Market failure or state failure: a re-assessment of the case for SME policy

Researchers, policy makers, support agencies and SME groups have a tendency to assume that there exists a strong case for the provision of government support for the SME sector. Most policy debates revolve around how to promote and/or support SMEs, rather than whether to provide such support as opposed to spending public resources elsewhere. This paper is intended to remind all groups concerned with SMEs that there is a need to constantly revisit and refresh the fundamental arguments for SME policies Prompted by the challenge laid down by Graham Bannock (see quote above), a leading commentator on SME policy issues and a successful entrepreneur in his own right, the paper will assess critically the arguments for the provision of government support for SMEs, with a primary focus upon the 'market failure' approach which dominates the thinking of many governments. The aims are to outline a theoretical framework within which SME policy can be understood, analysed and evaluated, and to examine the extent to which policies on selected issues can be justified on the grounds of 'market failure'. The paper will build on previous work by the author and others on the justifications for SME policy and the evaluation of policy interventions to support SMEs.