The big city’s the place to find fame and fortune, wouldn’t you think? Not according to the Commission for Rural Communities, whose new report claims ‘rural areas have more entrepreneurs’. This seems odd – aren’t cities supposed to help ideas flow, with banks to lend money, and customers to sell to?
All the evidence suggests innovation is heavily urbanised, for example. So what on earth’s been going on in the British countryside? Is the fresh air good for the brain?
The report’s here. It’s nearly 200 pages long, so to save you reading it I’ve done some digging. The relevant findings are:
1) A survey of bank lending finds that in 2008 and 2009, rural areas had more start-ups per working-age population than urban areas (p131)
2) GEM survey data for 2004-2008 finds higher rates of ‘entrepreneurship activity’ in rural areas than urban areas. Strikingly, the survey suggests rural entrepreneurship rates are ‘as high as inner London’ (p133).
The report uses good definitions of ‘urban’ and ‘rural’, based on this DEFRA typology. But there are questions about which rural areas we’re talking about – more on that in a moment.
Let’s start with start-ups. First, there’s not much urban-rural difference in business birth rates – 13.9 per thousand people in rural areas, 12.7 in urban areas. Second, in absolute terms there are far more start-ups in cities than the countryside – hardly surprising since c.80% of the English population live in urban areas.
Third, there’s noise in the data – the survey in question covers 93% of all bank lending, which is pretty good, but doesn’t adjust for the rest. If 80% of those loans were to city firms, a reasonable assumption, the urban-rural difference is less than one percentage point.
‘Entrepreneurship’ is a slightly more nebulous concept, and it turns out the GEM data needs a big pinch of salt. For one thing, the survey is based on just 43,000 firms across the UK – which might risk sampling error if you’re looking at small rural areas.
More seriously, GEM actually measures something called ‘total early-stage entrepreneurial activity’ – which is a weighted index including ‘nascent business activity’. This could include things like writing a business plan, but not actually doing anything with it. (I’ve also no idea how the Index is built because GEM doesn’t say.)
In the CRC small print, GEM concedes it’s tracking ‘propensity to be entrepreneurial’, rather than *actual* entrepreneurs. It’s hardly convincing.
So, case not proven – on the basis of these numbers. However, let’s suspend disbelief and assume there is a new generation of rural whizz-kids. What might explain this?
It could be a lifecycle effect – people downsize or move their families out of the city, starting new businesses in the countryside. Migration data suggests there could be something in this – young single people move into cities, older people with partners and children move out. Other studies suggest people gain skills and learning in cities, taking these with them when they leave.
There could also be a technology effect. The CRC’s start-up figures suggests that most loans go to business services like accountancy and consulting, a lot of which can be done by phone or online (anecdata – my accountant operates out of deepest East Sussex).
That implies a third point – many of rural areas are actually around the edges of big urban areas. In the jargon, they’re ‘peri-urban’ – pleasant, leafy communities with decent schools and public services, and good links into the urban core. Not surprisingly, these neighbourhoods tend to come near the top of ‘best place to live’ surveys.
In turn, that suggests some final lessons. Don’t overspin your data. The city and country have more in common than you might imagine. And ultimately, enterprise is less about place than about people.