Learning from each other – policy making around the world
In the last few years, the IPA has spent a lot of time and energy on the subject of boosting small business productivity.
This has resulted in research and policy recommendations contained in the two editions of the Small Business White Paper produced by the IPA Deakin SME Research Centre. However, our work is never finished as we continue to consider small business productivity. Part of this process is to explore what happens in other countries, especially since internationalisation and globalisation play such a critical part in increasing productivity, which in turn supports living standards.
With this in mind and as part of my role as a senior vice president with the International Council for Small Business (ICSB), I was privileged to attend the World Congress of the ICSB in June, held in Cairo, Egypt. The theme was ‘The Future of Entrepreneurship’.
It was an expansive program with topics covering the future of SMEs (small to medium enterprises), policies and entrepreneurship ecosystems, the future of skills, SMEs in a global and digital economy, the future of work, building entrepreneurship ecosystems in emerging markets, decent job creation, empowering women entrepreneurs to lead the global economy, global perspectives in MSME development, internationalisation of SMEs, entrepreneurial finance and many more topics across eight concurrent streams.
I had the additional privilege of being chair and moderator for the plenary session on the future of entrepreneurship and SME policies. The panellists came from the OECD, International Finance Corporation (IFC) (part of the World Bank), Small Business Administration (SBA) of the US and the Egyptian Arab Land Bank.
The future of entrepreneurship will be shaped by many factors, including SME policies, both at the formal, national/domestic level and at the international level. So, what policies should we be looking at if we want to achieve the best possible future for entrepreneurship and SMEs?
The SBA has numerous policies and programs that enable small business and SMEs to obtain affordable finance through government funded programs; it has experts in the field providing advice and mentoring; and it actively listens to the issues and concerns of small business operators. The SBA is generally considered the role model of small business agencies.
The work of the OECD is relied upon by many people across the world, including the IPA and the IPA Deakin SME Research Centre. It’s interesting to consider how the OECD develops policies that can apply across borders. It does this by identifying trends and commonalities and looks at how these influence the future. OECD people engage daily with stakeholders; they take a whole of government approach to implementation; assess and utilise local ecosystems, including considering the culture and embark on appropriate training; they use technology and incentives; and also utilise and consider informal systems.
The OECD has recently released its latest report on SMEs and productivity, which is based on an extensive review of the academic and policy literature, and focuses on the role of managerial skills, workforce skills and business linkages in enhancing SME productivity. The report presents estimates on productivity gaps by firm size to show that, while SMEs are on average less productive than large companies, productivity gaps change significantly depending on the specific size and sector of the firm. It also provides an overview on the main firm-level drivers of SME productivity that directly affect SME performance, such as managerial and workforce skills, the use of ICT, R&D investments etc.
The IFC is the largest global development institution focused exclusively on the private sector in developing countries. It has made over USD$365 billion in loans to SMEs. The IFC places major weight on corporate governance, which can be scaled for the size of the business and is being highlighted in more and more countries worldwide. Efficiency, reputation and capital are all major elements that the IFC takes into consideration. The IFC carries out projects in Egypt, as well as other countries in the Middle East. Egypt has a dynamic, fast-growing economy with a population of nearly 100 million people and has benefited from IFC projects.
During the course of the World Congress we heard about SME policies from other countries that are worthy of consideration and could be reasonably easily adapted for the Australian environment. Some of the most innovative came from the US and South Korea. In fact, the Koreans referred to the US Regulatory Flexibility Act, which has been emulated in various countries. Australia is also considered an exemplar of SME policies by international organisations.
South Korean policy makers have suggested that it is time to shift from government-led to market-led policies through deregulation and providing healthy ecosystems; that policies shift from being domestic-oriented to global-oriented through active utilisation of online and offline platforms; individual firm targeted policies should shift to co-operatives targeted through joint projects; shifting from a production factors-based approach to entrepreneurship-based approach; and shifting from traditional manufacturing firms focus to innovative start-ups and ventures. Another interesting proposal was to shift from a positive-type regulatory system to a negative-type regulatory system. This means allowing everything except what is specifically prohibited. For this to work it needs more complexity than what is initially apparent.
Like Australia and the policy recommendations in the Small Business White Paper, South Korean policy makers are also recommending that productivity needs to be increased. The same areas are being highlighted – promoting competition, avoiding high corporate income tax rates, reducing barriers to trade and inward foreign direct investment, improving human capital through education, promoting international co-operation on innovation and, more broadly, increasing government investment in R&D. Also like Australia, South Korean policy makers are recommending expanding financing opportunities and tax incentives, improving the image of entrepreneurship, improving the infrastructure for start-ups in regional areas, reducing the risk of failure by providing a second chance for entrepreneurs. They have also offered innovative proposals that are worthy of consideration, including introducing a ‘start-up leave’ system, which allows entrepreneurs to return to employment in the case of failure.
It is apparent that similar issues affecting small business and SMEs occur across most countries with similar policy responses being considered. The research bears this out, especially from international organisations such as the OECD. We believe it is critical to continue exchanging ideas and information with colleagues and researchers from a variety of other countries so that we can grow and prosper collectively.
Vicki Stylianou, executive general manager - advocacy and technical, IPA