As stated in the Bologna Charter, the future action agenda for policy makers should include: “A regulatory environment that does not impose undue burdens on SMEs and is conducive to entrepreneurship, innovation and growth through, inter alia, promoting good governance and greater accountability in public administration; pursuing a fair and transparent competition policy, and implementing effective anti- corruption measures; and fostering the implementation of transparent, stable and non-discriminatory tax regimes”.
Most countries, whatever their level of economic development or type of policy regime, have put in place laws and regulations framed specifically for SMEs. A brief look at some of the laws and regulatory policies shows the range of legislative interventions to regulate market-oriented economic activity in selected countries.
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1. Germany:
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The German Small Business Law defines the registration procedure for small businesses, training procedures for apprentices, qualifications, facilitation for promoting entrepreneurship, the role of the Federation of Chambers, Local Traders’ Associations, etc. The Local Trades Association is a corporation under public law.
It allows for formation of only one State Trades Association (STA) at the initiative of Local Trade Association. The STA shall be a public body. The appendix to the Small Business Law mentions the trades/activities eligible for registration with the Chambers of Small Business under the Law.
The Act specifies the constitution, conduct and powers of the Chamber of Small Businesses, which include fines for non-compliance with regulation procedures. This legislation preserves and protects the listed trades from domestic and global competition.
2. USA:
The provisions in the laws for small industry in the USA offer useful insights as to the importance of regulatory mechanisms even in a system firmly based on free enterprise and free markets.
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The US Small Business Act (Public Law 85-536 as amended) directs the Government to support small business through various forms including Government purchases from and sales to such enterprises.
Section 2 (a) of the Act on Declared Policy reads as follows:
“Government should aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns in order to preserve free competition enterprise.”
“to ensure that a fair proportion of the total purchases and contracts or subcontracts for property and services for the Government (including but not limited to contracts for maintenance, repair and construction) be placed with small business enterprises, “to ensure that a fair proportion of the total sales of Government property be made to such enterprises to maintain and strengthen the overall economy of the nation.”
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In addition, the US has a number of laws pertaining to different regulatory aspects of small businesses such as:
The Small Business Regulatory Enforcement Fairness Act of 1996, which has been framed: “To make Federal regulators more accountable for their enforcement actions by providing small entities with a meaningful opportunity for redress of excessive enforcement activities”.
A provision in the same law calls for publication of Guides for Compliance with Regulation by small entities for all rules with a significant small business impact. Guides must explain in plain language how the firms can comply with the regulations.
The US system has a Regulation Flexibility Act (1980) which provides for grievance redressal: “For any rule subject to this chapter, a small’ entity that is adversely affected or aggrieved by final agency action is entitled to judicial review of agency compliance with the requirement of Section ……..” (Section 611(a) (1)).
There is a further provision that Chief Counsel for Advocacy of the Small Business Administration shall monitor agency compliance.
The Buy American Act insulates the small enterprise sector from global competition. It is a matter for discussion how the U.S. is in a position to provide for compliance with the conditions of the WTO Agreement successfully.
The Equal Access to Justice Act (EAJA) provides for the award of attorney fees (up to $125 per hour) and other expenses to eligible individuals and small entities that are parties to litigation against the Government. The legislative mechanism, therefore, enables the perseverance of a strong SME sector against global competition.
3. Poland:
Poland’s transition to a market economy has witnessed the growth of a dynamic small industries sector. SME policy has been implemented since 1995 by means of financial, legal, organisational and information/training-related instruments.
A draft Law on Business Activity (October 1 998) “imposes on public administration the obligation of putting in place favourable conditions for the operation of SMEs” (Government Policy Guidelines for SMEs until 2002, Ministers two Gospodarki; 1 999; 8).
A draft Law on the Acceptability and Monitoring of Public Assistance to Entrepreneurs is being finalised. It will “ensure transparency of principles….as well as compliance of those principles with EU regulations.” (Ibid; 7)
4. Japan:
In Japan, post-war restructuring of industrial policy encouraged the growth of SMEs since the 1950s. Japan provided very comprehensive and coordinated assistance to its small and medium industries parallel to the regulatory mechanisms. The Law on Prevention of Payments Delay to Sub-contractors was enacted in 1 956.
The SME Basic Law (1 963) ensured existence of a comprehensive framework for the assistance given to SMI. The General Trading Company Act (1 975) enables the Government to extend full support in the form of export promotion through initial financing, export incentives and information for export opportunities.
