Is there an equity gap? By that I mean is there a market failure to provide entrepreneurs, those engaged in early stage businesses, with risk capital to get new ideas off the ground?
On the one side, the "classic right wing free market thinker" will say that there is no equity gap. The best ideas will always get finance and there is no need for government intervention. Worse still by intervening and financing ideas that are not strong enough to stand on their own two feet competition is distorted and some of the really good ideas fail.
The usual contrary argument from a "left wing Marx-ist thinker" is a government knows best line which says that government with its huge resources can access information others cannot. Moreover government is committed to certain minimum social welfare standards for all. Economic activity that causes reductions in social security payments and increases in taxes mean that government can make money where private sector investors cannot.
What makes this argument rather bizarre is that the US (arguably the most capitalist of the developed countries?) puts more money into financing business caught in the equity gap than any other developed nation.
Where do I stand? Well after nearly four years in this game I have become rather schizophrenic.
I have no doubt that there is a genuine market failure caused by the complexity of the society we live in and the protection given by the state.
This complexity is caused by the myriad of regulation; taxes; vested interests all acting to preserve the status quo and inhibit new ideas and competition. The protection given by the state both through social security, so called free healthcare and most recently human rights all act to inhibit risk taking.
Government which largely causes and controls the market failure is the only entity that can really resolve it.
Conversely I do not believe that government knows best. I think the evidence is that government does not know best. The history of massive direct intervention especially in new ideas, for example in the car industry to help John De Loren, is one of complete disaster.
The equity gap exists and today is arguably growing. Raising risk money for projects with a pretty reason-able chance of success is tough under say £10 million and there is no evidence yet of a change.
Worse still the gap is at its worst for projects that need say £1 to 2 million to develop before they can generate any revenues. Back in the late nineties there was far too much money chasing these sorts of ideas and we all know what happened.
So what is to be done?
I know of no magic bullet solution. There are a whole range of actions that have been taken. We need an increasing focus on entrepreneurialism in schools and universities, to try to generate a more positive attitude towards business and risk taking, even special funds to invest solely in early stage businesses. Tax breaks for investors in early stage businesses would certainly help. There is a whole plethora of ideas.
Individually they won't work but if tackled as a real team game we all have plenty to gain. The rewards of a growing economy are huge but so are the penalties for losing markets abroad. The West Midlands is at the fore-front of these ideas and has the potential to become the entrepreneurial capital of the UK.
What role could you play in this?