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Uncertain states: The political construction of the small firm, the individualisation of risk and the financial crisis
Charlie Dannreuther and Lew Perren Capital & Class 2013 37: 37 DOI: 10.1177/0309816812473955 The online version of this article can be found at: http://cnc.sagepub.com/content/37/1/37
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CNC37110.1177/0309816812473955Capital & ClassDannreuther and Perren
Uncertain states: The political construction of the small firm, the individualisation of risk and the financial crisis
Charlie Dannreuther
University of Leeds, UK
Capital & Class 37(1) 3764 The Author(s) 2012 Reprints and permission: sagepub. co.uk/journalsPermissions.nav DOI: 10.1177/0309816812473955 c&c.sagepub.com
Lew Perren
University of Brighton, UK
Abstract This paper argues that the emergence, assertion and failure of the financialisation regime was enabled by the political construction of the small firm. Key shifts in societal relations, the formulation of new agendas and the extension of new forms of political, economic and social rights were asserted by political elites through the instrument of the political construct of the small firm. The paper argues that this is because of the dominant specificity model that characterises the small firm, and demonstrates how the denaturing of the small firm has allowed political elites to assert invariant behaviours to resolve historically specific contradictions in capitalist accumulation. The argument is demonstrated through parliamentary debates and through the redefinition of individual risk as household risk through the 2002 Enterprise Act. Keywords Financialisation, small business, Enterprise Act, political construct, regulation approach
Introduction
The current economic crisis was precipitated by failings in the financial sector. But it became a structural crisis because of the permeation of financial markets and their
Corresponding author: Charlie Dannreuther, University of Leeds, UK Email: ipicd@leeds.ac.uk
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Capital & Class 37(1)
increasingly prosaic products into all areas of society during the preceding decades. The financialisation literature was already an established approach by 2006 (Aglietta and Reberioux 2005). It explained the penetration of financial actors into the corporation (Orhangazi 2008; Froud et al. 2000), the provision of public debt (Hardie and Mackenzie 2011) and of retail financial products like credit, mortgages and pensions (Montgomerie 2009; Engelen 2006). There has also been a reassessment of financialisation since the beginning of the crisis (Dick et al. 2012; Arestis and Singh 2010). On one side, there is a thirst to reassess these phenomena against traditional schools of thought such as Marx (Lapavitsas 2011, Potts 2011) and Minsky (Dymski 2010). On the other, there have been concerns that new approaches need to replace the reinterpretation of the crisis as a validation of previous perspectives because previous analyses will construct the origins from within the problematic which they endorsed before the crisis began (Montgomerie and Williams 2009: 100). Presenting financialisation and free-market policies as disembedded markets from societies may present greater regulation of financial markets as the solution, for example. But if financial capital can exert influence through its control over other social institutions, such regulatory reforms are hardly likely to be reverse the process (Konings and Panitch 2008). Furthermore, financialisation has not only decreased the role of the state in some economic senses, but also increased its capacities in others. States exercised considerable agency in legitimating new forms of hierarchy under financial capital, but then failed to regulate the markets (Watson, 2009). Rather than encouraging states to repackage elite-sponsored rescues in new forms, here we align with a political possibility [that] lies in the lived experience of the contradictory effects of power (Konings 2009: 123) and away from the centres of power. This crisis has highlighted the centrality of the everyday, common sense or cultural political economy in both the understanding of the crisis and the specification of alternative ways out of it. Here the distinction between vernacular and establishment (Shorthouse 2010), hegemony and passive revolution (Bruff 2010), masses and elites (Seabrooke 2007) highlight different dimensions of the contradiction between the elite institutions captured by capitalist interest and popular control. Culturally informed understandings and behaviours become of far greater significance as the formally sanctioned paradigms of an outgoing regime appear increasingly fraudulent (Toporowski 2009). With these points in mind, we seek in this article to unpack the relationship between the growth in small business policy and the financial crisis. We demonstrate that the small firm has been used as a decoy to distract attention from the underlying contradictions of capitalism in the UK from the early 1970s. Diverse properties of Hayekian freedom, romantic tradition and functionalist utility have helped to mask the conflict between wage labour and capital in both executive and parliamentary discussions. More precisely, the rhetorical support for the small firm offered individualised responses to a wide range of contradictions that emerged from the process of accumulation. Rather than addressing the underlying conflicts, these were increasingly displaced through financial products, where they were amplified. The risks of capitalism where franchised to the public while its inherent conflicts were rhetorically dissolved through ideals associated with the small firm. Members of society bought the rhetoric too well, combining the ideal of the small firm with the portrayal of ever-increasing wealth from members of society acting like Icarian individuals, taking ever more financial risks and incurring ever more debt.
Dannreuther and Perren
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This trend is epitomised by the Enterprise Act (2002), which constructed individuals as small firms and sent the message that financial failure was nothing to be ashamed of but the possible consequence of people trying to better themselves. Figures presented later in the article will provide evidence of increasing financialisation of the individual (see Martin 2002), as more ordinary people turn to such provisions to wash away the stigma of debt. Such values infested the fabric of society from City bankers to shopworkers, as the opium of individual self-sufficiency and financialisation numbed society to its inherent conflicts and inequalities. The gap between rhetoric and reality gradually increased year by year to the point at which the discursive decoy of the small firm was no longer enough to distract people from the economic fundamentals, and the crisis of confidence was unavoidable. This article fleshes out these arguments, starting with two sections that lay the conceptual foundation. The first proposes that the small firm construction presents a franchise of increasing individualisation and uncertainty to the public. The second argues that the political construction of the small firm is central to maintaining capitalist regimes of accumulation. Having established the theoretical arguments, the rest of the article explores them in the political context of the UK. This starts with a brief discussion of the approach, leading into sections that follow four eras in the exploitation of the small firm, from the Industrial Revolution through to the current crisis. This starts with an era that stretches from 1800 to 1970, in which the small firm construct was excluded, yet still rhetorically important in its absence. This is followed by the political invention of the small firm as a response to disillusionment with the Fordist regime, and a look at how the politics of the specificity of the small firm played out during the 1970s and 80s. The subsequent section looks at the period from the 1990s onward, when the small firm construct became denatured and linked to a myriad of political agendas to bolster an increasingly unstable regime. This leads finally to a section exploring how the denaturing of the small firm led to increasing financialisation, and political and economic crisis in the UK.
Small firm construction, individualisation and uncertainty

