Opinion of the Economic and Social Committee on "The craft sector and SMEs in Europe"

(2001/C 221/01)

On 2 March 2000, the Economic and Social Committee decided to draw up an opinion, under Rule 23(3) of its Rules of Procedure, on "The craft sector and SMEs in Europe".

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 16 May 2001. The rapporteur was Mr Pezzini.

At its 382nd plenary session (meeting of 30 May 2001), the Economic and Social Committee adopted the following opinion with 107 votes in favour and one abstention.

1. Objectives of the opinion

1.1. This opinion is a response to the need to examine the progress made in the 1990s in defining small business and the craft sector in Europe, and the policies that have resulted, by analysing the work done by the Economic and Social Committee, the European Commission, the national governments and the representative organisations.

1.2. This study is not an end in itself, but will pave the way for an ex-post evaluation (limited to the main effects and therefore not exhaustive) of what has been done and what remains to be done, with special reference to the lines of action proposed in the ESC's 1997 opinion on craft industries and small and medium-sized enterprises(1). It will go on to suggest lines of action for the new decade.

1.3. The statistical definition of small business and the craft industry

1.3.1. In its recommendation, the Commission defined small and medium-sized enterprises(2) as follows: "Article 1

1. Small and medium-sized enterprises, hereinafter referred to as 'SMEs', are defined as enterprises which:

- have fewer than 250 employees, and

- have either,

an annual turnover not exceeding EUR 40 million, or

an annual balance-sheet total not exceeding EUR 27 million,

- conform to the criterion of independence as defined in paragraph 3.

2. Where it is necessary to distinguish between small and medium-sized enterprises, the 'small enterprise' is defined as an enterprise which:

- has fewer than 50 employees and

- has either,

an annual turnover not exceeding EUR 7 million, or

an annual balance-sheet total not exceeding EUR 5 million,

- conforms to the criterion of independence as defined in paragraph 3.

3. Independent enterprises are those which are not owned as to 25 % or more of the capital or the voting rights by one enterprise, or jointly by several enterprises, falling outside the definition of an SME or a small enterprise, whichever may apply. This threshold may be exceeded in the following two cases:

- if the enterprise is held by public investment corporations, venture capital companies or institutional investors, provided no control is exercised either individually or jointly,

- if the capital is spread in such a way that it is not possible to determine by whom it is held and if the enterprise declares that it can legitimately presume that it is not owned as to 25 % or more by one enterprise, or jointly by several enterprises, falling outside the definitions of an SME or a small enterprise, whichever may apply.

4. In calculating the thresholds referred to in paragraphs 1 and 2, it is therefore necessary to cumulate the relevant figures for the beneficiary enterprise and for all the enterprises which it directly or indirectly controls through possession of 25 % or more of the capital or of the voting rights.

5. Where it is necessary to distinguish micro-enterprises from other SMEs, these are defined as enterprises having fewer than 10 employees.

6. Where, at the final balance sheet date, an enterprise exceeds or falls below the employee thresholds or financial ceilings, this is to result in its acquiring or losing the status of 'SME', 'medium-sized enterprise', 'small enterprise' or 'micro-enterprise' only if the phenomenon is repeated over two consecutive financial years.

7. The number of persons employed corresponds to the number of annual working units (AWU), that is to say, the number of full-time workers employed during one year with part-time and seasonal workers being fractions of AWU. The reference year to be considered is that of the last approved accounting period.

8. The turnover and balance sheet total thresholds are those of the last approved 12-month accounting period. In the case of newly-established enterprises whose accounts have not yet been approved, the thresholds to apply shall be derived from a reliable estimate made in the course of the financial year.

Article 2

The Commission will amend the ceilings chosen for the turnover and balance-sheet total as the need arises and normally every four years from the adoption of this Recommendation, to take account of changing economic circumstances in the Community.

Article 3

1. The Commission undertakes to adopt the appropriate measures to ensure that the definition of SMEs, as set out in Article 1, applies to all programmes managed by it in which the terms 'SME', 'medium-sized enterprise', 'small enterprise' or 'micro-enterprise' are mentioned.

2. The Commission undertakes to adopt the appropriate measures to adapt the statistics that it produces in line with the following size-classes:

- 0 employees,

- 1 to 9 employees,

- 10 to 49 employees,

- 50 to 249 employees,

- 500 to 499 employees,

- 500 employees plus.

3. Current Community programmes defining SMEs with criteria other than those mentioned in Article 1 will continue, during a transitional period, to be implemented to the benefit of the enterprises which were considered SMEs when these programmes were adopted. Any modification of the SME definition within these programmes can be made only by adopting the definition contained herein and by replacing the divergent definition with a reference to this Recommendation. This transitional period should in principle end at the latest on 31 December 1997. However, legally binding commitments entered into by the Commission on the basis of these programmes will remain unaffected.

4. When the Fourth Council Directive 78/660/EEC is amended, the Commission will propose that the existing criteria for defining SMEs be replaced by a reference to the definition contained in this Recommendation.

