Transcript Chapter 11 Enterprise policy

C18TP
Enterprise Policy
•Enterprise Concepts and Issues
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Why is Enterprise Policy of
Importance?
• Job creation
Engine of economic
• Economic growth
and social development
• Poverty reduction
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Policy…
Friedrich (1963, p. 79) understood policy as “a proposed
course of action of a person, a group, or a government within
a given environment providing obstacles and opportunities
which the policy proposed to utilize and overcome in an effort
to reach a goal or realize an objective or purpose.”
(Friedrich, C. J. (1963). Man and his Government. New York: McGraw-Hill).
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Enterprise Policy
Entrepreneurship Policy
Versus
SME Policy
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Entrepreneurship Policy
• Aimed at the pre-start, the start-up and post-start-up
phases of the entrepreneurial process
• Designed and delivered to address the areas of
motivation, opportunity and skill
• Is the primary objective of encouraging more people in
the population to consider entrepreneurship as an option,
to move into the nascent stage of taking the steps to get
started and then to proceed into the infancy and early
stages of a business
(Lundstrom, A., & Stevenson, L. (2005). Entrepreneurship Policy – Theory and Practices (ISEN International Studies in
Entrepreneurship). Birkhäuser: Springer).
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Entrepreneurship Policy
• More businesses mean greater choice and variety for
customers
• Setting up new business provides a productive outlet for
people enabling them to make use of their talent
• New businesses are a threat to existing business, forcing
them to become more competitive/efficient or they risk
going out of business
• New businesses are a source of new ideas
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SME Policy
• SME policy targets the existing population of enterprises
• Encompasses virtually all of the support measures
included in the policy portfolio which is designed to
promote the viability of SMEs
(Audretsch, D. B. (2004). Sustaining Innovation and Growth: Public Policy Support for Entrepreneurship. Industry &
Innovation, 11(3), 167-191).
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SME Policy
• SMEs are likely to have lower levels of productivity. It is
therefore, in the national interest to raise their productivity
• Existing SMEs are major contributors to wealth and job
creation, so enabling their performance makes a major
contribution to the economy
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So What is Enterprise Policy?
In reality the lines between entrepreneurship policy
and SME policy are often blurred. While there is
considerable overlap, both have the same aim of
enhancing economic prosperity. In the UK, both
policies are collectively referred to as ‘enterprise
policy’.
(Arshed, N., Carter, S. and Mason, C. (2014). “The ineffectiveness of enterprise policy: Is policy
formulation to blame?” Small Business Economics. DOI 10.1007/s11187-014-9554-8).
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Types of Enterprise Policy
Policy type
E-extension policy
‘Niche’
entrepreneurship
policy
New firm creation
policy
Holistic
entrepreneurship
policy
Policy objectives
Start-up programmes ‘added-on’ to existing
SME initiatives, where they tend to be
somewhat marginalised and weakly resourced.
The government formulates targeted
entrepreneurship around specified groups of the
population.
The aim of this policy is to reduce time and
costs to a minimum so that more people will be
able to start their own businesses.
National government policy objectives include
reducing barriers to entry and exit, improving
access to start-up resources (financing,
information and assistance) and addressing the
start-up needs of target groups such as the
disabled, women, ethnic minorities and the
young, but also promoting an entrepreneurship
culture, along with attempting to embed this
ideology within the educational system.
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Example
Taiwan, USA,
Australia, Canada
and Sweden
US, Canada and
Sweden
Italy
UK
Why Should taxpayers provide Support
for Entrepreneurs and SMEs?
1. Contribute disproportionately to job creation: 1970s saw a doubling of the real
price of oil, high international interest rates, high rates of inflation, an unemployment in
developed economies not seen since before the Second World War. Birch (1979)
highlighted the importance of small businesses to employment creation. Every year
around 200,000 to 250,000 private sector firms are born in the UK (BIS, 2013).
2. Contributions to economics development:
•
Technological advances
•
Increased globalisation and competition
•
Changes in the workforce
•
Consumers increasing demand
•
Greater focus on innovation due to a shortening of product life-cycles and competitive
pressures
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Why Should taxpayers provide Support
for Entrepreneurs and SMEs?
3. Sustainability benefits:
•
SMEs and entrepreneurs provide choice and variety to consumers
•
They support local communities because of the personalised way that owners run
their business
•
They represent an alternative outlet for people that perceived that they are not suited
to employment – a shift from ‘dependency’ to and ‘enterprise’ culture
4. A core political constituency: the scale and focus of enterprise policy is that
entrepreneurs and SMEs constitute a large group of voters in democratic countries. For
example, at least 95% of all businesses in any economy are SMEs.
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Arguments For Enterprise Policy
Market failure exists when there is inefficiency in the allocation of goods and services. There are key
assumptions:
Type of market failure
Explanation
Monopoly
Markets are dominated by one major firm or a very small number of
firms, who have sufficient control over a particular product or service to
determine customers’ access to it – higher prices and lower output than
the ideal free market.
Imperfect information
A player does not know exactly what actions other players are going to
take because smaller businesses may find it more difficult and expensive
than larger enterprises to locate and utilise the relevant information.
There is a case to provide specific assistance to small businesses in the
form of free information.
Risk and uncertainty
If smaller firms are less able to absorb risk uncertainty they may need
encouragement to take risks in order to benefit fully.
Financial support
The difficulties small businesses have in obtaining finance due to their
size is often seen as grounds for the government to intervene with
subsidised finance or loan guarantees for SMEs.
Externalities
A reason for intervention in the field of entrepreneurship stems from
potential market failures resulting from three types of existing
externalities (network, knowledge and learning externalities).
