A key role in a growing economy is played by the start-up enterprise. They introduce new ways of doing business- supply new products and services – that challenge established business practices and so help make the economy a more productive one. They can start small but if they get it right, and execute well they can become large and successful.
They do so by serving their customers better than the competition did or sometimes could not have imagined. They also have to satisfy the interests of their employees who could work elsewhere and they also have to meet the interests of other suppliers of services or goods to them, including those of the suppliers of capital, for which they have to compete with all other firms. Most important is that by by attracting custom and covering their costs they can provide their owner-managers with benefits and returns on their savings (capital) far superior to those they might have realised working for somebody else.
But their chances of such success are not good ones. The owner-managers of most start-ups, even most small businesses, do not realise well above average returns for their founders- ahead of what they might have earned elsewhere or from their savings plans. This means judged by past performance these true entrepreneurs are not deterred by the prospect of low average rewards but are inspired by the (small) chance of realising exceptional rewards. This makes them risk lovers rather than risk averse and society has every good reason to encourage their unusual appetite for taking on risk. And so not to impose regulations that favour the large firm. Those large enough to afford specialised human resource and legal departments that keep key managers out of the time consuming mediation procedures – and able to employ skilled accountants that can complete complicated tax and other returns. Should it however be easy for new entrants into the market place to succeed? Easy pickings would reflect an undesirable lack of market efficiency. If the market is working well it should be difficult to beat the market.
Better than promoting or discouraging small over large or large and established firms over smaller rivals would be to ensure that all firms can contend freely and openly in the market place. The proverbial level playing feel serves the interests of all the consumers, workers and taxpayers who will always be far more numerous than the owners or senior managers or professionals who engage with them. .
But such freedoms to compete will always be threatened by the established producers who have a large and easily measured economic interest in limiting the competition through laws and regulations favourable to them. In the old SA a minority of suppliers of goods or services enjoyed such protections. Most others, as consumers and taxpayers and workers suffered from import and capital controls and maize and banana boards etc. that put some producers and some white workers and professionals first in line for jobs to the disadvantage of their potential competitors and the customers who stood to benefit.
It needs to be recognised that the producer interests that now tilt the playing feel against consumers and workers and taxpayers in SA and against the interests of perhaps more worthy beneficiaries of government spending, are those of the owners of black businesses and skilled black professionals. They are being favoured with higher prices and rewards by affirmative action. As before it is the economic interests of a minority of producers that are being served by regulation and law. As before, the politics of such actions are easier to understand than their economic consequences. Though the low growth trap that has now caught the SA economy should concentrate minds on the costs and benefits of interfering with competition.