A Nation of Shopkeepers: Good or Bad?

In 1794 Napoleon described England as “a nation of shopkeepers”, referring to Adam Smith’s general remarks in “The Wealth of Nations” (1776). The phrase was generally a positive one. Hard-working, local, small-scale productive enterprises that provide jobs and serve the community. Britain was the envy of the world.

Nowadays, the phrase is often interpreted as a disparaging phenomenon: only shopkeepers they ask? Where are the large businesses, multi-nationals, major employers, the innovators, exporters? — businesses we can be really proud of.

Microfinance has sometimes been connected with this latter opinion. It’s ‘micro’ after all and does not fit the ‘big is best’ wagon. Microfinance, some say, creates a nation of “petty traders” whose customers are confined to local residents exchanging goods with one another on, not much more than, a monetized barter basis. They claim that such a system adds very little overall value and the scope for significant economic growth is constrained by the closed-circuit nature of the money rotating from hands to hands within the same community.

Many of the Five Talents clients are adding value to raw materials, transforming them into more valuable commodities or services which are satisfying demand from customers.

I hear the argument, but I disagree. Many of the Five Talents clients are adding value to raw materials, transforming them into more valuable commodities or services which are satisfying demand from customers. The market economy in low-income countries needs such micro-businesses, because most customers have such limited purchasing power. And, whilst it may be hard to quantify, there is usually some leakage out of the community and injection into the community, so it is not a zero-sum game.

Economic growth in this context comes not so much from the size (or value) of the transactions, but from their volume and frequency. This is sometimes referred to in economics as the “velocity of money”. The faster it goes around, the more impact and growth is generated from the accumulation of marginal gains.

Yes, of course we need the big businesses, but small enterprises which are served by microfinance also make a vital contribution to economic growth. Not to mention their immense contribution to household livelihood improvements. As Schumacher said, “small is beautiful.”

This post was written by the former CEO of Five Talents, Tom Sanderson. It originally appeared in 2013 on our website.

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