1. Micro-businesses and Neo-Endogenous Rural Development: UK Perspectives
Jeremy Phillipson
Centre for Rural Economy
School of Agriculture, Food and Rural Development
Newcastle University, United Kingdom
Thanks for your introduction and warm welcome. For a research centre like the Centre for Rural Economy where I am based we place particular importance on developing international links and comparative perspectives. The link to Hokkaido is an important and a developing area in this respect and I hope that there will be further opportunities for mutual exchange and collaboration, perhaps involving some of you here today.

2. Structure of Presentation
Introduction: the Centre for Rural Economy and models of rural development
Key characteristics of UK rural economies
Dynamics and contribution of rural micro-businesses
Turning to the substance of the seminar I wanted to focus on three aspects. I will first introduce you to the Centre for Rural Economy where I am based and its interest in models of rural development. Here I’ll introduce you to the so-called neo-endogenous model of rural development.
Secondly, by way of context, I want to outline what are seen to be a number of key characteristics and drivers that are affecting many rural economies in the UK. These are aspects which are crucial when considering economic opportunities in rural areas. Whilst acknowledging rural economies are diverse, it is important to acknowledge and build on these trends.
I will then focus in on one important feature of rural economies by considering the nature and contribution of rural micro-businesses, these are businesses with less than 10 employees. Micro-businesses dominate the rural business profile and therefore play a crucial role in rural development. In the UK there is a particular interest in their role in the development of small towns which are a central focus of rural development. Micro-businesses are an important area of research within the Centre for Rural Economy.

3. The Centre for Rural Economy (est. 1992)
We are committed to research and development activities oriented to achievement of a sustainable rural economy
What are the barriers and prospects for development?
What gives coherence and rootedness to local economic activity?
The CRE is a social science research centre based in Newcastle University in the North of England. Within the University the Centre is set within the School of Agriculture, Food and Rural Development, the largest of its kind in the UK.
CRE is a research centre which places much importance on interaction and joint-learning with policy-makers, practitioners, businesses and the public. These are involved as active partners in establishing the focus, priorities and conduct of research.
The CRE’s research is primarily focused on the study of the rural economy. By rural economy we mean the local economy of rural areas. We see the rural economy as an open and dynamic entity.
We are interested in the barriers and prospects for rural development. Our research aims to understand forces of change at and between local, regional, national and international levels.
We are also Interested in what gives coherence and rootedness to local economic activity. This involves us in research looking at the social, cultural, economic and environmental basis of development.

4. Models of Rural Development
Exogenous development (post-war)
Key principle
Economies of scale and concentration
Dynamic force
Urban growth poles
Functions of rural areas
Food and primary products for expanding urban economies
Major rural development problems
Low productivity and peripherality
Focus of rural development
Agricultural modernisation; encourage labour and capital mobility into rural areas
CRE is interested in exploring models of rural development and I wanted to outline our thinking on this. Rural development in Europe has been informed by an overarching movement from exogenous to endogenous models of development.
The classic formulation of rural development, prevalent in post-war Europe, was an exogenous model (‘driven from outside’), which put industrialisation at the centre of development. The key principles of this model were economies of scale and concentration. Urban centres were regarded as growth poles for the economic development of regions and countries. In other words, the main forces of progress were conceived as being outside rural areas. The function of rural areas was primarily to provide food and labour for the expanding cities. The problems of rural areas were diagnosed as those of marginality.
The focus of rural development was upon agricultural intensification and specialisation, but also the encouragement of labour and capital mobility. So this included inducements to smaller farms or older farmers to leave the industry, improvements in transport connections to rural regions, inducements to firms to relocate to rural areas, development of tourism facilities and infrastructures in peripheral areas.

5. Models of Rural Development
Criticisms of the exogenous model
dependent development
distorted development
destructive development
dictated development
By the early 1980s, the exogenous approach to rural development was falling into disrepute. There was growing evidence that the model had not worked in many places and indeed had been to the detriment of many rural areas. Exogenous development was criticised on a number of fronts.
It was seen as dependent development, reliant on continued subsidies and the policy decisions of distant agencies or boardrooms.
It was considered to encourage distorted development, which boosted single sectors, selected settlements and certain types of business (e.g. progressive farmers) but left others behind and neglected the non-economic aspects of rural life.
It was viewed to be destructive development, that erased the cultural and environmental differences of rural areas.
Finally there was a criticism that it represented dictated development devised by external experts and planners.
It became clear that an alternative, more locally based approach was needed.