5. Any provisions adopted by the Commission which mention the terms 'SME', 'medium-sized enterprise', 'small enterprise' or 'micro-enterprise', or any other such term, will refer to the definition contained in this Recommendation."

1.3.2. In the Committee's view, "small enterprise" should be understood to mean both small enterprises and micro-enterprises as defined in the Commission recommendation and also craft firms, given their economic and social importance in the Member States where they are covered by law. The ESC expressed this view clearly in the opinions it adopted on small enterprises and craft firms in 1992(3) and 1997(4).

1.3.3. To clarify the objectives of the opinion, it is necessary to look into some of the problems that arise in the statistical quantification of small enterprises and craft firms in Europe.

1.4. While much is known of the productive fabric of SMEs in Europe, there is a lack of data on the subgroup of craft sector firms (with the exception of a few European countries).

1.5. In many cases it is difficult to gain a clear picture of the important economic role which craft businesses play in the EU. This is due to inadequate Member State coordination on craft sector statistics and the use of widely varying survey methods which do not allow a satisfactory comparison of data; in any case, such data are not always available.

1.6. In the European Union there is a productive fabric of approximately 19370000 companies (in 1998) not including the farming sector, of which close on 19330000 are small or medium-sized, employing an average of six people. From a sectoral point of view, the trade sector (retail and wholesale) accounts for 5,56 million companies compared with 2,21 million companies in the manufacturing sector.

1.7. 93 % of all companies have fewer than nine employees; 5.8 % have 10-49 employees and only 0.8 % have over 50 employees: this means that, according to Eurostat, 98.8 % of non-agricultural European companies fit the definition of SME.

1.7.1. In Europe, SMEs employ 66 % of the workforce, as compared with 42 % in the USA and 33 % in Japan. SMEs therefore play a greater role in generating employment in Europe than in other directly competing geographical areas.

1.7.2. Nationally, the country with the highest number of companies is Italy (3940000 companies) followed by Germany (3515000) and France (2325000). Businesses are distributed very widely across the various countries. In Italy, France, Greece and Spain the most common are micro-enterprises (with under nine employees), while in Germany and the other EU countries, small companies (companies with 10-249 employees) are prevalent.

Table 1 - Breakdown of non-agricultural companies in the EU Member States

>TABLE>

Source:

European Observatory for SMEs.

Table 2 - Main indicators of non-agricultural companies in the European Union

>TABLE>

Source:

European Observatory for SMEs.

Table 3 - Percentage breakdown of employees working for private non-agricultural companies

>TABLE>

Source:

European Observatory for SMEs.

Table 4 - Size of non-agricultural companies by sector

>TABLE>

Source:

European Observatory for SMEs.

1.8. Whilst these statistics enable us to quantify the number of firms in the EU that are non-agricultural, it is more difficult to determine how many of these can be termed craft firms and how many agricultural enterprises there are. This is a serious shortcoming, given the role which agriculture plays in safeguarding the hydrogeological balance of the land and, more broadly, in conserving the environment and promoting rural development.

1.9. In recent years, the Commission's efforts have made it possible to quantify the number of firms in the EU more accurately. However, it is still difficult to tell how many of them can be defined as craft firms. In some countries the number of firms and the size of the workforce in companies that could be defined as craft firms are underestimated because definitions and criteria are applied indiscriminately. In Spain, for example, there are officially approximately 15000 craft firms, which is probably an underestimate. On the other hand, in countries where craft industry estimates are based simply on firms with a workforce of less than nine, the figures may err in the opposite direction.

1.10. The type of legal definition used can also affect the size of the firm, e.g. in countries where there are no size restrictions on craft firms, they are much bigger than in countries where there is a legal ceiling.

1.11. The above comments show how the absence of a European statistical methodology for quantifying craft-type firms prevents a proper assessment of the sector. There are three main problem areas:

- it is not currently possible to assess the size of the European craft sector, owing to differences in legal definitions and survey methods;

- there is no method for compiling statistics based on minimum common denominators;

- the scale of the phenomenon is changing.

1.12. The final resolution adopted in 1996 by 15 European craft sector experts (one for each Member State) during the second symposium on European craft industry statistics(5) marked a step towards a common research programme whose main objective is to help solve the statistical side of these problems.

1.13. At that symposium, in anticipation of further methodological developments(6), an attempt was made to group together available statistics, using the three approaches mentioned in the ESC's 1996 report: sector/size, professional and artistic(7).

1.14. The following features emerge:

- an economic comparison of the data is not possible;

- the available data tend to underestimate the phenomenon;

- where there is national legislation, defining the characteristics of craft firms, the economic significance of the craft industry for the national economy emerges;

- in general, countries that have a legal definition of the craft industry have a higher number of craft firms;

- the significance of the craft industry is probably underestimated in countries such as Spain and the United Kingdom. It is no coincidence that both countries tend to use the term "artistic" when defining crafts-related firms;

- in countries where the professional approach prevails (the activity is the factor determining whether the company is a craft firm and there are no company size limits), the size of the craft workforce compared to the total number of people employed by companies is greater than in other countries.