Some thirty years ago in this journal, Al Rainnie argued that small firms were central to the introduction of Thatchers political agenda in the early 1980s (Rainnie 1985). As well as rescuing the UK economy from its industrial decline, small firms and entrepreneurs were being credited with having mythical capabilities for providing employment, facilitating economic restructuring and providing alternative economic strategies for local government. Since that time, the enthusiasm of policy elites for small firms or SMEs (small and medium-sized enterprises) has grown beyond all imagination; indeed directories of policies now exist (European Commission 2009). Today, no pretence is made that these policies were intended to support a specific community. Rather, they became instruments to realise diverse, ambitious but highly politicised agendas of cultural change, political empowerment and international competitiveness. Many of the contradictions thrown up by the demise of Fordism have been addressed through small business or SME policies. Thus we see SME policies promoting flexible work agendas, SME policies easing the flow of credit supply, and SME policies bringing women back
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into the workplace. SME policies have been at the heart of the contradictions inherent in the practices of work, finance and reproduction for some time, and so have the potential to reveal insights into the origins and management of the current economic crisis. The central failing of SME policy is that it is not clear what a small firm is. Furthermore, this inherent ambiguity has not been so much a problem as an empowering asset from the perspective of political elites. The autonomy of the state to act has been greatly enhanced by what Rainnie described as the small furry animal approach to small business. On the one hand they have to be protected from marauding predators, particularly the trade unions, and on the other hand they are viewed as the small successors to outdated large institutions (Rainnie 1985: 144). During the decade or so before the financial crisis began in 2007, the extension of financial services changed the relationship between the state and individuals, requiring them to take on more financial risk (IMF 2005, OMalley 2004, Hall 2012). During the same period, credit scoring was increasingly used by banks to manage information asymmetries and increase bank loans to small firms (Brewer 2007; Young et al. 2008; Akhavein et al. 2001; Frame et al. 2001; Berger et al. 2009). At one level, Small Business Credit Scoring provided more objective justifications for the rationing of credit to small firms. But at another, there remained controversy over whether it was the accounts and assets of the firm or the past behaviour of the owner or her household that was being evaluated (Kahn 2000; Berger and Frame 2007; Berry et al. 2004) The lack of clarity about what the small firm interest is has not been lost on business and other literature. In political economy literature, the class the petit bourgeoisie has been described as inconstant in interest (King 1981; Poulantzas 1975). In management literature, the assertion that the small firm is an essential form of capitalism, contingent on the personality of the owner and her society, has become an organising principle of much small business research. By ascribing management specificity as a universal principle of small firms, one characteristic has become universal (Torrs and Julien, 2005): specificity. Small firms are all different, always, to the extent that this defines the small business as a concept (see Table 1). Definitions based on turnover or employee numbers only select by a specific trait of firms that have smaller turnovers and workforces. Neither of these can capture a population that could be called small firms (Curran and Blackburn 2001), so these quantitative categorisations only emphasise the otherwise contingent nature of their relations (Torrs and Julien 2005; Curran and Blackburn 2001).
Table 1. The small business concept (after Julien 1990) Small size Centralised management Low level of labour specialisation Intuitive and short-term strategy Simple and informal internal and external information systems Local markets
Source: Torrs and Julien 2005: 463
This is a common failing of sociological accounts of political phenomena, because they assume invariant behaviour. Much of the social theorising associated with major political events (revolutions, the end of the Cold War, etc.) has depended on models of invariant behaviour (Tilly 1995). Tilly notes:

[The] general structure runs like this: 1. All As have characteristics X, Y, and Z. 2. Case is an A. 3. Therefore has characteristics X, Y, and Z.
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A can translate as revolution, nationalism, war or something else, while X, Y and Z can constitute the necessary conditions, sufficient standards, standard sequences, correlates, or consequences. (Tilly 1995)
A can translate as small firm while X, Y and Z could be enterprising, oppressed and dynamic. Small and furry, enterprising and oppressed, dynamic and downtrodden: as the myths and narratives expand, the model of invariant behaviour is enriched and the appeal of the small firm gets stronger. A mail-order business may be run by one man and sell records; but if we follow Tilly, that very simple trait could mean it became Richard Bransons Virgin empire. This is clearly inaccurate, but demonstrates how these invariant behaviours can be ascribed and the distance emerge between reality and the construct. Indeed, the mythology that small firms grow into larger ones was as much an assumption of the influential Small Business Administration pamphlet Acorns to Oaks (Weatherill and Cope 1969) as the dot.com speculative boom in the late-1990s. Both saw the potential of smaller firms to grow just because they were small. In order to make sense of this strange behaviour, we therefore attempt to describe and explain where the models of invariant behaviour of the small firm have come from, and how they have been used to sustain particular periods of capital accumulation through solving a myriad of different policy problems thrown up by late capitalism. This is an empirical question, and in the next section we put forward our conceptual position as a backdrop to our exploration of these ideas within the UK political context.
Maintaining the regime of accumulation through the political construction of the small firm
Figure 1 encapsulates our argument that the political construction of the small firm has been central to maintaining regimes of accumulation. The contradictions of the capitalist mode of production are various (Jessop, forthcoming 2013). But typically those generated through the wage labour relation and the interaction of technology and society under capitalism are seen to define specific periods of accumulation. Their resolution through conventions or social institutions into a regime of accumulation defines a period in history. Because contradictions cannot be resolved in situ, they are separated from society and represented as problems for resolution in the political process through public debate (Burnham 1994). Here, professional politicians and organic intellectuals mobilise a consensus on what can be done to resolve the political crises of the period (Gramsci 1971). This consensus provides a predominantly functionalist political construction of the small firm that normalises the specificity of the small firm within broader societal debates and power structures (Perren and Jennings 2005). In this way, small firms can be construed in and through political discourse as emblematic of values of individuality and self-sufficiency. The values associated with the small firm therefore become sanctioned and sustained by economic interests, and distract attention from the underlying social tensions that build up as capital accumulates (Bruff 2008).
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Figure 1. The political construction of the small firm