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Arguments For Enterprise Policy
So the government should intervene because:
1. There maybe grounds for intervention if there is evidence of barriers to entry and exit i.e.
monopoly. This unfairly disadvantages the small business because the competition between
business is not on a ’level playing field’. Government then intervenes to ‘level the playing field’ to
ensure that there is adequate competition e.g. Microsoft.
2. Presence of information imperfection, breaching the assumption of ‘fully informed
customers and supplier e.g. individuals may be ignorant of the benefits of starting a business or
existing owners may not realise the benefits of obtaining expert advice from external sources or
experts.
3. Intervention where externalities exist:
•Demonstration of learning externalities e.g. deprived areas
•Knowledge externalities knowledge accrued from businesses working together formally or
informally i.e. knowledge externalities are crucial, to small business innovation (and for example,
could link with universities).
•Network externalities exists where markets/industries are dependent on their ‘strong’ times of
collaboration, informal communication and learning between businesses i.e. Silicon Valley.
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Arguments For Enterprise Policy
4. Government itself creates the severest disadvantages for small firms via the cost of
compliance with its regulatory and administrative requirements which burden SMEs.
5. Smaller firms may not be able to invest in the training development of staff, not only
because of time and financial constraints but due to the risk of larger firms ‘poaching’ their staff.
So government take the role of regulator (e.g. to impose specific training on all firms) or as a
supplier (e.g. to provide government-financed training or subsidy for private provision).
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Arguments Against Enterprise
Policy
1.
While government intervention may have been helpful in preventing negative business cycles
and controlling inflation, it has created new kinds of problems like inefficiency, reduced growth
rates, causing unproductive entrepreneurship and creating a parallel economy. The result of
such failures is that governments can then in turn harm small firms and reduce the welfare of
society through diverting resources, and deflecting or impeding businesses.
2.
The government does not always intervene wisely, especially in the area of regulation. Endless
paperwork is involved, imposing a fixed compliance cost on firms which large firms can spread
over time and financially, putting their smaller competitors at a greater competitive disadvantage.
3.
It is often argued in the political economy and public finance arena that politicians and interest
groups may direct subsidies in ways which primarily benefit themselves, rather than increase
social welfare.
4.
The government is assumed to have clear objectives; however, in the UK enterprise policy aims
have been difficult to pin down.
5.
With policy objectives trying to solve both economic and social problems, specific government
enterprise policies become difficult to evaluate, and if and when they are evaluated, it is often in
the most favourable light.
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What are the Main Instruments of
Enterprise Policy?
Hard/direct/operational policy instruments:
include a range of implemented financial measures such as direct grants,
subsidised loans, loan guarantees and increasing initiatives to make venture
capital more readily available
Soft/indirect/strategic policy instruments:
predominant in many industrialised countries utilising taxpayers’ money to
offer ‘soft’ business support to SMEs (OECD, 2000). This type of support
comes in the form of advisory assistance, the dissemination of best practice
and encouragement of partnerships and gateway services which endeavour to
strategically address particular kinds of market failure facing small firms
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Issues Facing SMEs
The main components of these clusters are reviewed as follows:
Internal Capacity and Capability
•
Skills and employing people (e.g. 28% of SME employers said that a general shortage of skills was an obstacle
to their business success)
•
Innovation (Many SMEs innovate; 37% of SMEs (with 10 to 249 employees) were engaged in innovative
activities between 2008 and 2010 compared to 42% of large businesses) BUTmarket and system failures exist,
which impact on economic growth
The External Environment
•
Access to finance (e.g. Less than half of all SMEs use external finance – considered as an obstacle)
•
Exports (SMEs contribution to exports in the services sector account for 80% of exports) BUT they often face
barriers to exporting - information failures and externalities
•
Public procurement (public procurement promotes competition and innovation (41% of SMEs said they had
never tendered for public sector work and 29% tendered only rarely) – barriers include lack of information and
high levels of bureaucracy
The Vision of the Business Owner
•
Ambition and misconceptions (four-fifths of SMEs assert they want to grow but only around a third grow in
practice)
•
Business support (almost 6 in 10 SME employers who use strategic advice believing they have improved
business performance as a result and 20 per cent believing they have significantly improved business
performance) BUT both the public and private sector offer up to 900 support services currently
(BIS (2013). SMES: The key enablers of business success
and the economic rationale for government intervention).
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So What’s Happening?: Some
Current Enterprise Policy Initiatives
in the UK
Some examples:
•
Growth Vouchers – programme which raises finance and manages cash flow, recruits
and develops staff, improves leadership and management skills, attracts customers
and makes the most of digital economy.
•
Sirius - assists graduates (and international graduates) set up businesses in the UK –
mentoring and support is given.
•
£1.1 billion package of business rates measures, with extra relief for small
businesses through the extended doubling of the Small Business Rate Relief.
•
The apprenticeship Grant for Employers provides £1,500 to firms taking on their first
apprentice. In the first year, 80% of grants went to firms employing 25 people or
fewer, helping small firms train up their future workforce.
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Reading
Arshed, N., Carter, S. & Mason, C. (2014). The ineffectiveness of entrepreneurship policy:
is policy formulation to blame? Small Business Economics, 43(3), 639-659.
Blackburn, R., & Smallbone, D. (2011). Policy support for SMEs. Environment and
Planning C: Government and Policy, 29(4), 571-576.
Wright, M., Roper, S., Hart, M. and Carter, S. 2015. “Joining the dots: Building the
evidence base for SME growth policy.” International Small Business Journal 33 (1): 3-11.
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