Futures 35 (2003) 305–321www.elsevier.com/locate/futures

If you wanted to know the future of smallbusiness what questions would you ask?

T. Fuller∗

Teesside Business School, University of Teesside, Middlesbrough, Tees Valley TS1 3BA, UK

Abstract

Small business is a relatively new economic category, which became politically necessaryas economic activity flowed from owner-managed enterprises to managerial corporations. His-torically, all business operated at a small scale and were centred on the individual artisan. Evennow there are strong cultural affinities to individual enterprise. Over the centuries, business hasemerged, legitimised by reflexive social notions of entrepreneurship and fuelled by regulatedinternational free trade, competition, property rights and usury. In the process, society’s viewof how this market structure serves the individual is increasingly depersonalised, demandingself-reliance and responsibility of the individual separate from the economic institutions thatthey work for. In this landscape, small businesses are increasingly important but relativelypowerless. Questions concerning their future ultimately focus on the role they play in personaland social relationships. 2003 Elsevier Science Ltd. All rights reserved.

1. Introduction

The overall thesis is that small businesses, once ubiquitous, have been systemati-cally othered, then homogenised, but that the diversity, which is their very essence,means they are crucial to a more human and free future. The article traces a briefhistory of small business from post-medieval times, through the Industrial Revolutionto the present day. In doing so, it uncovers a number of principles upon which smallbusiness in the UK is founded, and illustrates how corporatism has emerged as theseprinciples evolved. Small business is conceived as being in a weak position relativeto corporate business but co-dependent upon it. They have political significance, as

∗ Tel.: +44-1642-342905/2885.E-mail address: ted.fuller@tees.ac.uk (T. Fuller).

0016-3287/03/$ - see front matter 2003 Elsevier Science Ltd. All rights reserved.doi:10.1016/S0016-3287(02)00083-6

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half the private sector workforce is employed in small businesses. The article outlinesa number of modes in which small businesses exist, such as modern artisans, subcon-tractors and niche specialisation. The link between the entrepreneurial individualsand innovation is discussed, outlining a view that entrepreneurs may best be servedby corporate ecologies.

The future trajectory of small business in the UK and Europe is by no meanscertain. Paradoxes exist; the possible solutions to these can drive the nature of indi-vidually owned and managed businesses into different futures. For example, anapparent paradox is that the more global and inter-connected markets and societiesrequire greater specialisation, flexibility and speed, the more reliance is placed onactivity at a micro-scale. At the same time, the very growth in the technologies andmarket activities are driven by financial institutions that can only cope with large-scale programmes. The distinctive quality of small business, that is, the personalcommitment of its owners to meeting the needs of its customers, forms the basis ofits future. That sense of the personal and social essence of many small businessesleads to questions that are appropriate to contemplating the future of this sociallysignificant phenomenon.

2. What is a small business?

The term ‘small business’ is a relatively new economic category. In the UK(Britain and Northern Ireland) the term small business became a political reality in1969 with the establishment of the Bolton Committee by the Labour government ofthe day. The purpose of this committee was to identify the place of the small firmin the modern economy as a basis for recommendations about future policy towardsthem. The numbers of small firms in manufacturing (then a more significant sectorin the UK) had been decreasing. Employment share in small manufacturing busi-nesses had fallen from nearly 40% in 1935 to 20% in 1968. The number of ‘ large’establishments with over 200 employees had increased from 3000 in 1924 to 8000in 1968. In the same period the numbers of small establishments had halved to some80,000 [1, p. 4–5]. Corporate organisations had been growing in power and wereseen as the economic future. So, from its outset, the political definition of smallbusiness, and, I would argue its subsequent cultural meaning in the UK and manywestern cultures, was dialectically grounded in the existence of large business.

As part of its deliberations, the Bolton Committee produced a definition of smallmanufacturing businesses based on their inherent characteristics, i.e. the business isindependently owned and managed by its owners or part owners and that it has asmall market share. The size of these at the time was a maximum of 200 employees,which was used as a proxy. In 1996 the European Community defined a smallenterprise for statistical purposes as being independently owned and having less than50 employees, with sales of 7 million maximum or capitalisation of 5 million. Amedium sized enterprise is also independently owned with less than 250 employees,sales of less than 40 million or capitalisation of less than 27 million. The term SME(small and medium sized enterprise) is used as a generic term for both categories.

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Today, terms such as micro-enterprise (up to nine employees), and self-employedor sole proprietor are also used to denote the status of smaller businesses. Definitionscontinue to trouble analysis, and the reason for this is that the small business popu-lation is analogous to society—it is heterogeneous, and shaped by individual prefer-ences within an overall socio-economic context. For the purposes of this article,which takes the spirit of the Bolton Committee as a guide, a small business meansone that is owned by the people running it and which is relatively powerless withrespect to a national or global market.

