Enterprise and Small Business Principles
Chapter summary
This chapter has explored how governments have sought to help small businesses, in the last sections focusing on the example of British government schemes and the particular case of Business Link. A key conclusion is that, whilst there is some scope for government to help small businesses, much of this effort has to be focused on general rather than specific schemes. This is because government is not going to have the technical capacity to be able to segment its strategies in an effective way, nor is it clear that there are good arguments why some types of business should be helped more than others.
This means that government action can be most effective where it improves the generic environment for entrepreneurship and business growth (through education policy, skills training, infrastructure) rather than specific and targeted initiatives. Moreover, the actions of government in its own activities, as regulator, economic agent and planner/promoter, are the key areas where its policy should focus. Too often government initiatives disadvantage small businesses because of the diseconomies of scale that they experience in being able to cope with compliance with government procedures. Hence, better regulation and improvement of government services is usually the main action that government can take to help small firms.
This conclusion is not surprising, since each small business is trading in a unique business environment of suppliers and customers with its own specific internal staff, product and management characteristics. Whilst there are many generic features to SMEs, and these are often focused on policy targeting, the practical demand from small firms is investments and actions that are specific to individual market niches and opportunities. These aspects of the market for SMEs’ products and services are highly segmented. Thus an appropriate policy intervention or support for small firms needs to be general to all (allowing them to adapt what is on offer to their different trading environments). It should not be surprising, therefore, that there are no simple or generic solutions for SME policy. Even when looking at a single field of activity, such as training, advice, exporting or better regulation, it is difficult for government to design programmes that are likely to fit a firm’s specific needs. As noted by the Bank of England (1996): ‘There is no single solution which will bring about sudden or dramatic improvement’. As a result there have been many different policy initiatives with a ‘patchwork quilt’ of programmes. This outcome seems to be inevitable as a result of efforts to target and segment supports and is as true in Europe as it is in Britain. The discussion here suggests that government policy support should normally focus on generic and supply - side issues and remove itself from attempts at specialised targeting.
