Non-employing businesses: ScoMo’s “Engine Room” for economic growth?

By Alison Pennington

The government announced one of its most important economic policies for the election this week: $100 million in capital funding injected into the “beating heart of the Australian economy” to support small business to upgrade production and create more jobs. In essence, the public will become 40 per cent shareholders in 30–50 small and medium-sized enterprises (SMEs) per year. Backing this announcement, Prime Minister Scott Morrison pointed to the government’s supposedly strong record on small business creation — with over 230,000 new small businesses created over the last five years.

But what this number doesn’t tell you, is that the vast majority — 73 per cent — of these small “businesses” created between June 2013–18 are non-employing. And it’s actually a sign of economic weakness, not strength.

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The growth of registered businesses without employees is driven primarily by the increase in marginal self-employment in Australia; around 2.1 million Australians or 18 per cent of all workers are self-employed. Growth in non-employing registered businesses reflects the fact that Uber drivers and other gig workers have recently been forced to register for tax compliance purposes. Moreover, many workers who once held regular jobs — in occupations ranging from trucking to cleaning — are now forced to register for ABNs and take up new lives as “contractors.” Neither trend is worth celebrating.

Data: ABS Counts of Australian Businesses, including Entries and Exits (8165.0). Measures change in number of firms operating at end of financial year June 2013 & 2018.

There has been an increase in small businesses employing 1–4 employees of around 65,000 since June 2013, but a loss of around 1,800 firms employing a more substantial 5–19 people. And looking at the count of “middle” businesses (20–199 employees), Australia now has 608 less middle-sized firms than at June 2013.

The eroding SME sector is a major factor behind Australia’s poor innovation and export performance — contrasting sharply with countries like Germany and Sweden where a vibrant, export-oriented SME sector has helped to fuel economic growth and export success. The SME strategies of these places have been underpinned by public skills and training systems and high-trust employment relations facilitated by higher wages and collective bargaining.

Instead, our “engine room for growth” is Uber drivers and cleaners forced to take ABNs just to keep their existing low-wage jobs.

How might extending government-backed finance to gig workers help them to “expand their businesses?” Does an Uber driver stop paying car rental fees and buy their own car? At what point does a primary school cleaner become a cleaning industry mogul, employ an army of well-paid employees (presumably not on ABNs) with sufficient disposable income to deliver flow-on benefits to the wider economy?

The fact is the government’s trickle-down economic “growth” strategy based on tax cuts and wage suppression has failed miserably to spur new capital investment: business capital investment has been declining since 2012, now down by a cumulative 20%. Meanwhile, business research and development spending has been flagging for years, falling to just 1% of GDP in 2015–16 — well below the OECD average.

This does not bode well for an economy trying to crawl out of resource dependency and embrace a brave new world of sustainable, high-value industries and secure inclusive economic growth. And it is very hard to see how $100 million in SME government financing, delivered without an understanding of the qualitative weakness of current Australian small businesses, will turn this ship around.

Alison Pennington is an economist at the Centre for Future Work. @ak_pennington

CFW, housed within the Australia Institute, conducts and publishes progressive economic research on work, employment, and labour markets. https://www.futurework

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