Banking on small business

Directorate for Science, Technology and Industry

It takes an intrepid entrepreneur to start a business in Europe. High social charges, taxes and complex bureaucracy are only the initial hurdles he or she will have to negotiate. Such barriers tend to discourage risk-taking and innovation; and that’s before trying to meet the challenges of competing in a high-tech, international environment.

Still, entrepreneurs keep trying, even if perhaps too many fail. When they succeed, most do not create empires like Microsoft, but rather smaller, quite ordinary businesses. Over 95% of OECD enterprises are small and medium-sized businesses (SMEs), and they are the backbone of a vibrant growing economy. So the ministerial conference on “Enhancing the Competitiveness of SMEs in the Global Economy” that took place in Bologna (Italy) last June was a welcome break from Big-Business-as-usual.

“Entrepreneurship is becoming a central theme for Europe,” said Marie-Florence Estimé, the economist in charge of the OECD Working Party on SMEs. “But not only in Europe - almost 50 countries participated in the conference, and they all adopted the Bologna Charter. It’s a major breakthrough.”

The Bologna Charter maps out the direction government policymakers need to follow in order to make setting up SMEs more attractive. It highlights co-operation and partnerships and identifies how policy might improve conditions for entry, such as reforming regulations and institutional barriers that discourage new ventures; developing better equity and venture-capital markets; improving the diffusion and use of technology in the SME sector; facilitating access to global markets through e-commerce; and building on local and regional factors to enhance performance and competitiveness.

Some small facts

What are these SMEs and why is it important to encourage them further? SMEs are small, non-subsidiary independent firms, defined in the European Union as employing fewer than 250 workers, and in the United States as fewer than 500. They account for 60-70% of total employment in most countries. The employment potential of SMEs is one of the reasons why policymakers are showing such interest; indeed, it is predicted that small firms will provide more than 60% of new jobs in the US from 1994 to 2005. SMEs often do not have some of the traditional divides and hierarchies that characterise larger firms. In the United States, women-owned SMEs grew by 89% over the past decade, twice as fast as other businesses.

The Bologna Conference bore out the fact that the United States has the most entrepreneurial culture. A study by the Global Entrepreneurship Monitor in London argued that this was mainly because citizens value the independence associated with starting and managing a business. The population tends to recognise business opportunities; and risk-taking is a value reinforced by the educational system. Most of all, it’s relatively easy to establish a new venture and obtain financing. A request for a loan can be turned around in less than 36 hours in the United States, whereas in some European countries it can take up to nine months.

Although the point was made at the conference that emulating one country’s enterprise methods won’t necessarily work in, for instance, an Asian or African context, it was recognised that for SMEs to expand, market liberalisation and regulatory reforms will probably be needed. To rectify financing deficiencies in some countries, governments are fostering the development of secondary stock markets (EASDAQ in Europe and KOSDAQ in Korea) to allow easy entry and exit for venture investors. They are also building “business angel” networks, which bring together small companies and wealthy investors.

Will the encouragement of small businesses spur the same kind of productivity, employment and growth seen in the United States? Do they play an essential role in the “new economy”? Possibly, and the Bologna Charter is at least a first step on the road to finding out. The real work is for the governments to do, by formulating not more, but better, policies.

In the meantime in many countries, enterprise will remain a pursuit reserved for the very brave, the very rich, or indeed, the very foolhardy. 

©OECD Observer No 223, October 2000

Economic data


Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly

Online edition
Previous editions

Don't miss

  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • How do the largest community of British expats living in Spain feel about Brexit? Britons living in Orihuela Costa, Alicante give their views.
  • Brexit is taking up Europe's energy and focus, according to OECD Secretary-General Angel Gurría. Watch video.
  • OECD Chief Economist Catherine Mann and former Bank of England Governor Mervyn King discuss the economic merits of a US border adjustment tax and the outlook for US economic growth.
  • Africa's cities at the forefront of progress: Africa is urbanising at a historically rapid pace coupled with an unprecedented demographic boom. By 2050, about 56% of Africans are expected to live in cities. This poses major policy challenges, but make no mistake: Africa’s cities and towns are engines of progress that, if harnessed correctly, can fuel the entire continent’s sustainable development.
  • OECD Observer i-Sheet Series: OECD Observer i-Sheets are smart contents pages on major issues and events. Use them to find current or recent articles, video, books and working papers. To browse on paper and read on line, or simply download.
  • How sustainable is the ocean as a source of economic development? The Ocean Economy in 2030 examines the risks and uncertainties surrounding the future development of ocean industries, the innovations required in science and technology to support their progress, their potential contribution to green growth and some of the implications for ocean management.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • They are green and local --It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at .

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2017