3. A brief history of small business

The following ‘brief history’ illustrates some emerging principles that are the foun-dation of the meaning of small business today and throw a significant shadow onthe future. The very notion of being a ‘business’ , as compared to undertaking workwith a particular skill or producing a particular item, has to start somewhere. Alongthe way, the grand ideas of individualism, market competition, management andcapitalism have emerged as deep cultural institutions, underpinned by financial andregulatory structures. In this trajectory, the small business has gone from being anemergent property of domestic industry to both a rhetorical device for capitalisthegemony and an emergent form of individual identity.

Let us start with business. The concept of business as production and tradeemerged during the Middle Ages from work done in the home. Domestic industrydeveloped from the 13th century and was dominant until the 18th century, as AlfredMarshall noted

work done in the household for use by the household gave way to production,mainly in cottages and small workshops, of goods, the ultimate marketing ofwhich was organized by professional traders…

In all its forms it offered scope for the single independent artisan, with or withoutassistance from his family; but for the greater part it made use of hired hands ona small scale.

[2, Appendix C].Until 300 years ago, all businesses were small. Production by individual or small

group artisans such as wheelwrights, shoemakers, millers etc. has a long history. Inthe 16th and 17th centuries, trade and manufacture grew in value and volume, butownership and unit size of manufacturers remained small, co-ordinated by traders.As output grew in volume, so scale grew. The means of creating scale was theformation of more businesses, i.e. a replication of activity. But, to avoid the compe-tition that might arise through this process, artisan groups organised self-protectionof the growth in the number of businesses through membership guilds and by master–

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apprentice relationships. Another way in which scale was created was the practiceof ‘putting out’ . Putting out was placing small-scale hand production activities inthe homes of individuals who were paid by the amount produced (piece-work). It isrecorded that some entrepreneurs could operate with several hundred out-workers,each of whom was effectively self-employed and highly dependent on the organiseror entrepreneur (literally go-between) [3].

Economic output continued to rise with increasing amount of international trade.By the 18th century, the experience and wealth of mercantile traders was beinginvested in manufacturing businesses with mechanisation processes. Trade-based(e.g. woollens) and location-based corporations (e.g. London) of independent busi-nesses established protective regulatory regimes that maintained power for inde-pendent businesses. Then, around 1760, came a turning point—the Industrial Revol-ution. As Arnold Toynbee wrote in 1874 [4]:

The essence of the Industrial Revolution is the substitution of competition for themedieval regulations which had previously controlled the production and distri-bution of wealth.

(p. VIII).Adam Smith’s ‘Wealth of Nations’ [5] written in 1776 exemplifies the free trade

idea of the Industrial Revolution. Smith investigated the causes of wealth and pros-elytised the substitution of industrial freedom for a system of restriction—his thesiswas that self-interest (not greed) was an overriding motivational force for good. AsKorten [6] says Smith strongly disliked both governments and corporations. Heviewed government primarily as an instrument for extracting taxes to subsidise elitesand intervening in the market to protect corporate monopolies.

The culture of free enterprise, fuelled by mechanisation, freer regulations, emerg-ent capital markets and international trade led to the growth in wealth ofentrepreneurs. It also, according to Toynbee, led to a depersonalising of economicrelationships between the owners of the business and the people who worked there.

The new class of great capitalist employers made enormous fortunes, they tooklittle or no part personally in the work of their factories, their hundreds of work-men were individually unknown to them; and as a consequence, the old relationsbetween masters and men disappeared, and a ‘cash nexus’ was substituted for thehuman tie.

[4, Chapter VIII].The emerging class of industrialists was drawn from elite groups with family

mercantile backgrounds. Ownership and the capital base for each enterprise waslargely personal. The people establishing the enterprises were individualists [3, p.25]. Smith [5] was highly critical of the separation of ownership and control, i.e.the development of managerial capitalism. He believed that the managers of otherpeople’s money, rather than of their own, could not be expected to watch over it

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with the “same anxious vigilance with which the partners in a private companyfrequently watch over their own” .

There was a strong sense of the value of self-dependence and the prevalence of(largely mythical) notions that anyone could become a great business owner, or ‘self-made man’ if they worked hard enough. This sense is captured in the writings ofJohn Stuart Mill and Thomas Malthus as well as populist texts such as Smile’s ‘Self-help’ [7]. The sentiment is echoed by Marshall a century later when he said that“even working-men often have exceptional opportunities for starting and controllingco-operatives, co-partnerships and ordinary joint stock companies undertakings forwork with which they are familiar” [2, Part II, Chapter vii].