Source: Dannreuther and Perren, forthcoming 2013: 169
As the structural crisis of mass production erupted into the social conflict of the 1970s, the political construct of the small firm became an important diversionary tool. The ambiguity of the small firm played a vital role in separating the political process from the economic crises, pitching the plight of workers in industrial sectors within capitalist regimes against those of the more worthy self-employed. During subsequent periods, the small firm was associated with additional characteristics that extend and expand the political construction of the small firm into a universal toolkit for delivering policy. The specificity model was also compatible with the expansion of credit of the late-1990s and 2000s that was a feature in capitalist regimes across the world, because it allowed for the codification of new forms of credit-scoring techniques. As the specificity model of the small firm extended to citizens in general, the reliance on privatised credit to deliver a wide range of public policies and social rights was underplayed or ignored. Capitalist governments across the world, notably in the USA and UK, placed a particular emphasis on using small business policy to promote the individualisation of risk in employment, welfare and pension provision. In these New Times, everyone would control their own future and would no longer be hindered by the social barriers that discriminated on the base of class, religion, gender or disability (Hall and Jacques 1989). So significant were the social changes associated with this period that Beck and Giddens defined it as a new era of reflexive modernity and individualisation to describe how individuals had become freed from old modernitys containers of state and class, public and private: The normal family, the normal career and the normal life history are all suddenly called into question and have to be renegotiated (Beck, Bonss and Lau 2003: 4).
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This form of individualisation assumed a reflexive and autonomous individual (Elliott and 2006; Atkinson 2010; Beck 1999) and a ready supply of credit to enable this to happen. Through this process of financialization, an entrepreneurial society was produced that negated the tension between labour and wage (Lazzarto 2009). Yet social class remained important as a statistical predictor of self-empowerment, since a capital-rich start in life and a privileged current position seem to act as dependable buffers against downwards mobility when change does occur (Atkinson 2012). Discourses of female selfemployment that promoted an idealised notion of entrepreneurial space in which women could act outside the constraints of corporate America were not such neutral, unencumbered spaces. Rather they legitimize[d] the experiences of white middle-class women and exclude[d] women of color from being active participants (Knight 2006). Welfare provision had changed through the introduction of complex financial arrangements between the public and private sector, so that what had formerly been decommodified/socialised welfare provision was now dominated by the rules and requirements of finance and banks. Asset-based welfare regimes were designed to shift peoples attitudes and improve their financial literacy, but also induced debt which is further encouraged by the increased availability of consumer credit and a culture for which freedom and individuality are believed to be manifested though the exercise of consumer choice and in which credit is seen as a necessary right (Finlayson 2009: 415). This was especially the case in transition economies, which were emerging into a more market-friendly global order without social compromises that were forged in the early 20th century (Ferge 1997). Having established the theoretical arguments for the role of the construction of the small firm in the maintenance of capitalist regimes, the rest of this article explores them in the political context of the UK. This starts with a brief discussion of the case study approach, and then explores the first era from 1800 to 1970, a time when the small firm was largely excluded from political debate, yet still rhetorically important in its absence.
The UK political context: Universalism and the exclusion of the small firm (1800-1970)
The UK provides an interesting case of the affect of the small firm construct on the longrun political regulation and subsequent crisis of a capitalist regime (Dannreuther and Perren 2013). The political engagement with the small firm construct is well documented through the Hansard report of the proceedings of Parliament (www. commonwealth-hansard.org). These proceedings have been made available electronically by Millbank Systems. Through previous empirical work using this system, the authors are able to draw upon a bespoke database of the use of the small firm construct in political discourse. Dannreuther and Perren (2013) and Perren and Dannreuther (2012) provide a detailed explanation of the development of this database and the analysis undertaken. It will suffice here to explain that the database contains over 100,000 examples of the use of the term small firm and related constructs from 1803 to 2005. This provides an ideal platform from which to explore the relationship between the small firm construct and the long-run regulation of the UK regime of accumulation and its subsequent crisis. The evidence from parliamentary debate has been supplemented from other sources to provide a wider context when required.
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Figure 2. Mentions of small firm (and synonyms) in Hansard 1800-2004

Source: Dannreuther & Perren, forthcoming 2013: 64
In Hansards 200-year history of parliamentary debate, three main periods describe the representation of the small firm in British politics: exclusion, invention and exploitation. In the first and longest period, during which the British economy evolved from Victorian laissez faire into the modern industrial economy of the 20th century, the small firm was scarcely present in parliamentary debates. Shopkeepers retained a stable presence throughout the 200-year Hansard record, remaining relatively high in comparison to the small firm in the period when small firms were excluded, and relatively low after their appearance in the 1970s. Unlike the corporate economies of continental Europe, where the petit bourgeoisie had been organised through chambers and other artisanal associations (Hall and Soskice 2001; Haupt and Crossick 1990), UK small firms were neither regulated nor able to coordinate their views through a coherent political organisation. Localised forms of production in coordinated economies, in which worker and artisan shared an interest in regulating skills, were able to coordinate their activities at the national level (Thelen 2004). In addition, Chambers of Commerce tended to be focused on trade and the international network of chambers that they supported (Bennett 2011).
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The small firm began to take on greater significance as it came into contact with more universal claims relating to employee rights. A Select Committee on Sweating in the 1870s noted a shift away from centralised factory production to a greater use of unregulated workshops. Dual labour markets were regularly exploited by firms that employed regulated workers in factories and children in workshops. Poor municipal expenditure meant that workshops were not inspected often enough to ensure minimum working conditions (Schmeichen 1975). In 1904 and 1911, shopkeepers were discussed in relation to the regulation of working conditions that extended into the regulation of work on grounds of gender and ethnicity. In the late-19th and early 20th centuries, small firms were described using predominantly disparaging associations with economic inefficiency, parochialism, wartime profiteering and exploitative labour relations in parliamentary and popular debate (Henderson 2000). Even before the corporate economy of the 20th century, the small firm was seen to possess many negative qualities. By not being modern, by being parochial in outlook and lacking specialist executives and labour protection, the small firm appeared amateur and out of date in a modern era.
Figure 3. Utterances of small firm in Hansard debates

