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Yes, the European Union may feel distant to small businesses. But don't write it off!

By Frank Jurgen-Richter

The Leave.EU campaign has gained no small ally today in the small business sector, after 200 small business owners to sign a letter in support of leaving the EU. “We employ the majority of the workforce,” the letter claims, and yet they find the EU “tone deaf” to their instincts for flexibility, adaptability and, above all, competitiveness.

Self-interest is said to be a major force in global markets and campaigners for the two sides are both seeking to play up the vote’s influence over the UK’s prosperity and standing among the international competition. The principle is that the UK is voting to feather its own nest, one way or the other.

Yet there is more to success in business than simply being competitive. Entrepreneurs apply themselves because they have targets to achieve and personal missions to succeed.

Likewise, the UK as a global business destination needs to be able to put on a spectacle with the world’s second-largest film industry or by staging the 2012 Olympic Games with an untarnished safety record, hosting the second International Festival for Business in June this year or advancing the medical and technological sectors with an excellent record on scientific research and intellectual property. Self-interest is not the only force behind these achievements; international collaboration is essential.

That is why it is important to highlight that it is not just individual firms that might lose out, but that the UK as a whole would be diminished by a vote to leave the EU. This is predominantly because the flows of foreign direct investment into this country rely heavily on the UK advocating Europe’s future.

Statistics show that businesses, on the whole, do not share the net benefits of EU membership equally. In fact, if the UK’s businesses had one vote each, we would almost definitely face departure from the EU.

The net benefits of the UK’s membership are felt mostly by large businesses trading on large scale globally and, by the same token, with the EU. But Britain’s small businesses comprise almost 99 per cent of the names registered at Companies House.

Big businesses have invested far more in the Union and hold it in far greater esteem. They employ 40 per cent of the workforce and, crucially, yield the lion’s share of turnover at 53 per cent.

Many big businesses also rely heavily on talent from Europe to fill gaps in their workforce. Today, an email sent to all of Rolls-Royce staff, encouraging them to support membership of the EU in June, emphasises that free movement between the UK and Europe “allows the rapid transfer of expert knowledge”.

Rolls-Royce’s company-wide email also complains of the burden of trade tariff renegotiations. If self-interest is the greatest force in commerce, then Britain has no reason to feel confident about parting with the EU because the member states will have little incentive to renegotiate trade deals in the near future.

Individually, our trading partners have no interest in engaging with the UK over other trade partners and trade tariffs could, Lord Mandelson estimated this week, increase by over 10 per cent.

Leaders of small businesses are more reliant on domestic trade than on trade with the wider world and, to them, the EU’s regulations are exigent and bureaucratic.

Culturally, the UK differs from Europe, viewing the concentration of power and decision-making with distrust. British consumers have a preference for small businesses and personalised service in the business world, and view large networks in international politics with little envy, accustomed as they are to being a small island with soft – and, at times in history, hard – power extending disproportionately far beyond its shores.

However, the EU is far from irrelevant or costly to the UK’s position in the world. It is not by choice, but by co-operation that the UK is one of the leading destinations for global businesses targeting Europe. The UK is Europe’s most popular destination for foreign direct investment and it is a key partner for North American tech giants and Asian banks looking to establish a European headquarters.

Economic growth, the provision of jobs and the advanced infrastructure for innovation and R&D all gain substantial support from the EU. According to Unesco, the UK received a fifth of all EU funds for scientific research, almost double its initial financial contribution and a huge net benefit.

Some of these net gains go to regular people, with UK research programmes into genomics, integrated healthcare and infrastructure engineering benefiting everybody. Some of the benefits go to small firms too, particularly high-tech manufacturers working in the supply chain for niche, advanced industries.

One example is Formula One: most Formula One cars are manufactured near Silverstone by a mass of highly specialised manufacturers whose innovative solutions and manufacturing techniques have been developed at a large scale, with help from the European Research Area.

The UK is taking an ever-greater share of foreign direct investment, with FDI growing by 50 per cent in 2014/15, a period when the total global value of FDI fell. The UK has a competitive streak but it would be wrong to believe that self-interest compels us to gamble outside of the EU. If the UK wishes to remain in its place on the global business map, it should instead talk about how it can become more involved in global collaborations.

Article published in the New Statesman - 3rd March 2016