Presented at the Regional Meeting on SME, Entrepreneurship and Access to Finance Indicators, organised by the OECD-MENA Investment Initiative, December 2011. http://www.oecd.org/mena/investment
SMEs and Entrepreneurship: What can and do governments do?
1. D.J Storey
University of Sussex, UK
Presentation to Regional Meeting of the GCC countries on SME, Entrepreneurship and
Access to finance Indicators, 6-7 December 2011, Dubai, UAE
2. Four economic benefits of
entrepreneurship
job generation;
innovation;
productivity and growth;
A valid career option for individuals
the potential to increase the ‘utility’ of individuals by
increasing their, for example, satisfaction or income.
3. The role of government
From the viewpoint of business owners
Governments can exert either a positive or a negative
influence on the extent to which these benefits
materialise.
4. Positives
Create an enforceable legal framework for business in
which fair competition takes place
Provide a stable macro economic environment
Create a low tax and low regulation environment
Provide “support” for new and small firms in the form
publicly funded training/ advice/ finance
More generally provide an education framework for
its citizens from which business benefits
5. Negatives
High barriers to starting a business –permits/ cost/
time
High regulations in operating a business
High taxes on business owners
Can favour powerful cartels
Corruption
7. A Framework for Indicators
Determinants
Entrepreneurial
Performance
Impact
Regulatory R&D and Entrepreneurial
Framework Technology Capabilities
Firm-based Indicators
Job Creation
Employment-based Indicators
Economic Growth
Other Indicators of
Entrepreneurial Performance
Poverty Reduction
Culture
Access to
Finance
Market
Conditions
8. Determinants
Regulatory
Framework
R&D and
Technology
Entrepreneurial
Capabilities
Administrative
Burdens for Entry
R&D Investment
Training and
experience of
entrepreneurs
Administrative
Burdens for Growth
University/ Industry
Interface
Business and
Entrepreneurship
Education (skills)
Bankruptcy
Regulations
Technological
Cooperation
Between Firms
Safety, Health and
Environmental
Regulations
Technology
Diffusion
Product & Labour
Market Regulation
Broadband
Access
Court & Legal
Framework
Patent System;
Standards
Social and Health
Security
Income,
Wealth,Business
and Capital Taxes
Access to
Finance
Market
Conditions
Access to
Debt Financing
Anti-Trust
Laws
Attitudes Towards
Entrepreneurs
Business Angels
Competition
Entrepreneurship
Infrastructure
Desire for Business
Ownership
Access to VC
Access to the
Domestic Market
Immigration
Entrepreneurship
Education
(mindset)
Access to Other
Types of Equity
Access to
Foreign Markets
Stock Markets
Degree of Public
Involvement
Culture
Risk Attitude
in Society
Public Procurement
9. The 2 big decisions
1. Focus on general firm creation or Focus on high
potential firms - Selectivity?
2. Focus on Macro policies or Focus on Micro
policies?
10. The case for general firm Creation policies
Source : Paul. D. Reynolds
Higher levels of firm (and job) churning is associated
with subsequent increases in net job growth and
productivity increases
New (not small) firms are one major source of jobs
(some for short periods of time, some for longer).
Some firms grow (creating create jobs) by expanding
the economy, others by driving out competitors
leading to offsetting job losses with less net job
creation.
11. Numbers involved in business creation
Source : Paul D. Reynolds
Nascent
Entrepreneurs
Egypt
New Firm
Ownermanagers
3,372,889
1,496,645
253,576
191,916
1,117,332
1,523,067
Tunisia
149,848
488,697
UAE
169,794
213,980
Jordan
Morocco
12. The Case against general firm creation
policies
Promoting firm creation is a waste of resources – 2/3
die in six years and <1% of new firms have >20
employees after 5 years.
It encourages optimistic but poorly resourced
individuals to take a risk and in many cases make
their own position worse
The link between general firm creation rates and
economic development remains opaque
13. The case for Selectivity
Significant job creation takes place in only a tiny
proportion of firms
It is the gazelles that transform an economy by
changing the economic and competitive landscape
There are examples of long run, government-funded
selective technology projects -SBIR
Business Support programmes that are selective are
successful – UK Business Links
There are too many businesses for everyone to be
helped
14. The case against selectivity
Selecting the businesses to support is very difficult
The VC sector gets most of its investments “wrong” –
but makes its money from the extreme successes
It is too politically risky for governments to have this
form of payoff
The net impact on employment – in a sector/region/
economy of gazelles can be much less than the gross
impact
15. The Case for Micro policies
Every developed country has them
Information; Training; Advice ; access to finance;
public procurement; export support etc
SMEs expect this form of support on the grounds that
governments also help large firms (even more!)
Self-report data indicates those using this support
find it helpful.
It can be targeted at specific types of firms [high
tech?]or owners [females?] or locations [areas of
deprivation?]
16. The case against Micro policies
Careful evaluation studies assessing whether the
assistance influences the performance of the assisted
firms point to very weak and sometimes no impact.
Delivering micro policies requires a substantial
bureaucracy and an enlightened and well-informed
political system
It can be very expensive indeed
Impact is only apparent in the medium term
17. Macro Policy components
Ease of doing business
Governance
Macro-Economic stability
Tax regime
Formal/ Informality
Ethics/ Religion
Role of Females
SMEs respond to, rather than lead, changes in welfare
18. So, what policies seem to work?
Varies by country and region
Varies by “problem” being addressed
Varies by assessment method used
Varies with macro-economic circumstances
Varies with level of economic development
So, no “one size fits all”
BUT
19. Where is the Jury still out?
Policies to improve access to finance
Policies to change “attitudes”
Policies to encourage SMEs to provide more
workforce training
Policies to provide firms or individuals with “advice”
20. Conclusion
New and small firms can contribute to economic welfare
and development
Governments can contribute or reduce that contribution
The effectiveness of policies depends on the circumstances
of the country/region
Very broadly there seems clearer evidence of the impact of
macro policies –regulation, tax, macro-environment,
competition, policy delivery
Less evidence of impact of micro policies on access to
finance, advice, training or cultural change