2 innovation<sup>6</sup> . In some OECD economies, SMEs (under 100 employees) still accounted for 95% of establishments and their share of employment, though considerably smaller, was in fact quite stable at around 30%. They were increasingly viewed as critical to the health of the enterprise sector as well as justifying relatively intensive support measures.

1.5 A parallel reappraisal of enterprise policy occurred in the developing world where, given the prevailing relative factor prices and labor-intensive product mix, the role of SMEs was likely to be even more significant and where the contribution of SMEs to GDP was in any case significantly larger (outside the ex- centrally planned economies). Typically firms with less than 100 employees accounted for 99% of total enterprises and well over 50% of total employment in the sector. The reappraisal in policy was reflected in intensified policy research such as through the ILO World Employment Program7 . It was shown that in some industries economies of scale were achievable only when other complementary inputs were present at adequate scale and quality- notably capital-intensive transport, energy and technical support services, i.e. that scale economies were factor-price specific and might not apply. In economies that lacked infrastructure, and where relative wages and land rents were low, small to medium scale operation could be relatively efficient. As a result of such findings small and medium enterprise support schemes in developing economies proliferated since the 1970s.

# **Enterprise Decline - the transitional economies**

1.6 The problems facing enterprise in the transitional economies are particularly acute. The serious output declines and decapitalization of the past few years, resulting from the collapse of the large scale state enterprises and the lack of a basis of small (e.g. service) enterprises, have made it particularly urgent

<!-- Start of picture text --> to find ways to foster the growth<br>Figure 1 Real Industrial Output Trends in Transition of new enterprises, whether state<br>sector spin-offs, privatizations,<br>140 - or de novo businesses 8 . Figure 1<br>120 V. t 0 l |0000 __XX 000 X I;00Qf -.-- Georgia shows the initial collapse and<br>:- a Moldova continuing serious situation in<br>Armnenia 100_ the industrial sector in a group<br>of transitional economies, with<br>80 0 i >< Russia 1998 real output significantly<br>-*- azakstan below 1989 levels in all but<br>-.-- Ukraine Hungary and Poland. Taking<br>40 -- - - i Czech Rep. account of the unrecorded<br>XHun ady A ucontribution of the informal<br>20- sector, the general pattem still<br>0 a $t i:L L 0 ;05 :0;5008i3k40000- Poland ,seems indisputable. In those<br>economies in Eastem Europe<br>OP P 5c9' cP c1 c> ,~ cp 9 where recovery does seem to be<br>under way, it has been<br>characterized by a shift from<br><!-- End of picture text -->

Source: UN ECE and D. GriRorian

- 6 Eg in the UK this was a finding of the 1971 Bolton Committee Of Inquiry on Small Firms.

- 7 E.g. as represented by "Technology and Employment in Industry" Ajit S. Bhalla ed, ILO 1975. 8 Scale definitions; micro-enterprises are very small businesses either in rural or urban areas including artisans, craftsmen, processing units and service suppliers employing less than 10 workers. Small and medium scale enterprises are in general manufacturing, processing and service enterprises in urban or semi urban areas employing from 10 up to about 100 workers, and in some case up to 500. These definitions are indicative only, and vary according to the level of development, the size of an economy, and other factors.