UK: Private enterprise - small is painful. (1 of 3)

UK: Private enterprise - small is painful. (1 of 3) - Most woes of small business stem from chronic instability, writes Geoffrey Foster.

Last Updated: 31 Aug 2010

Most woes of small business stem from chronic instability, writes Geoffrey Foster.

Tom O'Connor is a luminary of the Confederation of British Industry. He is currently chairman of the CBI's Smaller Firms Council. He is also a (relatively) small businessman himself, being head of a firm of plastics moulders which employs some 120 people - and turns over in the region of £4 million - at Stockton-on-Tees. Twelve months ago O'Connor owned Elta Plastics, but in the latter half of last year he sold out. The company's new owners are Japanese.

Some of O'Connor's friends and colleagues, including fellow members of the Smaller Firms Council, have been astonished to learn of his decision. But from several points of view it was the right one. He, personally, collected a sizeable sum of money (rather more than £2.5 million, according to Japanese sources), which will bring comfort to his family even if it does not make a huge difference to his lifestyle. As for Elta Plastics, the company has "an assurance of financial and technical support" in forms not available to it in the past.

For the time being, at least, O'Connor remains in charge. "Nothing much has changed," he insists - except in the not insignificant respect that "we may want to expand more rapidly than we would have done". (There are actually plans to double the company's size.) Thus employees, too, stand to benefit from the change of ownership; their jobs, in effect, being underwritten by the decision of Nifco, an industrial fastener manufacturer listed in Tokyo, to join the Japanese invasion of Europe.

It could be that O'Connor has eliminated, at a stroke, many of the ills that beset British industrial producers. But not quite yet, perhaps: Elta is far from immune from the effects of recession. The company depends heavily on the motor industry (especially on Ford, but also on Rover and Nissan), so cannot escape the draught caused by the fall-off in car sales. Recent completion of a major job for Belgian Railways has also left a hole in the order book.

But for the great majority of smaller firms the option of bidding for export orders does not exist anyway. And looking to the future, Elta expects to attract more work from overseas, as it grows in parallel with the Japanese presence in Europe. Development of a range of proprietary products, for which it has Nifco's technical and financial backing, could likewise provide a welcome degree of stability: conventional plastics moulding is notoriously a feast-or-famine occupation.

But instability has been the curse of British business right across the board. It is often argued (and with excellent reason) that the blood letting of the early 1980s produced a much needed shake-up of Britain's industrial base, which brought immeasurable benefits by drastically reducing overmanning and cutting out vast acres of production in fields where the country could no longer hope to be competitive. However, the severity of that eruption was a direct consequence of the decades of instability, of stop-go and boom-or-bust, that followed World War II; and which left British manufacturers timorous about modernisation and investment, because fearful of misjudging the cycle - and equally fearful of upsetting trade unions which the same oscillating conditions had made bloated with power and self-importance.

Although its effects have frequently been overstated, the aftermath of the early '80s recession saw a truly spectacular flowering of enterprise. As O'Connor says: "The mid-1980s showed that the entrepreneurs were always there" - earlier decades had simply smothered the entrepreneurial spirit. The services sector blossomed with boutiques and decorators and cleaning contractors. Out-of-work managers frequently became consultants. A few took the plunge and founded ambitious enterprises of their own - even, occasionally, in manufacturing. Everyone, it seemed, and at every level, was going into business. And the phenomenon continued throughout the decade: new VAT registrations climbed from little more than 150,000 in 1981 to 265,000 eight years later.

Quite suddenly small business became the Government's darling. Although constant doubts were expressed about its capacity to soak up the vast pool of unemployment spilt by the recession, Mrs Thatcher insisted that there was "no other answer" than to go on creating more small businesses. Chancellor Nigel Lawson boasted of the "sea change" that the new spirit of enterprise had brought to the British economy. Over at the "Department of Enterprise", Lord Young was loud in his appreciation of the beauty of smallness. Small business was proclaimed as the embodiment and symbol of Britain's prosperity, then and to come.

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