Source: Dannreuther & Perren, forthcoming 2013: 83
As Figure 3 demonstrates, discussions of the small firm remained very limited during much of the 20th century: the first time they were mentioned more than 200 times in one year was in 1967. The demise of the tinker, tailor and candlestick maker sector was seen as a natural, and broadly welcomed, function of the progress of technology (Middlemas 1979; Galbraith 1967; Hannah 1976; Prais 1976). Much of the progress towards the welfare state compromises that characterised the period of flawed Fordism in the UK were made on the basis of the exclusion of the small firm. The first of the spikes that took place between 1916 and1937 were predominantly concerned with disciplinary themes (taxation, excess profits duty and employment of aliens) and economic interventions (rubber industry and
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railways). The association of the small firm with negative characteristics such as excess profits, unsavoury employment practices and outdated industrial practices was a key aspect in justifying further state intervention. During the war-dominated years of 1937 to 1950, the Ministry of Supply featured heavily, as did the themes of tax and reconstruction. But a new theme of concentration of production also emerged in the war years. Initially designed to release labour space and resources (Myers 1943), mergers between small firms were dictated by necessity and not by policy (Lyttelton 1943, col. 729), displacing managerial specificity for technocratic interventions in the national interest. Small firms were therefore excluded for both positive and normative reasons. They were labelled redundant as the economy modernised and a wide range of arguments and economists, such as Keynes, explained and demonstrated the limited range of contributions of smaller companies (Tomlinson 2009). They were also excluded normatively as small firms could make no major contribution to the economy of the country (Times, 1953: 3). When they were first discussed in 20th-century parliamentary debates, small firms were not presented with the characteristic of specificity, but as tax loopholes. As the list of outmoded characteristics associated with the small firm extended, their reputation became irredeemably associated with antiquated practices and the past. The specificity of the small firm could therefore also be used to legitimate the contemporary belief in the need for a modern future. The apotheosis of this trend was the 1965 Finance Act, in which the Wilson government granted stringent powers to HMRC (Her Majestys Revenue and Customs, the UKs customs and tax department) to shut down tax loopholes made available for close companies. Companies with fewer than five directors could register as close to enjoy limited disclosure and certain preferential tax conditions. The introduction of corporation tax encouraged close companies to withhold profits from distribution, and the 1965 Finance Bill sought to address this form of avoidance. Companies that failed to distribute 60 per cent of their profits were vulnerable to intensive investigations by HMRC. In addition to the corporatist NEDC, Mintech and the IRC, the close company clauses precipitated an increasingly vocal protest that the CBI was unable to effectively quieten. This led to the first formal Committee of Inquiry on Small Firms in the UK, chaired by John Bolton and published in 1972 (Bolton 1972). The construction of small firm specificity therefore provided a constant reminder of the need for modernisation. While mass production technologies may have disciplined workforces and redistributed surplus to national and international elites through the City of London, they did so in a way that was sanitised and modern. It was certainly not the barbaric conditions of the sweatshop, nor was the exploitation of children to be part of this picture. When looking for reasons to modernise, rationalise and promote state direction, it was frequently the small firm or the close company that emerged as the example. In addition to the pursuit of tax avoidance by Wilsons supercharged Inland Revenue, when Ted Heath criticised the mega conglomerate Lonrho as the unacceptable face of capitalism, he was criticising a close company. That Lonrho was, for tax purposes at least, under the same regulatory environment as any small firm across the country demonstrated how far from reality the term had travelled. The notion of the specificity of the small firm was not acknowledged as a legitimate characterisation of the small firm in these debates. Rather, the lack of transparency associated with these management characteristics was seen as an opportunity for tax avoidDownloaded from cnc.sagepub.com at SUNY BINGHAMTON on February 14, 2013
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ance. The close company forms that had been established to secure protection for smaller companies were by then seen as the notorious avoidance and evasion devices that have made a mockery of so much of our tax system (Chancellor of the Exchequer 1964). These tax reforms would lead to one of the most hotly contested budgets since Lloyd George (Pemberton 2006). But the main legacy was to stimulate a demand for debate and the discussion of small firms that would lead to the establishment of the official Committee of Inquiry into the small firm in 1969 (Bolton 1972).
The invention of the small firm

The personnel and terms of the Bolton Committee of Inquiry on Small Firms were highly contested between the Treasury, the Board of Trade and the various self-designated voices of small firms, revealing a clear tension concerning taxation, finance and regulation. When the report was published in 1972, its findings were laced with a mixture of competing interpretations and meanings that would ensure that the specificity model of the small firm would prevail (Dannreuther and Perren, forthcoming 2013). Small firms were given roles in the economy:
The simple answer to the question why some firms large and others are small, is to be found in economies of scale. This means that the role of small firms is to carry out functions which can be performed more efficiently than larger firms. (Bolton 1972: 28)
There were also romantic associations:

