Policy, practice, economies and SMEs

I spent the morning looking at EU policy on Small and Medium Enterprises (SMEs). It was pretty hard going – after list of different measures together with endless reviews (mainly asserting how successful the policies had been followed by announcements of new measures to deal with the things that had not worked).

But policies are important – especially in education and training and in areas of economic and social policy where markets alone are clearly failing – although it is difficult to think of any area where markets are succeeding! One of our first tasks under the Learning Layers project which starts on the 1st of November will be to undertake a macro level review of the environment in which SMEs in Europe operate. This will be background research to help us develop a User Engagement Model and Guidelines for best practice to inform the work in developing technologies to support informal learning in the medical and building and construction sectors.

Here are a few things I found out.

SMEs are important

Ninety nine percent of all European businesses are SMEs. They provide two out of three of the private sector jobs, contribute to more than half of the total value-added created by businesses in the EU and account for 99.8 per cent of non-financial enterprises in 2012, which equates to 20.7 million businesses.

The definition of an SME is policy driven

The EU definition of an SME has changed three times in the last twenty or so years. The European Commission currently  classifies medium sized enterprises as having less than 250 employees and a turnover of less than Euro 50 million or a balance sheet total of less than Euro 42 million. Small enterprises have less than 50 employees and a turnover of less than Euro 10 million or a balance sheet total of less than Euro 10 million, whilst micro SMEs have less than 10 employees and a turnover of less than Euro 2 million or a balance sheet total of less than Euro 2 million.

In reality the definition is designed to allow or block access to funding and other support to different sized organisations. It does not have any particular research significance.

There is limited academic research into SMEs

Despite the obvious economic importance of SMEs there is surprisingly little economic research. And much of what research there is seems to be based on unproven assumptions about for instance employment generation potential or intrinsic innovation.

SMEs and regulation

EU policy has focused on vertical measures designed to address a particular market failure and horizontal measures to improve the business environment. In recent years there has been a major push to exempt micro-enterprises from EU legislation or introduce special regimes so as to minimise the regulatory burden on them. Yet it is in the German speaking countries – those with higher levels of labour market regulation – that SMEs have been most successful during the economic crisis. And conversely in countries like Latvia which have highly deregulated economies SMEs have done very badly in the recession.

Work based learning and apprenticeship

At an overall policy level the EU has stressed the need for higher levels of qualifications and education and training as important tot he growth and competitiveness of SMEs, whilst introducing a common qualification framework to promote mobility. Until recently it has paid little attention to work based learning or apprenticeship. But once more – and of course there is no proven causal link – it is in those countries with strong apprenticeship systems that SMEs have been most successful.

More to follow ….