Small firms policy in Europe

Abstract

Before looking at small firms and the policy of governments towards them, we need to discuss what we mean by a small or medium-sized enterprise (SME) in the European context. By the European Community’s (EC’s) principle of subsidiarity only those decisions which cannot sensible be made at member state level should be made by the European Community (European Union) itself.¹ Regulations follow a similar pattern. Definitions of SMEs clearly fall within this remit, since otherwise it would be impossible to implement SME policy or to make useful comparisons across national boundaries without uniform standards. But the European Community has been an amalgam of member states. Historically each country has developed and used its own definition of small firms. Legislation has been passed, grants have been authorised and statistics produced using this parochial definition. Even within one country the definition has changed over time. In the UK, ever since the Bolton Committee (1971), emphasis has been placed on quantitative definitions. Thus the UK’s 1985 Companies Act and the 1989 Act both used turnover, capital employed and number of employees. The problem with the former two is that inflation erodes both these measures.