6. Models of Rural Development
Endogenous development (1980s -)
Key principle
Harnessing local (natural, human and cultural) resources for sustainable development
Dynamic force
Local initiatives and enterprise
Functions of rural areas
Diverse service economies
Major rural development problems
Limited capacity of areas/groups to participate in economic activity
Focus of rural development
Capacity-building (skills, institutions, infrastructure); overcoming exclusion
These problems encouraged the exploration of so-called endogenous approaches to rural development (‘driven from within’). These are based on the assumption that the specific resources of an area – natural, human and cultural – hold the key to its development. The key driving force is local initiative and enterprise.
Whereas exogenous rural development saw its primary challenge as overcoming rural differences and distinctiveness through the promotion of universal technical skills and the modernisation of physical infrastructure, endogenous development saw the main challenge as valorising difference through the nurturing of locally distinctive human and environmental capacities.
CRE has been influential in spreading but also challenging endogenous rural development ideas. Our argument is that the notion of localities pursuing socio-economic development autonomously of outside economic, cultural or government influences is not a practical proposition in a globalised world. Marginal areas with very weak demographic or economic bases are for example likely to be particularly dependent on external aid.

7. Models of Rural Development
Build on internal capacities and resources of communities
Draw on and steer processes, resources and actions within the external environment
The driving forces of development emanate both from outside and within localities. The dynamism of rural economies is therefore not solely dependent on internal (that is endogenous) capacities and resources but depends on their ability to steer external (or exogenous) processes, resources and actions too (political, institutional, economic etc). This is what we mean by neo-endogenous rural development.
The critical issue concerns the balance of internal and external control of development and how to enhance the capacity of local areas and agents to steer these larger processes and actions to their benefit. Dense local networks are important for local cohesion, minimising transaction costs, and building up and retaining territorial capital. On the other hand strategic extra-local connections are vital in positioning local economies to their best advantage politically and economically.
Strategies for development must therefore be defined by and build on internal capacities and leadership of communities. The resourcefulness of local businesses, households and community groups are crucial, as are organisations with national and global connections that have a vital role to play in linking localities into broader circuits of capital, power and knowledge.
neo-endogenous rural development

8. CRE’s Northern Rural Network
Here I think Universities have an important role to play. While locally based, they look strongly outward for their research links, funding and recruitment of staff and students. They are in a powerful position to bring together the endogenous and exogenous.
Much depends not only on the extent and quality of the university’s local and extra-local connections, but also on its outlook on knowledge exchange. From a neo-endogenous perspective, the university is not conceived as the source of universal wisdom for communities and businesses. Rather, the university is seen as an active agent that can make and add value to the links between local systems of knowledge and developmental activity and broader national and international networks of expertise.
It is this philosophy which drives our activities in the Centre for Rural Economy. Research in its home region is important in underpinning CRE’s wider work on the national and international stage. CRE has sought to do this through mutual leaning with those involved in the practice of rural development.
A key activity has been the Northern Rural Network which now has over 1,000 members. An annual programme of seminars and short courses is organised that brings together University researchers and local and regional officials, business people, leaders of voluntary organisations, development professionals, and the like. These activities have helped build a shared understanding of the rural challenges facing the North of England.

9. The Contemporary Rural Economy in the UK
Decline in primary sector employment
agricultural employment in England is below 350,000 and falling
there are 1 million firms, supporting 5.2 million jobs
Our research has therefore focused on the links between the so-called endogenous and exogenous forces: in other words, the internal dynamics of households, communities and businesses, and the external social, economic and natural forces that impact on them. In this presentation I want to later focus in on our work on rural businesses, but first I wanted to introduce you to some of the core characteristics of UK rural economies.
Though rural economies in the UK are diverse in terms of employment and business trends, capacities and demographic patterns they are dominated by a number of core dynamics and features.
One of the defining features of UK rural economies has been a long term decline in primary sector employment. Agricultural employment in England is below 350,000 and falling while there are 1 million non-faming firms supporting 5.2 million employees. Agriculture accounts for only 3% of rural jobs, and decreasing annually. While jobs were lost from farming between 1998 and 2002, more than 10 times as many net new jobs were created in other rural sectors. Coal mining jobs declined from 583,000 to 10,000 from 1960s to 1990s.
Despite this prevailing trend it has been difficult but vital to dispel the impression that rural economies are synonymous with agriculture and primary production. Government strategies for rural development in the UK and EU remain preoccupied with the farming sector and often fail to recognise the importance of the wider rural economy.

10. The Broad Sectoral Basis of Rural Economies
UK rural employment is multi-sectoral, 80% is in 4 sectors
distribution and retailing
banking and finance
public administration, education and health
manufacturing
Rural economies are therefore far more than agriculture. Most are in fact very broad in terms of their sectoral basis with concentrations of firms in distribution and services, banking and finance, public administration, education and health; and manufacturing sectors.
The service sector has for example seen major growth in recent decades which has largely compensated for the reduction in primary sector employment.