The idea of individual betterment through a life of hard work and enterprise, ratherthan through religious ritual is consistent with the Weber’s thesis of the Protestantethic [8]. These cultural and dutiful values of the individual making their own contri-bution to society and to God through their business endeavours was a legitimisingfoundation for the rise in the owner-managed business throughout the Industrial Rev-olution and through the 20th century.

Individualism requires a supportive environment in which to flourish. So, althoughthe significance of individual enterprise was a central tenet to businesses in the 18thand 19th century, this individualism required a governance framework that enabledactivities to be legitimised. Such a framework was not provided by regulation, butby what Casson [9, p. 42] calls a ‘high trust culture’ , which was manifest in whatmight today be termed networks of business owners. Partnership systems were usedto combine resources so as to increase scale and power. As Wilson [3, p. 27] pointsout, religious groups such as the Quakers and also regional communities of interestswere held together by mutual self-interest and acting on trust, bound by stronglyenforced codes of practice, thereby reducing inter-firm transaction costs. As a resultof these network practices, businesses remained relatively small and privately ownedwith their governance relationships largely self-administered and self-regulated.

Self-regulated governance and individualism was resonant with the legal structureof firms. For example, although it was possible to set up a limited liability (jointstock) company to protect its owners from the company’s debts, they were rarelyestablished. One reason that joint stock companies were not utilised more is thatthey were financially disastrous at the start of the 18th century when they had beenused for highly speculative purposes. The South Seas Act of 1720 made it veryexpensive and difficult to establish a joint stock company. It was not until the 1856Companies Act that the process of setting up a joint stock company was simplified.

In 1854 Usury laws were abolished in Britain, allowing interest above standardrates, which since 1713 had been a maximum of 5%. Thus, from the middle of the19th century, both investment capital and loan capital were increasingly availableby the more open regulatory framework. What followed were much larger-scaleinvestments in the railways and other utilities, the creation of stock exchanges inprovincial centres and a restructuring of the banking and investment. At the turn ofthe 20th century, many of the trades began to form associations and joint stockcompanies such as Imperial Tobacco, to increase scale and compete overseas againstlarger American and German firms.

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With this expansion came the separation of ownership and management with theemployment of professional managers by shareholders, the so-called managerial capi-talism. It was in the creation of this new system of enterprise funding and manage-ment that the roots of the modern public corporation were established.

Despite this trend towards managerial capitalism in the 19th century, the valuesof independence and self-help remained as part of the business culture. Many busi-ness owners did not move away from private ownership. Instead they increased theirmarket power by forming collaborations such as trade associations to fix prices andoutput quotas, in a similar way to the 19th century German cartels (which werereportedly more effective in maintaining a regime of price fixing). Funding fromlocal sources via provincial stock exchanges meant that local business owners wereable to maintain both ownership and control. For example, some 540 limited com-pany cotton manufacturers were established in Oldham between 1873 and 1875 larg-ely funded from the local business community [10, p. 212–220]. These local owner-ship strategies were effective in protected domestic markets, though less so ininternational markets.

Such entrepreneurial endeavours led the development of the domestic British econ-omy, with many “new openings for strong men with slender means” as Marshallcalled them [2 Part II, Chapter iv]. International trade was increasingly dominatedby well-funded and established joint stock companies, sometimes working in collab-oration with governments. While strong individuality was seen by Marshall as Bri-tain’s most important asset, it needed “ increasingly to be supplemented by readinessto co-operate with others in large affairs, while the supersession (sic) of small busi-ness by large in many industries is inevitable” [2, Part III, Chapter xi].

The structures necessary for international trade, the increasing power of insurance,savings and pension companies and other financial institutions, global financialspeculation and the evident success of the powerful large-scale enterprises in dom-estic and international markets are all part of the subsequent rise in the corporateorganisation. It is outside the scope of this article to map the rise of the corporateorganisations to their evident present-day power. It is apparent that corporations haveevolved from small-scale business, as a result of particular economic features.

In a strong culture of individualism and self-betterment through one’s ownenterprise and effort, the small business has flourished but has been overtaken econ-omically by the large managerially controlled corporation. Individual identity, whilestill strong in UK culture, is often defined by one’s position in the corporate ecologyor in what one consumes, rather than from one’s own creative activity. The path ofspecialisation or division of labour that created distinct individual businesses has, inthe main, been overpowered by the location of capital in the hands of diversifiedcorporations. The opening of competition and speculation that accompanied econ-omic growth effectively shifted power from guilds and city corporations to the marketpower of joint stock companies and, later, the financial institutions and multi-nationalcorporations. These patterns are underpinned by regulatory and financial institutions,which enable private ownership and property rights, usury, and the regulatedexchange of goods and labour within a national context—and, increasingly, a Euro-pean context.