1.15. These differences should not be seen as a problem but rather as a cultural and economic asset and a starting point for a common strategy that develops and enriches the identity of small companies and craft firms in Europe.

Table 5 - Number of craft firms (in thousands - in accordance with national definitions)((The following tables are the fruit of methodological guidelines that grew out of the 1994 and 1996 conventions hosted by the Istituto G. Tagliacarne in conjunction with the European Commission and the sectoral associations.))

>TABLE>

NB:

Owing to the varying definitions of "craft firm", direct comparisons between countries are not possible.

Table 6 - The craft sector's contribution to GDP in a number of European countries((The figures are indicative.))

>TABLE>

Source:

National statistics.

Table 7 - Craft sector exports in a number of European countries((The figures are indicative.))

>TABLE>

Source:

National statistics.

Figure 1 - Distribution of the 15 European countries according to the four factors

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Table 8 - Statistical definition of craft in Europe: characteristics of the available data for each country

>TABLE>

Table 9 - Statistical definition of craft in Europe: characteristics of the available data for each country - Summary of all data

>TABLE>

2. From Avignon to Milan

2.1. The 1990s were a key period in building a new set of reference points for small companies and craft firms. This repositioned them in the value chain, in terms both of participation in the production process (sub-contracting for instance) and of links with the business world in general.

2.2. There is now a "new" awareness that these companies play a significant role in the general economy. This makes it even more important to develop a specific policy for small business and craft firms in Europe.

2.3. The Economic and Social Committee has made a major contribution to the understanding of events and the identification of appropriate solutions. Over the years, through the work of its constituent bodies and the resulting reports, the Committee has always championed a specific role for small businesses and craft firms and has repeatedly suggested to the institutions, and the Community bodies in general, ways of taking action that would be more in line with the scale and economic bearing of the small business world.

2.4. In practice, the special nature of the sector has been affirmed. This does not mean that the craft and small business sector is not fully integrated in the economy, but rather that it can no longer be dealt with under the same general "SME" heading as other companies when it comes to enterprise policy measures, but that specific and less generic policies are needed.

2.5. In close cooperation with the sectoral organisations, the European Commission began looking into the craft sector's needs after the first European conference, in Avignon, in October 1990. The changes that grew out of that conference reinforced the need to promote exchange and dialogue between companies, between their national and European representatives and with the EU Member States.

2.6. The second conference, in Berlin, in September 1994 and the Milan conference in December 1997 helped to further this process and to pinpoint companies' main causes for concern in the face of the economic and social changes happening in the European Union and other parts of the world.

2.7. These conferences were a major step towards greater consideration of the craft sector at European level, bolstering the principle that the craft sector represents a harmonious culture of difference. More than other forms of work, it expresses a social way of conducting economic activity and can therefore bring the public closer to the business world.

2.8. It was also realised that what was needed was not only an affirmation in principle of the importance of craft firms and small businesses in Europe, but also a precise quantification of the phenomenon in order to draw the necessary conclusions.

2.9. Here too major progress has been made, thanks to the combined work of the ESC, the European Commission, sectoral organisations and specialised institutes. This work, which is still going on, should result in a quantification of the craft sector in Europe and above all a statistical definition of craft firms.

2.10. In 1997 the ESC issued its second opinion on the craft sector in Europe. This opinion, which was the fruit of an internal debate in the Committee and of the views expressed more than once by the Commission and the Parliament, proposed 10 priority lines for action that were echoed in the European craft industry charter three years later. They corresponded closely to the needs of small businesses and craft firms, in anticipation of the current debate.

2.11. The ten lines of action proposed by the ESC were the following:

- social consultation;

- boosting business competitiveness;

- establishing the European Academy for Craft Industries and SMEs;

- supporting the development of a European identity for the craft industry and small business culture throughout Europe;

- securing an enhanced role for apprenticeships and promoting combined work/training schemes;

- improving information for micro-businesses;

- simplifying bureaucracy;

- providing incentives for cooperation and exchanges between micro-businesses;

- promoting a culture of innovation for craft workers and small businesses;

- supporting professional organisations in their work to promote the growth of craft firms and small businesses.

2.12. The aim now is to use an ex-post evaluation approach to ascertain what has been achieved and whether the lines of action chosen four years ago are still relevant and important, with regard to new development trends, or in what terms they should be fleshed out and/or modified.

2.13. The ten priorities have been divided into four groups, combining two types of information: degree of implementation and relevance.

2.14. The first group contains the lines of action that have been implemented and which are still relevant; the second covers those that are still relevant but which are harder to put into practice; the third includes lines of action that irrespective of their degree of implementation are less relevant now and should therefore be revamped; the fourth group, lastly, features measures that have been implemented only partially or insufficiently.

2.15. The first group includes: the establishment of the European Academy for Craft Industries and SMEs in Avignon, although this has yet to reach its full potential; cooperation between companies, especially through the Euro-partnerships; the enhancement of the place of apprenticeships and the use of combined work/training schemes; and support for the development of a European identity and culture for the craft industry and small business.