11. The Broad Sectoral Basis of Rural Economies
Manufacturing is also very important. In fact, there is a greater proportion of rural employment in manufacturing than in urban areas in the UK.
So the UK situation has been typified by a convergence of urban and rural economies in terms of their broad economic and employment sectors. What this point towards is a need for rural development to take these key employing sectors seriously and their rural dynamics.
The role of the public sector, for example, is often forgotten, but it has major impact (employment practices, approaches to procurement and regulation).
A need for rural development to focus on key sectors and understand their rural footprint

12. The Role of In-Migrants in Rural Areas
UK rural areas strongly affected by the movement of urban populations and economic activity to rural areas
In-migrating households seen as major source of new business, jobs, funds, voluntary initiatives and markets
In the UK there is significant interpenetration of urban and rural labour markets. UK rural areas are strongly affected by processes of counterurbanisation and in-migration, the movement of middle-class urban populations and economic activity to rural areas. During the 1990s an average of 90,000 people a year moved into rural England attracted by the opportunities provided by rural areas for living space, recreation, amenity and wildlife and a pleasant environment. Rural areas have been gaining population at a faster rate than urban areas for decades.
In-migrants are increasingly seen as an important source of new businesses, jobs, money and ideas and important in thinking about rural development opportunities. So a critical issue in the UK concerns how localities can capitalise further on the in-migrant.
Half of rural micro-businesses in north east England were set up by in-migrants. They are responsible for 8000 jobs in the rural north east – that’s 2.5 times the number in agriculture and fishing. In-migrant business entrepreneurs tend to have better external connections. They are also likely to be more growth oriented.
This finding has led to a reassessment of the economic importance of migration to rural areas.

13. Ageing and the Countryside
Linked to the issue of in-migration is the ageing population of rural economies in the UK. The increasing proportion of grey hair is in fact a ubiquitous feature of our society but it is happening faster in rural than in urban areas. The median age for a rural resident is 42 compared with 36 for an urban resident. Rural areas in the UK are thus at the cutting edge of this major social transition.
Rural populations are ageing and growing largely through the net in-migration of older age groups. But it is a myth that in-migration is about the influx of the inactive or retired people. For many rural economies it is actually flows of middle aged people that dominate in-flows, groups in their 40s and 50s.
They are moving to settle in rural localities perhaps with a view to eventual retirement, but at the same time are substantially reshaping their employment, family, leisure and community activities. That reshaping often unlocks a great deal of personal capital, time and energy. As I’ve said they are a very dynamic element – helping sustain the voluntary sector, in the vanguard of new demands on commercial and public services, and behind the growth in part-time and self-employment and the setting up of new businesses.
Public authorities, service providers and voluntary organisations need to understand this diverse group if they are to draw on the additional resources and energies it brings into rural areas.

14. The Dynamics and Contribution of Micro-businesses
The final defining characteristic of UK rural economies that I want to focus for the remainder of the presentation concerns the dynamics and contribution of micro-businesses. 90% of rural firms are micro-businesses, that is firms with less than 10 people, a significantly higher proportion than in urban areas. The mean size of a rural firm is 6 people, compared with 16 for an urban firm. Micro-businesses are therefore the bedrock to rural economies in the UK and represent a central focus in encouraging rural economic opportunities.
Micro-businesses are found in most sectors, from retail and transport to manufacturing and construction, to business services and tourism. Here you see some typical hospitality and retail businesses.
90% of rural firms are micro-businesses, that is firms with less than 10 people

15. Here you see another example, a private care home
Here you see another example, a private care home. The health sector is a growth industry in the rural economies of the UK in light of an ageing rural population – care homes, opticians, pharmacists, private health enterprises. The sector is a rural development opportunity to be grasped.

16. An increasing trend within the UK is for the conversion of farm buildings into business premises. Here you see a farm building which is now the premises for an IT business.

17. The Contribution and Dynamics of Micro-businesses
An invisible sector, receiving limited attention
Left out from official statistics
Business advice / support services have been oriented towards urban and larger firms
Rural development policies have been farm oriented
Although micro-businesses dominate the rural business profile (90% firms; 40% jobs) until recently micro-businesses have been an invisible sector and have received limited attention by research and policy (with the exception of be farms). Micro-businesses are often left out from official statistics, especially those which are very small scale.
Business advice and support services established to improve internal workings of small firms have been oriented more towards urban and larger firms and firms interested in growth. They are often poorly equipped to meet the specific characteristics and goals of micro-firms.
Rural development policies have been farm oriented and given little attention to the wider rural economy.

