Micro-businesses and Neo-Endogenous Rural Development: UK Perspectives

Jeremy Phillipson

Centre for Rural EconomySchool of Agriculture, Food and Rural Development

Newcastle University, United Kingdom

• Introduction: the Centre for Rural Economy and models of rural development

• Key characteristics of UK rural economies• Dynamics and contribution of rural micro-businesses

Structure of Presentation

• We are committed to

research and development activities oriented to achievement of a sustainable rural economy

• What are the barriers and prospects for development?

• What gives coherence and rootedness to local economic activity?

The Centre for Rural Economy (est. 1992)

Models of Rural DevelopmentExogenous development (post-war)

Key principle Economies of scale and concentration

Dynamic force Urban growth poles

Functions of rural areas

Food and primary products for expanding urban economies

Major rural development problems

Low productivity and peripherality

Focus of rural development

Agricultural modernisation; encourage labour and capital mobility into rural areas

Criticisms of the exogenous model

• dependent development

• distorted development

• destructive development

• dictated development

Models of Rural Development

Models of Rural DevelopmentEndogenous development (1980s -)

Key principle Harnessing local (natural, human and cultural) resources for sustainable development

Dynamic force Local initiatives and enterprise

Functions of rural areas

Diverse service economies

Major rural development problems

Limited capacity of areas/groups to participate in economic activity

Focus of rural development

Capacity-building (skills, institutions, infrastructure); overcoming exclusion

Build on internal capacities and resources of communities

Draw on and steer processes, resources and actions within the external environment

Models of Rural Development

neo-endogenous rural development

CRE’s Northern Rural Network

Decline in primary sector employment

- agricultural employment in England is below 350,000 and falling

- there are 1 million firms, supporting 5.2 million jobs

The Contemporary Rural Economy in the UK

• UK rural employment is multi-sectoral, 80% is in 4 sectors– distribution and

retailing

– banking and finance

– public administration, education and health

– manufacturing

The Broad Sectoral Basis of Rural Economies

The Broad Sectoral Basis of Rural Economies

• A need for rural development to focus on key sectors and understand their rural footprint

• UK rural areas strongly

affected by the movement of urban populations and economic activity to rural areas

• In-migrating households seen as major source of new business, jobs, funds, voluntary initiatives and markets

The Role of In-Migrants in Rural Areas

Ageing and the Countryside

The Dynamics and Contribution of Micro-businesses

• 90% of rural firms are micro-businesses, that is firms with less than 10 people

• An invisible sector, receiving limited attention

• Left out from official statistics

• Business advice / support services have been oriented towards urban and larger firms

• Rural development policies have been farm oriented

The Contribution and Dynamics of Micro-businesses

Value of Micro-businesses in

Rural Areas

• Increasing attention to the role and value of micro-businesses

• Farmers themselves are being encouraged to diversify into non-farming economic activities and become more entrepreneurial

• Restructuring of agriculture is placing increasing emphasis on non-farming micro-businesses in generating economic activity

• Dominance of sole operators and family businesses

• Limited in-house resources (capital, time and labour)

• Centrality of business owner to running of enterprise

Taking on Board the Characteristics of Micro Firms

• Diverse goals and motivations

– quality of life, personal and family considerations

– importance of flexibility and independence

– only a third want to grow in size or employ new people

– low priority to development of staff

Taking on Board the Characteristics of Micro Firms

Difficulties Faced by Rural Micro Firms: A Need for Resilience

• Restricted local markets and labour markets

• Constraints on spatial networking

• Distance from services

• Less developed infrastructure provision

• Vulnerable to economic and environmental shocks

• Evidence of contribution of households was seen during the UK’s 2001 Foot and Mouth Disease (FMD) Crisis

– 14000 farms had livestock culled

– cull of 4.2 million animals– large parts of the countryside

faced economic shutdown for several months as measures were taken to prevent spread of the disease

Micro-business-Household Interactions: FMD 2001

Infected farms in Northern England

Photos from website of the BBC

Photos from website of the BBC

“It is imperative that every local council which has rural footpaths and rights of way within its boundaries closes them immediately. There must be a blanket ban across the country. I implore everyone again: please, please stay away from the countryside”

Ben Gill, National Farmers Union

“Though we are not at direct risk from this disease, we can play a part, unknowingly, in spreading it. FMD is a highly infectious virus which can be picked up by us on our boots, clothes and cars and carried many miles. By staying away from farmland, by keeping off any footpaths through or next to farms or open land with livestock, we can help the efforts to eradicate this disease. We are giving local authorities today the power to enforce the temporary closure of footpaths and rights of way, but we hope people will voluntarily stay away in any case”

Tony Blair

Extent of Impact by Sector

Sector % firms impacted in

sector Hospitality 96 Land-based 92

Extensively affected sectors Recreation/culture 70

Retail 59 Transport 50 Business services 47

Partly affected sectors

Manufacturing 44 Personal services 29 Construction 18 Education and training 14

Little affected sectors

Health and social 10

impact spread throughout a wide range of sectors extensive impact on sectors reliant on tourism,

visitors or connected to agriculture partly affected included those directly affected or

servicing extensively affected sectors

Coping responses % impacted firms n=72

Household members working longer hours 40 Take smaller wage 39 Cancel or postpone investment 36 Reduce staff working hours 35 Increase marketing/advertising 32 Cut back household spending 30 Spend business reserves 30 Cancel or postpone plans to expand 29 Decrease marketing/advertising 27 Renegotiate existing loans 27 Spend personal savings 26 Take out new loan 21 Layoffs/redundancies 21 Not taking on seasonal/casual staff 17 Change strategy 16 Household member looking for job 14 Temporary closure 9 Ask staff to take holidays 7 Increase staff working hours 6 Attempt to sell business 3

• $8 billion cost to private business

• Massive losses but only 141 business closures officially registered

• Households acted as buffers to firms and rural economies

Micro-business-Household Interactions: FMD 2001

• Coping responses based on access to human, social, physical and financial capital of households and local communities

• Household income portfolio compensated for reduced flow of business income and maintained business cash flow

• Cut backs in household consumption, investment and spending

• Values and power relations influenced access to household assets by firms

Micro-business-Household Interactions: FMD 2001

Conclusions

• A need to focus on the key characteristics, capacities and drivers of rural economies in generating economic opportunities

• A need to recognise the contribution and tailor development approaches to the characteristics of rural micro-businesses