2.16. This business culture must involve both self-employed people and employees and must promote the concept of work as a factor in social cohesion. This process is highly developed in areas with a high concentration of small and craft firms (such as the "industrial districts"), which often show the highest income levels in Europe.

2.16.1. While education and vocational training programmes have gone some way towards enhancing the value of apprenticeships, the Committee feels that work should also be done to encourage apprentice exchanges and to adapt the existing programmes to the reality of small business.

2.17. The second group includes administrative simplification, which is being addressed slowly and painfully in all EU Member States(8), with varying degrees of success. Failure to succeed still carries a high cost - not only financial - for small businesses. Administrative simplification (one example being the one-stop shop) should be accompanied by simplification of the tax system and the wage structure. These concepts, once suggested rather hesitantly, are now very real, with the Luxembourg process and the subsequent achievements after 1997.

2.17.1. Simplification of tax formalities should go hand in hand with an improved tax climate for small companies, in particular by reducing the burden on the labour factor. This factor, which is of paramount concern to small companies and craft firms, tends to be especially affected by the restraints arising from the complex array of fiscal and social requirements that stifle recruitment and contribute to the spread of undeclared work, with all the negative repercussions for employment and the social security system.

2.17.2. As is underlined in the eighth principle of the European Charter for Small Enterprises, administrative simplification should help to improve the status of entrepreneurs. On this note it is important to ensure equality of treatment among companies, regardless of their legal form, and to improve the situation for self-employed workers, who in some Member States do not enjoy fair competition with businesses with company status.

2.18. The relationship between business and government is just one aspect of a broader problem concerning the modern role of government in the post-industrial age. The challenge facing public administrations is cultural change, which will require civil servants to move from a traditional culture based on reading and writing to the "digital culture". All this must be brought about largely through continuous training and the introduction of new job descriptions.

2.19. This means joining all central and local government in a network, and linking it to companies and the region. Government must be a factor for growth and competitiveness, and must be a constructive partner, especially for small businesses and craft firms.

2.20. The third group - areas requiring a review of the concepts expressed and a different approach, more in line with recent market developments - includes boosting business competitiveness, and promoting the culture of innovation among craft firms and small businesses. When these ideas were proposed it was impossible to envisage the incredible growth of the new economy and the impact this could have for two such classic economic concepts as competitiveness and innovation(9).

2.21. The paragraphs below provide a more detailed analysis of one of the main priorities that small businesses and craft sector should focus on in the next decade.

2.22. The fourth and final group covers social consultation, support for professional organisations, and information for micro-enterprises.

2.23. On social consultation: the 10th action line of the European Charter for Small Enterprises states that it is necessary to develop stronger, more effective representation of small enterprises' interests at Union and national level. Small enterprises are not yet recognised as fully-fledged social partners with the right to sign agreements independently, despite the fact that they account for over half of the Community's companies. Clear representation is obviously not helped by the high degree of fragmentation among small enterprise associations.

2.24. On the subject of support for professional organisations in their work to promote the development of craft firms and small businesses, the Committee welcomes the stance taken by the European Parliament on the Multiannual Programme for Enterprise and Entrepreneurship, recognising and supporting the role of professional and sectoral associations that represent SMEs and craft firms, and calling on the Member States to create the right climate for that role to develop. The Committee believes it is important to devise Community, national and regional measures, with a view to bolstering the work of small-business support organisations, and to encourage dialogue among organisations from the various Member States at Community level. This final measure is especially necessary in the context of enlargement which will require an active dialogue with small business associations in the applicant countries.

3. The European Charter for Small Enterprises

3.1. Insufficient and poorly timed economic information, red tape, difficult relations with the credit system, and rules that have often been designed for more complex and structured productive systems are just a few examples of an economic "habitat" that needs to change.

3.2. In June 2000, this thinking led to the adoption at Community level of the European Charter for Small Enterprises, at the end of the Portuguese presidency(10). For the first time at a European Council meeting, small enterprises were a topic in their own right, moving beyond the usual concept of SME, now obsolete on a number of counts.

3.2.1. The Lisbon and Feira European Councils stressed the importance of small businesses for the EU's growth, competitiveness and employment. Small companies form the backbone of the European economy and are the main driving force behind job creation in Europe. The Member States are committed to focusing on small enterprises and taking their specific requirements into account.

3.2.2. The European Parliament, meanwhile, in its report on the Multiannual Programme for Enterprise and Entrepreneurship, has stressed that SMEs, micro-enterprises and craft firms make a significant contribution to competitiveness, research and innovation, and that they have a crucial role to play in strengthening social and regional cohesion. The European Parliament asked in particular that the European Charter for Small Enterprises be annexed to the Multiannual Programme for Enterprise and Entrepreneurship in order to give the charter legal value.

3.2.3. The Committee regrets that despite its requests and those of the Parliament, the Commission has abandoned measures for cooperation between companies in the new Multiannual Programme for Enterprise and Entrepreneurship at a time when other programmes are seeking to develop them, especially in research and development, international cooperation and cooperation with the applicant countries.