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Corporate organisations have attained power in most western economies, includingthe UK, in the last 50 years. The flow of savings into capital market funds is directedat public corporations. Basic technological infrastructures are increasingly owned orlicensed by corporate business. Employment of the managerial and technologicalelite is in corporate businesses. Post-graduate business training is oriented towardsthe corporate career. The wholesale acceptability by society of corporations as thede facto economic resource is evident by the socially marginal status of groups thatoppose this.

The result of this rise in corporatism is that small business has been othered [11].Its meaning is given in economic and political discourse by an implicit comparisonwith the perspective of corporate business. In the UK and Europe it is deemed politi-cally and economically necessary to identify ‘small’ businesses and protect and sup-port them in political terms.

4. The trajectories of small business landscapes

Given the rise in corporatism over the last 150 years, why do small business exist,and why have the numbers of small firms grown by 50% over the last 20 years?There is not one single answer. I suggest that explanations are situated in socio-economic structures and in the inter-subjectivity of personal identity. Small busi-nesses are in co-evolutionary relationships with corporate business in the economiclandscape. And, for the individuals who create and run their own enterprises, theyare existential, providing meaning for everyday practice.

Small firms are estimated to contribute 37% of UK private sector gross domesticproduct. UK government statistics indicate that 55% of the private sector workforceis employed in businesses with under 250 employees. Ninety-nine percent of allbusinesses employ fewer than 50 people and provide 44% of private sector employ-ment. There are around 3.7 million small businesses of which some 2.3 million aresole traders and 1.3 million employ between one and 50 people. Similar patternsprevail in Europe, although the percentage of the workforce employed in SMEs inthe UK is lower than most European OECD countries—Germany 60%, France63%—but higher than in the USA or Canada [12,13].

Small business is evidently a structural feature of the economy and society. Inde-pendently owned business and self-employment are legitimised within the nationallegal framework—allowed to exist and operate, subject to numerous regulations.The existence and regulation of small limited liability companies is enshrined in theCompanies Acts of 1947 and 1985. Other institutional frameworks co-evolve withsmall business, for example, professional accountants, bankers and lawyers andmembership groups such as trade associations and chambers of commerce etc. TheUK government, as many others, softens some of its regulatory activities whenapplied to small businesses. It channels 1.6 billion of support per year to smallbusinesses [14] and has a non-cabinet junior minister with responsibility for smallbusiness. Through its Small Business Service it attempts to inform small firms oftheir regulatory duties and provides free or subsidised advice on basic business mat-ters.

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The UK Small Business Service advocates that SMEs should, and do, play a vitalrole in the economy, providing new ideas, products, services and jobs. Since the1980s, when Birch identified the job creation role of smaller business in the US[15,16], the main economic argument for public support has been employment andjob creation. Public financial support is based on the principle that small businessesare at a disadvantage compared to larger businesses [1, p. 17]. Most European Unionfunding for SMEs in regional development programmes use job creation as the keyoutput measure.

The positioning of small business in political discourse from 1979 has beentowards an ‘enterprise culture’ which Burrows interprets as a political move awayfrom anti-enterprise inspired by social democratic collectivism [17, p. 17]. Thepresent day discourse of the Labour government follows this path:

Entrepreneurship and innovation are central to the creative processes in the econ-omy and to promoting growth, increasing productivity and creating jobs... Thegovernment’s aim is to create a broadly based entrepreneurial culture in whichmore people of all ages and backgrounds start their own business

[18, p. 14–15].Such discourse situates the notion of having one’s own business in a context of

innovation, growth, and productivity. The synonym of entrepreneurship with newbusiness and growth is dominant and means a mechanism for economic growth.‘Small’ is absent from the political language, and ‘one’s own business’ is homogen-ised as an emergent property of an entrepreneurial culture that produces innovationand jobs. The commentary is silent on the values of personal trust and commitment,individual effort, the creation of identity and family security, the business as a meansof self-fulfilment through work. Small is not beautiful in this discourse. Growth andchange are beautiful, in an economic race against competing nations, fuelled by theintentional creativity of entrepreneurs; entrepreneurs that are, for the moment, lockedin a corporate dominated ecosystem.

Small businesses exist. They exist as a set of relationships between the businessand its stakeholders. The most significant stakeholder is the owner of the business,for whom the business may be solely a vehicle for the creation of personal wealth,but more often has a much wider range of meanings. The personality of individualsis integrated with their businesses as a reflexive identity. This is highly significantto the way that the future is shaped by small businesses. Owner managers arerenowned for their independence and resilience to outside assistance or, as they mightsee it, interference. Some families have strong backgrounds in business ownership,which pass through successive generations. Thus, the way that a business starts out,and is shaped by successive generations of owners, is to some degree personal andidiosyncratic. This personal, independent and context-dependent nature of each smallbusiness renders them resistant to simple classifications. The grouping of small busi-nesses by their sector, trade, or by their size, are descriptive classifications, but notcausal groupings [19, p. 19].

