from the rumour mill around the Bay, WAG went ballistic as the spin doctors had hoped to control the release of the jobs announcement for their own political purposes.

Nevertheless, it is difficult to argue that this isn't good news for the Welsh economy, especially after the Bosch closure.

I am not too sure if anyone else perceived the irony of the Labour Party organising a £1000 a head fundraising dinner on the day that Save the Children was announced that Wales has the highest levels of child poverty of any UK nation.

Unfortunately, these stories will be lost quickly as they broke on the day that it was announced that the UK economy has just about ‘crawled’ out of the longest recession since the 1920s.

According to the Office for National Statistics (ONS), the UK economy grew by only 0.1 per cent between October and December, well below the 0.4 per cent growth forecasted by the great and the good in the City of London.

This, of course, does not take away from the fact that the economy shrank by more than 4.8 per cent in 2009, the fastest annual decline for 88 years, and more than any other 12-month period since the 1930s Depression. In fact, this 2009 final quarter figure could be revised downwards (or upwards) by the ONS as it is estimate based on only 40 per cent of the data analysed.

However, the worse aspect of this miniscule growth is that we could easily see the economy shrink again in the first quarter of 2010, especially given the fragile state of retailing after Christmas and the withdrawal of government stimuli such as the VAT reduction and the ending of the car scrappage scheme

Of course, unlike the BBC headline which stated that "Wales is out of recession", that may not be the case at all as it may be the other regions of the UK which have helped to push the 0.1 per cent growth in the overall UK economy.

Given the state of manufacturing in Wales and the higher level of unemployment than other UK nations, the Welsh economy may still be shrinking although thanks to the fact that we do not have separate GDP estimates for wales, we will probaly never know the answer.

There have been a number of comments on this blog to the reaction to Bosch’s decision to shut its plant near Cardiff with the loss of 900 jobs.