ECONOMY

The new government can do a lot to bolster small and midsized firms

The new leadership at the Development Ministry has given encouraging signs that it intends to give proper attention to the problems of small and medium-sized enterprises (SMEs), which form the backbone of the Greek economy. The increasing globalization of trade gives rise to strong competitive pressures worldwide, mainly affecting SMEs which cannot withstand them without some form of assistance from the State. It is estimated that in most of the countries in Europe, only a small number of food distribution companies (about 20 in Greece and 100 in the UK) realize large annual turnovers, accounting for 60-70 percent of total turnover in the retail trade. This is a good indication of the size of a socioeconomic phenomenon that obliges governments to assist thousands of SMEs to overcome the basic handicaps of a lack of economies of scale and weak negotiating position. The European Union is trying to find ways to support SMEs in a number of ways. These include incentives for their modernization with new technologies, recommending a strategy based on personal ties with the customer and suitable business hours, as well as their carrying special products, such as handicrafts, not usually available in bigger shops. About 10 years ago, the EU Council of Ministers asked the European Commission to put forward specific proposals that would safeguard SMEs and promote their survival in the single market. Many member states already have in their national legislation regulations aimed at preventing unfavorable social consequences – mainly unemployment and closure – caused by more powerful forces in the wholesale and distribution sectors with high degrees of concentration and market dominance. Quite recently, the Greek Development Ministry introduced three measures that were abandoned immediately the following day. The first concerned the banning of below-cost sales (the so-called loss leaders), a special form of dumping, and the second, the compulsory recording on receipts the discount rates offered at department stores, which was aimed at tracing real costs. These were both abandoned as it was feared they might cause price increases. The third, which introduced the obligation by both public services and private concerns (many of which are SMEs) to pay their suppliers in time was abandoned because, on one hand, it was too hard for public services, and, on the other, there was a clause with a waiver for «special» agreements. The thorny issues With the benefit of long experience in this domain, I have attempted below to record the factors I think make life difficult for SMEs today and to propose arrangements that will lighten the burdens, for which the State seems to be largely responsible. A. Taxation. It is a mistake for investment incentives to always focus on encouraging and attracting large investment schemes. It is widely accepted that the tax burden on SMEs is excessive, and this is made worse by an unacceptable attitude on the part of the tax authorities to assume that every weak taxpayer is guilty until proven innocent. I have never understood why the State could not recognize tax-free reserves for the small enterprise as well. I would propose that the Finance Ministry examine in what accounting way SMEs could be entitled to deduct depreciation and amortization expenses from revenues, as large enterprises do in order to replace their equipment. The market would be greatly helped if the new finance minister, Giorgos Alogoskoufis, abolished the the Code of Tax Books and Documents immediately, or at least simplified it in order to prevent thousands of small-business owners from becoming the object of institutional and administrative blackmail. B. Illegal commerce. Apart from its adverse fiscal impact and the frequent harm to consumers, the unfair competition caused by illegal street traders is yet another serious problem for the survival of SMEs. C. Bureaucracy. The travails of those who decide to set up a small business is proverbial. Speaking from personal experience, I know that starting such a business in the health services sector requires no less than 18 certificates from five government departments (according to a ministerial decision of 1983). The new government’s avowed intention to assign such procedures and the issuing of licenses to the relevant professional chambers is radical and especially welcome. D. Competitiveness. The comparative advantages of SMEs can be largely enhanced through programs of adaptation to new technologies and modern methods of organization and management, and the establishment, especially for SMEs, of trade fairs for modern supply equipment, logistics and distribution. E. Operating costs. Unfortunately, high rent cannot be controlled by the State, but finance costs in the post-EMU accession era seem to be accessible. The government could help substantially with measures to reduce the operating costs of SMEs, such as the introduction of special rates for services rendered by public utilities and local government. The likely counterargument that such organizations are independent is only theoretical as they are subsidized by the state budget. SMEs can be helped, for instance, by cutting fuel taxes where possible. F. Planning and information. Beyond the above direct measures of an administrative character, there are additional policies that affect the degree of protection for SMEs, both in the short and long term, such as educational facilities, the organization of vocational training, seminars on new technologies and management, and commissioning special studies for professional chambers on the geographic and population distribution of market trends and requirements. Determining the bounds One should not omit mentioning that policies of support to SMEs present difficulties and dangers. The most serious one is, in my opinion, the difficulty in determining the bounds of the concept of an SME. The relevant criteria variously described by legal and administrative departments over time include turnover, the number of employees and horsepower. However, such criteria are not determined on a unified basis and largely depend on market sector, its traditional structure and the potential and intentions of a government to exercise social policy. The dangers presented by an unrealistic definition of the concept of SMEs can cause unfairness and excessive professionalism and possibly undermine fiscal policy. Before measures are adopted, therefore, the issue should become the subject of dialogue and the repercussions should be analyzed by a special committee which would conduct an exhaustive study and discuss it with the interested collective bodies and chambers. Lastly, the idea for this article came from a recent statement by Development Minister Dimitris Sioufas: «Even if small and medium-sized enterprises did not exist, we would have to invent them.» (1) Stavros Tsoukantas is a former general secretary at the former Ministry of Trade.