Government, SMEs and Entrepreneurship Development

Policy, Practice and Challenges

Robert A. Blackburn, Michael T. Schaper

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9781409430353
• eBook ISBN: 9781317125341
• Topic: Business
• Subtopic: Business General
• Index: Business

Recent decades have seen substantial growth in the range of assistance programmes for SMEs and entrepreneurs across the world. Once regarded as peripheral to the economy and public policy, the role of small firms and of entrepreneurship is now recognized as of key importance in the economic growth and development strategies of many nations. The range of interventions and support focused on promoting SMEs and entrepreneurship is substantial and expanding, so Government, SMEs and Entrepreneurship Development asks 'what are some of the main policy instruments being used, and how effective are they?' It considers policies in different countries, examines key interventions and tools used to promote entrepreneurship and SME development and concludes with contributions on how to best evaluate their effectiveness. The contributor chapters by academics and practitioners from businesses, enterprise development agencies and governments, are empirical or evidence-based and use both quantitative and qualitative approaches. Drawing on experience from a wide range of both developed and emerging countries and economies, the contributions focus on the broad strategies that different governments and communities have adopted to foster entrepreneurship and SMEs; the policy tools and instruments that can be used to promote small business and entrepreneurship; and on the outcomes of policy instruments and the methods used to evaluate interventions. Their findings will help researchers, policy-makers, economic development officers, civil servants, elected officials, and business associations to better understand the issues in this important field.

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Introduction

Robert A Blackburn and Michael T Schaper

Small and medium-sized enterprises (SMEs) are now recognised by researchers, analysts and policymakers as central to economies across the world, through their contributions to wealth creation, income generation, output and employment (OECD 2011). In particular, the underlying entrepreneurial activity behind SMEs has been increasingly recognised as a major driving force for innovation and economic growth in all economies (Audretsch and Thurik 2001). As a result the success, or otherwise, of SMEs and entrepreneurship has become increasingly important to governments and public administrators. Yet it also gives rise to a critical question: what policies can governments adopt to foster such activity? This, in turn, raises other questions: What can policymakers learn from the experiences of other countries? What interventions seem to work, and which are of more limited utility? And how does one assess the evidence on the effectiveness of such policies?

Hence the need for this book. It is designed to be a means of sharing the experiences of practitioners, academics and analysts from a number of regions in the world, in relation to the strategies that different governments, agencies and communities have adopted to support SMEs and entrepreneurship. The contributors have attempted to examine a number of issues, including the rationales for intervention, the policy tools and instruments used to promote SMEs, the outcomes of policy initiatives, and the methods of policy evaluation. The key audiences for the book include those in organisations seeking to formulate and deliver policies seeking to promote entrepreneurship and SMEs, together with students, researchers and analysts of policy development.

A book entitled Government, SMEs and Entrepreneurship Development: Policy, Practice and Challenges could be encyclopaedic in length but we do not purport to cover all the issues, or provide solutions to all of the challenges facing policymakers seeking to develop SMEs and entrepreneurship. There has been an increasing number of books attempting to pull together broad general strands of the debate on policy intervention for SMEs and entrepreneurship so far (see, for example, Audretsch, Grilo and Thurik 2009, Lundström and Stevenson 2005, Smallbone 2010, Welter and Smallbone 2011) and academic journals have also devoted special issues to the subject (for example, Minniti 2008, Robson, Wijbenga and Parker 2009). We do not simply wish to extend this academic library. Instead, the focus is very much on the issues, experiences and practical tools that can help policymakers, elected officials and administrators convert ideas into effective SME policy interventions.

The Problem of Policy Intervention and Rationale for the Book

A book on SMEs, entrepreneurship and public policy touches on a variety of underlying issues that require addressing before improvements to the arsenal of policy interventions can be suggested. For example, a key weakness in the literature is that the world-views of owner–managers are often overlooked (Gibb 2000) and this may lead to policy failure, or unforseen effects (Parker 2007). Most SME owner–managers and entrepreneurs strive for independence and are often antithetical to government interventions: ‘… at best, the attitude of many SME owners to government are somewhat ambivalent’ (Bannock 2005: 63). Yet, given the significance and potential of SMEs to economic development (Audretsch et al. 2009, van Praag and Versloot 2007, Wennekers and Thurik 1999), most governments across the world have sought to cultivate, develop and support entrepreneurial activities through a growing panoply of interventions. How effective these interventions are is open to question (see, for example, Curran and Storey 2002, Norrman and Bager-Sjögren 2010, OECD 2008). In some cases, interventions miss the point through being poorly conceived, fail for lack of take-up, or are sometimes overly complex to administer (see Bennett 2008; Greene, Mole and Storey 2008). Indeed, it may be fair to argue that there are too many initiatives for SMEs and entrepreneurship and what we need is fewer interventions but ones that have much higher impact.

