Entrepreneurship, Small Business and Public Policy

Evolution and revolution

Robert J. Bennett

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781136155918
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Public policy interventions aimed at encouraging, supporting and developing small businesses are important for understanding entrepreneurship and small business management. This textbook is the first to provide teachers and students with a resource that gives an overview of how institutional and policy structures interact with small firm start-ups, continuation and succession/failures.

Beginning with a brief introduction to policy processes, the text covers the main policy instruments for entrepreneurial market entry and start-up support, for on-going small business advice and financial support, and succession planning. It particularly focuses on policies that improve the Business Enabling Environment through macroeconomic policy, institutional reform, and deregulation of bureaucratic burdens. Theoretical rigour is complemented by detailed assessments of current policies around the world, including USA, advanced and emerging economies and Policy support from global institutions such as the World Bank and the ILO are included.

Written by a pre-eminent scholar of public policy and entrepreneurship, this textbook provides a concise but thorough introduction to the subject for Master's students internationally. Policy recommendations in the author's conclusion also highlight the book's value to policy-makers as they adapt to the globalized, digital world.

Chapter 1

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Why does policy matter to entrepreneurs and small businesses?

INTRODUCTION

Public policy for entrepreneurs and small businesses is usually dealt with in a single chapter in most texts. This book aims to take the topic apart at greater length to provide a core text for specialist MSc/MA and MBA options and as a take-off pointfor dissertations. It is aimed at international readers using a range of case materialsthat allow varied policy approaches to be understood. The book aims to help youunderstand small businesses and entrepreneurship policies, what they do, and howthey vary between countries.

Small entrepreneurial businesses in this book are defined functionally: (i)directly managed by their owners, and hence are personalised, and (ii)independent from the control of other business (not mere branches, franchises orsubsidiaries, and not state-owned) so that their risks, decisions and strategy are theirown. They may also have (iii) a relatively small market share (‘price takers’ ratherthan ‘price makers’), but this is not always the case in localised markets anddeveloping economies where some small firms may be dominant suppliers. Oneexample, using the definition of the 1953 US Small Business Act (P.L. 85–536, asamended), defines a small firm as ‘one that is independently owned and operatedand which is not dominant in its field of operation’.

A functional definition allows us to understand businesses, but policies usevarious definitions. Policies are difficult to make effective. The problems ofdefinition and effectiveness are seldom clear from government statements. Theresearch literature and established texts on policy are also not uniformly helpful.In general there has been a strong tendency for policy makers and politicians totreat entrepreneurs and small businesses as simple categories and vaunt newinitiatives as faultless recipes for economic success. Similarly, many researchauthors feed demands for intellectual support for policies that ignore full policycosts, displacement of existing firms, deadweight and dependency. It is because ofthese complexities that this book has been written. At the very least it is hoped thatyou, and policy makers, will improve over past experiences.

The learning objectives of this chapter are:

■ to understand the policy needs of different types of entrepreneurs and small businesses;

■ understand the objectives of policies;

■ understand the context for policies: the ‘business enabling environment’.

WHAT ARE ENTREPRENEURSHIP AND SMALL BUSINESS POLICIES?

The public policies discussed here are explicit or targeted, and also policies that are not explicit but nevertheless impact small businesses and entrepreneurs. Examples of targeted policies are loan guarantees, support for exporters, advice and information provision. Examples of non-targeted policies are effective educational policies that encourage independence, judgement, skill development and other key factors underlying entrepreneurism; efficient labour market policy; or policies aimed at other non-business objectives that influence small businesses and entrepreneurs disproportionately (notable are tax policy and other regulations), as well as macro-economic policies, such as interest rates, which affect all businesses but have deep impact on entrepreneurial risks.

Individual policies are contained within the social and institutional norms of each local situation, country or multinational trading bloc: often referred to as the ‘business enabling environment’ (BEE). These norms are less often viewed as explicit ‘policies’, but they are a major focus of this book because they are often the most significant influences on entrepreneurs and small business. Moreover the aim of this book is to be internationally relevant so that understanding institutional frameworks is a key aspect of understanding differences between policies and places. The main instruments for entrepreneurship and small business policies are shown in Table 1.1. You should look at this table carefully. It will be referred to throughout the following chapters.You can follow up details of each instrument in further reading at the end of the chapter.

WHY IS SMALL BUSINESSES POLICY IMPORTANT?

Small business policy is a significant activity in most countries, and for many international institutions. The reasons for this policy attention are (also see Further Reading):

1 Small businesses are the vast majority of all businesses in all countries; even using narrow definitions they are at least 80 per cent of all businesses, accounting for around half of output; on wider definitions they are 99 per cent of all firms; hence, as the majority of firms, all policies need to take account of the managerial capacity of small firms.

