SYNERGY BETWEEN GOVERNMENT AND SMALL BUSINESS by Nazish Zafar “A dissertation submitted to Johns Hopkins University in conformity with the requirements for the degree of Doctor of Philosophy” Baltimore, Maryland July 2016 © 2016 Nazish Zafar All Rights Reserved Abstract Small businesses provide a means for individuals with limited resources to earn a living and they contribute toward the versatility of urban economies, but these businesses typically have a short life cycle and the majority do not last more than 5 years. Therefore, to compete and survive, business owners rely on numerous sources of support such as their personal networks while governments also offer support through policies and programs. This dissertation examines the interaction between the government and very small businesses. One school of thought claims that support from the government displaces the support provided by private networks, while another theory claims that the role of the government actually stimulates private support, i.e. the relationship is synergistic. This study acknowledges that both dynamics are possible, and focuses on exploring the channels through which the government connects with small businesses. This study looks closely at Singapore where the government has arguably played an active role in the nation’s rapid economic development. Primary data was collected through qualitative interviews with business owners, community leaders, and government officials, and participant observation at business sites including hawker centers and startup incubators. Transcripts from parliamentary debates and policy reports provide a historical and contemporary perspective for the analysis. Three major theoretical streams inform this dissertation: social network analysis, new institutionalism, and the synergy thesis. Together, these theories illuminate the context in which small businesses operate, but they also expose the need for further research on how synergistic relations might operate between private networks and the government. The ii innovation in this research is to examine the role of bridging institutions in society where support from the government links with existent private networks to optimize the success of small businesses. This study illuminates the discourse on government intervention by drawing attention to the role and emergence of institutions in the “meso-sphere” and particular ways in which they interact and blend with both the State (macro) and society (micro) that allow different types of synergy to operate, such as coordinating synergy, delegating synergy, and steering synergy and by analyzing where the locus of agency is situated in the institutional system. Committee Lingxin Hao (Chair) Sociology Andrew Cherlin Sociology Rina Agarwala Sociology Deborah Poole Anthropology Steven Teles Political Science iii Acknowledgements Big thanks to my academic advisers at Johns Hopkins University: Lingxin Hao and Andrew Cherlin, for their beacon of guidance. Big thanks to my family and friends. Big thanks to everyone who agreed to be interviewed for this research study and opened up research sites and insights for me. And big thanks to everyone who was patient, friendly, and supportive along this journey. iv Table of Contents Chapter 1: Introduction…………………………………………………………..………..1 Chapter 2: Methods………..………..………..………..………..………..………..……... 9 Chapter 3: Theoretical Orientation and Literature Review……………………………….24 Chapter 4: Land/Space………….............................................................………………..56 Public Markets…………………………………………………………...………58 Business Centres…………………………………………………………………83 Startup Jungle………………………………………………………………….…90 Conclusions……………………………………………………………………..106 Chapter 5: Labor……………………………………………………………………..… 115 Microenterprises: The Market Centres……………………………………..….. 116 Firm-to-Firm Networks: Satisfying Labor Demand under Cost Pressures……. 133 The Skilled Labor among Startups……………………………………………... 151 Conclusions……….…….....................................................................................162 Chapter 6: Capital……………………………………………………………………… 164 Microbusiness…………………………………………………………………. 164 Growth-Oriented Businesses…………………………………………………... 173 High-Growth Startups…………………………………………………………. 225 Conclusions……………………………………………………………………..235 Chapter 7: Conclusion…………………………………………………………………..238 v List of Figures Figure 1. Subsidized rents for resettled hawker from the 1970s. Source: NEA 2016 (p.67) Figure 2. 