Why small business does not create jobs


By Andrew Lester, Chief Marketing officer of Different Life, finds a solution to unemployment in South Africa


andrew“Small business creates jobs” or so the saying goes. The corollary to this statement is that it is big business’ mandate to shed jobs as it attempts to do “more for less”. Both statements are true … well kinda.

Both statements are only kinda true as they don’t tell the full story. I believe the truth is something more along the lines of “entrepreneurship creates jobs”. An entrepreneurial venture needn’t be housed in a small business to create jobs: large entrepreneurial firms create jobs all the time as they create new categories and markets and, in so doing, create jobs that weren’t even conceived of in the past. Small business can create jobs but not all small businesses do create jobs.

An article on boosting small business on the SouthAfrica.info website states that “Data on small and medium enterprises suggests that these enterprises contribute about half of total employment, more than 30% of total gross domestic product.” Half? Wow, that is significant!

But the large majority of small businesses never really create jobs beyond the owner. According to Towards a Ten Year Review, 2.3 million people own at least one Value Added Tax (VAT) unregistered company but only 338 000 owners have employees, and there were only 734 000 employees. Now maybe it is just me, but something doesn’t add up here?

To me, the definition of a job is that you are in someone else’s employ, that you have a salary. If that is the case, then these 2.3 million entities have only created 734 000 jobs. That is … well, nothing. It really means that what we have is a large group of survivalists and the real gap is in developing entrepreneurial skills, skills that leverage the courage and the nous to “go it alone” and aid in the creation of businesses that employ people beyond the owner.

I have, for all of my working life, been an entrepreneur: I have never had a job. As such, it is not surprising that I view entrepreneurship as a potential solution to our rather large unemployment problem. But I can also tell you that there is a huge difference between being self-employed and being an entrepreneur. It seems to be that in South Africa we are self-employed out of necessity, which does not make us entrepreneurs, and our ability to forgo the efficiency of big corporations for the flexibility of self-employed individuals is not limitless. That is to say we cannot achieve the goals we are setting for small business without the missing entrepreneurial ingredient.

For me there is no doubt that entrepreneurship is key to job creation. What we need to facilitate is a culture of entrepreneurship, real game-changing entrepreneurship. This is not something that is achieved overnight. The NDP sees 90% of new employment coming from small, medium and micro enterprises (SMMEs) by 2030. This is a brave claim and will require the development of some real entrepreneurial capabilities. I believe that we should be backing any endeavour that seeks to facilitate entrepreneurial development. NGOs such as Paradigm Shift and The Hope Factory, organisations like the Awethu Project and Shanduka Black Umbrellas need our support. If 90% of new jobs are going to come from entrepreneurs, we had all better get behind their development.

And if the government is serious about achieving its target of 6 million jobs by 2019, its best hope would be to grow and develop a cohort of talented entrepreneurs.