For this reason, categorisation of small business is difficult. However, some dis-

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tinguishing features, though overlapping, do help in understanding the nature of,and future of, small businesses. These features are discussed below and are largelyconstructed by reference to different contexts and key stakeholders. These contextsare: artisan activities; distributed risk through subcontracting; division of labour andspecialisation; new ventures; independence; and entrepreneurship.

Many small businesses are still simply a mechanism for the way in which anindividual exchanges their personal artisan skills for reward. Artisans create andpeople buy the results. This concept has changed little in the last 400 years, thoughthe nature of work done by artisans has changed. Mechanisation and automationhas reduced ‘ traditional’ artisan skills such as the many tasks involved in clothingmanufacture for example. Artisan businesses of today include computer programmersand poets, hair stylists and personal fitness trainers, plumbers and dentists.

As with historical patterns of artisan employment, some businesses will grow toemploy groups of artisans; mechanising and automating their activities as standardsemerge. For example, computer programmers are largely employed by corporateorganisations, especially specialised computer services businesses. However, manythousands are also self-employed or in their own ‘service companies’ undertakingwork for business customers under contract. Similarly, computer games businessescontract self-employed programmers on a world-wide scale. The Linux story [20]demonstrates how individual specialists self-organised to create a major new softwareresource. Even some commonplace barbers and hairdressers have established brandedfranchises and operate through standards rather than individualistic stylists [21]. Theprojection of this pattern into the future is relatively straightforward. Existing artisanactivities are liable to standardisation and automation with a consequential increasein scale and reduction in difference between them. The emergent organisations willbe larger than independent artisans. At the same time, new artisan activities willemerge from human creativity and inter-relationships. Increased consumer wealthalso drives the consumption and demand of such activities. Artisan activities havebeen growing more aesthetic in content and more dematerialised in substance—more‘knowledge-based’ in the language of the times.

Related to the evolution of artisan activities is the evolution of distributed activi-ties. Historically, putting out has been a regular business strategy. Today there area number of different models, ranging from home-based tele-workers, eitheremployed or self-employed, to the extensive contracting out of services to specialistsuppliers who might themselves be large businesses. The strategy of putting out isone of risk management. When there is no work, no payment is made, plus thereare few fixed costs to maintain. When there are long periods of repeated activities,costs can be reduced by undertaking the activities ‘ in-house’ . However, when thereis constant change in demand, the producer’s long run costs are reduced by subcon-tracting. The strategic necessity or core is not the ownership of the means of pro-duction, but rather the control or accessibility of such means as might be requiredat any given time. The episodic use of small businesses by others that are larger andmore powerful, is analogous with employing and laying off workers, but withoutthe employment costs involved. Further, as costs of employment (welfare benefits,redundancy payment etc.) increase, so the attractiveness of putting out in its various

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forms, increases. The target for putting out is the cheapest source that can deliverto standard—that means global supply networks. The strategy is not restricted tolarge companies. Small businesses ‘put out’ work and collaborate in very dynamicnetworks. Such a well-established pattern is unlikely to discontinue in the near future.The extent of its growth depends on society’s willingness to balance the insecurityof such arrangements for the individual with the overall economic flexibility ofthe system.

One strategy for those on the receiving end of putting out is to increase theirspecialisation and their range of connections or networks. A specialisation strategygives the firm or individual increased market value for the time period that thespecialisation is required. Increasing the range of connections means reducing depen-dency on a few customers. Specialisation and division of labour is a principle thathas historically given rise to diversity. It is natural for humans and other species[22] to prefer to undertake activities they enjoy or are good at. Preferences varyfrom one person to another. Marshall noted the opportunity arising from greaterspecialisation for growth in small enterprises in the early 20th century.

The structure of some business sectors reflects the dynamic use of specialisedlabour more strongly than others. For example, the work of construction businessestends to vary seasonally, and by type of project. Different skills are needed at differ-ent times. The result is that most specialists in the construction industry are self-employed or have only a few employees, accounting for 75% of the UK constructionindustry workforce of 680,000 [13]. Each self-employed person is engaged asrequired on ‘projects’ by main contractors who win business and co-ordinate thework to fulfil contracts. For the individual construction worker, there are periods offamine and feast, as the demand for a particular skill rises and falls. There are specialtax rules for workers in the construction industry that reflect this way of organising.The pattern of division of labour as specialisation is likely to continue in a landscapeof high connectivity. If one is isolated, one has to do everything oneself. In land-scapes of extreme connectivity, high levels of specialisation are possible. Futurebusiness communities that are constructed through highly accessible and connectedlarge numbers are likely to differ from ones that are remote and disconnected in thedegree of specialisation of each small businesses.

