Saturday, April 28, 2012
SMEs saviour for economic policy?
SMEs all over the world, are perceived to be the saviours of government economic policy failure. SMEs will save jobs, create jobs, boost GDP growth, and stimulate innovation among a host of other thing expectations. Are these expectations realistic? It all depends on how it is contextualised! The first question has to be whether or not SMEs can deliver on these expectations? In my opinion absolutely. The next question is whether there is room for government interventions in order to assist SMEs to achieve these expectations? Once again the answer is a big yes.However, there are two types of intervention, the functional and the selective. Selective interventions do have their place. They are used to boost particular sectors for strategic reasons. But more important are the functional interventions. These are those interventions which help to level the playing field and make it easy for all citizens to be able to enter the market. The need for one or the other is largely dependent on how distorted the current economy is. So it cannot be stated that functional are better than selective interventions. It is a guide to say that research shows that developed countries are more likely to require selective interventions, while developing countries are more likely to require functional interventions. However, in the context of developing countries, there appears to often be a situation where the governments tend to follow urban legend rather than solid research. Research is clear that in most countries the start-up rate and failure rate of SMEs is at best equal, with a nett result of no job creation, rather a shuffling of the deck. Key to this problem is that most of these countries have no idea of how many businesses they have and therefore they cannot even begin to address the problem by increasing the start-up rate to a level higher than the failure rate. Japan did for example. Furthermore, job creation generally comes from high growth enterprises, and most countries total ignore this fact. Most have no idea what it is or how to deal with it. Interventions are designed by government without contextualising for the three main groups of entrepreneur. These are the survivalist, lifestyle and high growth entrepreneurs. They are all vastly different from one another, but you seldom see interventions designed appropriate to each group. Interventions are seldom measured with regard to their impact, and in many developing countries are often used as a sop to the poor rather than a genuine intervention for SMEs, the intention being to rather buy votes. If we want SMEs to work for us as countries, we need to address the problem scientifically.