Supporting rural businesses

Overcoming the Gordon Gecko tendency!

We had a bank crisis in 2008, caused by …. well lets not go into that here!!  Suffice to say that greed had something to do with it on the part of both lenders and borrowers.  Gecko wisdom has not gone away and there is more than a grain of truth in the philosophy that self reliance, entrepreneurship and creativity properly harnessed will bring benefits to the whole of society.  Just don’t let the Gordon tendency overwhelm the beneficial effects.

So how does society, in the form of the government at all levels, most effectively intervene when it is market forces that should guide the evolution of businesses?  A desperation to make a positive impact has politicians scrambling to be seen to ‘do something’.  Should ‘government’ give grants to businesses, offer advice schemes, try to be ‘business friendly’ in all its dealings, or perhaps just compete amongst its different arms to offer incentives to get the the best businesses to move to its area.

In rural areas we are faced with this dilemna anew with the setting up of new LEADER Local Action Groups, each of which will have around £2m to spend on their areas over the next six years.  The received wisdom is simple: give businesses grants and assure yourself through complex appraisal processes that the grant will result in jobs being created.  It no longer matters whether the creation of jobs is the best way of measuring ecomomic success for every area, this is the wisdom of the day and must be followed.  For some areas, arguably including the rural South East, a better target (for the next six years) would be better paid and more full time jobs in rural areas that will enable rural people to compete in ourinsane housing market.  (Now, there is a case where simple supply and demand does not define the problem but lack of a balanced equation between them certainly makes thing worse.)

So, how should the LEADER Local Action Groups intervene with their £2m?  I would suggest three criteria:

1. Invest in businesses only through collaborative projects that raise the efficiency, skills base or marketing of all business in a given sector that want to participate.  Giving a grant to subsidise the cost of capital to just one business is tantamount to putting their enterprising competitor, who has invested their own money in the business, at a disadvantage.

2. Invest to capitalise services that are needed to support the rural economy and the rural community but cannot generate enough profit in areas of dispersed population to service their capital needs.  In other words, use public money to offset the invevitable market failure that affects rural people over everything from broadband to bus services. (And as night follows day, will affect mail deliveries in due course.)

3. Invest in initiatives taken by communities to do voluntarily for themselves what the market will not do because there is insufficient profit to be made from small and dispersed populations.  In Sussex this has to include care of the elderly as one of our fastest growing business sectors and the development of voluntary mentoring networks amongst our burgeoning home based businesses.

The one thing we should not do is continue to give free capital to any single business or individual, the end result of which will be to simply increase their personal wealth.  Society is trying very hard to pursue this philosophy for people on limited means who depend on the welfare system, it is inexcusable to do it for anyone else whatever acreage they happen to own.

Jeremy Leggett
[These are my own opinions formed through my work at AirS over a number of years and designed to prompt debate, they are not the formal policy of the organisation]

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