3.2.4. The Committee also regrets that the moves taken by the Commission's Enterprise DG to set up an expert committee on small firms are not in keeping with the principles enshrined in the Feira Charter for Small Enterprises.

3.3. The charter is the result of a long-term process, and is a crucial staging post in identifying the tools needed to achieve the goals it expresses so clearly.

3.4. The charter recognises the energy of small enterprises, their importance for job creation and thus their contribution to local economic development and the social development of a country.

3.5. The charter stresses the need, in line with what the Committee has been stating for some time, to remove the legislative, administrative and tax obstacles that prevent small enterprises from responding in an effective way to the challenges of globalisation.

3.6. Back in May 2000(11), the Committee welcomed the Lisbon European Council's plan for a charter for small enterprises, and urged the Commission and the Council to "continue to provide strategic assistance for small companies and craft businesses, using appropriate methods and instruments".

3.7. In the light of this EU initiative, the OECD's European charter on SME policies seems to make a step backwards. The document that the OECD approved in the same month of June 2000, in Bologna, is anchored in an old view of company support, using undifferentiated policies that discriminate against small companies and craft firms.

3.8. It is clear that the OECD still views SMEs as a homogeneous "mass" of players, whose needs are identical and require the same solutions. This approach is wrong, and offers ineffective answers to the many problems facing small businesses.

3.8.1. The European Parliament asked in particular that the European Charter for Small Enterprises be annexed to the Multiannual Programme for Enterprise and Entrepreneurship in order to give the charter legal value.

3.9. The progress made on the charter, following the Feira Council, is the subject of a brief communication from the Commission to the spring Council(12).

3.10. Portugal has already begun to apply the Feira approach by adopting Law 44/2001 of 9 February 2001 (DR I-A No 34) which defines the constitution, limits and functions of the craft sector and craft enterprises, aligning itself on the French and Italian position.

4. Strengthening the competitiveness of small companies and craft firms by promoting a culture of organisational/commercial innovation and participation in the new economy

4.1. In recent years, the context for this issue has changed enormously. The capacity of small business to manage innovation has improved, and this is reaffirmed in the Bologna charter(13). Furthermore, much of the capacity to stay on the market and be competitive depends on the opportunities that each entrepreneur or group of companies has to innovate, not only with their processes/products but first and foremost organisationally and commercially.

4.2. The new innovation phenomenon that has developed in Europe, especially in the last three years, is the new economy. It is spurred by many factors linked to the dissemination of information and communications, as well as the commercial use of the Internet. The Internet is a new means of communicating which complements traditional forms and has greatly facilitated the creation of networks of processors at diverse levels.

4.3. It is an extremely pervasive tool and it is helping to change not only our way of communicating but also economic relations and our quality of life. Currently, companies can use the Internet in three ways: to increase the efficiency of certain areas of business, to transform the entire company, or to set up new Internet-based companies - "dot.coms".

4.4. The new economy is not in opposition to the old but is becoming an adjunct to it. The traditional economy is changing and playing a part in managing this change. In a few years' time, there will no longer be a linguistic distinction, it will all simply be called the "economy".

4.5. In the traditional economy, as it is commonly understood, the production of goods and services is based on the utilisation of resources, raw materials and the work force. In contrast, the new economy has been defined as the economy of knowledge and information, whose distinguishing features are the dissemination and (world-wide) acceptance of the Internet(14) as the means of distributing information and knowledge through hypertext pages, following a predefined and agreed model. The framework behind the dynamic effect is the electronic interconnection of individuals (people, companies and organisations). Every element of the latticework is both active and passive in the process.

4.6. The use of the Internet by small companies means not only opening up new commercial sectors, developing new products and new forms of distribution, but also cutting costs, which in a functioning marketplace should lead to lower prices in the following areas, as the Committee underlined in its opinion on "The effects of e-commerce on the single market"(15):

- Disappearance of traditional middle men (dis-intermediation)

- Lower communication costs (telephone, computer etc.)

- Transfer of some costs to customers (customers obtain information themselves, etc.)

- Lower cost of distributing digital goods

- Internet use has opened up real new employment opportunities for people able to work with the Web.

4.6.1. E-commerce is the term used to describe any use of the Internet for the exchange of information, goods or services. Its importance stems from its capacity to accelerate the distribution process, enhancing opportunities to use goods and services by attempting to bridge the gap between producer and customer. In essence, e-commerce is like a virtual market in which each producer is faced with an international raft of potential customers. Clearly, this is not a panacea for all market problems, but it can help to contain them.

4.7. Currently, electronic transactions can be defined as either business to business or business to consumer. In the first instance, on-line sales create alternative distribution channels and shorten the chain of intermediaries, changing traditional patterns. In the second instance, ("B2C") producers and consumers can make direct transactions, reducing the time and cost of supply and thus of production.

4.8. From these brief comments and a superficial reading of the situation, it would seem that the two types of economy are separate and associated with two types of market: the physical "market place" and a "market space" based on information, with the former appearing to be of lesser importance.

