The Economic Drivers

THE SUFFOLK SMALL BUSINESS PROJECT

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There is a danger, when approaching a review of a small geographical area, of neglecting the wider economy in which that area operates. Small Business in Suffolk operates in a wider national and international economy. The UK economy is quite open, with a significant percentage of GNP being derived from international trade. Suffolk is no exception to this rule, both in physical terms (with the location of the Haven Ports at the gateway to Europe), and in terms of intangibles through the development of an ICT sector within the county.

It is easy to see the technological revolution in terms of computing. However, we feel that it is something of a mistake to rely solely upon a technological focus. The revolutionary phenomenon lies in the transformation of the business processes enabled by the technological advances. We can now talk of flatter and leaner management processes, “just-in-time” inventory management systems, and customer focussed CRM systems. The point is that the technology has enabled us to do things differently and has impacted to lower the costs of doing business.

There are three implications of technology lowering the costs of doing business. First, it has paved the way for the low inflationary environment that was first seen in the late 1990s, and which continues today. This is quite important as a backdrop against which business planning is undertaken. Second, it has lowered the threshold at which businesses can become global players. Relatively small businesses, armed with an effective web site, can now project themselves on the global stage. In this respect, the old adage that “size matters” is becoming less true. Thirdly, the technological revolution has paved the way for services to dominate the Western Economies. This has led to a less volatile business cycle as the service sector does not have an inventory cycle in quite the way that the manufacturing sector does.

The technological revolution still has a long way to run. Indeed, a renewed burst of innovation is predicted for the period 2006-2010, as a number of latent and converging technologies start to reach mainstream adoption. Computers are becoming faster and more powerful, they are communicating to each other, and are acting to reduce telecommunications costs. This will increase the density of communications amongst businesses. In many ways, the new world economy is a networked economy. In a networked economy, the question of geographical location is of far lesser importance. It is at this point that the technological revolution becomes intertwined with the second key driver to economic revolution – the expansion of market economies.

The period 1980-2000 saw the retreat of central planning as a technique of resource allocation within economies. In addition to the collapse of communism, there has been an expansion of the market in many of the Western market economies. There are two processes present with the expansion of the market. First, there is the widening of the scope of those economies that have embraced the market as a means of resource allocation. This expansion would include the formerly Communist nations of Eastern Europe, as well as the protectionist economies of South America and Asia. The second process would include a deepening of those areas of the economy that have embraced the market as a means of resource allocation. This would include the privatisation of industries owned and controlled by the Government in Western Europe and North America, as well as the nations of Eastern Europe, South America, and Asia described above. Across the globe, the market is responsible for resource allocation in more nations than ever before, and in more areas of national economies than ever before.

As with technology, this revolution still has a long way to run. To be sure, there are problems with relying solely upon the market as a means of resource allocation, but it cannot be argued that this is the predominant method at present. Looking out to 2020, we can see the market bringing very tangible benefits in such nations as India and China, we can see it as the mechanism by which poverty in Africa becomes relieved, and we can see it as the mechanism by which stability is delivered to South America. With the futures of so many people associated with the expansion and development of the market, it is inconceivable that an alternative method of resource allocation will be developed in the next twenty years.

This backdrop – the development of technology and the expansion of the market – provides the environment in which Suffolk Small Business will have to operate. In many ways, this is likely to be quite a positive environment for small business. Technology is forcing down the costs of entry into markets. It is also enabling small businesses to have a global view of their operating environment, which is being enhanced by nations across the globe embracing market opportunities. The next twenty years will be a time when the proactive small business will be able to seek opportunities on the global stage.

There are three aspects to a proactive community developing to exploit these opportunities. First, it is held that, in the Knowledge Society, the key to business development is the ability to leverage knowledge creatively. To do this, a community will need to encourage the development of a Creative Class, and that policy ought to focus on encouraging the development of that group of people. Second, as the rise of the knowledge worker depends upon the development of information and communications technology, this same technology can be used to automate most routine Information Society work. The Information Society is being replaced by the Dream Society. In the Dream Society, our purchases are an expression of our personal values, our self-identity. A proactive community will develop a firm base of Dream Society businesses. Thirdly, in a “Post Modern” society, autonomy and diversity have come to replace the authority, conformity, and hierarchy of society under Managerial Capitalism. This phenomenon is “The New Society Of Individuals”. The new society of individuals is giving rise to a new model of consumption, a new enterprise logic. The new enterprise logic is what has come to be known as Distributed Capitalism. The proactive small business in the future will be the one that is organised on the basis of Distributed Capitalism and operates within the Support Economy. However, the proactive small business will still need to interact within a real community of people.