18. Value of Micro-businesses in Rural Areas
Increasing attention to the role and value of micro-businesses
Farmers themselves are being encouraged to diversify into non-farming economic activities and become more entrepreneurial
Restructuring of agriculture is placing increasing emphasis on non-farming micro-businesses in generating economic activity
By the 1990s very little information had been gathered about the distinctive nature of rural firms and their contribution to the rural economy outside of agriculture. In the late 1990s we therefore conducted the first extensive survey of rural microbusinesses. Our Rural Microbusiness Survey of several thousand firms in the north east of England highlighted the distinctive characteristics of these small firms, including their support systems and business networks.
Our evidence revealed the multi-faceted contribution and value of micro-businesses. It showed that they are vital sources of local services and employment. They contribute to the diversity and flexibility of local economies. They serve local markets and they often source their supplies locally. Here are some examples of what might be described as vital businesses with rural areas. A local bank and a post office.
Micro-businesses are also important for the farming sector. On the one hand farmers are being encouraged to diversify into non-farming economic activities and to become more entrepreneurial. However restructuring of agriculture is also placing increasing emphasis on non-farming micro-businesses in generating economic activity for members of farm families through off- farm employment. Here micro-businesses play a key role.

19. Taking on Board the Characteristics of Micro Firms
Dominance of sole operators and family businesses
Limited in-house resources (capital, time and labour)
Centrality of business owner to running of enterprise
In acknowledging the important contribution of micro-businesses it is important to understand their particular characteristics, what makes them distinctive from larger firms, in order to best tailor policies and support measures to enable their development. Our research drew attention to a number of key characteristics of micro-businesses.
They are dominated by sole operators and family businesses. This means they often have informal decision making; the business premises is often the place of residence; and there is a close interdependency with business households which infuses the logic of the firms.
They have limited in-house resources (capital, time and labour) which affects their participation in business networking or accessing of external support and their ability to cope with regulatory demands and shocks.
The business owner is central to running the enterprise. They are required to tackle a wide spectrum of business tasks and are often disinclined to seek external public support.

20. Taking on Board the Characteristics of Micro Firms
Diverse goals and motivations
quality of life, personal and family considerations
importance of flexibility and independence
only a third want to grow in size or employ new people
low priority to development of staff
Business owners have diverse goals and motivations, but quality of life and independence are important themes and have a bearing on decision making.
Although they may well be already making a vital contribution to local economies only a third of the micro-firms wants to grow in size or employ new people whilst the opposite is often assumed by economic development agencies. It is estimated that unfulfilled rural business potential could represent as much a staggering $600 billion a year.
Moreover, although rural micro-firms are important sources of local employment, they often don’t give high priority to developing their staff.

21. Difficulties Faced by Rural Micro Firms: A Need for Resilience
Restricted local markets and labour markets
Constraints on spatial networking
Distance from services
Less developed infrastructure provision
Vulnerable to economic and environmental shocks
So is the countryside a good place to do business? While rural areas do offer certain attractions for small firms - including availability of flexible business-cum-residential premises (often well suited to starter firms and the self-employed) and adaptable flexible labour - small rural firms typically face certain disadvantages:
- limited local markets and a shortage of skilled labour
- constraints on networking
- distance from services (advice, training etc)
- poorer infrastructure provision (transport, communications etc)
- vulnerability of peripheral areas to economic and environmental shocks
Our research indicates that much of the resilience of small firms in the face of economic shocks is based on the role of their supporting households. The fundamental point is that households and firms are interdependent and resources, dynamics and decisions in one have a close bearing on the other. In the last few slides of the presentation I wanted to put a little more flesh on this point, using the example of the UK Foot and Mouth Disease crisis in 2001.

22. Micro-business-Household Interactions: FMD 2001
Evidence of contribution of households was seen during the UK’s 2001 Foot and Mouth Disease (FMD) Crisis
14000 farms had livestock culled
cull of 4.2 million animals
large parts of the countryside faced economic shutdown for several months as measures were taken to prevent spread of the disease
Evidence of contribution of households to rural micrco-businesses was starkly seen during the UK’s 2001 Foot and Mouth Disease (FMD) Crisis. In this way the crisis revealed much about the nature of contemporary rural economies (as well as the inadequacies of disease management).
farms had livestock culled. The figure shows infected premises in the north of England.
- cull of 4.2 million animals
- large parts of the countryside faced economic shutdown for several months as measures were taken to prevent spread of the disease
Infected farms in Northern England

23. Photos from website of the BBC
Here are some of the stark images of burning and burial of livestock which not only confronted farmers and rural communities but which were also beamed out across the world. It had a major negative impact on the rural economy and level of visits to the countryside.