107 market centres distributed around the city. Source of physical addresses: NEA 2016 (p.67) Figure 3. Tender notice for stalls available for bidding at private markets in Singapore, listing the location and type of trade for cooked food. Source: National Environment Agency, 2015 (p.72) Figure 4. Town Council districts in Singapore. Screenshot from: TownCouncil.sg (p.75) Figure 5. Institutional Structure for Hawker Centers (p.81) Figure 6. Spaces provided to small business owners by the government (p.108) Figure 7. Spaces provided to small business owners by the government (abstraction) (p.110) Figure 8. Average Annual Change in Monthly Household Income from All Sources by Income Quintiles, 2002/2003- 2012/2013. Source: Dept of Statistics, Singapore, 2014 (p.129) Figure 9. Real Change in Average Monthly Household Income from Work Per Household Member Among Resident Employed Households by Deciles, 2013-2014. Source: Dept of Statistics, Singapore, 2014 (p.130) Figure 10. GNI per capital in PPP dollars. Source: World Bank, 2015 (p.131) Figure 11. Metaphor of collaboration among small businesses. Source: Kuiper 2016 (p.137) Figure 12. Emergence of self-organized networks among business owners (p.150) Figure 13. Use of the word "freelancer" in published books, reports, and articles. Source: Google Books Ngram Viewer (p.158) Figure 14. The usage of the word permatemp over time. Source: Google Books Ngram Viewer (p.158) Figure 15. Institutional dynamics between the state and micro-entrepreneurs (p.173) Figure 16. State-society dynamics for growth-oriented businesses (p.224) Figure 17. Government funding schemes in 2015 (p.228) Figure 18. Timeline for processing a startup grant. Source: PowerPoint slide from a SPRING Seeds talk (p.230) Figure 19. Capital and State-Society Dynamics for Hawkers, Skilled Professionals and Startups (p.237) vi Figure 20. Spaces provides to small businesses by the government (p.243) Figure 21. State-society interaction on labor policies (p.244) Figure 22. State-society interaction with capital (p.244) vii Chapter 1. Introduction Starting a very small business (operating within ten employees and US$1 million annual revenue) offers an avenue of social mobility for individuals from low-income households, but it also offers an entrepreneurial springboard for anyone who has identified a promising market opportunity, regardless of their socioeconomic background. Collectively, these millions of small businesses contribute to the economic versatility of cities and nations. They represent more than 90% of registered enterprises in most countries and employ at least half the working population. Together, they shape the urban cityscape through its neighborhoods and streets. In the United States, about 58% of establishments belong to firms with less than 10 employees (Shane 2012). This percentage shoots up to 99% in Brazil and, in Singapore, the classification is by size of operating receipts for which there is around 80% earning less than SGD 1 million a year (Singapore Dep’t of Statistics). Though most of these very small businesses are not household names, they define the local character of streets, neighborhoods, and cities, and influence the economic versatility of their nations. However, very small businesses are economically unstable and the majority of them are unlikely to survive more than five years. Unlike large companies, they are particularly vulnerable to external shocks. Their premature death leads to lost savings while impeding sustainable growth and hurting the livelihoods of the owners and their families. Therefore, to compete and succeed in the aggressive marketplace, business owners actively reach out to their personal networks such as family, friends, and coethnics for information, resources, and assistance. Government agencies also provide multiple lines of support such as loans and consulting programs. 1 There are two competing schools of thought with regard to this dynamic: crowding-out versus synergy. The crowding-out hypothesis claims that support from the government displaces support from personal networks. It is a zero-sum relationship where there are “a certain number of tasks to be done and the only question is who will do them” (Finsveen & Van Oorschot 2007). The synergy thesis proposes, on the contrary, that the government’s role stimulates private support (Evans 1996). This research project accepts as a starting premise that both crowding-out and synergy are possible under different contingencies and, therefore, explores the conditions under which we might expect each outcome. The literature suggests that institutional synergy can be achieved through intermediate grassroots groups that mediate the relationship between the government and citizens (Evans 1996). In this light, Neil Smelser (1997) writes: “We know that the mesostructures — the heart and soul of our civil society — affect the character and effectiveness of the social integration of the larger society.” This meso-structure in society includes women’s groups, ethnic associations, and chambers of commerce that bridge