2 There is some evidence that small firms have been growing more rapidly than large firms in capacity to create employment and reduce unemployment and state welfare benefits, and increase taxes and resources for social and other expenditures. They can also cushion economic shocks.

3 They provide potential efficiency benefits in an economy by increasing competition, increasing the rate of market entry and exit and helping to limit the adverse effects of monopolies and inefficient incumbents.

4 They can be significant sources of innovation and new products, with potential for new industries; even one new high-growth small firm like Apple in the USA or Alibaba in China can make a major impact on an economy.

5 They offer opportunities for personal independence and initiative, particularly for new entrants to self-employment and entrepreneurship, as an alternative to employee status in larger firms with greater personal satisfaction; often beneficial for specific groups such as young people, ethnic minorities or women; offering opportunities to diffuse development in developing countries.

6 They are efficient means to organise production for markets where the volume of sales is small, with low and/or very varied capital needs, and usually where entry costs are low; new technologies may be making these conditions more frequent; this is important for developing countries and transition economies.

7 They provide variety and hence wider consumer choice.

8 They can provide alternatives and variety to the supply chain, which can improve sales potential and may reduce costs through offering opportunities for outsourcing; they are complementary to large firms.

9 They may be able to respond more quickly and rapidly than large firms to new market conditions and opportunities; some argue that without the ‘heterogeneity and volatility’ provided by entrepreneurs and start-up firms ‘the economy eventually stagnates or even collapses’ – what Schumpeter called ‘creative destruction’ (Schumpeter, 1942; Carlsson, 1999: 109).

10 They may offer scope for experiment with high risk investments.

Table 1.1 Instruments for entrepreneurship and small business policy

Policy field	Policy instrument
1. Business enabling environment
1.1 Regulatory framework	Start-up registration
	Governance laws
	Fiscal incentives (tax exemptions, subsidies, grants)
	Employment laws
	Bankruptcy laws
	Government administrative efficiency and professionalism
	Anti-corruption procedures
1.2 Business infrastructure	Transport
	Power, electricity, water
	Communications networks
	Land policy, industrial estates, incubators
2. Entrepreneurial culture	Education and training
	Business incubators
	Inclusion programmes (e.g. for youth, women, ethnic groups)
	Public awareness and support
3. Finance	Micro-finance
	Commercial loans
	Public credit guarantees
	Credit rating and financial institutions
	Corporate bond markets
	Venture capital and business angels
4. Business development services	On laws, accountancy, finance, trade, technology
(advice and information provision)	Support for advice from partner business associations and training bodies
	Support to private professional services
5. Innovation and technology	R & D
	Technology transfer
	Incubators and commercialisation
	Quality standards and certification
	IPR laws
	e- and m-commerce
	Higher education policy and universities
6. Market access	Information on trade and investment opportunities
	Trade fairs and exhibitions
	Export promotion agency
	Product quality improvement initiatives
	Support for supply chains and clusters

Source: modified from UNESCAP, 2012: 8

The high multi-purpose expectations have been summarised by UNESCAP:

SMEs are a key source of economic growth and dynamism in all economies. Adaptability, resilience and the ability to manufacture goods and to provide services with a high degree of flexibility and cost effectiveness are hallmarks … Small businesses are particularly important for bringing innovative products and/or services to the market … SMEs are a’nursery’ for nurturing entrepreneurial talent, in addition to creating employment and fostering industrial development in an economy. SMEs are alleviating poverty around the world as well as increasing the socialand economic participation of women, youth and minorities. Some SMEsalso have the potential to grow into large enterprises.

(2012:5)

These claimed benefits have led to great enthusiasm for policies, but this is recent.In most countries before the 1950s–1970s the dominant view was that smallbusinesses were backward, and support should be focused on large businesses,large state enterprises and maintaining industrial oligarchies or monopolies in’strategic’ industries. In socialist economies small firms and entrepreneurs weresuppressed as ‘parasitic’. This was often cultural or ideological, or to maintainexisting elites. But in many cases it also ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of illustrations
• Acknowledgements
• 1 Why does policy matter to entrepreneurs and small businesses?
• 2 The case for policy
• 3 Constraints on policy
• 4 Policy institutions and meta-institutions
• 5 Small business and entrepreneurship policy in the USA
• 6 Britain: policy evolution in the 'earliest industrial nation'
• 7 East and Southeast Asian 'exceptionalism': Japan and South Korea
• 8 China
• 9 Developing and transition economies
• 10 Evolution and revolution: new opportunities, old dangers
• References
• Index