24. Here you can see some of images of the way in which the countryside became effectively closed and off-premises.
Photos from website of the BBC

25. Ben Gill, National Farmers Union
“It is imperative that every local council which has rural footpaths and rights of way within its boundaries closes them immediately. There must be a blanket ban across the country. I implore everyone again: please, please stay away from the countryside”
Ben Gill, National Farmers Union
“Though we are not at direct risk from this disease, we can play a part, unknowingly, in spreading it. FMD is a highly infectious virus which can be picked up by us on our boots, clothes and cars and carried many miles. By staying away from farmland, by keeping off any footpaths through or next to farms or open land with livestock, we can help the efforts to eradicate this disease. We are giving local authorities today the power to enforce the temporary closure of footpaths and rights of way, but we hope people will voluntarily stay away in any case”
Tony Blair
At this time farming interests and the Prime Minister had exhorted people to stay away from the countryside and this would have a major impact on the rural economy. Here you see two quotes, one from the president of the National Farmer’s Union, the other from Tony Blair, Prime Minister at the time.

26. At the time of FMD, we were able to survey how rural businesses were being affected and we were the first researchers to produce authoritative independent analyses of the wider impacts of the crisis.
Impacts were found to extend far beyond farming and exposed the diversity of the rural economy. No longer in the UK could rural economies be seen as synonymous with agriculture.
Impact spread throughout a wide range of sectors 96% of hospitality firms were negatively impacted, 92% of land based industries. So there was extensive impact on sectors reliant on tourism, visitors or connected to agriculture. Partly affected sectors included those directly affected or servicing extensively affected sectors in retail, transport, business services and manufacturing. The crisis therefore highlighted the links between farming and wider rural economy.

27. Micro-business-Household Interactions: FMD 2001
$8 billion cost to private business
Massive losses but only 141 business closures officially registered
Households acted as buffers to firms and rural economies
Later on, follow-up analysis revealed that some businesses - particularly those with strong local social and family connections - had weathered the crisis much better than others. It is striking that FMD cost the private sector $8 billion. But only 141 business closures due to FMD were formally registered.
We can see this from the analysis of how firms coped with the FMD crisis and the rural shutdown. As well as demands on their employees, business households were able to draw upon their own flexible labour, with household members doing more or less work (often unpaid), to see the business through. Households therefore acted as a buffer to firms and rural economies.
A pub in north Northumberland survived by laying off all the casual staff and getting members of the family – from grandfather to teenage daughter – to work round the clock.
Household spending was also squeezed, and business owners drew upon personal savings or income from other sources (investments, earnings, pensions).
This findings therefore highlighted the resilience of small rural firms, rooted in households and local communities.

28. Micro-business-Household Interactions: FMD 2001
Coping responses based on access to human, social, physical and financial capital of households and local communities
Household income portfolio compensated for reduced flow of business income and maintained business cash flow
Cut backs in household consumption, investment and spending
Values and power relations influenced access to household assets by firms
Coping responses during FMD were therefore based on access to assets of human, social, physical and financial capital of business households.
The crisis revealed how business income is often one of a package of income strands that sustain households of business owners. This income portfolio was used to compensate for reduced flow of business income and to maintain business cash flow leading to cut backs in household consumption, investment and spending.
Differential access to assets influenced ability of firms to cope. Social values and power relations influenced access to household assets by firms. Thus male owned firms more likely to draw on unpaid labour of household members. Female owned businesses less likely to use household savings to ease cash flow and to take risks.
So in summary FMD revealed much about the sources of strength and weakness in rural economies. The social, occupational and business make-up of an area are factors, but also the effectiveness of local networks and the extent to which businesses and households are embedded in local communities. Highly embedded firms and households (with strong local connections, attachment to community goals) can contribute significantly to resilience. But there may also be a downside to avoid. Overreliance on embedded networks can mean a firm becoming insular or failing to adapt and impede economic performance. This can be a problem in encouraging change in rural economies.

29. Conclusions
A need to focus on the key characteristics, capacities and drivers of rural economies in generating economic opportunities
A need to recognise the contribution and tailor development approaches to the characteristics of rural micro-businesses
I hope the presentation has given you a sense of the nature of contemporary rural economies in the UK and the nature of our research interests at the Centre for Rural Economy.
A need to focus on the key characteristics, capacities and drivers of rural economies in generating economic opportunities
A need to recognise the contribution and tailor development approaches to the characteristics of non-farming rural micro-businesses