The policy for SMEs as stated in Article 1 of SME Basic Law (Law No; 154, July 20, 1 963) has two major thrusts: to correct disadvantages and give incentives.
The Target of Policy elaborates these objectives: “to promote the growth and development of SMEs and to correct disadvantages due to economic and social condition of SMEs as well as to encourage voluntary effort of SMEs …. And to correct disparities of productivity among enterprises.”
The primary objectives of the State intervention are: to stimulate modernization of facilities of SMEs; to prevent excessive competition and to further appropriateness of sub-contract so as to revise disadvantages relating to trading conditions of SMEs; and to promote exportation of commodities produced by SMEs.
5. The Republic of Korea:
In Korea, a major policy shift towards SMI (E) s occurred in the 1960s. Until then, large industry, represented mainly by the chaebols was the principal focus of Korea’s industrial policy.
The promotion of SMIs has constitutional guarantee in Korea as the Constitution of the Republic of Korea expressly states that small businesses must be protected and supported.
The Small and Medium Industries Fundamental Act (1966):
Not only defines the scope of small and medium industries and their importance for balanced economic development, it also provides the Government with the mandate “to research and formulate policies in order to improve international competitiveness, systematization with large businesses, financial assistance, managerial and technical guidance, etc.”
In addition there are several other Acts, which protect the interests of SMEs and promote their development.
6. The Republic of Philippines:
The Sme Act – Republic Act No:
6977 (as amended by RA 8289) contains the Declaration of Policy and the objectives of the State intervention in SME development. Section 1 states that the Act shall be known as “the Magna Carta for Small Enterprises.”
The State’s policy, as enshrined in the Act is, “…………………………………. to promote, support, strengthen and encourage the growth and development of SMEs in all productive sectors of the economy, particularly rural/agri-based enterprises.”
The Act elaborates the following major objectives: adequate support structure; transfer of appropriate technology; entrepreneurial training and labour skills development; access to sources of funds; fair share of Government contracts; Government assistance to SMEs; linkages between Large and Small Industries; and Monitoring and Evaluation mechanisms (especially for environmental effects of SME).
Indonesia, Malaysia, and Taiwan also have adequate legal support for promoting and protecting the small industry in their countries.
7. China:
China forms a special case in terms of its transition towards a market economy. The process, which was speeded up with the 1978 economic reforms initiated by Deng Xiaoping, is described in policy documents as “building socialism with Chinese characteristics.” The development of small and medium industries – or Township and Village Enterprises (TVEs) – is an important part of this process.
The strategy has led to an increase in rural employment, reducing pressure on land in the agricultural sector, curbing rural-urban migration and generating income for those living in rural areas.
Since 1978, TVEs have provided a total of about 95 million jobs over a period of 15 years (World Bank, 1996: 51). In 1997, TVEs employed 130 million people or about 30 per cent of the rural work force (China Today, February 1999).
The industrial production value of township enterprises accounts for about one-third of the total value of industrial production. Township enterprises contributed 37.8 per cent of China’s exports in 1999 (News from China, July 26, 2000).
TVEs have proved adaptable to market changes as they have weathered intense competition domestically. The present policy thrust in China is to give TVEs more Government support and strengthen their competitiveness in the global market.
In China, the registration office is the local Chamber of Industry and Commerce (Gongshang ingzheng guambi zu). Each entrepreneur has to submit a written application, “finance control report” (yamzi baogao) and a feasibility study. The time taken for registration does not normally exceed two weeks.
The fee for registration, as revealed by a study (Judith Kohl and Maja Linnemann, 1995) is noticed to be in the range of six to seven per cent of the registered capital. Normally, entrepreneurs make two to five visits to the office prior to registration to provide clarifications on the application. The procedures for registration are simple and so easy to comply with. All private enterprises have to be members of the Private Enterprise Association (Siying quiye xiehui).
These Chambers and Associations provide information network, help in business contacts, both domestic and global and safeguard legal rights. Even in China, banks consider financing a small enterprise as a highly risky proposition.
Many rural and township enterprises operate under the shelter of a head company (zong gongbi) which provides all kinds of services for them e.g., assistance in obtaining loan, help with registration, or provision of land and workers. Financing and technology continue to be the problems of private as well as rural and township enterprises.
Evidence from several countries around the world under different economic systems and at different stages of development shows the proactive role of the State in the promotion of SMEs through appropriate legislative interventions. The broad thrust has been towards ensuring a proper economic and competitive environment for SMEs.