Businesses: Small and Medium-Sized Enterprises

Lord Giddens Excerpts

Tuesday 6th May 2014 Lords Chamber

[Lord Giddens (Lab)]

My Lords, let me congratulate not only the noble Lord, Lord Cope, but all noble Lords involved in the production of this report. I speak as someone who was not on the committee. The report is wide-ranging, authoritative and packed with interesting ideas and proposals. As a social scientist, I particularly like the comparative parts of the report, including the well documented section on Bavaria. The Bavarian successes with small business start-ups are relevant not only to the UK but to other parts of Germany, some of which lag well behind that area. I also echo what the noble Lord, Lord Green, said about the importance of Europe to our export markets and the single market. I welcome his sort of “hmm, hmm” comments on Germany because I do not think that the way to go for Britain is just to copy Germany. That country was the sick man of Europe only about 10 years ago, it still has structural weaknesses alongside its strengths, and we should therefore be a bit careful about that and develop our own model.

I shall concentrate here on only a few issues among the many powerful points made in the report. One is the core question of finance. It is disturbing to see in the report that:

“Lending had dried up even to SMEs with full order books and strong collateral and strong cash flow”.

What interventionist measures would the Minister suggest for breaking through this somewhat disastrous situation over and above those contained in the response already made? Would he not agree that it reflects structural factors, not just the hesitancies of the banks in the aftermath of the financial crisis? The economy has become dominated by finance-to-finance lending, often on the large scale, and lending to small productive enterprises comes very low down on the list. Microfactors are very important too. Does the Minister not agree that the demise of relationship banking, to which the report quite rightly draws attention, needs to be put into reverse? Speaking as someone who has studied the German economy quite intensively, the comparison with Germany, or at least the avant-garde sectors of the German economy, is quite telling here. What policies would the Minister propose to revive relationship-based banking in a speedy way? It seems to me that what one needs here is a new combination of high tech and low tech: on the one hand burgeoning processes of automation and, on the other, a distance between the banking system, the finance system and customers, including productive enterprises. I think that some structural reorganisation is needed here.

The report mentions that many SMEs are “born globals” in the internet age but I am not sure that this thought is followed up in the detail needed. To me, the advent of the internet, the coming of the internet of things and the transformations in manufacture linked to this are absolutely extraordinary. I do not think that there has ever before in human history been a period of transformative change of such an intense kind, and it is very important that we surf the wave of these changes. Even tiny start-up firms, through using internet-based collaboration, can produce and sell around the world, and indeed they are doing so. They come into existence one day and, almost the next, sell on a global level.

Tiny companies can now make use of facilities once available only to very large enterprises. McKinsey estimates that in the United States one-third of all SMEs now make extensive use of cloud technologies. That is a quite remarkable statistic. Whole departments were once needed to harness facilities that are now available either for free or at very low cost. Some cloud computing services cost only 10 cents an hour to utilise gigantic computing capacity. We have quite a range of microstudies which indicate that SMEs in this country are on average well behind those in the US and in some of the leading European countries in making use of these facilities. I ask the Minister what more can be done to get this country more into the forefront of these extraordinary transformations. Of course, many small businesses are local but we are seeing the fusion of local and global in a way that has never been seen before, and this is where enormous productive and export capacity will lie in the future.

The report does not discuss import substitution. I understand why but I think it is a pity. I do not think, as has been conventional wisdom up till now, that we should accept the inevitability of offshoring and deindustrialisation. A feature of history is that it does not move in a unilinear way—it quite often goes into reverse. I think that active policy should be engaged to try to push some of these trends into reverse, no matter how dominant they have been over the past 20 or so years. In this country we should actively seek to reverse these trends, both in manufacture and in the service industries. 3D printing is just the cutting edge part of what looks to be a thoroughgoing revolution in manufacture—perhaps even bigger than the original Industrial Revolution because of its global scope. Not just 3D printing but digital production more generally will be an enormous boon to SMEs, even tiny enterprises, and at the same time will serve to relocalise production.

Does the Minister agree that we should seek to reverse some of these trends that have previously been so dominant? It is not stupid to talk about the possibility of a partial reindustrialisation of the British economy. It is not stupid to suppose that the service industries will become massively more productive as a result of these emergent trends, and that policy should therefore follow and support them. What are the Government doing to help accelerate these trends of such potentially massive significance?