This article is part of a series in which OECD experts and thought leaders—from around the world and all parts of society—address the COVID-19 crisis, discussing and developing solutions now and for the future.
The COVID-19 crisis has been horrific for small businesses and entrepreneurs across the world. Highly exposed during the pandemic—SMEs accounted for 75% of employment in the most affected sectors—many only made it with public support and their own ingenuity. And most SMEs have emerged from the crisis indebted and weakened. The stock of outstanding SME loans grew at around 5% in 2020, a record high since 2007. Many weakened businesses were expecting respite as their troubles began to recede, but Russia’s war against Ukraine has sent a tidal wave through OECD countries and regions. In particular, rising inflation and interest rates, sluggish demand and disrupted value chains represent a major threat to SMEs’ capacity to survive, let alone thrive.
A new compass for government action…
SMEs and entrepreneurs are the vital force of economies, they are essential for economies and societies to adapt to major trends, and a new generation of policy approaches is needed to better account for their needs and societal contributions.
As countries strive to address these new challenges, no less turbulent times are on the horizon for SMEs and entrepreneurs. Policy effectiveness and efficiency are of the essence. The OECD has acted on its “better policies for better lives” mission, developing the Recommendation on SME and Entrepreneurship Policy, adopted this June at the OECD Ministerial Council Meeting. This is the first OECD legal instrument of this nature and builds on a recent upgrade of the new OECD Committee on SME and Entrepreneurship. The message is clear: SMEs and entrepreneurs are the vital force of economies, they are essential for economies and societies to adapt to major trends, and a new generation of policy approaches is needed to better account for their needs and societal contributions.
The Recommendation provides a compass to help policy makers tap the full potential of SMEs and entrepreneurs, not only for the recovery but also to build back better. Countries have long had dedicated support, policies and exemptions from mainstream business requirements for smaller entities; some have dedicated SME strategies and entrepreneurship policies. But overall, SME and entrepreneurship issues remain scattered across a variety of institutions and approaches. Policies are often designed to fit an average company rather than cater for the diversity of business populations and behaviours.
The Recommendation proposes a whole-of-government approach to SME and entrepreneurship policymaking. It recognises that, irrespective of a country’s institutional set up, there is a wide variety of public entities involved in policymaking for SMEs and entrepreneurs at different levels of government. It emphasises that SMEs and entrepreneurs are affected by a wide range of policies and measures, even those not directly intended for them. Co-ordination mechanisms are needed, as is accounting for the perspective of SMEs and entrepreneurs in the design and implementation of policies.
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…recognising the diversity of SMEs and entrepreneurs…
This can only be done by improving the availability and depth of information, for example collecting data broken down by size, sector, region and gender of SMEs and entrepreneurs. By sticking to the “wisdom” of the averages and neglecting the diversity of businesses and entrepreneurs, policymaking risks missing its intended objectives. Worse still, it risks limiting the potential of SMEs and entrepreneurs to contribute to the recovery. The 2021 OECD report The Missing Entrepreneurs sets this out clearly. It shows that we are under-serving some 35 million entrepreneurs in OECD countries by neglecting the potential of women (see below), seniors and youth, and by not paying enough attention to diversity in policies.
Source: OECD/European Commission (2021), The Missing Entrepreneurs 2021: Policies for Inclusive Entrepreneurship and Self-Employment, OECD Publishing, Paris.
…as well as their role in transitions ahead…
SME’s smaller size means that they have less access to certain resources and markets, including finance, skills, innovation, public procurement, networks and the wider entrepreneurial ecosystem. They need continued and dedicated support to address these specific challenges.
The stakes are considerably high. Countries have set ambitious targets to tackle the major transitions ahead, including digitalisation and addressing climate change. However, digital and net-zero economies will not be achieved without SMEs. We cannot build a more resilient, sustainable future by exempting smaller businesses of the obligations necessary to drive change in collective behaviours. Greater attention on their specific needs is required when designing policy and regulations so they can comply. The future depends on policy makers’ capacity to bring SMEs on board and account for their diversity in policymaking. After all, small businesses account for some 50-70% of greenhouse gas emissions.
SME’s smaller size means that they have less access to certain resources and markets, including finance, skills, innovation, public procurement, networks and the wider entrepreneurial ecosystem. They need continued and dedicated support to address these specific challenges. Notably we must address the higher costs of finance, limited access to information, and narrower skill sets in workers.
Just the beginning of the journey
The OECD has started establishing the platforms and tools to ensure that the new Recommendation will make a difference in countries. The OECD Digital for SMEs Global Initiative (D4SME) supports knowledge sharing and learning among OECD governments, large business, industry experts and SMEs themselves. The OECD Platform on Financing SMEs for Sustainability brings together governments, financial institutions and SME representatives to address demand- and supply-side barriers to SME sustainable finance. The OECD Entrepreneurship Education Collaboration and Engagement (EECOLE) connects higher education institutions with business, finance, different levels of government and civil society to promote entrepreneurship education and skills.
In addition, a new toolkit will facilitate the Recommendation implementation, and every five years the OECD will report on the implementation of the Recommendation based on country information collected through the “datalake”, a platform on SME and entrepreneurship performance, business conditions and policies under development. Regular data collection and monitoring will be carried out in the OECD SME and Entrepreneurship Outlook and the OECD SME Finance Scoreboard.
The COVID-19 recovery is an opportunity to rethink user-centric policymaking and co-operation with stakeholders. Our OECD Recommendation provides the compass to think small for a big boost in entrepreneurship all over the economy.