blog.gov.jeSixteen-year-old Mabel is a student with a keen interest in business studies an economics.
Mabel entered and won the Future Economists Essay Competition 2024, where she wrote a letter to the Chief Economic Adviser to Jersey, Tom Holvey, about the role of small businesses in driving innovation and growth in an economy.
Mabel will be joining the Economics Unit in the Government of Jersey as an intern, the first step in what will hopefully be a rewarding career in the field of economics.
Future Economists Essay Competition Winner 2024
Dear Mr Holvey,
I am writing to provide you with my personal thoughts on how the future economy could benefit from a greater focus on supporting small businesses as a catalyst for growth and expansion of the economy.
Why are small businesses good for growth?
Small businesses are crucial to an economy as they bring innovative ideas, create jobs, encourage competition, and stimulate local economies like Jersey. Small businesses are often described as a backbone for the economy. In 2022 small businesses accounted for 99.2% of the total business population in the UK and turned over £2.3 trillion combined with medium-sized businesses. Micro-businesses contributed the most at £953 billion meaning their collective success and failures have a significant impact on the UK economy. Small businesses introduce niche ideas to the market, responding to every day needs and wants of a local consumer. Entrepreneurs see these opportunities as a good reason to invest in their idea which gives rise to an injection into the circular flow in an open economy, which if positive will result in economic growth.
The above table illustrates how important the small business sector is to the entire Jersey economy. As of December 2022, across 10 sectors there are over 8,000 companies all seeking to grow their business and contribute to the Jersey economy, creating value. In turn this all leads to increase in the taxable profits on which the Jersey economy depends. A positive place for small businesses to do business provides a positive impact for the whole economy. For example, there are nearly 700 small companies within finance which is the leading sector in Jersey and generates the most tax revenue, accounting for 36.7% of gross value added in 2022.
So, what are the problems that these businesses face?
As evidenced in the Barriers to Business Report published in December 2023, not all small businesses find it easy to get started and make a success, with certain entrepreneurs reporting that they would prefer to start their business in other places where the process is easier, less expensive and with less bureaucracy. Three key barriers to growth for the small business are:
Employing people – The need to secure good people, train them up and keep them is a constant struggle as it is difficult to get housing licences for jobs which are not high paying but are essential to an economy – like being a waiter, a chef or shop assistants. It is also hard to employ people from abroad due to housing costs and the burdensome immigration restrictions.
Government interactions – respondents to the survey mentioned that dealing with the government is not easy and that the process of starting a business is slow, expensive and often requires an understanding that not all people have so had to employ experts to advise them.
Access to finance is also an issue. Banks ask for a lot of security and there is no Government financial support in place for start-ups. Even ignoring government support there is no access to investment schemes such as those in the UK which give investors tax relief on risky investments. In St Aubin one can see a lot of restaurants getting started, failing and new ones replacing them. They don’t get enough chance to make a success of it.
What happens elsewhere?
Small businesses are often encouraged to grow in various economies. For example, in Sweden there are microcredit financial institutions run by the government to provide loans to small businesses.
By giving a subsidy to a small business, their cost of production decreases, being able to extend supply, causing the supply curve to shift outwards. This enables a fall in price demanded and due to the price mechanism, allows quantity demand to rise.
In Singapore, small businesses are the foundation of its economy, generating two thirds of all jobs. Digitalisation is used to help small businesses overcome the digital age. The government helps to create more opportunities for small businesses. One way is that they offer tailored training for small businesses to be supplied with the skills and knowledge to enhance their digital technologies.
In Ireland, the government promote female entrepreneurship as it is key for addressing income equality and social exclusion. There are several programmes in Ireland to help women starting a business succeed. For example, ‘Enterprise Ireland’s Female Entrepreneurship’ was established to close the gap between the significantly higher Male run businesses and encourage ambitious women to grow businesses and overcome the challenges of growing a female led small business. In 2012, there were just 8% of high potential start-ups were female led whereas in 2022, this has increased to 37% which is only going to grow each year as 60% attending core training programmes in Local enterprise Offices are female indicating that support for women wanting to start an SME is crucial for them to be able to be successful in a male dominated sector.
In conclusion, small businesses are key to driving future economic growth. There is a lot done outside of Jersey to support and attract small businesses and encourage them to grow. We do not do enough to help them in Jersey but by using some subsidies to change behaviour and support business we can make help them thrive in a way that is long term and sustainable. I believe that small businesses should be encouraged and supported to grow in the same way Jersey is currently tackling climate change, making it clear that small businesses are key to driving the future economy.