Small business is Labour's business

Blair's party should forget the corporate bogeys of the past and look to the job creators of the future

Suddenly the election is for real. The unofficial campaign kicked off this week with the wholly unsurprising trading of insults about taxation and the somewhat more surprising appeal by Labour to the business community. Labour's manifesto for business got, it seems, a ho-hummy reception: not too much open hostility except on taxation and the Social Chapter, but not much warmth either despite a supposed concession by Labour on takeovers. It must be a bit dispiriting: all the efforts by Labour leaders to show that they are not anti-business, and, save the occasional maverick bigwig who is prepared to sign up (and hope for a peerage for his courage), hardly anyone of note in the business community will openly support them.

Labour's relationship with business is a bigger problem than its problems over tax. At least tax is a clear-cut issue. Business is about ideas and instincts. Labour - uniquely among parties in developed countries - knows very little about business. Hardly any Labour candidates have a business background. None of the top rank of the shadow cabinet has business experience. It is a gaping hole, and it shows.

It is very hard to think of any successful economy anywhere in the world where business is at loggerheads with government, and a modicum of economic success is utterly essential to Labour if it is to achieve any of its social objectives. If the business community is demoralised, economic catastrophe awaits. So it is powerfully in its own self-interest for Labour to build a relationship of trust with business people. But how? By stopping, I suggest, making three mistakes and by exploiting two opportunities.

Mistake one is to assume that by talking to the representatives of businesses you talk to business people. For a start, the Confederation of British Industry does not represent business in the way the Trades Union Congress represents the unions. More importantly, the heads of big businesses are not as a rule particularly involved in British politics. Britain is just one market among many: half the profits of the top 100 companies come from abroad and many of our big manufacturing companies are not British- owned. Labour needs tacit support among ordinary managers and professionals, not the people who attend seminars.

Mistake two is to focus on manufacturing and on big business. Of course both matter, but neither matter nearly as much as when Labour was last in power. Manufacturing is now little larger as a percentage of GDP than financial and business services. As for business size, some research in the Economic Journal coincidentally out this week shows that between 1989 and 1993 small businesses that survived the recession increased their employment by 50 per cent, while large ones cut theirs by 6 per cent. Thus even successful big businesses are still shedding labour. Small companies are providing the jobs now, and, it seems overwhelmingly likely, the jobs of future.

Mistake three is to assume that the City hates Labour. It is perfectly true that, a generation ago, the financial markets did not go a bundle on Labour policies, and that they were aghast at the Labour Party of the early 1980s. But now that is a memory: the City is so international that economic policies in Britain are assessed in just the same way as policies in France, Germany or Japan. The idea that Labour-leaning industrialists are afraid to disclose their support for fear of antagonising the City is nuts. The main reason investment managers are wary of business people who are overly interested in politics is that they are worried they will spend too much time messing around chasing peerages and not enough running their companies. There is, of course, a problem on tax - tax on dividends and tax on personal incomes - but Labour has said there will be no penal taxation and that it will make its tax plans clear before the election.

Labour should stop worrying about the old generation of corporate leaders and focus on the middle-ranking professionals; recognise that the jobs of the future are in services and small business; and learn, if not to love the City, at least to appreciate that financial markets are deeply meritocratic and pretty fair-minded.

That is a start. Now for the positive things Labour can emphasise. One is trust-busting. Big business, for all its advocacy of the markets, likes cosy arrangements which limit competition. A well tended monopoly - adequate service, fat margins, little upheaval - is a fine way to make money. Anything Labour can do to make life uncomfortable for the dominant players will be welcomed by the rest.

Next, Labour should seek to tailor policies for small business. There is no reason why the Blair party should not prove attractive to the growing army of small businesses, including the many self-employed. These are not plutocrats or exploiters of other people's labour. They will increasingly become the bedrock of the economy. But meanwhile they need help, for many feel that over the last few years the Government has been insensitive to their needs. For example, regulations which for large firms are simply an additional cost - they set up a division to handle them - are for small firms a disproportionate burden.

Acting against monopolies and supporting tiny businesses ought to be meat and drink for a party which seeks to stand up for the weak against the strong. It may be a giant leap from the state corporatism of the 1970s, but arguably fits in more closely with the party's origins. For Labour, it would be back to basics.