Small firms at the cutting edge

Two MEPs discuss SMEs.

Philip Bushill-Matthews

Historically, presidencies of the EU from smaller member states have tended to be more impressive than larger countries in progressing EU priorities, and, so, much is expected from Slovenia in the first half of 2008.

In the second half year the French take over and the fact that France under President Nicolas Sarkozy also wishes to be pro-active in Europe will also give a new energy and impetus to the agenda. The question is, what agenda?

I have personally been encouraged by the emphasis that the Slovenian Presidency is giving to the importance of SMEs. Small businesses are important to small countries in particular and there is certainly much to be done to integrate the needs of SMEs into the last phase of the Lisbon Agenda.

What is needed for SMEs is already accepted. The original European Charter for Small Enterprises in 2000 spelt out the priorities very clearly. The need to improve the environment for small businesses is not just to help SMEs: the prospects and prosperity of SMEs are crucial for the competitiveness of the EU as a whole. As the Charter points out in its preface: "Small enterprises are the most sensitive of all to changes in the business environment. They are the first to suffer if weighed down with excessive bureaucracy, and they are the first to flourish from initiatives to cut red tape and reward success." Fine words indeed. The challenge has always been to translate these words into action.

The charter listed ten specific actions. All were positive and all should be achievable. But eight years on, little real progress has been achieved on any of them. The reality has yet to match the rhetoric.

Rather than scroll through all ten targeted actions, I highlight two. The first comes under the title of Better Legislation, where the action said: "New regulations at national and Community level should be screened to assess their impact on small enterprises and entrepreneurs. Wherever possible, national and EU rules should be simplified…Small enterprises could be exempted from certain regulatory obligations."

The European Commission has on several occasions repeated this commitment, and has even gone further by promising to simplify and trim existing legislation by 25%. But any evidence of action to deliver this promise has been sadly limited. Indeed the law that is the most potentially restrictive on labour market flexibility, namely the working time directive, remains obstinately unreformed.

The second (and the grand finale of the ten action points) has the splendid title: "develop stronger, more effective representation of small enterprises’ interests at Union and national level" and makes the pledge to "complete a review of how the interests of small businesses are represented at EU and national level, including through social dialogue". Again, nothing has happened. Employment legislation is still driven primarily following consultation with the social partners, primarily defined as the big employers in BusinessEurope who represent the minority of employers, and the big trade unions in ETUC who represent the minority of employees. The voice of small business remains a small voice indeed.

Meanwhile, the Commission has made a further promise that in 2008 there will be a new directive specifically focusing on the needs of small businesses. We shall be looking to the two presidencies of the EU to speed this to a successful conclusion. And with due respect to Slovenia, we shall also be looking, in particular, to France. In his recent book ‘Temoignage’, Sarkozy condemns the 35-hour week in France because it "devalues work and undermines the competitiveness of businesses faced with more and more fierce international competition". The same logic applies to much EU employment legislation in general and the working time directive in particular. Someone needs to give a lead in delivering the charter. On current performance, it will not be the Commission or the Parliament. It could be the Council of Ministers.

I hope that 2008 will finally be the year of action and not just words.

• UK Conservative MEP Philip Bushill-Matthews is a member of Parliament’s employment and social affairs committee.

Edit Herczog

Acknowledging the results of the EU’s modern SME policy, Commissioner Günter Verheugen announced lately the launch of Europe’s ‘small business act’ for June 2008. Over the past years, the Community has achieved unquestionable progress towards better supporting its 23 million SMEs. Following the last elections the European Parliament created the SME intergroup and started systematically to consider and address SME-relevant issues in all legislative dossiers. By now, all political groups are well aware of the importance of small firms for Europe’s economy and welfare. Meanwhile, the ‘better regulation’ process has been progressing. And yet, there is still more to do, seemingly enough to justify a new small business act. The proclaimed goals are fourfold: make ‘think small first’ a guiding principle (realism), change our regulatory paradigm (pragmatism), systematically address SME-relevant elements in our policies (coherence) and eventually simplify the life of SMEs in the internal market (efficiency). This is all good, provided we are able to match our action to the expectations of our SMEs.

While it is right to impose the internal market legislation’s laudably high standards on all market players, it has been an issue that the smaller ones did not have the resources to meet the requirements and the legislator did very little to make SMEs’ job easier. This is swiftly and visibly changing today, and by keeping on track with the better legislation effort and with the Parliament’s commitment to the cause we can fulfil the requirements of realism and coherence. But let us not race too far ahead, for there is an important question to address: how much more EU do the European SMEs actually need?

By a swift calculation based on import-export statistics, Verheugen reaches the spectacular result that only 15% of our SMEs have cross-border activities, and two-thirds of those do not reach beyond the European market. "Even worse", adds the commissioner, "the internal market accounts for less than 1% of the average European SMEs’ turnover". Hence the conclusion that the Internal Market should do much more for SMEs. Are we so sure? The vast majority of European SMEs don’t need to go cross-border at all. Hairdressers, mechanics, bakers and plumbers are fundamentally local service providers whose best asset is their proximity to their clients. Their main expectation from the EU is for it to help them do their job unimpeded and thus fully enjoy the benefits of the internal market, such as the access to goods and services from all around the continent. They don’t really need further integration into the internal market: they are the internal market. The challenge for the legislator is one of rationalisation: higher benefits and lesser burden, or as much of the former as possible and not more of the latter than really necessary. That should do for the pragmatism.

So, what next? Those companies which wanted to grow cross-border have already done so over the past decades, largely thanks to the internal market. Some of them are even global players now. In their wake, thousands of SMEs developed to fill the gaps left by those that had gone macro, they became their outsourced providers and explored new niches. What is important today for those small ones who are satisfied with their business is to be able to concentrate on it. That is the efficiency part of the deal. Once we overcome the European over-regulation issue, there still remains the local environment: fiscal, social, administrative frameworks, support networks, chambers of commerce and business associations, etc. Europe can guide and assist the regional, national and local authorities in their efforts with tools like the competitiveness and innovation programme or the global Europe initiative, but a major responsibility remains with the member states. The small business act is a good idea to streamline, synthesise and possibly improve the various European processes that have been launched. But whatever this act proves to be, the critical challenge is for regional, national and local authorities at last to take genuine small business action.

• Hungarian Socialist MEP Edit Herczog is vice-president of Parliament’s SME intergroup.

Two MEPs discuss SMEs.