One of the key drivers to Small Business in the local economy is the size and composition of the population. The general population provides both the workforce and the customer base of the Small Business community. Any consideration of the future of the Small Business Community has to examine the degree to which the population of Suffolk will change in the future.

Before examining the future prospects for the population of Suffolk, it is important to review the immediate past – if only to see what trends are apparent. We decided to look as far back as we are looking forward. The most salient feature of the period 1981-2001 is the growth of the population within the county. During this period, the population of the county grew by 13%. For each year, there was, in addition to the organic growth in population, a net inflow of migrants into the county. Of these, 43.0% originated from the London Region, and 20.4% originated from the South Eastern Region. However, in this context, Essex is counted as part of the South Eastern Region, and there is evidence to suggest that much of the movement to Suffolk from the South Eastern Region (about 67% of the total movement) was of a distance of less than 10 miles.

It is at this point that the density statistics assume their significance. 16% of those moving to Suffolk did so to trade up their housing. This is a distinctly English phenomenon that needs to be explained for overseas readers. In England, during the period 1981-2001, the disparate inflation of house prices gave rise to a situation where those people living in London could sell their London accommodation, clear their mortgage finance, and buy a similar or larger house with the remaining funds from the sale of their London house. As Suffolk is only an hour away from London, the period 1981-2001 saw the growth of Suffolk as part of the London travel-to-work area.

16% of those moving to Suffolk did so to trade up their housing. 13% moved to Suffolk for work reasons, including those who used the released equity from their London property to fund a business start-up. 9% moved to Suffolk to live in a better area, and 9% moved to Suffolk as part of their retirement. Over the long period, the attractiveness of Suffolk as a place to live and a place to retire has affected the composition of the population of Suffolk.

The traditional County Dweller lifestyle groups have not grown as fast as the Independent Elders, High Income Families, and Suburban Semis lifestyle groups. The Independent Elders, particularly their concentration in the Aldeburgh-Snape-Southwold triangle, represent the development of the Suffolk Coast as a retirement location, in the same way that Dorset is a retirement location. The High Income Families and Suburban Semis lifestyle groups represent a core of commuters coming to live in Suffolk. Their concentration along the main commuter railway lines to London (Manningtree-Ipswich-Stowmarket-Diss) indicates the development of Suffolk as part of the commuter heartland of Southern England.

The immediate future between 2000 and 2010 is for the population of Suffolk to continue to grow. During this period, the forecast is for the population to grow by 5%. We rather feel that this is likely to understate the growth of the population. The evidence for the 1990s indicates that the rate of inward migration has accelerated. If the growth rate of the population is accelerating, then forecasts based upon past growth rates will understate the growth prospects for the population.

Looking ahead to the longer term, there is nothing to suggest that this process will abate. Property in Suffolk still looks cheap in comparison with the property available in, say, Surrey or Sussex (part of the commuter heartland south of London). As long as this continues, and as long as the journey from Suffolk to London takes about the same time as the journey from Sussex to London, the pressure will be for those people moving out of London to do so into the northern commuter heartlands, which now includes Suffolk. There is evidence to suggest that Suffolk property prices are very highly correlated with London City bonuses, and that, as soon as City bonuses are announced, people start to look to move out of London to Suffolk.

If we are right, then, during the next twenty years, the change of the composition of the middle class within Suffolk will continue. We can easily foresee the further development of the Suffolk Coast as a retirement location, along with the expansion of the commuter belt outwards from the main rail links. This is likely to diminish the numerical importance of the Country Dwellers and to change the nature of the county away from a rural perspective to become more suburban in outlook and presentation.

To our view, the key issue that will surface in the period 2000-2020 will be the relationship between Suffolk and London. How will the population of Suffolk interact with London? How will the migrants from London affect the nature of Suffolk? In turn, our answers to these questions will impact on the ability of the Suffolk Small Business community to utilise a Creative Class, to develop businesses rooted in the Dream Society, and to use Distributed Capitalism to operate in the Support Economy. These critical uncertainties are the issues that we shall deal with in considering the key drivers for our scenarios.

Stephen Aguilar-Millan

October 2004.

Please go to the Demographics Page and the Economic Models Page for a fuller outline of the ideas discussed on this page.