that what we have been studying is not merely a collection of statistics but something highly personal their friends, bosses, trades people, local councillors, fellow members of golf or tennis clubs a great part of the fabric of all our daily lives. There is no doubt that the quality of life would suffer severely and in ways we cannot now foresee if the small firm were to disappear. Fortunately, the sector has shown its resilience in adverse conditions and its ability to survive neglect and disinterest. We believe it will continue to do so whatever problems may arise, but we trust that in future it will be with the greatest possible encouragement from public opinion and understanding from Government. (Bolton 1972: 353)
In this way, the Bolton Committee established a wide range of functionalist, romantic and Hayekian characteristics that could be referred to by MPs in discussions of individual cases over time. Lord Sainsbury argued that small firms provide competition, both actual and potential and provide some check on monopoly profits, and on the inefficiency which monopoly breeds (Sainsbury 1976: col. 892), Keith Joseph that The small businesses and the self-employed are the seed beds of liberty, vitally, inventiveness, prosperity. They are vital to our future (Joseph 1975: col. 832-3), and Colquhoun argued, Small businesses contribute greatly to the life of the community (Colquhoun 1976: col. 829). These illustrative quotations demonstrate that key characteristics were becoming associated with small firms in that decade. But these were predominantly reflections of the executives examination of the problem of the small firm, and so resonated with technical solutions. At this point, the small firm had begun to enjoy a range of behaviours that were positive. The executive invention of the small firm therefore preceded Thatchers government by almost a decade. Despite the terms of reference requiring Bolton to make
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recommendations, the main focus was on ensuring effective market mechanisms and government awareness rather than promoting further intervention (Bolton 1972: v). The specificity model of the small firm made it a central justification for Hayekian critique of the rational economic order of the modern industrial state.
The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. (Hayek 1945)
If it was impossible to gather the information, then how could planning decisions ever be made? Indeed, the only substantive discussion of the Bolton Committee findings in the Heath government referred to exactly this issue: the collation of statistics. Over the coming decade these statistics would be presented as evidence for the failure of the Keynesian growth model, the policies of social contract and above all the power of the trade unions. Popular titles promoted the idea of a structural failure in the British economy, The Death of Britain, and The Abolition of Britain (Davis 2000), blaming trade unions and the lack of entrepreneurial spirit for the nations demise. Regulation approaches have identified the UKs economic decline as the consequence of declining rates of return from mass production technologies and the failure of UK management to replace craft with modern management techniques. But the failure to impose Fordist mass production and modern industrial relations systems in the UK was also due to pre-Fordist management styles in the UK economy (Clarke 2001). An abundance of family and small firms pursued short-term management styles because they focused on selling non-standardised products to UK and colonial markets. From this reading, the state and the trade unions were not that important. More recent histories have highlighted how the Winter of Discontent of 197879 was constructed into an epochal moment that pinned the failure of the economy on trade union excesses, discredited Keynesianism, and constructed a narrative that would prepare the electorate for Thatcherism.
To be successful, this crisis narrative did not need to be accurate, nor especially detailed. It merely needed to resonate with, and make sense of, the events and experiences of the winter of 1978-1979 as they unfolded while unambiguously attributing causality and responsibility to an overextended state, to the tyranny of the pickets, and so forth The New Right framed the crisis reading and reinterpreting each and every episode, event and policy failings of the winter of 1978-1979 as a symptom of a more general crisis which required a decisive and systemic response. (Hay 2010: 465)
New political associations emerged during the 1970s claiming to be the voice of the middle classes and the self-employed, which specifically contributed to the crisis narrative outlined above (Nugent 1979; McHugh1979). As well as the political statements, a new literature identified a new politics based on freedom, self-expression and quality of life (Ingelhardt 1971; Inglehardt 1981, Brooks and Manza 1994). This silent revolution, it was argued, was driven by a generational value change that would naturalise the emergence of an enterprise economy by the end of the 20th century (Audretsch and Thurik 2000). But despite the industrial unrest that accompanied the decline of the
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industrial state, neither of these arguments acknowledged that the changes that took place during the decade had anything to do with the problems associated with capital accumulation in that period. The specificity argument presents a different hypothesis: that the small firm provided a model of economic policy that could stabilise the social tensions that emerged in the 1970s. The New Right was able to exploit this definition, since it fitted the Hayekian critique and also appealed to a wider range of aspirational middle class voters. The battle over the small business concept would come to a head in the pivotal debate over the highly specific management style of the Grunwick photographic processing laboratory in 1976-78.
The politics of specificity (1972-1990)

The specificity of the small firm had been a source of suspicion and distrust during the rise of the corporate economy. But in the political upheavals of the 1970s, the specificity of the small firm made it a powerful tool for communicating directly to the preferences of individuals. For middle class voters in the 1970s, seeking an identity that was unencumbered by obligation and bound up in narratives of liberty, the events surrounding the Grunwick dispute provided a powerful political narrative of man against the machine of the collective socialist state (Dromey and Taylor 1978; McGowan 2008). The characteristic they associated with George Ward, described by Margaret Thatcher as a champion of freedom, the legal defence designed to protect the sovereignty of his firm and the way the entire dispute framed industrial relations in future years, established the small firm as a particular if idealised form of economic actor in a highly political debate. Grunwick also changed the way that politics was conducted. A new form of direct politics emerged around the radicalisation of the middle classes in the 1970s that contradicted the democratic structures of state planning and consensus politics of Labours social contract in the 1970s. Instead, the focus of political debate was on liberty and the resolution of political conflict not in Parliament but through legal instruments and courts (Gamble 1979). Organisations like the Freedom Association practiced this form of politics, which would become normalised in the new social movements of subsequent decades. Finally, the failure of the Heath government, which had proposed to liberalise the UK economy through consensual politics, allowed Thatchers more radical conviction politics to emerge. What made her politics different, however, was the appeal directly to the excluded group of the middle classes that associated with the small firm constituency. A wide range of competing new representative associations emerged in the 1970s and 1980s to promote the interests of small firms. These varied from the large National Federation of Self Employed (NFSE) (which changed its name to the Federation of Small Businesses, FSB), the Association of Independent Business (AIB), the Forum of Private Business (FPB) and the Union of Independent Companies (UCI) (McHugh 1979). Each presented a very different offer to the potential member. The NFSE made decisions based on a federal structure, the UIC had close links to the Conservative Party, and the FPB organised surveys of members through the electoral commission. Others like the Institute of Directors represented a particular type of entrepreneur, while the
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CBI channelled small firms voices through its Small Firm Council. These competing views of what the small firm was, what it could do and what it wanted percolated the debates on small business policy in the 1980s. Such competing interests allowed Thatchers Hayekian agenda of a free economy and a strong state to guide the implementation of small business policy. Interventions were politically important, such as the attack on red tape and the articulation of self-employment as self-sufficiency, rather than substantively significant. This connection was most clearly seen in the Small Business Bill, which was read at the same time as the 1985 Burdens on Business White Paper: The essence of the Bill is a conscious restraint upon the power of the Government (Grylls 1985, col. 668). Despite the rhetoric, the substance of these changes was modest. The Deregulation Agenda constantly ran out of steam in the 1980s (Ogus 1994), selfemployment was perceived mainly as an employment issue, and so an extension of social policy (Young 1990), and problems of finance access were reduced to the relatively modest Small Firms Loan Guarantee Scheme recommended by the Wilson Committee in 1979 (Wilson 1979). The discussion of the small firm appeared designed to satisfy a vote-winning constituency in the immediate aftermath of the election (King 1981). Throughout the period, the small firm was assumed to comply with the specificity model: centralised management, low levels of labour specialisation, a short-term strategy and simple information systems (Torrs and Julien 2005: 363). Each characteristic permeated the policy assumptions of the era. For example, the assumption that small firms needed to be freed from regulation because of the burdens they placed on small businesses assumed that there was only a very centralised form of management in the firm capable of ensuring compliance. The low level of labour specialisation implied that small firms were not interested in investing in skill.
The denaturing of the small firm (1990 to the crisis)

