Elections 2019- Why small business policies should be less certain

The 2019 election manifestos reveal ‘what is possible’ for small business and entrepreneurship policy in South Africa. The proposals are however inadequate to create a successful small business sector. In fact,  this consensus makes the ‘proliferation of small business’ – to use the parlance of the National Development Plan –  impossible.

Outcomes on small business have been poor despite enthusiastic effort. Research from the Small Business Project and from Trade and Industrial Policy Strategies (TIPS)  indicates slow or no growth in the number of small businesses. South Africa also has one of the lowest rates of established business in the world according to the Global Entrepreneurship Monitor (GEMS).  The major political parties – ANC, EFF and DA –  accept the current policies but emphasis better implementation.  Innovative ideas are proposed but they remain marginal.   

However, continuing the current policies – even with efficiency improvements – will not improve the jobs from or the value of the small business sector.

An unintended consensus?

There is however an unintended consensus on significant issues across the major political parties:

  1.  Ownership is highly concentrated with large dominating the economy.  
  2. Catalysing fairer marketplace through better procurement and competition policies.
  3. Expanding existing support programmes, especially access to credit will catalyse new businesses and support growing businesses.
  4. Sectors that absorb labour, especially agriculture and  fisheries, are emphasised.
  5. Infrastructure and industrialisation programmes, even though the focus is on improving competitiveness, should include small business.
  6. South Africa should be a society that supports the proverbial ‘little guy’.

Two points of disagreement however still stand out:

  • Role of the state:  Left leaning parties argue for a stronger investment role from government . Parties on the right, emphasise freeing the agency of entrepreneurs.
  • Collective ownership:  On the left there is  a search for forms of ownership that are more socialised, especially through cooperatives. Those on the right place an emphasis on individual ownership.

Our debating culture  teaches us to  amplify  these ideological fisticuffs. However interesting these differences are, they fizzle out in the design and implementation . The policy proposals look the same because the approach is tactical, rather than systemic. Political parties look for this-or-that intervention, when they should be looking at the overall structure of the economy.

The examples are ample. For instance, the EFF proposes the creation of new harbours to service small scale farmers. In another instance, the DA envisages a National Treasury that will guarantee payments from small companies. The ANC proposals focus on infrastructure investment and strengthening competition policy. Different proposals, but with a common underlying logic – government should expand interventions from the existing policy suite. Thus  the parties  recognise the concentrated economy, but offer no  credible, coherent and costed  alternative.

Starting an alternative?

Can we imagine an ambitious policy? Mariana Mazzucato in The Entrepreneurial State: debunking public vs. private sector myths  provides a starting point.  Mazzucato argues that state needs to shift from “lender of last resort,” to “investor of first resort”. The logic is that the private sector only finds the courage to invest after an entrepreneurial state has made the high-risk investments.
Two examples illustrate the idea:

1.Photovoltaic Solutions
South Africa has  an advanced research programme in photovoltaic technologies, which is a large and growing international market . This includes work from the CSIR, SANEDI, and private companies.  Increasing investments to support rapid prototyping and scaling quickly is possible. What would happen if government  open sources these innovations, and invests in maker spaces?

2.Zero taxes for startups
 Political parties suggest various changes to taxes for small business. The EFF for instance proposes a zero-tax rate for companies investing in specific areas that provide jobs. The DA proposes tax amnesty for non-compliant  businesses. However, what  if businesses  pay no taxes for the first five years after launching? 

Knightian Uncertainty

These examples are illustrative. The have potential to scale , but the outcomes are uncertain. Mazzucato uses the term Knightian uncertainty, based on the work of Frank Knight. Knightian uncertainty describes a situation where the probability of outcomes is not known.  The careful selection of options however remains  crucial .  

In the context of the Fourth Industrial Revolution (4iR) governments such investments are essential.  A portfolio of investments by government provides the platform for growing business ownership and employment. But, it may not. A starting point would be to search for innovative and labour absorbing technologies in the value chain. These necessarily are more uncertain interventions but have a potentially larger impact.  

Politics and policy in this sense, is not the art of the possible. It becomes about the art of the impossible.