Social
enterprises can help enhance the role of
small and medium enterprises (SME) in sustainable economic development, claims
a recent study released by the Philippine Institute for Development Studies.
Written by PIDS consultant Leonardo A. Lanzona, Jr. of the Ateneo de Manila
University, “Enterprises and Employment: Mainstreaming SMEs and Employment
Creation” explores the theory and recommends policies to empower both
areas of enterprise.
While there is strong belief on the
ability of SMEs to sustain economic growth, Mr. Lanzona demonstrates the
problem in focusing the breadth of policymaking on the three main arguments for
SME empowerment: that they enhance competition and entrepreneurship; that their
productivity is potentially bigger than large firms but is often held back by
financial markets and institutional failures; and that their ability to
increase employment and alleviate poverty is greater than that of larger firms.
Mr.
Lanzona questions the wisdom of
simplifying the arguments around firm size. Creating policies that are based on
overstating the cause of SMEs and tailoring policymaking to decrease the costs
of doing business solely for the sake of SMEs may “result in inefficiency”.
Mr. Lanzona argues that large
exporting firms are “typically the primary mechanism” that brings in the
technology and innovation that contribute to enhancing competition and
entrepreneurship. Likewise, SME employment cannot outright compare to the
quality and longevity of employment of larger firms, despite the aggregate
employment numbers that SMEs contribute. Furthermore, market and institutional
failures affect all businesses, and they must be corrected for a better
business environment for all, not just SMEs.
If anything must be addressed, it is
fundamental problems like poverty, and therein social enterprises can
play a huge role.
“Poverty itself constrains these
SMEs from achieving their full potential in terms of their access to better
technology and quality of inputs,” Mr. Lanzona indicates in his paper. “Hence,
direct interventions of poverty reduction in the form of public goods are
expected to support SMEs and to raise growth.”
Social enterprises are inherently
advantageous because they are able to generate employment, through
nongovernment organizations and community institutions, for people in the most
vulnerable positions. Social enterprises are organizations that employ
commercial strategies to achieve ends of developing and improving human life
and environmental well-being.
Some of these public goods include
“social protection, business opportunities, education, electricity, health,
sanitation, and water”. The common assumption is that these are the
government’s responsibility to provide.
But, done right, Mr. Lanzona argues
that allowing the privatization and use of market mechanisms could help improve
these services. He claims that “Social enterprises operate in markets in
order to address social needs and reduce inequality, recognizing that this has
value.”
Although there are many policies at both
national government and APEC levels promoting SMEs and enhancing assistance to
improve SME performance, Mr. Lanzona says that laws on recognizing the role of
public goods in reducing poverty and freeing SMEs from its limitations are
largely absent.
APEC must encourage and work to
promote social enterprises by forming global value chains across its member
economies. NGOs can also play a role by helping link social enterprises into
these chains. The idea is to support social enterprises, move them out of
poverty, and encourage them to provide public goods in the economic community,
and thereby truly enhance SME performance. (PIDS)
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