To improve entrepreneurship, the Government should look more closely at education and skills.
The Government has today announced that lingerie entrepreneur Michelle Mone will lead a taskforce attempting to understand the barriers to entrepreneurship in deprived areas.
There’s no doubt that low levels of business starts are a challenge facing areas with high levels of deprivation, but there are three key issues with the Government’s approach.
The first is that we’ve been here before. Attempting to boost levels of entrepreneurship in deprived areas was a pet project of Gordon Brown in his time as Chancellor – this resulted in initiatives like Enterprise Areas and the Local Enterprise Growth Initiative, which focused on getting people in deprived neighbourhoods to start up their own business. Despite this backing, there is no compelling evidence to suggest that these schemes were successful.
The second is that this is yet another celebrity-driven policy review. While there are no doubting Mone’s entrepreneurial credentials – a successful businessperson who grew up in Glasgow’s East End – this doesn’t necessarily make her best placed to lead a Government review. As with previous celeb-led reviews before it, this raises questions about whether the initiative will end up generating more column inches than long-lasting policies to support people living in deprived areas.
The third and most important is that the review is unlikely to be even asking the right questions. While very little is understood about the drivers of entrepreneurship, there are two factors worth taking into consideration. The first is that the skills levels of people living in an area are likely to be a big factor in determining the levels of entrepreneurship we see there. The chart below, taken from our data tool, shows that there is a negative correlation between businesses starts and the share of people with no formal qualifications.
The second is that the strength of demand in a local economy also has a role to play – particularly for businesses that are looking to sell to local consumers, such as hairdressers or sandwich shops (the kind of businesses that make up four in every five businesses in British cities). Using the number of people claiming Jobseeker’s Allowance as a proxy for demand in cities shows there’s a negative correlation between the two. Stronger performing places generate more money to spend on haircuts or sandwiches.
If the Government wants to improve levels of entrepreneurship in deprived communities, the above suggests that it would be better investing effort to more fully understand the barriers to educational and skills attainment in these areas, as well as wider economic development policy, rather than focusing specifically on entrepreneurship. The latter has been tried before without results. And it isn’t clear that a celeb-led review will alter the outcome this time round.
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