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Samenvatting - Enterprise and small business : Principles, practice and policy.
1 Defining and measuring the small business
The Enterprise Churn
- Because there are fewer burdens to start a business, entry barriers are lower, so greater number of new enterprises.
- This stimulates efficiency, which means that inefficient organizations will exit the sector.
Trends in SE statistics
- Fast increase of SE in 80s, gentle increase since 1995.
- U shaped pattern of ownership rates: 30s high, 60s low, 80s high.
Labour Force Surveys
- Used to estimate number of self employed individuals and uncorporated businesses.
- Data is coming from a survey.
'N shaped business ownership' puzzle of the US. Two explanations:
- Static explanation: there is an equilibrium rate between economic development and business ownership.
- Dynamic explanation: rate of entry & exit. The enterprise churn.
Explanations for changes in business ownership
- Cost disadvantages: BO went down. Because before 80s, era of mass production, this means the minimum efficient scale (ME) was important. This promoted concentration of ownership and drove SE away.
- Technological changes: in 80s more PC, so BO went up. Lead to less economies of scale, smaller MES, more flexibility and new industries.
- Innovation: SE have advantages, less bureaucratic and more flexible.
- LE fragmentation: LE transfers risk by franchising. Leads to rise of BO.
- Development of service sector: more tailor made goals, rise of BO.
- Changes in Labour Market: unemployment pushed to selfemployment. BO rises.
Bolton's Quantitative approach of SE
- There is no single measure (asset, turnover) likely to fully account for size of an enterprise.
- So there's a variety of measures.
EU definition of SE
- Micro: <10 employees, 2 miln turnover, 2 mln balance sheet
- Small: <50 employees, 10 mln turnover, 10 mln balance sheet
- Medium <250 employees, 50 mln turnover, 43 mln balance sheet
Storey criticised Boltons qualitative approach- LE may run in highly personalized manner- Independent is relative concept (SE may be legally independent, but still rely on LE)- SE may perform in niche, and therefor have large market share
Problems with Bolton's quantitative definition
- Quantitative criteria are arbitrary and country/industry specific
- measures are eroded over time (inflation)
- no uniform definition
- How to measure informal/illegal/homeworking/network marketing?
Bolton's qualitative approach of smaller enterprise
- Independent (not part of LE)
- managed in a personalized matter
- relatively small share of market
- greater uncertainty
2 Government and Small Business
Implications for government action
- SE wants to maintain and develop product markets themselves.
- SE wants government to maintain strong economic environment.
- No demand for government to do things for specific firms.
Government action is good for 3 reasons
- Market failure: SE have lack of control and suffer specific barriers or unequal treatment, government should help this remove. (Training example)
- Create Jobs: SE can encourage economic growth.
- Develop a vision: strategic vision for the whole economy. Government should try to boost this.
LE dominance has long been encouraged by government
- Planning of supply during wars led to consolidations.
- Until 60s government encouraged price cartels.
- Growth of socialism led to nationalism & big subsiding.
The existence of a market failure does not justify government action. There are other alternatives. The limitations in government action are
- Lack of information
- Lack of business skills
- Difficulty in admitting mistakes are made
- Conflicting targets
- Difficulty in providing help that adds to total net ouput.
A Niche for government action:
- No generalized market failures
- Stabilize the economy
- Improve the regulatory regime
- Specific support should be channeled through B2B interfaces
Peacock identified 4 more weaknesses of government action
- Aims are vertroebeld by keeping everybody happy.
- policies are slow.
- Cost & Benefits are rarely assessed.
- No real costs for policy makers themselves, when things go wrong.
Government can focus targetting on
- stages of busines development (idea formation, startup, growth etc)
- Types of businesses
- factor inputs (land, capital, personel)
- general business climate (culture, ethics)
Government can take 3 roles in SE
- As regulator: determine rules of game and institutions.
- As economic agent: taxes, etc. Has effect on business finance and risk taking.
- As strategic planner: education, research, industrial policy.
Methods of government support
- Provide information
- Help with training & personal development
- Provide specialist advice
There are three ways in which government can help SE
The means of targeting policy is to target those businesses which either
- Will benefit the greatest from assistance.
- Will yield the greatest policy benefits.
- Avoid displacement.
dangers of targetting
- starting point of any change in business activity must be a managerial appraisal, not government
- Target groups are not stable
Aims of government support
- cost reduction (subsidies, loans)
- risk reduction (stabilize economy)
- increase information flow (make it available)
Benefits of targeting policy
- reduce range of expenditure
- focus resources where they are needed
- easier to market
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