Don’t blame red tape
John O’Farrell argues that cutting employment regulations is a low priority for business and small businesses create relatively few jobs.
For those who argue that ‘red tape’ is hindering growth and job creation, two assumptions are vital and both of them are wrong. The first assumption is that workers’ rights are an important restraint which prevents businesses taking on extra staff, especially small enterprises. The second mistaken assumption is that SMEs are the best potential source of new jobs.
In August 2011, a BIS survey of UK businesses revealed that “the proportion regarding regulation, including employment regulation, as the main obstacle to business success was only 6%.” A similar survey was published in October 2011 by DFP, and republished by DETI in January 2012’s Economic Commentary. They asked Northern Ireland businesses in the Access to Finance survey to list the main ‘constraints facing business’. The regulatory framework was included in the questionnaire of ‘limiting factors for business growth’ and came well below the following: not enough financing; investment into equipment; new entrants into the market, or competition; labour costs; limited demand in domestic markets; price competition; and, most of all, the general economic outlook.
Locally and nationally, the vast majority of businesses say that they are not employing more because of lack of credit and demand. This has created an additional headache for the Tories and their enablers, because the private sector, and especially SMEs, was supposed to be ‘taking up the slack’ as the public sector is pared back, and outside of greater London, that is not happening.
Ergo much focus on welfare ‘reform’ and blaming ‘red tape’. The trade union response to the DEL discussion paper is available on www.ictuni.org and stands as a solid corrective to the fantasies conjured up by Adrian Beecroft and propagated by the Tory press.
Among those who prefer evidence to prejudice is John Van Reenen, Director of the Centre for Economic Performance (CEP), and professor of economics at the London School of Economics1. “Beecroft appears to have ignored the wealth of research into the economic effects of employment laws. This evidence goes against his view that relaxing employment laws will generate large economic improvements in the UK,” he said.
“The most depressing thing about the report and the rancorous public debate around it is the total lack of any evidence on the likely impact of the proposals. Beecroft claimed that GDP would increase by 5 per cent through employment law reforms – a huge increase which would restore UK output from its current position of under 4 per cent below 2008 output, back to pre-crisis levels. Unfortunately, this 5 per cent appears to be plucked from thin air, as if by witchcraft. There is no evidence presented at all in the Beecroft report to gauge such benefits.”
Nor is there evidence that Vince Cable is a ‘socialist’ because he dared to dissent from Beecroft on one issue. What is concerning is that most Lib Dems think that most of what Beecroft claims is right and proper. Back in the old days of Fleet Street, there used to be a common warning among journalists who thought that left-ish newspapers were better employers than Tory rags: “Never trust a liberal, son. They’ll sack you on Christmas Eve.” (Perfectly solid advice, based upon my own freelance experience).
The other mistaken belief is the job-creating potential of small enterprises. Despite many kind thoughts towards small businesses, that is not true2. Research from the University of Chicago shows that “Eighty percent of US small companies that remained in business from 2000 to 2003 didn’t add a single employee. Only
3 per cent added more than 10 employees during that time.”
For stability and sustainability, you have to think bigger: “Kansas City Federal Reserve economist Kelly D Edmiston’s analysis of U.S. data found that each year, 22 percent of staff in companies with fewer than 100 employees quit or are fired, compared with only 8 percent for companies with 2,000 or more workers. Edmiston also found that the jobs offered at large businesses were better than those at small businesses. Hourly wages at the largest companies, those with more than 2,500 employees, average around $27, compared with $16 in companies with payrolls of fewer than 100.”
Large private companies are also more likely to be unionised, rather than ‘free’ to sack Bob Cratchit. New jobs on the scale we need will not come from removing the floor of workers’ rights, but by investing in products that customers what and in services that people need.