The denaturing of the small firm (Torrs and Julien, 2005), and to a larger degree the notion of enterprise, occurred in the 1990s. At the beginning of the 1990s, Deputy Prime Minister Michael Heseltine re-established the title of President of the Board of Trade to signal a more activist government stance towards business. The Competitiveness Councils that he chaired during the early years of the decade were specifically intended to develop consensus across the various competing interest groups that represented firms both large and small (Greaves 2008). During the 1990s, small firms were related to new agendas relating to competitiveness (e.g. Audretsch 1992; Eggs et al. 1999; Hamilton 1994; Horne et al. 1992), the new economy (e.g. Jovanovic 2001; McAdam and McAdam 2008; Oakey et al. 2001) and flexible employment measures (e.g. Vaessen and Keeble 1995; Storey 1981; Arrowsmith et al. 2003). The ideological ascendance of the small firm was no longer solely to attract political support in elections, although this role was still evident in party conferences. Linking reforms to the small firm, even if only to demonstrate consideration of the impact on them, was also intended to garner support for policy reforms. Mentions of small firms in parliamentary debates increased over the decade.
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Figure 4. Utterances of small firm in Hansard 1980-2004

Source: Dannreuther and Perren, forthcoming 2013: 147
Small firms were increasingly deployed to implement policies in key areas, such as employment, welfare and competitiveness, many of which led to the transfer of social and political uncertainties from the state onto the individual (Muckenberger 1996). A new network of institutions emerged to support small firms, such as TECs and Business Links, and the competitiveness agenda blurred the boundaries between wide ranges of policies that had small firms in the mix (Wren 2001). Education reforms, for example, could help achieve competitiveness goals by promoting entrepreneurship, knowledge transfer and spin out companies (McCafferty 2010). Self-employed people could supply specialised labour to serve flexible labour markets and enable excluded groups such as women and minorities to participate in the economy as entrepreneurs. Both would offer investment opportunities to new forms of risk capital interests (Huggins and Williams 2009). By the late-1990s, the New Labour administration placed significant emphasis not only on supporting small firms but on developing an entrepreneurial culture in the United Kingdom and across the European Community (McCartney 1999, col. 1414). This explicitly rejected the uncritical laissez-faire philosophy of the previous Conservative Government (McCartney 1999, col. 1414), and a wide range of policy initiatives proliferated, as New Labour sought to realise both scale and scope in its reforms through small business policies (Huggins and Williams 2009). Like the small firm, usage of the term entrepreneur in parliamentary discourse also shifted during this period (Perren and Dannreuther 2012). In the 1970s and 1980s, discussions of entrepreneurs referred to actions by them and predominantly conceived them as independent of and distinct to the state. By the 1990s, entrepreneurs were being described as receiving various forms of intervention by the state in actions on
52
Figure 5. Proportion of small firm contributions by date 1985-1999

Source: Dannreuther & Perren forthcoming 2013: 156
them. But by the 2000s, the entrepreneur was no longer distinct from the state at all. Instead,
the construct of the entrepreneur has shifted from the ontologically grounded stem entrepreneur to the more plastic, malleable and reified derived forms of entrepreneur[ship] and entrepreneur[ial]. So, the trend in the construct of the entrepreneur is towards the notions of diminished personal agency, increased structural intervention and measurement, increased abstraction and reification, and reduced dialectic. (Perren and Dannreuther 2012: 17)
By the turn of the century, the entrepreneur had become an instrument of policy contracted to implement any one of a wide range of policy agendas, including the delivery of public services. Eddie George, who was Governor of the Bank of England during the 1990s recession, launched a series of reports dedicated to reducing the information asymmetries around small firm finance. The Bank also produced specific reports to address credit flows to SMEs from black and minority ethnicity groups (Bank of England 1999). By 2004, these were no longer considered necessary (Murphy et al. 2004). The concept of Social Enterprise and the Third Sector epitomise this trend, and were promoted by the Cabinet Office to deliver a wide range of social political and development services (HM Treasury and Cabinet Office 2007). Interventions to support the third sector were focused more on delivering reforms based on the retrenchment of government expenditure than on the enhancement of local groups (Birch and Whittam 2008). There were also clashes over professional standards between public-sector workers and third-sector champions (Chapman et al. 2010). In its most recent form, the
53
Figure 6. Company liquidation and individual insolvency rates in England and Wales
Source: Insolvency Service, Companies House and the Office for National Statistics 2011.
Community Investment Company (CIC) has been criticised for its lack of disclosure to the communities that it is meant to support (Nicholls 2010). Having shown how the political construction of the small firm was central to the maintenance of the capitalist regime within the UK, the next section shows how its denaturing engendered aided the financialisation process that would lead to the current crisis.
Financialisation, the denaturing of the small firm, and the crisis

