No Minister

The Russell Kerfuffle

As readers know I try to ignore much of NZ politics, but obviously the current situation forces attention to be paid. So I see that my No Minister colleague, Gravedodger – he of extreme Chinese Lung Rot risk – has already penned an OpEd on the question from Labour MP Deborah Russell.

However, our comment section structure is primitive, so I will put my thoughts on the matter here.

Her question – more like a comment actually – came during one of the online Q&A sessions with senior government Ministers:

“Yeah, so Minister, moving on from that, I’ve got a series of concerns around small and medium business, and it sort of strikes me, there’s a couple of issues. The first is that we are seeing a number of small businesses really struggling, after only a few weeks in a pretty bad situation, which must speak to the strength of those small businesses going into this lockdown. It worries me that perhaps people went into small business, without really understanding how you might build up a business or capitalise it in the first place so you have the ongoing strength to survive a setback.

Aside from the prissy use of the word “offensive” – and god how I hate that term and wish the Right would not adopt its cringing whininess – what was really annoying about Russell’s comments was the sheer cluelessness of them.

To be fair I don’t think she was being mean or dismissive or nasty. The tone of her question was one of genuine concern for SME’s in the current environment of lockdown.

No, her problem is exactly what Bob Jones spotted:

What Deborah lacked was awareness of the facts underlying small businesses

To whit, this is not …”a pretty bad situation”… or “a setback”. Such things might be a 10%, 20% or even 50% drop in revenue or some other similar proportionate reversal in the fortunes of a business.

No, this is a 100% drop in revenue for a month or more.

And while it’s accurate observation, Russell is hardly the first person to notice how undercapitalised SME’s are while they struggle to grow. It’s why banks and other lenders demand collateral in the form of business owners private houses. And it’s true that there are some SME owners who plunge in with wonderful expectations of the service or goods they’ll provide to an eager consumer base, but with not much of a business or marketing plan or solid financial analysis.

But this is an event that pushes far beyond the boundaries of even those risks.

Too Big to Fail (2011)Even large firms with capital would struggle in that situation and they would fall back not upon capital but upon the old-fashioned strategies of severe cost-cutting and firing staff, plus a begging visit to their banks.

There is almost no amount of capitalisation or building up of the business that could survive such a thing.

The difference is that the bigger you are the more sway you have with banks, debtors …. and government. The phrase “Too Big Too Fail” that became so well known during the GFC does not just apply to banks.

Over on Kiwiblog erstwhile National Party man – and SME owner himself, Tony Stuart, lays out the realities in detail in this comment:

Small business was already struggling with a declining economy, as demonstrated by the December quarter GDP growth figure, where, in what should be the busiest quarter of the year, the economy grew just 0.5%. That’s half the level of the corresponding quarter in 2018. 

Many businesses will not survive this “setback”, especially those in the tourism and hospitality sectors, and those who service them. The owners of those businesses will have the trauma of letting valuable staff members, many of whom have become friends, go and of losing everything they’ve invested into their businesses. In many cases, that will be a life’s savings, or even equity in the family home.

And then there’s this comment from Russell:

And I link that in some ways we’ve had quite a low wage economy, so it looks like it might be better being off in business, rather than working for a low wage….”

Sure. We are a low wage economy but as numerous economists have pointed out the key to that is our abysmally poor rate of productivity growth over many decades, something not addressed by either National or Labour-led governments. Few things irritated me more about the Key government than its constant boasting of annual GDP growth of 3%; with a population growth of 2-3% per annum only a Soviet economy could have produced less than 2-3%.

But I can see where Russell is going with this: from the happy days of 1940’s-1970’s New Zealand we had Big Private Business and Big Government Business and Big Unions and Big Government defending solid wages and wage growth we have been cast by Rogernomics into the spiralling hell of dwindling wages and salaries that have forced people to try and eck out a living as a small business, only to find that that doesn’t work either. They were deceived into thinking they could do better.

Stuart puts some perspective on that strawman:

As for the notion that people go into business to earn better wages, it might sound good in principle, but for many business owners it’s far from the reality. I know from our own businesses that there are times when we haven’t paid ourselves, because we had to pay the staff first. And Dr Russell’s comments don’t take into account the hours business owners work; on an hourly basis, my wife and I often earn less per hour than most of our staff. A recently-bereaved friend owns an essential business; she is regularly working to well past midnight, because she cannot afford to pay the staff to work extra hours, that’s if she can get the qualified staff her profession requires.

Every SME owner I have ever known knew that going in. But they hoped that with time, effort, energy and perhaps some luck they could turn their small business into something bigger and more robust and finally start making some decent money from it – perhaps almost as much as that job they quit. The mistake I’ve seen commonly made is thinking it’ll happen faster than it does.

But for many, if not most, it is not money that led them into such a world. It was the simple desire to be free of having a boss. As Jones puts it:

Whether a farmer, cafe-owner or self-employed plumber, the driving force behind most small businesses is the dignity of self-employment. For some people (me for starters) that’s a huge factor overwhelming any other consideration.

But the final thing that bugged me about Russell’s comments derives from the fact that SME’s provide the bulk of employment in NZ. A world that imagines them being a much smaller part of the economy than they are – perhaps as a result of tougher regulations around financing business start-ups – is also a world that has not answered the question of what other businesses will soak up all those workers?

I’m sure Russell must know this, I’m sure her answer would be that throwback to Old Zealand, and I’m sure many Labour and Green voters support that idea.

But I think there’s something else going on in that sophisticated brain. I’ve lost track of the number of left-wingers I’ve met who have always been dismissive of SME’s, even when they’re started by some member of the working class – plumbers and other trades being classic examples. Apparently this is the key point marking them off as no longer members of the Working Class or The Toiling Masses and instead members of:

The ruling class is the one that owns the means of production.

Yes, the average SME owner trembles with delight at knowing that they’re a member of the ruling class when the means of production they own is largely themselves!

It’s a determination to focus on that pure definition: that pure world of Capital Employing Labour, even though anybody with eyes can surely see the difference between such little businesses and Ford Motor Company and their ilk. I don’t know how big an SME has to get before I’d be willing to start calling them a member of the ruling class that owns the means of production, but even them having a Merc and boat in the driveway wouldn’t do it for me.

Whether it’s ideological purity or that they just don’t think SME’s are useful in NZ and therefore would like to see fewer of them, the result is their faith in the model I described above of Big Business + Big Government + Big Unions.

Deborah Russell would much rather deal with a few Ford Motor Companies in NZ than thousands of these little SME pains in the neck. Personally I don’t think that’s a practical solution.

Written by Tom Hunter

April 23, 2020 at 6:09 am

%d bloggers like this: