Tuesday 14 February 2012

The Macmillan Gap (Part 2 of m)

How many theories should you think about when investigating SME support?

In investigating the Macmillan gap, a question occurred to me: How many theories are there now for which intervention in a space is justified? Academic thought has obviously moved on since 1931 (one hopes) to identify more completely the number of specific failures in the area of SMEs. Any new government action to help growth, SMEs, entrepreneurs, innovation and should take into account modern, accepted theories. But how many driving theories are there?

Easy, 11½.

My reasons for this are simple. Imagine I invent an important new reason and method for intervening in within a specific field, say SME support. People like the reason, and so in business, academia and political circles it is accepted as a good thing to start doing.

Now any existing government agency that is already in the field sees the benefit and justifiability of expanding their empire to encompass this new activity in some way. This includes the politician, who, may chose to address it specifically by creating a new agency of some kind.

So for each new reason to act in the SME area discovered, all existing actors create a new scheme to address it.

The next time someone invents a perspective on intervention or identifies an aspect of market failure, all the previous schemes and all the new ones from my idea will now start creating their own new scheme. The n-1 schemes in existence launch n new schemes (the policy maker launches one as well).

As a result the number of schemes = 2^(the number of important reasons for intervening)-1. Assuming that we never lose any of these – winds of creative destruction rarely blowing through Whitehall then the number of theories is trivial: If we know the number of schemes (much easier than identifying the important theories!) then we know that the number of theories is just Log to the base two of this number.

Well, in 2008 the Richards report (which I contributed to in a very small way) answered this question: About a three thousand, hence 11½. So one might “reasonably” expect around 10 major theories, observations or driving factors behind government intervention in small business support.

I have previously stipulated that there were only two ways of solving a single identified problem in the 40’s and 50’s of the Macmillan gap. These were government backed lending to SMEs and Angel or high net worth individual lending. The latter of which had been identified and accepted as an area for intervention that lead to the formation of the ICFC. So there was one government scheme in 1945 with one theory, and 3,000 in 2008 with 11½. I’ll be getting on with finding the other 10½ theories then.


  1. In some work I did with Richard Adams we estiated the duration of the schemes as approximately exactly 2 years and 7 months. My data set is from about 1986...Manpower Services, Manpower Agency, The DTI Marketing Woosh (Heseltine), Training agency, Training and Enterprise Councils, Small Business Agency, Regional Governments, Business Links, Regional Development Agencies and now Local enterprise Partnerships...are just some of the structural attempts. Underneath this have been the dozens of "schemes" - I think Doug RIchards catalogued many of them at the height of the RDAs..So 11.5 theories with a half life too..:)

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