The small firm had become an empty signifier that was malleable to the preferences of policy makers (e.g. Jones and Spicer, 2005). Over the period since the Bolton Committee, the specificity of the small firm model allowed its meaning to transcend a wide range of policy issues and arenas. This was especially so during the period of dramatic change that accompanied the UKs structural crisis in the 1970s. Since that time, the small firm was used in different, even competing ways: first, to push back the state; second, to develop individualised subjects; and third, to deliver government agendas. In this final section, we demonstrate how the very specificity of the small firm also confirmed the distribution of financial risk onto individuals in the insolvency courts. The IMFs 2005 Global Financial Stability Report included for the first time a special review of household risk. This acknowledged that householders had always been the ultimate bearers of financial risks but also noted:
However, traditionally these various risks and exposures have been intermediated to differing degrees by governments and private financial and nonfinancial institutions, and households have borne these risks in different capacities, including as taxpayers, depositors, employers or business owners, pension or insurance beneficiaries, or increasingly as holders of equity or debt securities. (IMF 2005: 63)
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In retrospect, the IMF was picking up on the tail end of a 100-year convergence in liberal market economies towards 70 per cent home ownership (Ronald 2008). This had created in Australia, Britain and the USA a form of tenure imperialism, channelling and prescribing internationally a singular view of private housing provision, finance and consumption (Ronald 2008: 33). More importantly, the process of financialisation had introduced
its own forms of enclosure over the household, the realm of reproduction and domesticity. The home itself passes from a receptacle for consumption to a scene for further accumulation. Not only is the home to be an object of speculation in the heartless world rather than a haven from it, but the labor organized through the home passes from unpaid domestic work to remunerative investment. Financial risk management augurs its own form of enclosure, one that brings into jeopardy the sacred promise of private life unmolested by market demands and the independence associated with the secure middle-class neighborhood. (Bryan 2009: 471)
The IMF report was diplomatic, but still called for greater consideration by national regulators of the redistribution of risks to home owners. We now know that the growth in holdings of subprime property debt and the financial innovations that enabled this to happen were key features of the current crisis. Adjustable rate mortgages, for example, had a particularly pernicious role in exposing sub-prime borrowers to both interest-rate rises and falling house process. When both of these moved in the wrong direction, the delinquency rate spiked sharply (Langley 2008). In the UK, it was legislation to ease small businesses bankruptcy that would ensure that even defaulted mortgages could remain profitable to lenders. By the 2000s, the term small firm and its synonyms, such as entrepreneur, were interchangeable in most contexts, parliamentary and otherwise. Small businesses still exceeded the other synonyms mentioned in parliamentary debates, but the use of entrepreneur had also increased dramatically. There was a consensus by this time that small firms were both desirable and that they should exist in a favourable environment (May and McHugh 2002). The combination of a loose use of the small firm as a political construct and the ubiquity of support for the small firm garnered cross party support for the 2002 Enterprise Act, intended to make Britain the best place in the world to start a business. One of the issues that had been identified as limiting an enterprise culture in the UK was the stigma of bankruptcy. The Enterprise Act drew heavily on the USAs Chapter 11 model of bankruptcy to ease the process of bankruptcy and be more pro-debtor than the UKs traditional pro-creditor rescue culture (Sherwood 2003; McCormack 2009). The Enterprise Act would differentiate between honest and dishonest bankrupts, penalising the latter but allowing the former to be discharged a maximum of 12 months after being made bankrupt (Moules and Sherwood 2004). The three following charts from the insolvency service demonstrate the impact of the legislation. In the first we can see that the measures designed to realise an entrepreneurial economy have in effect enabled increasing numbers of individuals to declare themselves insolvent. Although there were three times as many companies in 2012 than in 1986, the percentage of failure rates declined after the 1992 recession, and have not risen since. But personal insolvencies, calculated from the total number of new bankruptcies, Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs), have increased dramatically as a proportion of the total population over 18.
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Figure 7. Bankruptcies in England and Wales: Trading status

Source: Insolvency Service 2009
The pattern clearly illustrates a divergence in the distribution of insolvencies away from company liquidations and towards the domestic debtor. The trend is more distinct when self-employed people who have filed for bankruptcy are compared with individuals (Figure 7). Despite the legislation being prepared to specifically foster a rescue culture for entrepreneurs, in practice the total bankruptcies clearly follow individual bankruptcy rather than self-employed bankruptcy, which are by comparison fairly stable. In 2009, the Insolvency Service undertook an evaluation of the insolvency clauses of the Enterprise Act before and after it came into force in 2003. The specific provisions referred to the bankrupts home, and were designed to place a limit on the time the trustee had to sell the property, allowing the bankrupt and his or her family to stay in the home for up to 12 months while they found somewhere else to live. As part of these provisions, however, the courts would only stop the sale if the sum owed to the trustee were lower than 1001: i.e. the trustees could sell the family home for a debt of 1100. The evaluation of the Enterprise Act identified changes in the methods of realising bankrupt families interests in their home (Figures 8 and 9). The key change between the two periods is in the use of the repossession order. Before the Enterprise Act, the main methods were through agreement with the trustee and then the voluntary sale by the bankrupt of the property. After the Enterprise Act, the percentage of realisations through repossessions almost doubled, while voluntary sales halved. Froud et al. argue that financial innovation has not released people from the tyranny of earned income but rather tightened the vice insofar as low-income individuals and households accumulate debt but not assets (Froud et al. 2010). But in this case, we could even argue that the interventions of the state have not served the household well either. Finally, the Enterprise Act amended the 1986 provisions on Individual Voluntary Arrangements (IVAs) to allow debtors a quick alternative to bankruptcy that would also improve returns to creditors. These have enabled individuals to exchange the bankruptcy order for an IVA, and in fairly short time. But the profitability of selling IVAs in a
56
2% 4% 5% 1%
41% 26%
21%
Figure 8. Pre-EA realisation methods

2% 6% 10% 3% 32%
10%
3 %
Figure 9. Post-EA realisation methods Source: Insolvency Service 2009
debt-management industry that was worth 250 million by the end of 2010 led to wideranging malpractice in the industry (Office of Fair Trading 2010). The Office of Fair Trade (OFT) investigation found widespread non-compliance with its guidance by debtadvice and debt-management licensees, misleading advertising in particular misrepresenting debt management services as being free when they are not, and incompetent frontline advisers (Office of Fair Trading 2010: 7). We have shown how the political construction of the small firm was central to the maintenance of the capitalist regime within the UK. Under the financialisation regime, the small firm was also a mechanism for extending financial services deep into the household to both reallocate risk and to maximise the retrieval of losses from bad debtors. In this way, the provisions in the Enterprise Act to promote a rescue culture built around small firms again served to provide a distraction from the contradictions of the accumulation regime, this time between creditor and debtor.

