With the announcement of the final outcome of election results last Saturday the question now for many South African business owners is whether the ANC (having been returned to power) will introduce more support for small businesses.
Since ANC secretary-general Gwede Mantashe's (pictured left) announcement in April of the plan by the party to set up a small business ministry (read my view here) following the elections, talk has been buzzing about what additional support the government might give to small businesses.
But let's stop to think about it a bit. Do small business policies really help to improve small businesses? And have they ever really boosted the small business sector of any country?
Some might point to those countries where entrepreneurship appears to be flourishing. But are these countries really flourishing because of strong SME policies or because of something else?
The problem is that it is often difficult to make out whether the policies or programmes themselves helped small firms to improve productivity and create more jobs, or if other factors such as the general economic climate or gradual improvement in schooling, helped to fuel any change.
Another problem is that evaluation exercises by governments are often few and far between, or are never accurate in determining why certain policies work and others don’t.
Rolling out programmes properly is often where many seemingly good programmes fall apart. But even if programmes are rolled out, governments are often faced with another particular problem - selection bias.
Often those entrepreneurs most likely to succeed (even in the absence of any programme or policy) are more likely to be chosen or elect to join a programme themselves, than those that perhaps really need the help. And herein lies the problem.
For example a 2010 evaluation by the Inter-American Development Bank on an Argentinian management support programme (PRE) which ran from 1998 to 2007 revealed that though the programme helped boost the sales of many of its 1,200 beneficiaries, in many cases firms were selected that had already shown a level of success before the start of the programme.
It means really that in many instances programmes or policies don't help add anything new. The $16 million that Argentina spent on that programme could all have been a complete waste of money.
A waste of money?
In a presentation to the 36th International Small Business Congress 2010 Pre-conference: Kaohsiung, Taiwan in 2010 an acerbic Professor Ken O’Neill argued that government policies and programmes for SMEs globally over the last 25 years have produced no results and are a complete waste of money.
O’Neill, professor of Entrepreneurship and Small Business Development at the University of Ulster, said overall rates of entrepreneurship or business growth are not rising or, where they are, it is difficult to attribute them to specific policy interventions of the sort which are universally applied.
He argued in his speech that what drives public policy are often political concerns rather than assumptions that the government must intervene because of the existence of market failures – such as the need to tackle high barriers to entry or exit or unfair competition.
Commented O’Neill in his Taiwan speech: “In essence, politicians will maximise their own welfare by promoting policies that maximise their chances of re-election".
He said problems are often compounded by a lack of clarity as to what the objectives are of any policy. “In effect, what happens is that the declared target is based on what you hit – not what you aimed at,” he remarked.
Then there is US entrepreneurship expert Scott Shane (pictured right), who claims that encouraging start-ups does not make for good public policy.
In his 2008 book "The Illusions of Entrepreneurship" Shane says this is because there is no evidence that people create too few or the wrong businesses in the absence of government intervention, and a lot of evidence that these policies lead people to start marginal businesses that are likely to fail, have little economic impact, and generate little employment.
Chile and Malaysia – trying to do it right
So does this mean that governments should just give up? Perhaps not. Let's consider two recent examples which reveal that there is still hope for governments to make a difference - Chile and Malaysia.
In South Africa a 2011 small business review by the Department of Trade and Industry found that when it came to small business support that the government lacked long-range planning, had weak coordination, weak monitoring and evaluation of support, weak human resource capacity and a paucity of small business information.
It shows. To back this up figures in South Africa's 2013 Gem Report, released in April, reveal that experts there don't believe there's been any improvement in government programmes and policies between 2005 and last year.
Something is going right over there
However in an overview of 10 years of Global Entrepreneurship Monitor (Gem) reports by the Gem organisation's office in Chile released last year reveals experts' increasing confidence in both government policies, as well as business regulation and public programmes to assist small firms between 2002 and 2012. This while other measures such as experts' view on education, infrastructure, R&D transfer and the internal market, among others, has remained relatively flat over the same period.
Back in November 2011 when I spoke to him in his offices in Santiago, Jose Ernesto Amoros (pictured left), who heads Chilean entrepreneurship support organisation UDD Ventures, attributed the increase in entrepreneurship policies to improved macro-economic conditions, deregulation which has made it easier to start a business and to the earthquake in 2010 which reinvigorated the economy.
He said that the government’s improvements in supporting SMEs has a played a role in this growth, impacting even on those outside of Santiago, the capital city.
Chile isn't the only example. On the other side of the globe Malaysia is sharpening things up, with its government having put together an impressive small business strategy - the SME Masterplan – which is based on quantifiable data backed up by an evaluation exercise by the World Bank.
The plan, which was launched in 2012 and runs till 2020, identifies several key measures to support small businesses and forms part of the Malaysian government’s bid to transform the country into a developed economy by 2020.
It includes 32 initiatives to increase sector’s contribution to Malaysia’s gross domestic product from 32% in 2012 to 41% in 2020 and its share of employment from 59% to 62%, while the share of exports by SMEs is expected to rise from 19% to 25%.
The plan follows an outcome-based approach through a proper monitoring and evaluation system established not only to guide sound decisions on budgeting, but also to assess progress of programmes and to fine-tune where necessary.
“There’s a sense that they’re not doing small business development merely for the sake of pandering to a defined political constituency. Rather, progressing to a small business-dominated economy is the required step to having an advanced, high-income economy,” commented Ken Phillips, the executive director of Independent Contractors Australia in a 2012 blog article.
In the end if small business policies are to succeed it helps that countries to have a relatively effective public service and good institutions, as Malaysia and Chile have. But it also helps to have policymakers who look beyond mere political concerns.
Time to wise up
Focusing on a few things that work, rather than being distracted by many different programmes spread too thinly, is the way to go. Rigorous and continuous evaluation must also form part of any small business support programme governments offer. And public servants must be prepared to dump those programmes that don't work and let the private sector take over when market failures have been sufficiently addressed.
A strong small business lobby in the form of associations and business chambers will also help project the voice of small business to government.
The message is as small business becomes more important governments need to wise up and get smarter with how they are going to help entrepreneurs.
Stephen Timm writes on small business programmes and policies in emerging countries. He is in Brazil now. Follow him on twitter: @Smallbinsight or subscribe to the Small Business Insight newsletter - to be launched soon.
Stephen Timm is a