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31 March 2016

Size matters 

In his recent 2016 budget announcement, UK Finance Minister George Osborne announced new tax relief for micro-entrepreneurs – including those selling services or renting properties online – as part of what he called a “budget for small business.”

It appears that policymakers may finally be recognizing the growing importance of the so-called “microenterprise” segment. 

Such businesses are typically defined as having fewer than 10 employees, and having been launched with a small amount of capital. In practice, most are “lifestyle” businesses whose (one or two) owners are primarily focused on supporting themselves and their families. 

Osborne says that there are around 500,000 microenterprises in the UK. Last December, LinkedIn reported a 30% increase in British self-employed users from a year earlier, and a 43% increase in members at companies with fewer than 10 staff.

In the US, according to Census Bureau data, 95% of American companies can be classified in this segment. Across the developing world, the vast majority of all businesses are likewise microenterprises.

This trend appears set to accelerate in developed markets as younger generations –  impacted by difficult employment conditions – demonstrate increased reluctance to work for large organizations and seek instead to join companies where they can exert greater influence.  

Today the Internet and social media also make it easier to run microenterprises. So-called “resource sharing” sites allow small business owners to trade a wide range of skills – without cash ever changing hands. This helps reduce costs and makes microenterprises more competitive. 

The introduction of on-demand logistics and delivery services – such as UberRUSH and Amazon Flex – is also proving a huge boon for very small firms. At the same time, meeting the needs of microenterprises is a growing opportunity for big business. 

With late payment a particular challenge for cash-poor companies, one businessman has set up PACT (“Please Abide Contract Terms”), a group that enables such businesses to band together against recalcitrant debtors through reminders, mediation, and public “naming and shaming.” 

The dilemma for economists and policymakers is whether this army of self-contained entrepreneurs is a globally positive trend. Traditionally, entrepreneurship has been encouraged on the basis that it boosts employment; some are asking whether governments should offer incentives to entrepreneurs who have no desire to expand.

Britain has now come down on the side of the small, and other countries may follow.