4.9. The key to understanding the situation is not that simple, however. If it is assumed that work is at the root of all value-adding processes, then the seemingly separate concepts (old and new) should be merged into one (one economy without distinctions).

4.10. Small businesses and craft firms, where the labour factor in many ways predominates over the capital factor, could make the connection between these two worlds, which are only seemingly distinct as the new economy is changing business practices everywhere, not only for medium-sized and large companies.

4.11. This is at once a challenge and an opportunity for small companies and craft firms that are not highly structured. They could however be helped to overcome the time- and space-related barriers to access. Security-related issues must also be reviewed and changes made to suit small companies' requirements.

4.12. On this note, an important role will be played by the use of funds under the EU's fifth (and soon sixth) framework programmes for research and development, and by company training in these areas.

4.13. This means that it is necessary to pinpoint problems, development schemes and lines of action that favour a symbiosis between innovation, the new economy, and small companies, and above all that facilitate small companies' access to national and international innovation networks, Community R& D programmes and financial services on a fast track tailored to their needs as opposed to those of more structured companies.

4.14. Nowadays, it would be a major mistake to talk about competitiveness and innovation without reference to these processes and to limit the approach to product innovation alone, in a world where organisational and commercial innovation is becoming increasingly important.

4.15. Not to support the introduction of these innovations, which probably have the greatest innovative benefit for craft firms, would be restrictive and inappropriate in terms of the definition of support measures for small companies, and it would prevent them holding a competitive position(16).

4.16. One solution could come from the "go digital" initiative (under the eEurope programme), which was taken following the Lisbon and Feira Councils. This is designed to introduce the new information and communication technologies into companies, small and micro-enterprises in particular, in a similar way to the measures provided for under the Commission programmes: Structural Funds, the multiannual programme for enterprise, research and development, EIB financing. The Committee in any case hopes for better cohesion between the various measures and urges the Commission to involve the associations that represent small businesses and craft firms directly in design and implementation.

5. The financial obstacles to development and innovation facing small businesses and craft firms

5.1. One of the main problems faced by small companies in their day to day existence, and which is a genuine barrier to competitiveness and innovation, is their difficulty in tapping into the credit system and the need nevertheless to finance their own investments, especially those intended for innovation. This problem blocks companies' growth and prevents them from introducing innovative factors.

5.2. This was underlined in the conclusions of the Lisbon European Council of 23 and 24 March 2000, which emphasised the importance of considerably improving the financing of innovative SMEs and paying special attention to new entrepreneurs, in order to promote employment.

5.3. Finding the capital necessary for productive investments is extremely important in the economic activity of a company, especially for small companies and craft firms.

5.4. One of the main problems that companies, especially small companies, must face every day is the difficulty of securing capital for business start-ups and/or expansion, which leads to excessive dependence on loans in relation to their own funds, as well as higher costs compared with medium-sized and large companies, especially where interest rates are concerned.

5.5. In this context it is vital that, alongside the European Company Statute, work be completed on the statutes for associations, cooperatives and mutual societies.

5.6. Businesses find it difficult to secure capital at all stages of company life, from start-up to consolidation and expansion. Hence the need to promote alternative forms of financing among small entrepreneurs and craft firms for both start-up (e.g. seed capital) and company expansion, through finance cooperatives, venture capital, etc.

5.6.1. Some important initiatives can be stymied by communication problems, or by technical or budgetary difficulties. Here, an important contribution can be made by programmes such as: SME guarantee, ETF - start-up (European Technology Facility) and JEV (Joint European Venture)(17).

5.7. In practice it is a matter of promoting real small company access to financial services and creating a favourable climate that supports company growth, cooperation between companies and company innovation.

5.8. These issues have been aired several times, by the Committee in its opinion on the multiannual programme for enterprise(18), and by the European Commission in its recently published "Review of specific Community financial instruments for SMEs"(19), which lists the panoply of financial facilities provided by the European institutions (EIB, EIF, Commission, EBRD).

5.9. This document shows that the problem to be addressed is not so much the need for new ad hoc financial instruments, given that existing financial products already offer a vast range of options for varying financial needs, but rather the actual accessibility and use of these instruments by small companies and craft firms.

5.10. If the criteria were solely quantitative, unstructured companies would be the first out and would be excluded - as in practice they currently are - from public and private international finance facilities.

6. The European crafts academy

6.1. One of the main objectives of the European Academy for Craft Industries and SMEs is to monitor and pass on experience of traditional trades to the appropriate institutions, not only to safeguard traditions, but also as a source of employment and social development.

6.1.1. The Committee hopes that the academy will strengthen its activity and become more involved in measures, work and studies on the situation and recognition of the status of small companies and self-employed people, the development and enhancement of apprenticeship, cooperation between companies and business organisations, and support for the development of a European identity and culture of craft and small business. The academy should also be responsible for monitoring and verifying the implementation of the European Charter for Small Enterprises, and forming proposals for practical measures for the effective implementation of the charter's action lines.