A rhetorical adage is that all businesses were once small businesses, i.e. even thelargest business had to start somewhere. A small business is able to get startedbecause it offers an improvement which meet specific needs. If the offering is ofsignificant benefit to many, the business may grow quite large, supported by infusionsof funds. Sometimes, the offer and its benefits appeal to only a small set of cus-tomers—the so-called ‘niche’ , which is too small to be financially attractive to largerbusinesses. In an ever-changing technological and market landscape, niches appearor are created constantly, providing energy and opportunities for new businesses. Inconditions where the individual is able to recognise unmet needs and has the freedomto mobilise activities and resources towards meeting such needs, the constant emerg-ence of new businesses will continue. Such emergence does not require a capitalistsystem of funding, but it does require the freedom to act independently.

It is the creation of novelty—innovation—that Schumpeter linked with the entrepr-

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eneur. The word entrepreneur [23] has many shades of meaning, but for Schumpeter[24,25] the entrepreneur was a risk taker, a business leader and innovator who oftenneeded management and co-ordination skills to enact the innovations. He also distin-guishes the entrepreneur from the capitalist. The capitalist provides the speculativefunds in exchange for rents, i.e. an above average return on investment. The entrepr-eneur is the person or group of people who shape the way such capital, or otherresources, are utilised, by both creating and satisfying market needs through inno-vation. To Schumpeter, entrepreneurs were people through whom capitalism’s ‘per-ennial gale of creative destruction’ blows [25]. For Flores and Gray [26], the individ-ual’s personal commitment to an innovation, perhaps as the solution to a problem,distinguishes today’s entrepreneur from the ‘wired’ worker acting at the behest ofpseudo-employers. This idea of ownership and personal commitment to the businessis central to understanding the motivations of business owners [27]. These writersportray the entrepreneur in similar ways; as the agent who creates emergent proper-ties from their relationships with, and interpretation of, present-day landscapes. Theact of entrepreneurship as so portrayed, is not a small business per se. The futureof entrepreneurs, so defined, seems assured in all but the most closed regime.Whether small businesses result from entrepreneurship depends on the purpose ofthe entrepreneurial actions.

The strong inter-connection between the individual and the business is fundamen-tal to the theory of the small business. The commitment to a venture, to a solution,to innovative ways, shapes the very identity of the individual. It is such commitmentthat helps the business survive in times of crises, but sometimes also prevents thebusiness from growing through the recruitment of managerial staff. The owner maywant to keep control of every aspect of the business, of their own money and future,so they do not readily employ professional managers. This pattern has been evidentsince the 18th century when independent ownership was favoured, despite the appar-ent financial benefits foregone by the individuals concerned. Releasing control ofone’s own resources to others requires trust and effective systems of governance,whether formal or informal, that are supportive of the values of small business own-ership. These are not highly evident in society or in the corporate business world.In consequence the milieu for small business creation is weak.

Overcoming barriers to the development of a business beyond a certain scale orscope sometimes requires a shift in the self-identity of owners. Businesses face pointsin their activities that require step-changes. For example, the size of the niche servedmay limit growth, as might the costs related to extending geographical coverage, orthe competition for skilled people from other employers. It is of course possible forentrepreneurs to construct businesses serving multiple niches, to overcome geo-graphic boundaries by multiple locations and to reward and train staff. To do thesethings transforms the personal identity of the owner manager from an artisan, inno-vator or specialist, into a business leader. Many business owners do not want this.Small business is a vehicle for individual achievement. This pattern of individualismis, if anything, likely to be amplified by the present trends of social atomisation. Ifthis were the case, then the pattern would be for more small businesses that arespecialised, rather than fewer but larger businesses.

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Innovations from entrepreneurial actions can result in large-scale organisations.Some small businesses are new ventures on their way to being large ones. The initialconditions that create these are often different from those of small businesses. Foun-ders with ambition to create a large venture, with high levels of human and socialcapital (experience, training, networks) and substantial backing from capital marketscan provide the initial conditions for a large or fast growing enterprise. One startingpoint may be where the professional managers buy an existing business from corpor-ate owners. Another is an entrepreneur buying existing businesses and introducingcapital and management. Occasionally, a large enterprise may start from a singleinnovative idea. There is now a small but lively market for the sale of unlisted stocksin the UK (Ofex) that can provide an upwards path towards flotation, and numerousventure capital houses ready to invest in growth-oriented new enterprises. There isalso a growing band of independent financiers, the ‘business angels’ who invest inand mentor new ventures.