An analysis of public policy for SMEs and entrepreneurship reveals a number of common problems. First, there appears to be a gap between the research evidence and policy interventions. Even in regions of the world where policymakers and researchers have ostensibly well-developed links, such as in the UK (Blackburn and Smallbone 2008), critiques of policy abound. Thus, a central key criticism of SME and entrepreneurship policies is that of re-inventing the wheel, or a poor accumulation and sharing of knowledge and experience (for example, Dennis 2005: 227). Second, and linked to this, is a lack of sufficient evidence to make informed and reliable evaluations of interventions (for example, Storey 2008), thus making it difficult to develop policies based on systematic analyses of previous interventions. Third, there is often a communication barrier between those parties interested in policy: policymakers, academics and practitioners do not appear to effectively share their knowledge or experience with each other. Nor does the lacuna between policy and research appear to be closing. Whether or not the problem is a result of poorly focused academic research, as claimed by many policymakers, or the inability of policymakers to listen, as claimed by academics, is unclear. Shergold, for example, has bemoaned the gap between public policy needs and the ability of researchers and academics to meet those needs. He argues (2011: 3) that ‘…a wealth of valuable academic research is failing to find a practical use in public policy…’ and that many academics could not clearly explain how policy works, its practical implications, or spell out what real-world reforms or changes their research has identified as being most useful. On the other hand, some researchers have pointed out the inability of policymakers to take radical actions based on research evidence (Curran and Storey 2002). Whatever the problems surrounding evaluating the precise effects of interventions, public policy for SMEs and entrepreneurship presents numerous challenges for government administrations around the world. By sharing experiences, better utilising the evidence base and developing appropriate evaluation tools, public agencies can hopefully formulate more effective interventions to enhance the performance of SMEs and entrepreneurship activities.

The analyses in the following chapters are designed to help those interested in policy development for SMEs and who want to learn from others. Some of the major SME policy development methods are examined: what they are, how they work, and the success (or otherwise) of such interventions in different nations. How do we ensure SME development is effective, and that it is evaluated in a meaningful way? Some practical implementation issues for government, SME policymakers, small business assistance organisations and researchers are also discussed. Whilst it would be wrong to suggest that policymakers have all the solutions to help stimulate an enterprise culture, or help business owners and their enterprises overcome all their challenges, we should not be complacent regarding this highly significant component of economy and society. Hence, policy development, design, implementation and evaluation should be subject to ongoing scrutiny and improvement and we regard this book as part of what should be an ongoing process.

Public Policy for SMEs and Entrepreneurship: The Historical Context

In seeking to raise our understanding of public policy for SMEs and entrepreneurship, it is important to set the chapters in this book within a broader historical context. This can help interested parties understand the ways in which policy has developed, its key ingredients and diverse interest groups, as well the ability of initiatives to achieve their objectives.

Public policy focusing on the promotion of SMEs and entrepreneurship is a relatively new field compared with wider fiscal, monetary, competition or industrial policies. But it nevertheless does have a substantial track record and is no longer in its infancy. Once regarded as peripheral to the economy, the significance of SMEs and entrepreneurship has now been promoted to one of key importance in the economic and community development strategies of many nations – and this has led to a substantial growth in the range of assistance programmes (for example, Audretsch 2011, Welter and Smallbone 2011, Stevenson and Lundström 2001) as well as the development of evaluation techniques (for example, Storey 2000). Such interventions are many and varied, and include the development of specific dedicated government agencies and/or statutory authorities with a brief to promote SMEs and entrepreneurship; the establishment of business advisory services; the creation of statutory Small Business Commissioners and ombudsmen for the sector; targeted finance initiatives, soft loans, export finance and dedicated venture capital schemes; training and education schemes designed to foster enterprise, or to give prospective and new entrepreneurs sufficient business skills; particular programmes to support targeted groups in the population; and the development of an infrastructure conducive for SME and entrepreneurship promotion, such as broadband access and business incubators.

Although the experiences of policy development for SMEs and entrepreneurship vary across different economies, some general patterns can be identified. The evolution of public policy for SMEs and entrepreneurship usually demonstrates an initial period of arrested development followed by incremental additions with periodic boosts of activity. The early initiatives for small firms tended to focus on addressing financial issues: gap filling or helping firms overcome specific crises. In the UK the MacMillan report in the early 1930s identified a lack of sufficient long-term capital for SMEs – the so called ‘MacMillan Gap’ (MacMillan Report 1931); and in the USA the Small Business Administration, established in 1953, tended to focus on loan assistance to small firms (Hart 2003, Stevenson and Lundström 2001). Despite such developments, in the post-Second World War period small firms were increasingly regarded as an anachronism by academics and policymakers – part of a by-gone age – and industrial policy in some leading economies actively encouraged mergers and acquisitions in an attempt to stimulate growth and become major global players (Levicki 1984). Such polices were also often underpinned with analysis from academics who espoused the virtues of large organisations in terms of their economies of scale, technological superiority, systematic planning and marketing capabilities (for example, Galbraith 1967). Even Schumpeter (1976), often cited as a supporter of entrepreneurship, placed large corporations centre stage in the innovation process in his so-called Mark II theory of innovation.

