Opinion of the European Economic and Social Committee on the Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions Small and medium — sized enterprises — Key for delivering more growth and jobs. A mid-term review of Modern SME policy COM(2007) 592 final
Date: 2008-10-22
Institutions: European Economic and Social Committee
Subjects: ESC opinion, economic growth, industrial policy, job creation, small and medium-sized enterprises








C_2009100EN.01000101.xml










30.4.2009   


EN


Official Journal of the European Union


C 100/1





Opinion of the European Economic and Social Committee on the Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions Small and medium — sized enterprises — Key for delivering more growth and jobs. A mid-term review of Modern SME policy

COM(2007) 592 final

2009/C 100/01
On 4 October 2007 the Commission decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the

Communication from the Commission to the Council, the European Parliament, the European Economic and social Committee and the Committee of the Regions Small and medium-sized enterprises — Key for delivering more growth and jobs. A mid-term review of Modern SME policy.

The Section for Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 1 October 2008. The rapporteur was Mr Burns.
At its 448th plenary session, held on 21, 22 and 23 October 2008 (meeting of 22 October 2008), the European Economic and Social Committee adopted the following opinion by 85 votes with 1 abstention.
1.   Conclusions and recommendations

1.1.   The development of students to be more entrepreneurial has to start very early. Students need to be encouraged to recognise that starting their own business is a normal employment option and not just something that is done by people with money or a university education.
1.2.   The Commission has to encourage the various national Governments to cooperate with organisations such as CEDEFOP, the various SME business organisations and the EESC to develop a creditable, employer lead, business oriented, Trans-European, Vocational Qualifications system that meets the needs of businesses especially SMEs.
1.3.   The Commission along with National Governments should cooperate to develop and implement a European wide, robust system to protect intellectual property, inventions and innovations.
1.4.   Government consultation should detail all changes that were accepted after any consultation process and before any Directives, Legislation or Acts are implemented.
1.5.   The Commission needs to review its consultation procedures with SME Associations and trade specific organisations. Recognition has to be given to the costs incurred by SMEs if they become involved in any government consultation and consideration should be given to awarding costs to business owners of SMEs who are invited to become actively involved in any consultation process.
1.6.   National and Regional governments must become more involved with the SME processes and procedures as detailed in the Mid Term Review. Good work being promoted by the European Commission is failing to meet expectations because of the apathy or opposition to SME friendly proposals of some National and Regional Governments.
1.7.   Subsidies and unfair competition upset the marketplace. The Commission has to consider the affect on SMEs both upstream and downstream when open competition is disrupted by subsidies. If subsidies are paid they should be for social, environmental or other reasons other than the subsidising of production. The principle of ‘one mans subsidy is another mans unfair competition’, should become a standard for all future grants or subsidies.
1.8.   Legislation that affects business has to be written in language that is clear and understandable. It should not include clauses that are vague, confusing or open to third party interpretation.
1.9.   The definition of SME has to be reviewed and evidence provided to show what would be the effect if alternative annual turnover and annual balance sheet figures were used to define micro and SMEs (see 4.5.2).
1.10.   Special procedures should be implemented concerning access to EU grants and project funding for micro and SMEs. These procedures should take into consideration the special time constraints on smaller businesses.
1.11.   Transmission of enterprises from one generation to another is a problem that needs to be recognised and addressed.
2.   Introduction (background)

2.1.   The development of SMEs and micro businesses is recognised by most politicians and economists as key sectors in the development of the European economic and social policy.
2.2.   In 2005, the European Commission adopted its ‘Modern SME Policy for Growth and Employment’. It aims to ensure that all aspects of EU policy to help SMEs are coordinated, and that the needs of SMEs are more fully assessed in drawing up such policies. The policy includes action in five areas:






1.


Promoting entrepreneurship and skills.










2.


Improving SMEs′ access to markets










3.


Cutting red tape.










4.


Strengthening dialogue and consultation with SME stakeholders.










5.


Improving SMEs′ growth potential.




2.3.   The basic remit of this policy was to make Europe an SME-friendly business environment. It was recognised that to achieve this objective there would have to be concerted efforts from all relevant authorities (both EU, national and regional) to ensure the various policies that were developed, complement each other and did not hinder the development of SMEs.
2.4.   On 4th October 2007 the Commission produced – ‘Small and medium-sized enterprises - Key for delivering more growth and jobs. A mid-term Review of Modern SME policy’ (1). This paper is the Commission's report to the politicians and to the various authorities as to how successful ‘Europe’ has been (to date) in achieving the objectives laid out in the original 2005 Policy.
3.   Comments on the mid-term review

