Study queries crucial role of EU’s small businesses

Date: 16/01/1997

By Michael Mann

NEW research has cast serious doubts on the European Commission's single-minded belief that small and medium-sized enterprises (SMEs) provide the key to cutting into Europe's disastrous unemployment figures.

A study of the UK situation by Cambridge University academic Alan Hughes, on behalf of the Employment Policy Institute, says only a handful of SMEs bring consistent employment growth and that many jobs offered by small firms are “unstable, poorly paid, lacking fringe benefits”, and offer little training.

It concludes that “studies offer no basis for the specific promotion of the SME sector by direct or indirect policy means”.

The research has been welcomed by Wessel Visser of EIM Small Business Research and Consultancy, who claims Hughes' arguments “apply to the general European situation even more powerfully”.

But it will come as a blow to the Commission, which continues to insist that renewed efforts must be made to support the small business sector, most recently in President Jacques Santer's 'confidence pact' for employment.

EIM found that in the Netherlands, for example, “most jobs are created by a very small group of fast-growing enterprises”.

This is backed by the British data which shows that “the great bulk of employment 'created' by any cohort of surviving small firms was accounted for by a handful of persistent or spectacular growers”.

More seriously, Visser points out that this group “is not very easy to identify” and says the Union's approach to supporting small businesses must be far more nuanced to identify where the genuine job creation opportunities are to be found. “The main challenge is to look at the types of enterprise and the style of management, rather than concentrating on their size and what sector of the economy they operate in,” he added.

EIM found that fast-growing businesses do not remain so indefinitely, but often undergo a prolonged period of contraction after initial growth.

If the EU really wants to create large numbers of 'good' jobs, Visser believes a clear picture must emerge of what makes the difference between those projects which only just keep their heads above water and more dynamic entrepreneurs. “We cannot put all our eggs in the SME basket It would be more fruitful to look at how interactions between large and small firms affect growth,” he concluded.

But an official in the Directorate-General for small enterprises (DGXXIII) defended the concentration on SMEs, claiming “the philosophy behind it is that the bulk of the workforce is made up of SMEs, and we cannot talk about employment without keeping them at the front of our minds”.

A spokesman for the European Trade Union Confed-eration (ETUC) supported this view, adding: “SMEs are an area where jobs can be created and need to be created.”