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A critique of SME-led approaches to economic development

Carlos Nuno Castel-Branco1

May, 2003

Posted with permission of the author
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Small and Medium Enterprises (SMEs) have had a privileged treatment in the development literature, particularly over the last two decades. Hardly any arguments are put forward against SMEs, even if development policies do not necessarily favour them and economic programs, voluntarily or not, often continue to result in large capital investment. Arguments for SMEs come from almost all corners of the development literature, and economic programs, particularly in the less developed countries (LDCs), tend to emphasise the role of SMEs, even if practical results differ from the rhetoric. Therefore, SMEs seem to be an accepted wisdom within the development debate.

However, there are at least six major problems related to this debate. First, the concept of SMEs is not clear as definitions are arbitrary and vary significantly according to different stages of economic development, economic structures and issues that the authors of the studies intend to address. Second, arguments for SMEs differ significantly between scholars and between policy makers, and have become too many to be of any practical use. Third, supporting SMEs has become a (static) development objective in itself, and often a panacea, rather than a means to achieve development goals, a stage in development of firms and industries, or an action that is derived from socially and economically specific processes of development. Fourth, it is not clear that SMEs are in fact the way to achieve the development objectives that SMEs rhetoric and policy orientation intends to achieve. Fifth, there are considerable differences with respect to the policies that are more likely (or less likely) to promote SMEs - and because definitions of, and arguments for, SMEs vary so much it is difficult to assess the relative merits and real utility of any such set of policies. Sixth, it is questionable that mainstream approaches to SMEs can capture the dynamics of the firms in any process of capital accumulation, particularly if such a process is integrated into the world economy. Moreover, policies oriented towards SMEs are not oriented towards anything is particular with respect to specific activities; hence, skills, productive capacities, types of economic linkages and development engines, markets, technologies, business services, information systems, labour and industrial relations, and so on, are not properly addressed form any specific point of view. It is also questionable that such approaches can be in any way consistent with mainstream theories about the "minimalist" and the "developmental" state.

The main aim of this article is to discuss and illustrate these issues, rather than attempting to solve them. The article argues that SME approaches are not good enough starting, analytical points to address development issues, particularly at firm and industry level, and that such approaches do not capture the dynamics of capital accumulation in any specific development process.

  1. Critique of SME approaches
  2. Can SMEs deliver on their promises?
  3. Which focus for policy?
  4. Concluding Remarks
  5. Bibliography

  1. The author holds a PhD in economics from the School of Oriental and African Studies (SOAS), of the University of London. He is Professor at the Faculty of Economics of the Eduardo Mondlane University ( This paper is an adaptation and extension of a paper originally prepared for the SMEs Task Force seminar of the Islamic Chamber of Trade and Industry, which took place in Maputo, Mozambique, in May 2003.

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