3.1.   The European Economic and Social Committee recognises that the European Commission has pushed the issue of SMEs higher up the economic and social agenda. We also recognise that even with all the various constraints of national governments, the Commission has tried to improve the economic environment for SMEs across Europe. We also agree with the Commission that there is still a lot to do before we could assume that Europe is truly SME friendly.
3.2   The EESC agrees with the principle that politicians and legislators should ‘Think Small First’. We are however concerned that although the Commission may support this principle, the EESC is not convinced that all other sectors of national and regional government with its various agencies and organisations, share the same foresight or objective.
3.3.   The EESC agrees that ‘SMEs’ as a title or a description of a sector of business is now being included in most Commission documents dealing with business, but we are concerned that including the term ‘SME’ in a document, does not necessarily guarantees the inclusion of these businesses in the process or in the policies being recommended. We are also concerned that the opinions from the liberal professions, the self-employed and micro businesses are not being taken into consideration. We therefore do not agree that ‘SMEs are now fully integrated into Community policies’.
3.4.   All legislation impacts on small businesses. The cumulative effect of many pieces of legislation creates a serious problem for SMEs and this is seldom recognised by politicians and civil servants. Small businesses need to use their limited time and resources in dealing with their customers. The more time that is devoted to government form-filling and dealing with red tape, the less time is available to creating wealth and employment by providing goods and services.
3.5.   Many SMEs still find European and National government procedures are too bureaucratic, too reliant on third party accreditation and too expensive to process. There is also a failure by officials to understand the risk/time/cost benefit equation which most SMEs have as a high priority when evaluating their involvement in any projects, developments, consultation, compliance or applications for business ‘support’.
3.6.   The one constant statement that has come from small, medium and micro businesses is that they want a level playing field throughout Europe. We believe that we are a very long way from that goal. Too often, a claim from SMEs about unfair competition is interpreted as a call for subsidies or special treatment, where as, all they are asking, is the right to compete fairly and on an equal basis.
3.7.   SMEs complain about legislation because it is not clear and understandable. Big businesses have lawyers to interpret the law. Many small businesses can not afford such costs. It is therefore vital that legislation is written clearly and is not vague, confusing or open to interpretation.
3.8.   The EESC believes that the Commission and the European national governments has failed to understand this problem and as a result, throughout Europe we have too many different interpretations of the same legislation. We also believe that there is far too much ‘gold plating’ of legislation by national governments. This makes national legislation difficult for SMEs to understand and implement. It also stops cross border business development.
4.   Specific issues

4.1.   Promoting entrepreneurship and skills


Entrepreneurism and education

4.1.1.   The need to create a more favourable social and economic environment for entrepreneurship is based on an integrated policy with a view to not only changing attitudes but also improving the skills of citizens. However, those making educational policy have not themselves been brought up in an educational environment that encouraged entrepreneurism and therefore have little practical knowledge of what makes someone entrepreneurial or encourages them to be self sufficient and start a business.
4.1.2.   Despite massive investment to encourage a more entrepreneurial attitude through education, supportive structures have been largely ineffective and have failed to address entrepreneurship education, or create a culture that is conducive to self sufficiency. Students should be made aware that setting up a business can be just as interesting an option as looking for a job with an employer or studying at university.
4.1.3.   Much of the investment has been targeted at students aged 16 years and older. We believe that this is too late in a person's development and we believe that encouragement has to take place at a much younger age.
4.1.4.   Special consideration should have been given to entrepreneurism and education in relation to students who were in full-time education and who may/would take over family run businesses (transmission of enterprises). In certain parts of Europe this has become a serious problem and needs to be urgently addressed.
4.1.5.   Social partners play an important role in promoting entrepreneurship and education. It is therefore important that there is greater cooperation between businesses and these partners so that entrepreneurship and education can be better understood and promoted in a positive manner.
4.1.6.   Students need to be encouraged to see work as an opportunity to take control of your own life, develop opportunities, be entrepreneurial, take risks and if appropriate start their own business.

Training and accreditation of skills

4.1.7.   All small businesses train their staff but few employees have been awarded qualifications. This is particular problem in areas such as health and safety, environment and areas where there are legal implications. More should have been done by the Commission and National Government Agencies who are responsible for Vocational Education Training (VET) to ensure that qualifications reflect what tasks are actually done in business. In the liberal professions this has produced a particular problem with training that meets their needs.
4.1.8.   The EESC believes that the failure to develop an employment-led vocational qualifications and training system is a major block to the development of entrepreneurs and European businesses especially staff who work in SMEs. We believe that failure to recognise and act upon this problem fundamentally challenges the supposition that the Commission makes; that they have been successful in promoting entrepreneurship and skills.
4.2.   Improving SMEs′ access to markets

4.2.1.   We accept that the Commission has tried to remove unnecessary barriers that hinder access to markets. We are however concerned that the best intentions of the Commission have not been enacted by European governments. In particular, the failure to develop and implement a European wide robust system to protect intellectual property, inventions and innovations is a barrier to improving the access of SMEs to new markets. It should not be forgotten that EU entrepreneurs may use capital investments or concessions to set up SMEs in third countries, employing EU citizens. Such SMEs should receive similar benefits and there should be no obstacles to placing their products on the EU market, at least when they are starting up their business activities.
4.2.2.   Public Procurement is another market that we believe could have been made more open and accountable and therefore easier for SMEs to access. Public Procurement represents about 16 % of EU GDP, and although there has been a slight improvement in SMEs participation, some fundamental issues have not been addressed and should have been identified in the Mid Term Review:






—


it is too easy to ignore the SMEs aspect in public procurement,










—


the perceived lack of creditability of SMEs by local and national Government official, often result in unreasonable barriers being placed upon SMEs. In particular, the need to obtain third party accreditation as a condition for tendering is a very expensive and often unnecessary hurdle for most SMEs when tendering for Government contracts,










—


SMEs who tender for public contracts, and believe they have been treated unfairly, complain that the procedures to investigate such complaints are not transparent.




