LOCAL governments play an important role in the development of the small and medium enterprise (SME) sector.
“Local governments have the power to (provide) the requirements of the SMEs, produce an environment where SMEs can thrive and make it on their own,” said Siegfried Herzog, resident representative of Friedrich Naumann Foundation for Liberty in the Philippines.
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To enable SMEs to establish themselves and grow, good basics—strong institutions, good infrastructure, vocational training and higher education—must be in place, he said.
“Good basics are more important to SMEs than government subsidies,” he said.
Herzog was a speaker at the Sun.Star Economic Forum 2009 held yesterday at the Casino Espanol de Cebu, Cebu City. In his talk, Herzog discussed factors that made Germany a nation of SMEs.
In Germany, he said, SMEs are active in foreign trade as they produce more than 20 percent of exports.
Clean bureaucracy
As of 2003, there were 3.38 million SMEs with about 20 million employees.
The sector is being supported by key institutions, characterized by efficient property rights, clean bureaucracy and a strong tradition of spatial planning. He added that strong institutions—which takes care of land development, business permits and other SME needs—limit political patronage.
Strong local governments, he said, work to the advantage of SME.
Infrastructure is also “crucially important” to the development of SMEs, allowing them to grow and operate efficiently even in areas that are far from capital cities.
Herzog said that if the road networks of a country are bad, companies would likely cluster near seaport and airports.
He said good infrastructure leads the development of cheap and plentiful commercial land, and lowers transaction costs dramatically, which benefits SMEs.
“(SMEs do not) need to be close to the state government because the needed services and infrastructure are being provided by the local governments, especially by the municipalities,” he said.
Another basic factor affecting SME growth is the combination of entrepreneurial spirit and technical knowledge on how to produce goods and services. In Germany, where public and private sector partnership is practiced early, vocational training is supported and partly funded by the government but run and managed by the chambers of commerce.
“The real action is private sector for the private sector.
Bureaucrats have no idea about the needs of the private sector.
They can support and fund programs to meet (SME) needs,” said Herzog.
He pointed out that vocational training becomes a source of cheap labor, especially for SMEs. He added that since the companies’ needs dictate the training curriculum, trainees end up with the right set of skills for industry.
Through higher education, Herzog added, science and technology continues to be key factors in Germany’s development.
SMEs in Germany are also assisted by the country’s strong anti-monopoly laws, business cluster development, support of the chambers of commerce, and promotion of competition to breed competitiveness.
Source: The Sunstar Daily Cebu
