Saturday, October 8, 2011

Surviving a crash with SMEs

Since the financial crisis started, a key issue in keeping the banks upright is whether the money will flow onward to support SMEs--small and medium-sized enterprises. This is where most jobs are created, not in large corporations. A sustainable economic policy therefore has to have a good SME strategy. This is another good reason for public intervention in the banking market, if financial institutions will not do it themselves, and another good reason why the kinds of institutions described in my last post should be promoted.

But as is often the case, there is a spillover effect from one policy area to another, and it is this: the price of rent (or ownership to do business). If SMEs are to survive and flourish, they need space to produce and to sell and service their products. If you go down most city streets, you'll see the same chain stores you see everywhere, because they're the only ones that can pay the rent. City councils have gotten into the habit of permitting rising rents that can only be carried by chain stores because they get more taxes. Those large companies may find themselves in a more difficult bind when it comes to raising capital if banks are allowed to fail. Inevitably, the calls will come that if the banks fail, so will H&M, C&A, Esprit and the myriad of chain stores that people wander through on an average weekend.

A smaller banking system doesn't mean that such companies will disappear, but that they may have to cut back. For SMEs to pick up the slack, rent has to be affordable. And the price of property as well. The propertied classes won't like this one bit, but they can afford to take a haircut. City councils will also suffer initially, as property tax revenue declines, but they will gain the local economies again that they once had--not exactly as it was a century ago--not the SMEs of the coal and steel age--but of the digital age. The challenge will be--what can cities do to promote creativity that pays? We are already asking this at the national level when we construct policies on banks and SMEs. The prospects for that strategy of providing credit will only go so far if it's too expensive to do business where the customer can reach it.

If the opportunity is seized to truly take the economy into the post-industrial era (large chains are industrial enterprises) in which we don't solely rely on large companies for employment, production and consumption, a crash can be a good thing. And perhaps our only hope.

No comments:

Post a Comment