From poverty to power - Oxfam-Québec

FROM POVERTY TO POWERothers see them as something close to a job-creating, growth-promotingpanacea; still others worry about their frequently harsh employmentpractices and hostility to trade unions.The UN reports that ‘SMEs are marginal in the domestic ecosystem.Many operate outside the formal legal system, contributing to widespreadinformality and low productivity. They lack access to financingand long-term capital, the base that companies are built on.’ 138 Egypt’sMinister of Investment, Mahmoud Mohieldin, observes that SMEsfind it harder to access credit than either large companies (which canborrow from the banks) or individuals, who can turn to a plethora ofmicrofinance providers. 139Yet with appropriate government support, SMEs can drive theeconomy. SMEs played a central role in Taiwan’s spectacular growth,built on exports that rose a hundredfold between 1965 and 1987.When labour costs rose in the 1980s, the government actively pushedSMEs to upgrade into ever higher-technology products such ascomputers, particularly for export. It regulated foreign investment toencourage technology transfer to Taiwanese companies. Over theyears, many SMEs became successful exporters, while their linkages tothe domestic economy spread the benefits internally. Unlike neighbouringChina, SMEs enabled Taiwan to grow rapidly without drivingup inequality. In 2006, almost 98 per cent of its approximately 1.3 millionenterprises were classified as SMEs; they realised 30 per cent of totalsales and employed 77 per cent of the workforce. 140States can create the kind of operating conditions that all businessesneed, whether large or small, for example by ensuring reliable energysupplies and decent transportation and communications systems.They can avoid getting in the way: excessive regulation can be particularlytoxic for SMEs that cannot afford lawyers, and often drivesthem out of the formal economy altogether, depriving the state oftaxes and employees of legal protection. States can also help SMEsdevelop their businesses with training and support where privatesuppliers do not exist, particularly in remote areas. Where SMEs lackfinancial services, governments can act to ensure access to credit.More broadly, governments can foster technological upgrading,local linkages (both to large firms and to other SMEs), and ‘clustering’of SMEs from a particular sector in the same location – such as170