Entrepreneurship and SME Policy---No need to innovate?

Overview:

Professor Ken O'Neill

Entrepreneurship and SME Policy---No need to innovate?

This talk will suggest that much of what we variously (and imprecisely) describe as enterprise entrepreneurship and small business policy probably doesn't work---with great waste of money as a result.

We say it doesn't work because 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.

Examining this field of public policy suggests that, although it might appear to be based on 'international best practice', in its essentials it hasn't changed for upwards of a quarter of a century.

Despite the amount of research which has been done over this time, and continues to be done, little effective attention has really been given to devising programmes which will actually achieve declared policy objectives. Instead, most programmes simply repeat what was done before, albeit sometimes re-packaged to suggest that they are new.

Exploration of this topic will first consider the area of intervention and the similarity between many approaches; then some of the evidence for their lack of impact and the difficulties in conducting such evaluations. Finally, the sources of public policy in this area will be examined and some conclusions drawn about the need for 'product improvement'.

Areas of intervention
Let's look at a typical analysis framework which summarises approaches to business development.

Table 1, for instance, highlights typical UK public policy interventions to encourage the development of high-tech ventures.



When an analysis is made, country by country, of the armoury of government interventions in support of SMEs, they all appear to be picked from the same menu and thus reveal a remarkable similarity. An example of such a menu is presented in Table 2.



Why is this when there is such scant evidence that these interventions work in their attempts to produce more and/or better businesses?

The evidence for failure
And what does saying they don't appear to work mean?

The core of evaluation of policy initiative should be an assessment of the net benefit or additionality, attributable to it. It should take into account issues of displacement, deadweight, multiplier effects and value for money.

It is unusual to find evaluation studies that observe the principles of evaluation fully. I shall suggest later why this may be so.

Where there have been meaningful evaluations, there is little evidence of policy efficacy. Indeed even without such evaluation, there is a rising tide of voices challenging its efficacy.

...

although there are not many such findings that cast doubt on the effectiveness of interventions, there appears to be significantly more reliable evidence for such a conclusion than for the contrary view that intervention has worked.

The source of policy
How has this situation come about---one in which support policies across the world are so similar but apparently so ineffective? Why the sameness?

It could be due to any or all of the following approaches to policy:

• 'me too' aka 'best practice'
• scattergun
• assumptions-based experimentation
• evidence-based

Policies largely follow, or are similar to, received 'best practice', often because copying best practice seems to be a cheaper and quicker option than actually engaging in the innovative exploration of potential new methods. At least that is a more generous interpretation than suggesting that a scattergun approach based on 'let's be seen to do something (or anything), for that matter' and hope something sticks.

At best, if the indications are that much enterprise policy is not working, then it would seem that, instead of evidence-based policy, what people are following is assumption-based policy. But such experimentation should dictate that assumptions are reviewed and challenged rigorously.

When one adds to the mixture an analysis of who or what drives the public intervention agenda, it may help to understand why we are where we are.

Government tends to justify its intervention on the grounds of 'market failure' (eg barriers to entry/exit, unfair competition, information imperfections, externalities, etc.)

But there are other explanation for the origins and nature of interventions, sometimes called the 'political economy' approach. This embraces a number of models as follows:





Public Choice
In essence, politicians will maximise their own welfare by promoting policies that maximise their chances of re-election. (This does not guarantee correction of market failure or increased economic welfare.)

The economic theory of bureaucracy
This theory focuses on government officials and their motivations. State bureaucrats wish to be associated with prominent and apparently successful initiatives. This can lead to 'supply-led' programmes not based on the real needs of business. It also leads to more resource-intensive programmes, bureaucratic management and control structures, reluctance to undertake robust evaluations or curtail ineffective programmes.

Power relations, pressure groups and ideology
This model emphasises the power relations within society and that public policy is the outcome of conflict between powerful groups. It is noted, for example, that SME representative organizations have only gained influence on UK policy in the past 10--15 years, yet SME policy has been prominent since the early '80s---suggesting that business groups can only be a small part of the continuing popularity of SME policies across Europe and the world.

Attention must focus, then, on other groups---whether free market enthusiasts or other ideologies---focusing on issues of equity or distribution, not market failure.

It is impossible to ignore that issues of equity, the self-interest of politicians and government officials, political lobbying, societal power structures and ideological considerations all play a role in making and shaping SME policies---and the best interests of the business owners get lost.

Some conclusions
Notwithstanding the genuine nature of some of the above difficulties, they do not explain the poor record of evaluation work in the UK and internationally.

The above problems are often compounded by lack of clarity as to the objectives of any policy. In effect, what happens is that the declared target is based on what you hit---not what you aimed at.

One might conclude, therefore, that if the field of support policy was itself a business, there might be an overwhelming case for 'product improvement' to avoid business collapse! However, instead we prefer to stick to that with which we are familiar.