6.1.2. By means of its constituent parts, the scientific committee, and the network of universities and specialised institutes to which it is linked, the academy must step up its work and fulfil its statutory duties, namely to:

- enhance the cultural dimension of the craft sector and small business;

- prepare useful strategies for the national and European organisations;

- rediscover traditional trades;

- spread an entrepreneurial spirit;

- foster a culture of labour socialisation;

- support apprenticeship.

6.2. The European Parliament has also asked that pro-SME measures implemented by the European Union take account of the objectives established in the European Charter for Small Enterprises, and in particular that the Multiannual Programme for Enterprise and Entrepreneurship plan specially-targeted measures for small companies, micro-enterprises and craft firms, by applying a definition of their specific characteristics and requirements. Acceptance of the principle of evaluation would furthermore enable an assessment of the positive and negative effects of Community measures (in particular regarding health and safety) on the running of small companies, whose survival and development depend on strategies and production methods that are quite different from those of major industrial groups.

6.3. The European Charter for Small Enterprises underlines the need to ensure that policy makers give adequate consideration to small companies. The Committee is therefore glad that by adopting the Multiannual Programme for Enterprise and Entrepreneurship(20) the Council has decided (Articles 2 and 3) to use this programme to take further steps towards achieving the objectives set out in the charter.

7. Conclusions

7.1. The European Charter for Small Enterprises stresses the central role that small companies play not only in economic growth and innovation, but also socially, by providing jobs and as a factor in developing personal responsibility. In practice, the fabric of small businesses and craft firms is more than just an economic asset, and it must be developed, enhanced and in come cases protected, with the establishment of a more supportive economic environment. The charter contains statements of principle to that end. It states that it is fundamentally important to set up a legislative framework that does not impose unjustified burdens on small companies, in accordance with the principle that government should serve the public, and therefore small businesses, and not vice versa.

7.2. Special emphasis is placed on the importance of education and human resource management policies, effective access to financial services (more specifically: start-up capital, venture capital and working capital), innovation policies and the new economy, stronger public-private partnerships, political and social dialogue, and all forms of support for the bodies that provide assistance for SMEs(21).

7.3. In any economy, SMEs - and particularly craft firms - are a key factor in the training of skilled workers. This applies not only to trades offering apprenticeship training but also to ICT professions. Given demographic trends in the EU and Europe as a whole, and the growing need for well-trained skilled workers, a radical review of tax systems and labour costs seems to be an urgent necessity at Member State level, especially as regards the period of apprenticeship and/or training. Appropriate human resources, equipped with the requisite skills, are the only way to achieve the objective set in Lisbon of making the EU the most dynamic and most competitive innovation- and knowledge-based economy.

7.4. The business environment must therefore be favourable to entrepreneurial initiative, innovation and growth. This also means promoting a clear distribution of administrative responsibilities, applying a fair and transparent competition policy, combating corruption, and establishing stable and non-discriminatory tax regimes. Special attention should be paid to the establishment of national and European legislation to protect entrepreneurs' private property and private life in the event of bankruptcy, especially if it is the result of external causes not related to the business, by using measures such as drawing a distinction between personal and business assets.

7.5. The Committee would like to suggest a number of lines for action, in accordance with the above-mentioned principles and in continuation of the social, economic and cultural debate on small businesses and craft firms in Europe, which developed during the 1990s and to which the Committee's contribution has already been noted. These action lines draw together the points already made in the ESC's 1997 report on the craft industry.

7.6. Existing financial instruments should be simplified and the eligibility criteria for these and investments for in-company innovation eased for smaller businesses, in order to reduce the cost of access to finance (especially the cost of preparing the relevant files). This is necessary because, very often small entrepreneurs judge that the definite costs of the undertaking (interest rates, excessive guarantees, administrative costs, lack of information, long time waiting for loans to be granted, etc.) outweigh the "possible" benefits.

7.7. The types and number of Community financial instruments should be reduced, as many of them have the same purpose and technical and legislative coordination should be stepped up. The result would be an increase in available resources, fewer risks, and lower cost to users, ensuring that more structured companies, medium-sized companies in particular, do not have a monopoly on the facilities available.

7.8. Awareness of these instruments must be raised by providing companies and regions with more information and promoting the establishment of one-stop shops for requesting information and submitting applications (one-stop credit shops).

7.8.1. As small craft firms tend to be fully occupied with strictly productive activity and lack adequate organisational structures, they often do not receive or manage to procure the necessary information. In a market where information is an economically precious good whose circulation is not always optimal and which does not reach all companies, one reason for the scant use of financial and credit facilities by small businesses is actually an information deficit. Any initiatives designed to rationalise and spread information, such as those proposed above, could therefore help to bridge the gap between medium-sized and small companies.

7.9. The use of guarantees for micro-credit should be encouraged by establishing associations to finance certain types of investment, such as integrated Internet use, in order to facilitate the acquisition of hardware, software and the necessary training.

7.9.1. The existence of guarantees for micro-credit could enhance the relationship between commercial banks and small companies and encourage the former to be more active in this sector (20 % of the companies that fail in the first five years do so for reasons linked to inefficiencies in the credit system). Micro-credit schemes are often managed by specialised non-banking institutions that generally have limited access to bank finance because of their low levels of available collateral. A micro-credit guarantee scheme could be a very effective way of bridging this gap.