Increasingly, the innovative capabilities of entrepreneurs are harnessed by the cor-porate sector through corporate venturing. Corporate strategy separates diversifi-cation at a corporate level from that of the business strategy level. Strategic businessunits, which are small relative to the whole corporation, are highly focussed. At thecorporate level, the largest organisations act as bankers and interface with financialand government sectors, legitimising the operations of their business units throughgovernance and stakeholder management mechanisms. Perhaps the most sophisti-cated current example is GE, based in the USA, but multi-national in the scope ofits operations. The adaptive strategy of GE requires each division to be leaders intheir markets, to reward and move successful managers into new arenas and to dis-miss unsuccessful ones, thus maintaining high levels of what McKelvey [28] calls‘adaptive tension’ . This strategy addresses the strategic paradox of focusing on a‘core’ business [29,30] while creating a future through diversity and innovation. Iteffectively recreates a smaller business world within the corporate eco-system,though the resultant smaller businesses or units do not resemble independentsmall businesses.

An increased availability of capital for smaller growth ventures, and the sociallegitimising of entrepreneurs are conditions that should give rise to more new ven-tures. Two alternative species arise from this. The first is the ‘ intrapreneur’ (in-company or internal entrepreneur), who is the professional corporate manager whouses available funds and systems as a vehicle for new venture creation. The secondis the new independent entrepreneur, who operates directly with investment capitalfrom smaller funds with lower transaction costs. It is possible for both species toco-exist, but the dominance of one over the other depends on the way society valueseach. If more corporate organisations adopt the GE approach, then the intrapreneurswill dominate and the corporate sector will become more diversified and operate inmore niches. If individuals invest their savings and pensions in funds that supportindependent ventures, the new entrepreneurs may dominate.

Along with contracting out (putting out), and corporate venturing, a third area ofcorporate strategy also gives rise to greater numbers of small business. In order forthe products and services created by the corporate sector to reach increasingly diverse

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and niche markets, more specialised adaptations and local services are needed inorder to meet the wide range of consumer demands. For example, Microsoft needssmall businesses as customers to utilise their software products, they also need themto develop new applications and to distribute products to other small businesses andconsumers. Monsanto needs farmers and merchants to utilise their agricultural pro-ducts. Third generation wireless telecommunication licence holders need to encour-age thousands of different application developers and users to create demand for thebase technologies.

In summary, the present-day landscape favours the continuation of small business.Small businesses have important roles, and increasingly so. They are needed by thecorporate organisations as suppliers to provide flexibility. They are also needed bycorporate organisations to create the greatest reach and depth in local markets asdistributors and agents for products and services. Small businesses as customers ofthe corporate providers of basic technologies and infrastructure are vital to the growthof the corporate-based economy. They create a diversity of uses and the rapid exploi-tation of technologies and niche markets. Similarly, small businesses provide manyof the inputs to production, management and distribution systems of corporate busi-ness. Small business of today is co-evolving within a corporate capitalist regime.Small business and large business are dependent on each other. At one extreme,small business exists to service large business; at the other, small business exists tofulfil the gaps left by large businesses, or as a reaction to their very existence.

Small businesses are needed today by society for employment and as an alternativecareer. They are needed by citizens-as-consumers who demand customer service andchoice that requires niche-oriented suppliers. They are needed as a vehicle for anindividual’s entrepreneurial activities in an economic context, whether as an artisan,innovator, specialist, entrepreneur or family business owner.

If these trends continue, then there will be many more small businesses in the UKbut those future small businesses may not be as powerful as small businesses arenow. Even now, the self-employed are not as powerful as employees in the senseof having fewer ‘ rights’ or the ability to act collectively. It is the collective actionsof small businesses that increase their power, as the guilds illustrated (much to thechagrin of Adam Smith as they represented a barrier to the free market). So almostparadoxically, in an economic environment that remains largely capitalist, in its vari-ous diverse forms [31], future small businesses are most likely to thrive as a closelyinter-dependent and generally weaker partner of the corporate sector. While this isthe case, small businesses can expect no increase in power in terms of their socio-economic standing and structural position (legal, institutional, cultural). In this event,it may be better for individual entrepreneurs to develop their commitments withina corporate structure rather than as an adjunct to it.

And what if corporate capitalism is dying? What difference would it make to thesmall business? There are voices within society that oppose the unwanted conse-quences of capitalism and corporatism. These voices, currently being heard in cam-paigns concerned with the WTO, GM crops, globalisation, third world debt, corporatecrime, biological mono-cultures, resource depletions, etc. are weak signals of poss-ible futures. Small businesses can exist in such alternative futures. In order to thrive,

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a small owner-managed business—one’s own business—needs the freedom to create,to take risk and a culture in which the values of self-responsibility and a commitmentto the solution of problems is applauded. Small businesses thrive where personaltrust and shared values supersedes contractual muscle, for such is a culture wherefailure is tolerated and where relationships are largely personal and meaningful [32].Would small business survive where environmental awareness or spiritualism sig-nificantly reduced the propensity to consume, where values of simplicity and povertywere renewed, where economics, in Schumacher’s words, were “as if people mat-tered” . In such an environment, where personal freedom creates sufficient unpre-dictability for life to be interesting, “ in small-scale enterprise, private ownership isnatural, fruitful and just” [33, p. 223]. The message is that small businesses cansurvive and contribute significantly to society in many different contexts. What con-texts and what futures might be projected from today?

