Public policy, the performance of firms, and the 'Missing middle': The case of the employment regulations, and a role for local business networks

The social and economic institutions of a country provide a framework shaping the performance of individual firms. The introduction of the National Minimum Wage (NMW) in the UK provides a key illustration of the weakness of institutions and the ways in which they might be strengthened. Evidence from 81 small firms in three sectors reveals limited responses to the NMW. It points to the potential role of local business networks in filling the gap between individual firms and the government's business support services. Existing evidence on the difficulties which firms have using these services is reviewed, and the example of local support for the Coventry clothing industry is discussed to illustrate the potential role of local networks. The constraints are, however, formidable and if the benefits are to be realized the government needs to pursue a much more active industrial policy.