4.3.   Cutting red tape

4.3.1.   There is so much red tape and unnecessary legislation that it is difficult to evaluate what has been done to reduce this burden. The volume of unnecessary rules, regulations and government enforced policies (via agencies, public bodies and licensing authorities) is a huge barrier to SMEs and small businesses. The EESC is particularly concerned that the mid term review did not highlight this problem especially concerning red tape that is created by government agencies, public bodies and licensing authorities. With these bodies there is often no recognised procedure to pursue a complaint as they are often defined as independent, non-governmental bodies and therefore not under governments control.
4.4.   Strengthening dialogue and consultation with SME stakeholders

4.4.1.   Consultation with SME Associations is a serious problem that is not recognised in the Mid Term Review. Consultation with a limited amount of trade and business associations does take place at European level (2) but the number of business associations that are consulted is very small and there appears to be very little trade specific representation on behalf of smaller businesses.
4.4.2.   At the National Government level SMEs have little faith in any consultation and believe that their complaints are ignored by the policy makers. As far as most small businesses are concerned, ‘consultation’ is a process with little or no intention of changing original recommendations.
4.4.3.   Micro businesses and SMEs are often described as ‘too diverse’, ‘too disorganised’ and therefore their opinions are too difficult to include in any final recommendations. This happens even when the consultation is about SMEs and small business development. In these situations the opinions of larger companies are all too often given more creditability than the opinions of micro businesses and SMEs.
4.5.   Definition of Small Businesses

4.5.1.   The EESC is disappointed that the Mid Term Review has not identified the problems associated with the definition of SMEs which we believe is out of date (3). Improvements in productivity through mechanisation and changes in working practices have radically altered how businesses operate.






—


Over 98 % of all European businesses fall into the present SME category,










—


What was once done with 50 employees is now done with 10 employees,










—


If we want to help Micro, small and medium sized businesses then we need a realistic definition of those businesses. This is one of the main reasons why the present SME legislation is not regularly hitting the target.




4.5.2.   The present definitions are:










Enterprise Category




Head count of Staff




Annual Turnover



 



Annual Balance Sheet Total





Medium size


< 250


EUR 50 million


or


EUR 43 million




Small


< 50


EUR 10 million


or


EUR 10 million




Micro


< 10


EUR 2 million


or


EUR 2 million




4.6.   Status of small businesses and the self employed and liberal professions

4.6.1.   The EESC is disappointed to note that the Mid Term review has not identified the present problems relating to ‘Self Employment’. Too many European countries have constructed artificial barriers to those citizens who want to develop their entrepreneurial abilities and create a small business. There are no European legal definitions of ‘Self Employment’ and as a result, it is being abused and is causing confusion with businesses and officials.
4.6.2.   This administrative abuse is hindering the development of ‘official’ Self Employed people who are running small businesses, paying their taxes and complying with all the appropriate legislation.
4.6.3.   This issue should have been identified as a problem. The definition of ‘Self Employment’ should have been high on the agenda of the Commission, but so far, this problem has either, not been identified, or ignored.
4.7.   Small Business representation

4.7.1.   The mid term review does not recognise the importance of how SMEs are consulted and how their opinions are represented at the National and European level. Too often, trade Association representatives at government conferences are not business people who understand the ‘toothache’ or have practical knowledge of the subject.
4.7.2.   Many departments within the Commission recognise this, but nothing appears to have been done to address the problem.
4.7.3.   Consultation has to be kept both online and by paper in all EU official languages to ensure that it reaches a wider spectrum of businesses.
4.8.   Access to EU funds

4.8.1.   More funds are available for projects and grants but micro and SME are having problems accessing them:






—


procedures are too bureaucratic,










—


processes take too long,










—


help on identifying and applying for funds are not user friendly,










—


accountancy procedures constantly change and in many cases require expensive, third parties auditing that increases bureaucratic burdens and cost.




4.8.2.   If micro and SMEs are to access European funds, then special procedures have to be implemented to take into consideration the working time constraints on micro and SMEs.

Brussels, 22 October 2008.

The President
of the European Economic and Social Committee
Mario SEPI





(1)  COM(2007) 592 final.

(2)  E.g. UEAPME, the officially recognised SME representative in the European Social Dialogue.

(3)  http://ec.europa.eu/enterprise/enterprise_policy/sme_definition/sme _user_guide.pdf