In the City
Encouraging new business
Tony Rudd
A good deal more thought needs to be given to the question of how best to set up the new businesses encouraged into existence by the fiscal incentives of Sir Geoffrey Howe 's budget two weeks ago. In themselves these incentives are excellent and should work. B. i But as anybody who has had any experience m helping to set up new businesses (and n particular to finance them) knows, it is not Just a matter of money. It is also a question of management and incentives. What is more, the structure for these new businesses should be such as to enable them, when they are successful, to expand Without running into the problems of existing medium-sized businesses. Perhaps the whole point of the exercise is to raise overall productivity in this country. The new therefore have to be better than the old. This may be achieved in part by the new businesses being in newer and better technologies, and therefore in markets which are expanding. But it is nonetheless going to important mportant to try to keep these businesses from the blight which prevents many potentially excellent existing businesses from doing as well as they should. And the worst blight, of course, is that of industrial labour relations. Every seasoned manager in this country knows that above a certain level, in numbers of employees , a manufacturing unit runs into serious managerial difficulties on this account. Some managers have a bench mark of one hundred employees, some as tugh as five hundred; it all depends on the battle scars they have picked up, in the better internecine 'Warfare which is British industry today, exactly where their particular figure comes. Certainly the consensus is that You can't run a business in this country With more than a few hundred employees without real trouble. Now we all know that, as Schumacher has taught us, small is beautiful. Maybe. But a number of the essentials of life have to be Produced uced in large numbers if they are to be available to the populace at prices they can afford. It's only Aston Martins which can be ma de in penny packets and look at the Price. So unless Britain is to be turned into anindustrial boutique with tiny craft b.us.inesses, albeit in high technology, prov)dmg highly paid employment for a tiny few with the vast majority walking the s.treets and with the country left with a huge Import bill for all reasonable essentials, some of the new businesses to be encouraged by Sir Geoffrey Howe's incentives must grow. But how to avoid those that do falling straight into the trap of unionised low productivity? Perhaps one solution which hasn't re ceived sufficient attention is the cooperative. It is odd . how unpopular co operatives are except among those who work in them. The trade unions hate them because the record is that co-operatives are essentially anti-union; they have no use for them because there is no bargaining to be done in the traditional union method. Big organisations don't like them and don't give any help to them. For instance, much of the marginal capacity of the nationalised industries like coal and railways could, we suggest, be operated profitably by cooperatives. Mr Dennis Poore, who knows a thing or two about co-operatives after Meriden, the motorbike co-operative in which he became involved, suggested the other day that the Coal Board should offer the miners employed in them all the marginal pits they wanted to close. Obviously they should be offered at scrap value as the Coal Board can't work them profitably. But we very much doubt whether the Coal Board will do any such thing because if it can be shown that small mines can operate profitably outside its control it will openly show that large organisation to be a relatively inefficient monster.
Yet it seems worth persisting with the co-operative idea, particularly in areas where large numbers can eventually be employed. It is the only route by which demarcatibn disputes can be avoided, productivity raised by the abolition of the continuous warfare between management and employees, the baleful influence of the unions diminished and the enthusiasm of all recruited. There is still plenty of room for management and for capital.
It was originally Mr Peter Jay who suggested that the only way ultimately to get out of the ruinous upward wage spiral was to give the whole of industry to the workers. Easier said than done. But certainly a completely different form of bargain as between management, workforce and capital can be struck at the start of a new business. There is every difference between doing that and trying to reorganise the whole of existing British industry with all the entrenched positions occupied by people determined not to shift.
The next question is whether the existing Companies Act and surrounding legislation will permit such arrangements as are necessary to implement this kind of 'new deal'. For the essence would be that the shareholders would not own the business; rather, it would be owned by the three elements in the contract — management, workforce and providers of capital. Of course, it would be possible to implement such an arrangement by pretending that all the three owned the business. This could be done by giving them special categories of shares or setting up trusts to hold the shares on their behalf. But this would not really be enough. What would be needed would be a new form of company altogether, based on a contract between the three parties. Certainly some new ideas are needed in this area to complement the excellent and imaginative innovations brought in by Mrs Thatcher's government in the field of business finance. We suspect that they have further steps in mind and that we are only at the beginning of an exciting era of development in this field. It is important that thought be given to the other aspects of small businesses so that the Government's initiative can be matched by imaginative proposals from business and the City.
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