By the early 1970s, however, new thinking and evidence was emerging regarding the contribution and significance of small firms to economies which provided a catalyst for public policy (see Stevenson and Lundström 2001: Ch 2). For example, the Bolton Report (Bolton 1971) in the UK noted a decline in the economic contribution of small firms after the Second World War and recommended the need for a dedicated small firm advisory service, due to market failures in advice and support provision. Many analysts identify this as the starting point for small business policy in the UK. Similarly, in Australia the federal government commissioned the Wiltshire Inquiry (1971) which led to the first attempts to establish advisory services, skills training and financial support for small firms. In addition to this increased awareness amongst politicians of the role of small firms in their economies, academics were also now beginning to emphasise their significance. The report by Birch (1979), which identified the employment contribution of small firms in the USA, provided a further boost to those designing the policies and institutions to promote SMEs worldwide. Public policy for SMEs thrived during the latter part of the twentieth century throughout the developed economies, and much of this development was based on the combination of a growing research base and a political will amongst governments seeking to promote entrepreneurship and small firms in their economies.

This book has a dual focus on both small firms and entrepreneurship. Although SME policy initially focused on addressing supply side gaps, or market failures (such as in the provision of advice, finance, premises and training for small firms), with time this has evolved into the promotion of entrepreneurship through a wider range of policy areas. The term ‘entrepreneurship’ has also become increasingly used in political discourse and policy initiatives. This is not just a matter of fashion or rhetoric, but most probably a reflection of the increased recognition of entrepreneurs and enterprising behaviour to every economy and society. In other words, the new forms of entrepreneurship policies are not merely modernising small business policies. Instead, they are attempts to embed policies seeking to affect levels of entrepreneurship in the economy throughout all policy areas, rather than just focusing on small business-specific initiatives (Audretsch and Thurik 2001). This is one of the reasons for the broad title for this book, spanning both SME development and entrepreneurship.

In recent years, there have also been a number of overt attempts to bridge the academic-policy divide mentioned earlier. Most of the major entrepreneurship and SME conferences now have a policy track, illustrating an increased level of awareness in this topic amongst the research community. The International Council for Small Business, for example, now holds an annual ‘public policy day’ as part of its world conference. Similarly, the annual conferences of the UK’s Institute for Small Business and Entrepreneurship, the European-based Research in Entrepreneurship and the US Association for Small Business and Entrepreneurship all hold policy roundtables and paper tracks on public policy at their annual conferences.

Structure of the Book and Main Themes of the Chapters

This book is divided into three main sections with 19 main chapters. The chapters are a result of a selection process from over 30 abstracts and were extensively reviewed by the editors. Each chapter is written by experts in their field and draw upon primary and secondary evidence from a number of countries, providing a breadth and depth of experience on issues surrounding policy development.

In Part One, we present eight chapters that demonstrate the experience of policy development in different countries. These countries span the Northern and Southern Hemispheres, developing and developed economies, and those that have experienced free market capitalism as well as formerly planned economies. In Part Two, the practical tools to foster development are examined. This section contains seven chapters showing a breadth of experiences and mechanisms to promote small firms and entrepreneurship, ranging from business incubators through to social enterprise support policies. Finally, Part Three focuses on the perennial challenge of assessment and evaluation of policies and programmes. It examines the logical link between programme goals and outcomes, explores some of the mechanisms used to perform such assessments, and discusses the challenges that evaluators face in their work.

What overall picture can be drawn of SME and entrepreneurship policy and what lessons can be learnt in relation to policy, practices and challenges? A number of key themes can be drawn from across the book, although we would encourage readers to refer to specific chapters to understand the detailed analysis upon which these are based.

SME development policy is still dynamic and expanding. The various chapters provide a history of the development of policy interventions in specific domains, and demonstrate the variety of ways in which they are delivered and evaluated. Whilst not claiming representativeness, it is evident that this policy field is undergoing constant change. These changes include the specific policy objectives, and the target audience for interventions, as well as extension of the geographical scope for intervention. It is also clear that the objectives of some areas of development and provision have been easier to achieve than others, whilst some are enduring and others are more fleeting. For example, several authors note a shift in language and emphasis by policymakers away from SME start-ups towards a focus on entrepreneurship and growth (for example, Chapter 3), as well as on new areas such as social enterprise (Chapter 15).

The population of SMEs is complex and diverse; interventions need to be sensitive to this in order to raise their effectiveness. Although the terms ‘SME’ and ‘entrepreneurship’ are now mainstream, these terms are meaningless to many people running a business. People also start, run and exit from their business for a variety of reasons. Their ambitions and capabilities vary, and the types of policy that will be of practical help to them must also be varied. In this book we present a number of examples of this diversity, such as the self-employed (Chapter 11), social enterprises (Chapter 15) and franchisees (Chapter 16). Sometimes there is more than one set of policy tools that can be used to achieve a desired outcome, as the ca...

Table of contents

• Cover Page
• Half Title page
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• Acknowledgements
• About the Editors
• About the Contributors
• Foreword
• Foreword
• 1 Introduction
• Part One Global Experiences in Policy Development
• Part Two Practical Tools To Foster Small Firm Development
• Part Three Evaluating and Assessing Policies and Programmes
• Index