Study casts doubt on economic benefits of entrepreneurship

Many areas with low rates of self-employment in 1921 still had low rates 90 years later, according to a new study which casts doubt on the effectiveness of entrepreneurship in boosting local economies.

The research - which defines entrepreneurship as being self-employed - implies it may be a response to wealth creation rather than a cause of it. It also shows that five of the 10 English and Welsh local authority districts with the lowest self-employment rates in 1971 were still in the bottom 10.

Every London borough increased its league table position by 2011 compared with 1971 while several towns in northwest England slid down the table.

But the study, based on census data, does not reveal a simple north-south divide; the decline in self-employment has hit coastal towns in the south as well as the north. Major fallers included Blackpool, Bournemouth, Weymouth and Portland.

The researchers, Professor David Storey from Sussex University and Georgios Fotopoulos at Sheffield University, argue the prime factor influencing levels of self-employment is wages.

Their analysis raises doubt about a central assumption of successive UK governments from the 1979 Thatcher administration onwards.

"Governments have been continually saying that we need to create an entrepreneurial environment in which new and small firms can thrive," says Prof Storey. "But the evidence is that the big factors which influence entrepreneurial activity are not those which relate to government policy."

The researchers contend that where wages fall so does entrepreneurship; conversely, where wages rise, so does entrepreneurship. Coastal towns have been hit by changing holiday patterns with many more families opting to go abroad. London, on the other hand, buoyed by the success of financial services, has seen increasing economic activity, driving up incomes.

"The two areas where there have been big changes in the league table are precisely areas where government hasn't focused its attentions," observes Prof Storey.

Areas experiencing a rise in the proportion of 55 to 64-year-olds are also more likely to have an increase in entrepreneurship.

Immigration's role has been important but has changed over the past 40 years. In the 1970s and 1980s, areas with more immigrants had lower entrepreneurship rates but in the 1990s, and particularly since 2001, the reverse was the case. The researchers attribute this to a change in immigrant origins.

In 1921, about 2.5 per cent to 3 per cent of the economically active population was self-employed, a figure which doubles to 5-6 per cent in 1971. In 2011 it had grown to 13.7 per cent - around 4.2m people. Latest government estimates suggest there are 4.6m self-employed, 15 per cent of the total.

The new analysis shows that County Durham had the lowest self-employment rate in 2011, while Radnorshire had the highest .

Prof Storey said it was disappointing that over a 40-year period from 1971, five places remained in the bottom ten. Four of the five are in northeast England, which persistently has Britain's highest regional unemployment rate. The other, Hull, was the worst performer of 64 UK cities in recent Centre for Cities data.

"What is needed is a reappraisal of the policy regime we want to offer to these areas," he said. "It hasn't worked."

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