50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
57
Figure 10. Individual Voluntary Arrangements (IVAs) registered in England & Wales
Conclusions
In this paper, we have revisited Al Rainies provocative declaration that small firms were big problems in order to investigate the origins of the financial crisis. We started with a conceptual framework based around the regulation approach that proposed how the small firm construct provides a discursive decoy for underlying tensions within capitalist economies. This proposition was then explored through the case of the UK political economy and shown to have merit, especially when linked to notions of individual financialisation. We have found that the invention of the small firm was forged in the dying days of the democratic economy, and that these battles defined the essential characteristic of small firm specificity. The rejection of the small firm allowed the establishment of rights and democratic channels that would eventually lead to the social pacts of the 1970s. But the specificity of the small firm was a powerful political instrument to challenge both the universalism of the post-war compromise and the technology that supported it. From the beginning of the unravelling of mass-production-based compromises, the small firm offered alternatives that resonated with aspirational middle classes. The mobilisation of this vote, even if based on a pretence, was a powerful instrument for the post-Fordist era, as it provided the personification of the TINA (there is no alternative) ideology of liberty and self sufficiency. But this was not a sustainable agenda, and the government sought to intervene in the 1990s to offer direction to the denaturing of the small firm into competent and skilful actors. Then dynamic entrepreneurs proved too attractive to an opportunist government pursuing post-ideological agendas of individualisation and globalisation. Through this, and through interventions specifically designed to promote small firm finance, the state also extended the facilities for indebtedness across society. While the almost obsessive pursuit of entrepreneurial culture transformed public services into markets, rendering them vulnerable to future financial insecurity, the main changes were made possible
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through the conflation of small firm, enterprise and household consumer. The framing of the insolvency provisions in the 2002 Enterprise Act to ease indebtedness through bankruptcy exonerated bad lending and enabled further financial malfeasance, but still ensured that the burden of financialisation would fall on those impoverished by the processes of financialisation. As more ordinary people turned to such provisions to wash away the stigma of debt, the recession that was driven by those who put them into debt offers few the opportunity for work. Still, all the parties maintain their mantra that it will be small firms and entrepreneurs who will find the ways of dealing with the uncertainties of a global finance-led recession. Unfortunately, the spectre of this process is unlikely to be restricted to the UK, as other liberal market economies, epitomised by the USA, certainly appear to have similar dynamics of small firm rhetoric and individual financialisation (Martin 2002). There is some cold comfort to be taken from coordinated market economies in Europe, where the state still appears to bear more of the uncertainty, and where the process of small firm individual financialisation may to some extent be blunted (Hall and Soskice 2001; Martin 2013). The discursive construction of the small firm has been shown to provide a rhetorical mask for the dark underbelly of injustice and tension that is intrinsic to capitalism. The dirt and inequalities of capitalism are not only swept under the metaphorical carpet of the small firm construct, but the associated Hayekian cult of self-sufficiency through financialisation makes individuals in society responsible for the solution. Through this trick of the capitalist elite, the risk and tensions of capitalism are rhetorically dumped on individual members of society (Miller and Rose 2008b), the pressure of failure being felt most by those most impoverished and not achieving. Oppressed non-achievers no longer appear to have strong advocacy from the left, and rarely now are they portrayed in the mass media as victims of systemic failure. Instead the prevailing discourse is of personal responsibility and personal failure. A wicked form of governmentality leaves individuals apparently free from the state to act as agents, but through the subtle articulation of neoliberalism from the political elite, mass media and education, individuals become self-governing and mobilised towards enterprise, financialisation and economic risk (Bruni et al. 2004; Costa and Saraiva 2012; Miller and Rose 2008a). They are active agents in their own economic governance through the capitalization of their own existence (Miller and Rose 2008b: 97). Those who demonstrate the neoliberal values epitomised by the small firm construct are successful, those who cannot or will not comply are failures. Individuals internalising the underlying problems of capitalism leads to personal financialisation and the acceptance of increasing risk through their apparent personal agency. Ironically, franchising capitalisms risks to the public and rhetorically masking its inherent conflicts behind the screen of the small firm construct has led to the current crisis, and to the exposure of financial capitalisms contradictions. Acknowledgements
This paper has had a long gestation period and has been influenced by a wide range of colleagues during this period. Rather than list them all here, we would like to refer readers to the extensive acknowledgements in our forthcoming book, Dannreuther and Perren (2013). Ideas in this paper have been influenced by the same group of generous and insightful colleagues. We would like to thank Pascal Petit, Claire Rigby and Owen Worth for their support during the production of the paper.
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Author biographies
Charles Dannreuther is a lecturer in European political economy at the University of Leeds, UK. His interest in small business policy has informed contributions to international political economy, regulation theory and European public policy. Lew Perren is a professor of management research at the University of Brighton, UK. His research into management and entrepreneurship has tended to be interdisciplinary in nature, often drawing upon influences from linguistics, sociology and philosophy.

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CNC37110.1177/0309816812473955Capital & ClassDannreuther and Perren

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Small firm construction, individualisation and uncertainty

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Figure 1. The political construction of the small firm

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Figure 2. Mentions of small firm (and synonyms) in Hansard 1800-2004

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Figure 3. Utterances of small firm in Hansard debates

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The invention of the small firm

There were also romantic associations:

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The politics of specificity (1972-1990)

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The denaturing of the small firm (1990 to the crisis)

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Figure 4. Utterances of small firm in Hansard 1980-2004

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Figure 5. Proportion of small firm contributions by date 1985-1999

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Financialisation, the denaturing of the small firm, and the crisis

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Figure 7. Bankruptcies in England and Wales: Trading status

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Figure 8. Pre-EA realisation methods

Figure 9. Post-EA realisation methods Source: Insolvency Service 2009

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Dannreuther and Perren References

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Capital & Class 2013 Dannreuther 37 64

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