This is the first in a new sequence about self-employment and the contributions it makes to the local economy.
What is the role of self-employment in the local economy? To answer this question, let’s review the parts that make up the local economy.
It is possible to describe types of local business but nothing is ever clear-cut. My working definition is a local business is owned locally and in net adds money to the local economy and so keeps money circulating.
A large supermarket that in net takes money out of circulation, will also put some money in by paying its staff, taxes, etc. But they take their profits out of the local economy; money that no longer circulates. It may be possible to argue for each company, whether its overall practice removes or adds money to local circulation. It may do both, it may have a net beneficial effect but its decision-making is a long way off and does not consider local benefit.
This is modern capitalism, with power concentrated in fewer and more distant hands. We have many examples of exploitation of workers, tax avoidance and investment that railroads local interests, leading to inappropriate developments and neglect of High Streets and local neighbourhoods.
Parts of the Local Economy
If we are not careful, it is easy to think of traders as the local economy. This is far from the truth. So, I suggest there are four parts that make up the local economy. There may be more and it may be worth splitting some of these groups. But this is a start and we’ll see where it goes.
Traders
Traders depend on footfall, whether they are a market stall or a shop on the High Street, their market is largely those who live in, work in or pass by their shop. Some practice other activities on the side and market their business outside their neighbourhood but running a shop or stall is a big undertaking and it is likely to be the main pre-occupation of the business owner.
The trader is the most visible element of the local economy. They are visible because their business depends on visibility. Reputation may draw people down a back street but a good sign may be a better investment!
When people think of the local economy, they think of shops because they are a sign of local economic activity. Local traders will thrive where people are willing to use their services. Some of them will work with other traders in the area, perhaps selling each others’ products and so, they are a sign that perhaps more is going on than meets the eye.
Businesses
Here I mean businesses that are visible in Yellow Pages but not on the High Street. All these components overlap and some business will have shop fronts.
We tend to think of the local economy as small businesses. This is certainly not true; there is no limit to the size of a local business. Indeed most of the big corporations started as local businesses that grew bigger and spread to other cities and other countries. Not all large businesses become corporations, some fail and some stay where they are. It’s not compulsory to reach a certain size and become a corporation. There are other growth models.
Self-employed
With this part, I have in mind the lone workers, perhaps occasionally working in partnership. Some of these will see themselves as small businesses and some will grow into big businesses. These businesses don’t employ staff and may collaborate to get things done.
A lot of what I’m going to say in this and future posts in this sequence may apply equally to small business owners. Taking on staff doesn’t change the owner overnight. These are overlapping definitions and we should not get too hung up on them.
The point about the self-employed and the reason why it’s worth looking at them is they are the innovators in the economy. Now, yes even corporations innovate. The difference is the corporation will innovate where it seems profitable to do so. The self-employed can focus on small markets and take the risk.
Most self-employed businesses fail within the first 2 or 3 years. Some will have chosen a business idea that was not viable. Others may have not been good at running their business, perhaps failing to market their viable idea. But this is where the traders and businesses come from, the people with a vision prepared to take a personal risk and try something new.
Non-Business
Finally, not all the components of a local market are businesses. There is also infrastructure, community organisations, public bodies and all of these can add to footfall and help build a community that sustains its businesses.
Can you think of any other parts of the local economy I’ve missed or should separate out of the four I’ve mentioned?
