Creative destruction - do small firms need support?

We live in an unfair world, but fairness has very little to do with the answer to most problems.

Small companies provide a lot of employment, contribute taxes, and are large providers of innovation and growth.

They did not seem to figure in the recent election - but may well be centre piece to any recovery.

On one hand recent announcements of government funds may have their advantages. These funds may have crowded out many firms from competing fairly. Equally supporting industries or companies in markets that no longer "function" is more of a museum piece than looking after our future. Cuts in largely ineffective grants on small firm training, support, and even the SME adjudicator may be welcome.

That said - Labour stands for unions, Conservatives for big business. There is money in lobbying - if you are big enough. This is surely where the disadvantage lies. SME's do not have the funds or influence to compete.

Perhaps in our new world the Conservatives will pay back the £12m donated to them during the first quarter of 2010. What was it for? It was larger than all the other funds of all the other parties put together (If they were McDonald's they would have had a majority parliament)

Creative Destruction is about new ideas replacing old ones. New methods, new products, new services. Removing everything in its path will enable the process to work more quickly. This means if there is a bonfire of quangos and regulatory authorities (presumably had nothing to do with donations), unless there is a sharper tooled device to stop monopolies from abusing their powers, they will.

Consider the energy market. Among the cuts announced today were the withdrawals of grants to micro renewables. The Carbon Trust has "suspended" the call for research into renewable energy (£22m). Nuclear Power R+D is said to be worth £60m a year (has that been suspended also?).

The question was "do small firms need support?". If you asked a large company the answer would be "no". If you asked a Union - the answer would be "no". Both sets of people are linked to the stock exchange and the long term performance of shares and pensions. Why would they want replacement?

The economic justification for long term growth and the link with entrepreneurs or small companies is only every made when times are really bad. At the moment there seem to be some cuts and some agendas. Not helpful for anyone.

Creative destruction - biofuels and palm oil

Many people's attention is on the environment, cutting emissions and purchasing "greener" fuels. One of which is palm oil.


Palm oil can be burnt to produce energy. It can be sustainable, in so far as you can grow palm trees in a plantation and harvest them. As the crop is the fruit you can continue to use palm oil and continue to grow fruit.


Difficulties occur when areas of rainforest are cleared to make way for the plantations. The crop does grow best in areas of high rainfall and a rainforest climate. This then reduces the rainforest and oxygen being released into the atmosphere. It also affects animals such as the orang-utan who live in the rainforest.


For instance in The Times recently they reported that Astra Agro Lestari (AAL) is an example of a large Palm oil producer in an area where the amount of orang-utan nests have dwindled significantly. 1500 orang-utans were counted in the 1990's, and 150 have been counted more recently. AAL is a subsidiary of Jardine, based in the UK.


Chairman and directors of Jardine come from the Keswick family, based in Wiltshire. They support the local Conservative party through donations and Tessa Keswick being president of the local branch. Donations from the Keswick family total over £300,000. 


This may be at odds with the Conservative party policy of supporting endangered species, and promoting ways of reducing the effects of global warming. Do they investigate every donation? To this level of detail? It is possibly unfair to expect them to do so.


Are Jardine aware of what a subsidiary is doing in another country? Possibly they should be, but are they? Surely they just expect profit.   


Equally it is confusing to the average consumer. Palm oil sounds nice. A natural ingredient used in many household products from Mars Bars to Hovis to Flora Margarine. Indeed it can be if grown responsibly, but not always. 


Part of the problem for the consumer is understanding the product they are buying and how it is made. Possibly this is too complex an issue if you "pop to the shops". Hence regulation and ethical behaviour standards. Businesses want to make as much money as possible. The Keswick family are worth £1.3bn. Clearly successful. If you buy their products, vote conservative are you unwittingly buying into their behaviour? 


Zooming out, the concern has to be about the raft of new products that will be floating our way in the future. The heating and power industries may go through a creative destruction process, with new ways replacing the old. In this process some of the ways presented may be profitable, but come with issues of their own e.g. rainforest deforestation which is counter productive. Is the creative destruction process ethical? No! - it is simply a renewal process. Knowledge is the important ingredient - and it is difficult to see how information can be managed effectively.

Creative destruction - Market projections in the Renewables market

The (Labour) government has and has further planned interventions in the renewables markets. They expect individuals to purchase renewables for their electricity production and heating. Their reason for doing this is very clear:

They have targets to meet 20-20-20 20% reduction in carbon by 2020.

Of the UK carbon emissions 43% is through our heating. Whilst you can insulate and build energy efficient buildings, you wont reach the target without targeting heating.

RegenSW believe that the scale of the domestic opportunity in the South West is 300,000 installations in the years up to 2020, including 26000 biomass installations.

Nationally (DECC) the scale of installations is 1,500,000 including 300,000 biomass.

Of interest is the critical nature of the need - ie  giga Watts of energy.

At the moment there are an expected 786,000 solar PV installations expected nationally. These only produce 1646 gW of energy in the form of electricity. This is 2000 kW per install per annum

The 300,000 biomass installations are expected to produce 5500 gW of energy or 18394 kW per annum

Airsource Heat Pumps 9502 kW per install per annum
Grounds source heat pumps 8823 kW per install per annum

Of the overall energy generated - 11652 gW nearly 50% is through biomass.

There are some issues

• The Renewable Heat Incentive is already late, and may not be in place by 2011.
• The MCS scheme (installers and boiler manufactures have to "pass" and be accredited) was late, is expensive, and has not delivered enough manufacturers onto the market as yet. This leaves consumers with a small choice.
• Existing legislation affects building control allowing wood pellets or in its most efficient form. "Wood", is still considered to be one fuel type and one boiler type. It is therefore not considered to be smokeless and the flues have to be 4.5m high. 

Added to which there is a general election. The Conservative manifesto does not mention biomass at all in its documents. Certainly not at a domestic level. They do not like the MCS scheme.

This puts the confidence in the industry at a low point ahead of the election. 

As an observation it is strange how the part of the equation that is critical to the sums working ie biomass installations have been the parts of the strategy that have been late. Even the MCS training was not available until late.