David Cameron said yesterday:
One of the great things about our party - the Conservative Party - is that at our roots we are the party of builders and businesswomen; electricians and engineers; roofers and retailers…
We are the party of enterprise…
For over a decade in this country the enemies of enterprise have had their way.
Taxing. Regulating. Smothering. Crushing. Getting in the way.
It’s easy to sneer here; how many roofers are there in parliament? And David Blanchflower has pointed out some problems with this. I'd just add another.
If this were correct, you’d expect that the rate of new business formation was lower in the later years of New Labour - after a decade of smothering and crushing - than it was when the “party of enterprise” was in government. And you’d expect that the death rate of businesses was higher, as entrepreneurs gave up under the onslaught from their enemies.
The facts, though, bear out neither hypothesis. My chart shows the birth and death rate for new businesses between 1994 and 2007, the longest period for which comparable data is available.
This shows that the rate of business births has been roughly constant. In any year, the number of business start-ups was around 10% of the total number of businesses. The death rate for businesses, though, fell steadily. If businessmen were crushed by red tape under New Labour, they did not give up.
Granted, these data don’t catch the effect of the recession. Other figures show that the birth rate of businesses fell 2.2 percentage points between 2007 and 2009, whilst the death rate rose 2.1 percentage points. But this is a financial crisis effect, not an enemies of enterprise effect - unless you want to say that banks are the enemies of enterprise, which, curiously, Cameron did not do.
Looking at this chart, you’d struggle to identify a period when the “party of enterprise” was in office, or when the “enemies of enterprise” were.
There are (at least) two possible reasons for this. One is that New Labour was - until its later years - “micro bad but macro good” for business. Maybe red tape did deter business formation, but this was offset by favourable macroeconomic conditions.
The other is that the rate of business start-ups is just not as amenable to policy conditions as Cameron thinks. US research suggests that it is in fact remarkably constant.
Whatever the explanation, though, it is not obvious that Cameron is making sense. Nor is it clear that he could put us “back in business.”