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MIHE Blog News, views and insights from Macmillan International Higher Education

Two Out Of Three Ain't Bad! Why It's Time To Abolish SME Support Programmes

by Ken O'Neill 23rd June 2020

Ken O'Neill discusses the support programmes available to SMEs and why it might be time to take another look at their efficacy and future existence.

Abolishing the myriad of SME support programmes that have proliferated over the decades in the UK (and in so many other countries) will save billions of pounds without any adverse impact on the health of the SME sector. This money can and should be spent in a better way.

This call does not refer to the recently-introduced emergency measures. They are necessary but temporary as many businesses, large and small, struggle to survive in the face of the Covid 19 crisis.

Instead it refers to the kind of business support programmes that since the 1970s have spread, pandemic-like, across the UK (and elsewhere) at national, regional and local level. Together they are seen as a (perhaps, THE) vital strand in the approach of government policy towards encouraging entrepreneurship and/or small business - an approach that typically has three strands:
  1. Addressing individuals and businesses
  2. Addressing the institutional business environment
  3. Influencing change in social attitudes
We'll look at each in turn.

1. Addressing individuals and businesses

This is the strand that should be abolished. In the UK there are nearly 1,000 programmes aimed (theoretically) at dealing with market distortions by filling supply side gaps. They include access to finance, information, professional advice and training. Indeed a quick internet search for 'government support for business' will highlight the spread.

Why abolish them? Because there is little or no evidence that they work. Whatever minor benefit might be bestowed on a single individual or their business, overall these programmes have not had their intended effect of improving rates of entrepreneurship or levels of business performance. Regrettably there appears to be significantly more reliable evidence for their ineffectiveness than for the contrary.

The staggering truth is that differences in entrepreneurial activity within countries has remained stubbornly stable year to year.

These support programmes may be found in almost any country with an SME development agenda. In answer to queries on their effectiveness, responses are invariably subjective and anecdotal. It seems that the simple philosophy adopted is one of 'me too' - because it has been adopted in other countries, it must be working. As in the UK, rigorous evaluations are absent.

Programmes have proliferated in large part as a result of what many call 'initiativitis'. They are introduced by or on behalf of politicians, bureaucrats, SME pressure/lobby groups etc seeking to be seen to be doing something, building their reputation or pursuing a sectional interest.

2. Addressing the institutional business environment

In a favourable environment, government seeks to create the macro-economic conditions to incentivise SMEs in conditions of fair competition. It includes taxation, funding regimes, regulations and red tape, infrastructure and training.

The World Bank attempts to rank and score countries by their institutional favourability to entrepreneurship. It finds, not surprisingly, that most are neither very favourable nor very unfavourable but are found in various intermediate positions. The UK lies 8th out of 170 countries reviewed. Of course many countries either proclaim or aspire to be 'the best place in the world to start and grow a business.

3. Influencing change in social attitudes

The third strand addresses the cultural environment - seeking to affect societal attitudes towards entrepreneurial activity. Favourable cultural support will encourage people to engage in entrepreneurship and innovation because they are socially approved and lauded activities.It is a relatively neglected approach despite its huge potential.

Importantly the second and third strands involve interventions at the meso- or macro-economic levels and impact individuals and firms in aggregate, not individually. It is these two approaches that create the framework conditions for a healthy economy and often have a disproportionally beneficial impact on SMEs. They are the catalyst for the number of new and growing businesses and their productivity. Of course both strands should be in harmony - too often they aren't.

It is useful to draw a topical health analogy. What contributes most to the safe-guarding of a nation from sickness and disease is fundamentally the standard of its public health regime. Clean air and clean water are the key prerequisites for a population's wellbeing supported by a strong vaccination regime and health education. Such a healthy environment matters more than the number of doctors' surgeries or hospitals - the latter being helpful to some but offering only a marginal overall impact.

The public health regime equivalent for business development is reflected in the second and third strands. In short the key factors in achieving economic change are the institutional environment (formal rules) and the cultural environment (informal rules)

While institutions (often governmental) define the formal rules of the game, the cultural dimension defines the informal rules. This dimension lies in the social influence on people which comes from their shared values, beliefs and accepted ways of behaviour within their social circles. Human beings are very social animals and, as M. Earls says 'we do what we do because of other people and what they seem to be doing'. In short we are strongly influenced by how others behave. W.J.Baumol has suggested that the contribution of entrepreneurs to society is not so much determined by the total supply of entrepreneurs but instead by the way in which the rules of society influence where and how we apply our entrepreneurial talent. Fortunately there is clear evidence that campaigns seeking to change choice and behaviours can work, for example, campaigns to reduce littering, drinking and driving, and smoking were based less on penalties and incentives and more on presenting such behaviours as socially unacceptable.

So let's advocate an extended and comprehensive campaign across all media and education systems promoting the virtues of entrepreneurship, innovation and greater risk-taking. Affording it financially should not be a problem. Abolition of all programmes in the first strand can save billions, leaving us with two out of three which ain't bad! Frankly, not many businesses will be aware of their disappearance.
Featured image credit: Photo by Prateek Katyal, Avaliable on Unsplash via Unsplash licence