This is not the place to embark on a detailed analysis of the issue, but in a saturation context governments may wish to give higher priority to interventions promoting productivity in small enterprises which contribute directly, or more usually, indirectly, to exports or import substitutes than to those which produce final goods or services, especially those for which there is an inelastic demand. There may, for example, be a stronger case for interventions designed to promote the blacksmithing services used in agriculture and automobile mechanic skills used in transport than for those which promote higher productivity among tailors or carpenters.

Capital and credit: Studies of the traditional sector typically report very low capital/labor ratios (for a summary of a number of studies, see Sethuraman, 1981, p. 144). Indeed, this is almost one of the hallmarks of the sector. The studies also show that what little capital is used is internally generated, coming from family sources, savings during a period of wageemployment following apprenticeship, and retained profits after setting up on own account. What they do not show is the relaLionship between the supply of capital and the demand for it. It is often hypothesized that lack of access to outside sources is a major constraint on the development of small enterprises (for example, Sethuraman, 1981, p. 202). But one may equally well hypothesize that the internal generation of funds, supplemented by the renting of machines from petty capitalists, is by and large adequate in the long run, and that the real constraint lies elsewhere.

This alternative view is supported by the fact that most capital is internally generated physically as well as financially. For example, Oshima (1971) reports that "many of the structures (by far the largest component of reproducible fixed capital) used by smaller firms for productive purposes are homes built for living purposes, or extensions which are, to a large extent, own-account produced. Similarly, tools and equipment used are also, to a certain extent, home-produced. Unlike capital in the capital-intensive sector, and like agricultural capital, much of the capital is produced as part and parcel of or mere extensions of the activities of the small firms..." If this second view is correct, the establishment of a credit scheme may actually undermine one of the most attractive features of small enterprises. As Page and Steel (1984) observe, "the lack of access to institutionalized finance is one explanation for relatively high labor intensity and productivity in small-scale enterprises. In this circumstance, provision of institutional finance to small-scale enterprises may risk encouraging more capital-intensive techniques, thereby reducing the expected benefit".

What is known without any doubt is that government intervention to provide external finance has been largely unsuccessful. Such schemes have generally achieved insignificant coverage, have been expensive in terms of the administrative cost of processing each application, and have often been plagued by default on repayments.

Shortages of materials: In some developing countries small-scale enterprises, particulary those in manufacturing, can be heavily dependent on imported raw materials and supply shortages can be a chief constraint. In Zambia, for 54 -

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