Viewed from a distance, the American business landscape is dominated by large corporations. Up close this is not the case. In terms of turnover and numbers of employees the landscape changes drastically to one comprised mainly of small concerns.
For 50 years, while the rest of the world equated economic success with large-scale organisations and encouraged industrial consolidation, United States policymakers have made the protection of small businesses their priority.
Through its Small Business Administration, the US government publishes a steady stream of statistics showing the sector is the rocket fuel of the US economy.
Small businesses created three-quarters of the US’s net new jobs in 2000 and produce 13 to 14 times more patents per employee than big corporations. Small firms made up 97% of all identified exporters and produced 29% of the known export value in 2001. Compare this with the ”big business” strategies of the US’s economic rivals.
Nearly all countries that have consolidated their industries into state-owned enterprises and then used the procurement power of these to amalgamate private sector technology vendors into one or two ”national champions” have changed tack, and are now trying to stimulate their small business sectors.
One of British Prime Minister Tony Blair’s election pledges is to transform the United Kingdom into ”the best place in the world to start and grow a business”. A poll of British small entrepreneurs showed only 20% would give him a second term because of his record of embroiling the UK’s over-regulated small business environment in more red tape.
But the UK does have a small business minister. Which is more than can be said for South Africa. Indeed, here at home there’s nobody at Cabinet level looking out for the interests of South Africa’s small enterpreneurs.
As a consequence, their concerns have been given short shrift.
The plight of small firms seems to be of little concern to senior government leaders, who instead of applying their minds to the various problems being experienced by small businesses, make things worse.
Take, for example, the recent demand as part of the Promotion of Access to Information Act that every private business publish a manual in the Government Gazette at its own expense. Confusion now reigns over the issue, which has prompted an outcry from small businesses across the country.
According to the South African Human Rights Commission — tasked with overseeing the submission of the manuals — Minister of Justice and Constitutional Development Penuell Maduna has gone back to the drawing board and is deliberating with the commission on which companies should pay and whether publication in the Gazette is necessary.
Maduna and his colleagues had claimed they could not understand why the law was unreasonable. No one thought to let those most affected by the legislation know that the whole process had been suspended pending the outcome of Maduna’s deliberations.
Finance is crucial for fledgling businesses, and the US government’s strategy has been to stave off excessive concentration in its banking industry.
Small regional banks tend to back small firms, while the big centralised banks here and in the UK do not.
The government’s efforts to help small firms secure finance are not working, and it seems little is being done to address the problem.
The Department of Trade and Industry tried to overcome the banking industry’s aversion to financing small business by mitigating risk through the Khula Credit Guarantee scheme.
If the banks consider a business plan viable, the government, through Khula, claims it will stand surety for a start-up loan.
How many business plans get submitted to banks every year is anyone’s guess — but only 800 made it through the banks’ bureaucracies last year and on to Khula for final approval.
This paltry 800 would not be so bad if it were a slow start. But the number of start-ups securing Khula loans declined last year from the 850 entrepreneurs who got Khula-backed loans two years ago.
In Khula’s 2002 annual report, MD Sizwe Tati blamed the drop in applications on the disruption suffered by the banks’ small business units because of the consolidation of the industry.
”These departments tend to be highly vulnerable to changing fortunes and are often the first to be shut down,” Tati said.
This diminished the pool of skilled people in the field of small business lending, ”with whom we frequently have built relationships”.
So what should the government be doing to help start-up operators? Should the trade and industry department stop working through the banks and issue capital directly to start-ups? A study by Grant Thornton and Oxford University of the British Trade Department indicates this approach does not work either.
Less than 5% of the £750-million the UK government allocated to technology start-ups went to the intended recipients; nearly all was swallowed by the bureaucracies created to disburse it.
The US’s success probably has less to do with small business-friendly policies than the ”can do” national outlook.
This was brought home to me by the Bandwidth Barn, Cape Town’s technology incubator, where I operate a software start-up.
Envisaged as a catalyst for black economic empowerment start-ups, it has mainly attracted pale immigrants.
It was an eye-opener to discover how many Americans are keen enough to start a business in South Africa to jump through the many hoops the Department of Home Affairs sets in their way.
These immigrants are barred from applying for Khula loans. So instead of wasting time with the government’s half-baked incentives, they focus on the opportunities South Africa has to offer.
Robert Laing is a freelance journalist who owns a small firm called Frontier Hardware