5. If you want to know about the future of small business, what are thequestions to ask?

The emergence, growth, othering and political homogenisation of small businessinterpenetrate with societies’ evolving construction of meaning and value. Funda-mental to the historic trajectory have been the mechanisms for appropriating wealthfrom each new technology, whether for navigation, automation, communication,weaponry etc. by the holders of power. These mechanisms include the productionprocesses, the investment processes, the market and distribution processes and theprevailing regulatory frameworks. The clear trajectory of the last 150 years has beenthe growth in capitalism fuelled by western social ideologies of the enlightenment:freedom, independence and scientific progress. The moral consequences are clear;unsustainable consumption of natural resources and a detachment of financial specu-lation from value creation.

Are there alternative futures for small businesses, beyond a risk-bearing adjunctto corporate capitalism or some return to isolated artisan self-sufficiency? Techno-logies that provide greater densities of communication can, in theory, increasespecialisation and reduce inter-firm transaction costs. Reflexivity and self-awarenessof consumers will perhaps amplify the growth in narrower niches. Global standardsand transparency in trade could reduce barriers to entry for new businesses. Societies’quest for more spiritual and responsible meaning to life in the face of environmentalsystems breakdown could deflate consumption.

Does small business, as a means of channelling enterprising activities in the con-text of value creation and fair trade, have a future in society? Just as society hasconstructed the present, so it can construct the future. Some questions to considerin the creation of the business landscape and the future of small business are:

� How important to society are personal relationships in business transactions?Small business is personal. It is the result of personal relationships between stake-

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holders. In a landscape where personal relationships take precedence over regu-lated contracts, small business will thrive.

� How important to society is the personal commitment of business owners to thesolution of its customers’ problems and needs? Personal commitment transcendseconomic constraints. In a landscape where both buyer and seller recognise eachother’s real needs, the small business will thrive. Large businesses cannot do that.

� For how long will consumers crave the brand rather than the personality of theindividuals that create the service? The brand is the soul of corporate business.In a society that adopts the human spirit as the manifestation of good, rather thaniconic symbols of constructed value, small business, as an embodiment of humanspirit will thrive.

� How important to society is the individual’s personal control on their work andcareers? An entrepreneurial approach is to commit to a socio-economic goal, inwhatever landscape supports that commitment. Small businesses and smallenterprises are often the result of that commitment.

� Who will invest their savings directly in the activities of people they know, ratherthan in market valued institutional funds? Institutional funds can only operatewith large sums, as so much is in the hands of so few. The small business willthrive in a landscape where the purpose of the use of money takes precedenceover the financial return from the use of power.

� Will societal regulation allow us the freedom to decide our own work and enableus to exchange our efforts in flexible ways? Unregulated economies lead to crimeand monopoly, so forms of ‘ regulated freedom’ are necessary.

� When will monopolistic power be seen as the unwanted outcome of individualgreed? Diversity is a natural hedge against risk, economic mono-cultures are ahigh risk for humanity. Small business landscapes are diverse.

6. Summary

In the 1960s, the number of small businesses reached their lowest level in theUK. Since then the numbers have once again increased, and their aggregate is cur-rently stable although there are continuous births, deaths and re-inventions as thelandscape changes. Small businesses in the UK employ about 55% of the privatesector workforce which is a lower proportion than most OECD countries but higherthan the USA.

Despite this significance in the economy and in society, political discourse onsmall businesses portrays an homogenous population which is othered by comparisonwith corporate organisations. The values that underlie a small business economy andthe creation and maintenance of small businesses are significantly different fromthose that create corporate dominated economies. Small businesses are personal andreflect the personal values and commitment of the owners. As a population they areidiosyncratic and heterogeneous.

Despite the trend in numbers, small businesses exist and operate mainly in a land-scape dominated by managerial capitalism. Their economic and social health is inter-

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dependent with the corporate sector. Small businesses provide resources and marketsfor large businesses, but lack their power.

In this landscape, individual entrepreneurial innovation is best situated within theeco-system of the corporate organisation where it can gain access to resources. Assuch, this trend could be the death of small businesses, except as relatively cheap lab-our.

In a landscape where society values the enterprising human spirit in direct ways,i.e. not through the vicarious glamour and reputation of brands, or the anonymityof financial institutions, but through personal commitment, then the small businesshas rich and diverse futures.

Acknowledgements

I thank Lindsay Travis for her assistance and helpful comments for this paper.

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