Hefin David AM reflects on patterns of self employment in Wales and calls for a tailored response
It is often said that small firms are the lifeblood of the economy. I’ve heard this phrase many times in speeches made inside and outside the Senedd chamber, extolling the value of small firms to the Welsh economy. Yet the phrase does little to explain the role that such firms play in the private sector.
Focusing on the smallest companies, there were, according to Welsh Government figures, 237,200 microbusinesses (firms with 0-9 employees) in Wales in 2016, employing 389,600 people. That’s an average of 1.6 employees per firm. With this in mind, the Federation for Small Business has rightly called for policies to grow the number of medium sized firms.
A significant majority of businesses however, will not grow beyond the micro-firm stage and their owner managers often have no desire to do so. A self-employed lifestyle is enough for many. Such business owners would prefer to take a regular salary today than wait for the sometimes remote possibility of a bigger income at an indeterminate point in the future.
The contribution of the self-employed to our communities is however important, accounting for 38% of jobs growth in Wales between 2007 and 2016. It is therefore welcome news that the FSB have commissioned a report entitled “Going Solo: Understanding Self-Employment in Wales” , written by Professor Andrew Henley and Dr Mark Lang. The report is launched at today’s meeting of the Assembly’s Cross Party Group on Small and Medium Sized Enterprises, which I chair. It illuminates the differences in patterns of self-employment across Wales.
The report recognises that, while it is vitally important to tackle the negative and exploitative consequences of the burgeoning ‘gig economy’ through employment contract regulation, gig workers are only a minority of the self-employed population. The report centres its attention on the positive economic contribution made by the majority of the self-employed.
The Northern Valleys (particularly the Caerphilly, Blaenau Gwent and Merthyr Tydfil local authority areas) have the lowest level of self-employment in Wales at 8.7%. The highest is Powys with 23%. The Valleys area also has the lowest level of female self-employment in Wales at 4.6% but not the lowest level of male self-employment. This could be at least partially explained by the ‘preponderance of construction self-employment in the Valleys’, a sector whose workforce is male-dominated.
Self-employed people in the Valleys also tend to have fewer educational qualifications, such as lower percentage levels of NVQs or other vocational qualifications and a higher percentage level of no qualifications at all, than those in urban or rural Wales.
Office for National Statistics figures last week showed that Wales has a lower unemployment rate than the UK average. However, Wales’ employment rate is also comparatively low. This means we have a relatively high population of people who are economically inactive- those of working age and not able to work- and the largest proportion of these people are to be found in the Valleys. The report suggests that the longer someone is unemployed or economically inactive, the less likely they are to consider self-employment.
The report identifies specific implications for policy that should be tailored to supporting and enabling self-employment. It is clear that the Welsh Government needs to do more to encourage and grow sustainable self-employment. It should go beyond growing the construction sector, diversifying into other sectors of the foundational economy, supporting those businesses we use to satisfy our everyday needs.
Given that there are different patterns of self-employment in different parts of Wales, Welsh Government policy toward self-employment should be locally and regionally tailored to reflect this. There is no one-size fits all approach.
The report also calls for the Welsh Government to recognise that patterns of interaction between the self-employed are not usually competitive but rather more collaborative. Much has been written about the role of ‘social capital’, the knowledge and skills pooled in human co-operative activity. It is recognised that rather than find employees, self-employed people will ‘work with associates to deliver certain projects’.
With this in mind, Welsh Government should ensure that their procurement practices are open to collaborative bidding from such self-employed associates and are also open to bids from individual self-employed people. Collaboration should also be enabled by growing and rethinking existing self-employed and micro-business networks. Business premises, tailored to the self-employed, should also be made more widely available and it is encouraging that the Welsh Government is supporting pilot projects in this area.
The FSB report on self-employment is intended to be the beginning of a wider conversation. Self-employment doesn’t bring easily visible and immediate economic gains but it is the sector that keeps our economy ticking over. Growing self-employment numbers in areas in which they are under-represented will also add to the longer term sustainability of local economies. With regionalisation on the Welsh Government’s agenda, a review and upgrading of self-employment policy is now most welcome.
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As someone who was ‘forced’ into self-employment some years ago due to age related redundancy, I found this an interesting and timely article. The FSB, of which I have been a paid up member for many years, has produced a number of useful studies such as on banking. This new study will, I hope, be influential and useful. The world of work is changing rapidly and government needs timely and expert advice if it is to make decisions on this.
I don’t regret being self-employed as it has taught me how to (just about) survive in the modern world after decades as a corporate slave and jobsworthy. Not recommended or possible however for young people with families and/or mortgages.
This article’s heart is in the right place, but it is depressing to read many of the same things that were recommended in the IWA’s own ‘Wales 2010’ report almost a quarter of a century ago and that have not progressed since.
Given the traditional image of Wales as a place of heavy industries with large workforces, it came as a surprise to discover, when researching that report, how reliant the Welsh economy was on self-employment.
The Welsh people have many entrepreneurial traits. The problem, then as now, was getting the self-employed to turn sole proprietorship into growing businesses that employ others.
The single biggest disincentive to that is bureaucracy. Despite lip service from politicos of all hues, that disincentive has only increased in the last couple of decades.
The same is true of the culture of “life long learning” recommended by the report. Adult education is, if anything, a lower priority than ever, despite the huge potential of the internet. This is one area where Wales has the opportunity to do something really different, given the political will – but there is no sign of that.
In fairness, there have been efforts to open up public sector procurement to local small businesses, but not nearly enough.
The only area where there has been definite improvement is in the image and understanding of business. The media at all levels have been quite helpful on this point. However, a lot of atavistic anti-business attitudes remained deeply embedded in Welsh society, especially in the political class.
Attitudes need to change if we are not going to be saying exactly the same things again in another twenty five years.
JWR. The ‘single biggest disincentive to growing a sole proprietorship to employing others’ is not red tape or bureaucracy, it’s the ominous prospect of having to pay employees more than yourself for less work and constant supervision/correction. Believe me I’ve tried often enough. The transition from solo to SME is one of the biggest hurdles that any business owner faces and most will fail in their attempts at this stage and, regrettably, I include myself. Who should be to blame for this? Myself and my lack of entrepreneurial qualities? The business climate in Wales? The government? Probably none of these as increasingly I believe that luck plays a major role in business success – if you happen to be in the right place, at the right time, with the right people. Living in Wales, as I do, from choice, means those three factors are very very rarely in alignment and this is a consequence of demographics, history and other political factors completely out of the control of most would be entrepreneurs.
Bellwether, you raise a good point – obviously the voice of experience.
Of course, every new employee requires supervision, which takes time and therefore money, but the whole point of employing an additional employee is that he is supposed in the end to save you time and therefore money, even after supervision is taken into account. If this is not the case, then the additional employee is not viable.
The problem with bureaucracy is that it adds the costs of administration to the costs of supervision, which can alter the whole equation of viability.
On top of that is the sheer hassle of looking after employees. That, more than any financial calculation, is probably the decisive factor in many decisions to subcontract to India or China rather than employ people directly in Wales.