Enterprise and Small Business Principles
Finding a niche for government action
It is difficult to find evidence that there is a general phenomenon of market failure or need for major government actions for small firms. Taking the normal definitions, SMEs are 90-99% of all businesses, account for nearly 60% of GNP and over 60% of employees and have grown from 2.3 million in 1979 to 4 million in Britain by 2004. SMEs are, therefore, a successful sector of the economy. It is not obvious that they need government help. Of course, it is possible that they could be even more successful. However, if we take evidence of the features that hold back SME development from previous research and from surveys of SMEs themselves, there is little evidence of a generalised market failure. Most survey responses focus on the need for government to stabilise the economic environment or improve its own regulatory regime (e. g. Storey, 1994; Curran and Blackburn, 1994; SBRC, 1992; Cosh and Hughes, 2003). The NatWest SERT quarterly surveys of small business consistently show economic climate and regulation as the first and second main concerns of small firms since 1999, although in the earlier 1990s cash flow and payments were also important concerns. The concern with regulation is reinforced in the large-scale surveys such as Your Business Matters (IOD, 1996; Better Regulation Task Force, 2002b), which show the concerns of small firms to be chiefly with the interface with government itself (legal requirements, VAT, availability of grants, etc.); only in training is government seen as a major source of support and then preferably as an enabler rather than a provider. These conclusions are further reinforced by the Bank of England’s well-balanced assessment (e. g. Bank of England, 1996), which emphasises the role of market agents in overcoming small firm deficiencies and questions the effectiveness of most policy areas.
The implications of these results are as follows:
■ The main needs that businesses have are maintaining and developing their products, markets and internal processes.
■ Businesses chiefly want government to maintain a strong and stable economic environment and a transparent and stable regulatory environment in which compliance costs are low, risks can be assessed reliably and long-term strategies developed.
■ There is no overwhelming demand for government to do things for specific firms or sectors.
■ There is no general evidence of a market failure where business needs are not being met by the private sector business services that are available. Where so-called needs have been identified they relate to areas where well-developed markets already exist: for example venture capital; marketing; advice and consultancy; information; skills and training; prompt payment, credit and bad debt collection. Although there may be gaps and deficiencies in some of these markets, there are existing agents that should be able to tackle them, i. e. the market should be able to respond itself, or perhaps by partnership of public and private sectors, rather than by direct government activity.
■ Where needs are identified that are generic to many firms, or to all or most sectors, they chiefly concern the quality of factor inputs, such as education and skills or transport infrastructure. This suggests that government action needs to be focused primarily not on provision of specific supports or contacts to individual firms, but instead on: the form of regulatory framework that influences market provision; and the quality of public sector services that influence factor inputs.
■ In cases where individual firms can benefit from specific support, this is usually related to specific business needs which government is unlikely to be able itself to meet (e. g. product development, design and marketing). This suggests that any support from government has to be channelled through standard business-to-business (B2B) interfaces of business services, rather than through government offices.
■ In some cases, specific needs relate to local problems such as the absence of suitable sites, premises or scope for expansion; gaps in transport and infrastructure; skills shortages; and the influence of the local ‘business climate’. Many of these firm - specific needs relate to the roles played by other private sector providers of business services but in some cases the role of local and central government through planning and local services is a target for concern. But even in these cases it is the general nature of governmental approaches to the SME’s specific problems that is important (e. g. speed of planning decisions, willingness to develop new infrastructure, probusiness climate, etc).
These findings do not suggest that large-scale or focused SME policies should ever be a key feature of government policies. Nor do they suggest, in most cases, that government policy regarding SMEs should be very different from that for other larger businesses.
