Buckets of money

The central banks of the world are all rushing out variations of the stimulus package.

These are designed to protect national economies from the fallout that started with the Asian crisis years ago, while hoping that small and medium enterprises will once again become the bucket into which employment generation funds may fall. (See Government Interventions in Financial Markets: Economic and Historic Analysis of Sub prime Mortgage Options (CRS report).

But dishing out buckets of money to banks and big businesses does not generate consumer confidence in the same way as seeing a neighbour’s kid get a job, start a business or get off the dole. It can also be done in a lot shorter time than it takes to fund a bridge maintenance scheme.

It is very unfortunate that Australia was unable to find the funds to remain a part of the 2008 world study of entrepreneurship (GEM) that recently released its Global Entrepreneurship Report.

It has found that small and innovative entrepreneurial firms enjoy an innovation productivity advantage over large incumbents, enabling them to operate as “agents of creative destruction”.

To the extent that the economic and financial institutions created during the scale-intensive phase of the economy are able to accommodate and support opportunity-seeking entrepreneurial activity, innovative entrepreneurial firms may emerge as significant drivers of economic growth and wealth creation.

The Rudd/Tanner “whatever it takes and as long as it takes” stimulus plan assumes that the critical issues focus on confidence creation demand distribution and ways of overcoming the coming credit crunch.

As in Europe, Britain and the United States, the politicians are busy bailing out the banks and financial institutions to solve these problems rather than address the needs of small and medium enterprise. While this is a necessary interim step, it does nothing to help SMEs move from a necessity orientation back towards investments in innovation, creativity and entrepreneurship.

There are billions of dollars dangling their feet in the bonds and super pools that could be rapidly released to enable a dramatic growth in small and medium employment with a few simple changes in the tax structure.

These could include raising the thresholds for payroll tax and giving a tax holiday to businesses with less than 100 employees until they reach 250 employees, and providing a tax concession to the major superannuation funds for every dollar they placed into an enterprise development fund to build a significant venture capital pool.

What is needed is recognition by Ken Henry that his tax report should include active incentives for those who pay no tax to become entrepreneurs, and for investors to be able to gain 10-year breaks for investment into venture capital pools rather than fund the MIS manager’s market manipulations such as plantations and other tax havens.

Here are few tips for Ken that would offer an alternative path to solving the looming long-term unemployment surge.

Recognise that SMEs will be the major source of job generation in a depressed economy as necessity-entrepreneurs emerge by raising the threshold to 250 employees for payroll tax (a condition of the states getting the extra funds for infrastructure).

Provide superannuation funds with a release from tax on a pool of funds that are set aside to provide liquidity for smart companies that have export development opportunities.

Encourage the establishment of ethnic investment management companies that build cross-national marketing and global business networks.

Establish an Asian-Australian “small business administration office of advocacy” along the lines of the US office and ensure that funds issued to the states and territories have a structured assurance that more than half the funds will be allocated to local enterprises that provide on-the-job training and increased indigenous employment.

Provide accelerated depreciation allowances for productivity enhancing business capability expansion of small business owners who guarantee to add full or part time employment in the next two years.

One last thing – for those who keep saying the global financial crisis is an unforeseen crisis, it is worth remembering that George Soros a year ago already was saying: “This is a once in a lifetime moment – the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process.

“The current crisis is the culmination of a super-boom that has lasted for more than 60 years.” (George Soros, Financial Times, 23 January 2008.

Dr Colin Benjamin is Entrepreneurship and Strategic Thinking Consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Contact: CEO Dr Jane Shelton.