7.10. Equity guarantees are needed for investments in early-stage companies, with special facilities for women and young people going into business. Another possibility is mentoring by mature professionals who are able to assist young entrepreneurs, or to start up their own new companies.

7.10.1. This is notoriously the most delicate phase of the business life cycle and the one in which most business failures occur. Tax systems should therefore encourage the expansion of small companies and help them in the start-up phase, for instance by offering facilities designed to increase equity guarantees for investments made during the start-up phase. These already exist in certain Member States but should be extended to the entire European Union. If they were properly structured and financed they could help to persuade national and international investors to invest in risk capital.

7.11. Research and innovation should be encouraged by means of an active input from the ESC and support organisations, in order to improve information and the participation of small companies and craft firms in the financing arrangements available under the framework programmes.

7.11.1. The European Parliament's report on the Multiannual Programme for Enterprise and Entrepreneurship stressed that SMEs, like micro-enterprises and craft firms, make a significant contribution to competitiveness, research and innovation and that they play a vital role in strengthening social and regional cohesion.

7.12. The network of associations that help and advise SMEs in the manufacturing, commerce, tourism and general services sectors should be encouraged and supported in their work, with a view to furthering the dissemination of good practice among small companies and boosting their economic, commercial and social performance.

7.13. In a sector which employs 66 % of the working population, it is particularly necessary to involve the social partners and to actively develop employee participation by encouraging business-owners to promote guaranteed social standards, for instance in the retail sector and in subcontracting firms in the industrial and building sector.

7.14. Measures for small companies should be monitored and coordinated in order to prevent overlaps and increase their impact.

7.15. Community legislation on public contracts must be brought more into line with the pattern set by the United States and adopted by the Senate of the French Republic, i.e. setting aside a share of public contracts for small companies and craft firms.

7.15.1. The methodological route taken in the early 1990s must be pursued, gleaning more information about the nature and scale of small companies and craft firms in Europe, in order to gain a clearer idea of their qualitative and quantitative contribution, and to design increasingly effective and well-targeted measures.

Brussels, 30 May 2001.

The President

of the Economic and Social Committee

Göke Frerichs

(1) OJ C 158, 26.5.1997, p. 53.

(2) OJ L 107, 30.4.1996.

(3) The principles set out in the 1992 Schleyer Report were as follows:

- close owner/manager links within the firm;

- great reliance on human resources which can be used in conjunction with up-to-date manufacturing and management techniques;

- management and manufacturing skills of the head of the firm;

- fundamental role of the head of the firm who is directly involved in organising the manufacturing process.

(4) OJ C 158, 26.5.1997 p. 53.

(5) The second symposium on European craft industry statistics was organised by the Istituto Guglielmo Tagliacarne, under the aegis of Commission DG XXIII in Rome on 20-21 March 1996.

(6) In 2000, the Istituto Tagliacarne in Rome was awarded a European Commission (DG Enterprise) contract to prepare a pilot methodology for quantifying the European craft sector.

(7) These distinctions have also been adopted by the European observatory for SMEs - European Commission.

(8) See: European Commission, Joint Employment Report 2000; Part II: The Member States. COM(2000) 551 final, Vol. I.

(9) See: Action Plan for Innovation in Europe, COM(96) 589 final; Lisbon European Council, March 2000; Towards a European research area, COM(2000) 6 final; Innovation in a knowledge-driven economy, COM(2000) 567 final.

(10) Feira European Council, 19-20 June 2000.

(11) Opinion on the European Charter for Small Enterprises, OJ C 204, 18.7.2000.

(12) European Charter for Small Enterprises - Annual Implementation Report, COM(2001) 122 final of 7.3.2001.

(13) The term "Bologna Charter" is used to refer to the document approved at the OECD conference on SMEs, held in Bologna in June 2000.

(14) The term Internet was formed from "Interactive network".

(15) OJ C 123, 25.4.2001.

(16) In addition to dissemination on the Internet, it is necessary to support the factors that promote innovation in SMEs. Some of these factors, perhaps the most important, were highlighted at the forum held in Lyons in November 2000 (Towards a European innovation area), namely: business culture, education systems, the tools of the information society, opening up to science, organisational innovation, support for private investment, the promotion of venture capital, support for small businesses and the craft sector, the dissemination of research and technological development initiatives.

(17) For further details see the ESC opinion on the "Proposal for a Council Decision on measures of financial assistance for innovative and job-creating small and medium-sized enterprises (SMEs) - The growth and employment initiative" (COM(98) 26 final) - Brussels, 26 March 1998 - rapporteur-general: Mr Pezzini.

(18) OJ C 116, 20.4.2001, p. 4.

(19) COM(2000) 653, European Commission Communication of 18 October 2000.

(20) OJ L 333 of 29.12.2000.

(21) For a more detailed analysis see the Commission's two-yearly report: "The activities of the European Union for small and medium-sized enterprises (SMEs)", COM(2001) 98 final of 1.3.2001.