Small Business Ministry Should Learn by Doing

Strategy before structure – President Jacob Zuma should heed this guideline when considering a small business ministry.
The idea of creating a small business ministry was given strong support on the election campaign trail by senior leaders of the African National Congress. Supporters of the idea, especially from organised black business, correctly point out that public policy on small business requires a major overhaul. Intriguingly, organised black business have argued that a small business ministry is required to support and create “black industrialist”, which suggests a possible focus on creating smaller manufacturers.

Strategy and structure

The idea has however not received unanimous support as small business advocates worry that it will create a “ghetto” into which all small business issues will be consigned, without impacting on broader economic policy. The alternative suggestions include creating a commission or locating small business in the Presidency.
Taken together, there is agreement that improving public policy for small business requires an institutional home, but disagreements on exactly what that home should be. Underpinning this call for a home for small business in government, is the widely accepted view that public policy on small business requires a major overhaul. It is on this foundation, that the tensions between strategy and structure can be merged.
Traditionally, the process of developing public policy culminates in a White Paper. Usually, this is based on research, available evidence and consultation. A more experimental approach to public policy making could however serve small business owners better and improve the quality of public policy. The idiom “learning by doing” summarises this approach. [ref] This experimental approach has gained credence with the publication of books such as Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Abhijit Banerjee and Esther Duflo  and More than good intentions: Improving the Ways the World’s Poor Borrow, Save, Farm, Learn, and Stay Healthy by Dean Karlan and Jacob Appel  These books provide important ways to understand how to make choices between public policy options and to scale successful initiatives. In the case of South African small business it is worth considering such an approach. [/ref]


As an example, government could create a venture capital fund that aims to accelerate startup activity in South Africa. Innovations such as requiring entrepreneurs to find matching funds from other sources, or from their savings could be introduced. In addition, partnerships with existing small business support programmes could be fostered. Importantly, government would begin to understand its role as a venture capitalists, and through that explore whether a shift from providing loans to venture capital would work.
As another example, government could reduce the risk of starting a business by dramatically reducing or eliminating taxes for small business. This would be a much more ambitious programme of tax reduction for small business than the existing programmes. Government would thus learn whether eliminating taxes on small business would support businesses to move beyond the startup phase.
In yet another example, government would seek to grow the number of suppliers into value chains. This would require creating markets in which smaller companies could sell to larger companies, on a fairer basis. The small scale agricultural sector could be a prime candidate for such an initiative, through both selling of produce and through small scale agro-processing. In this case, government plays a role as an intermediary and market maker, either directly or through partnerships.
More experimentally, government could support the creation of maker spaces – which provide tools for prototyping products and reduce the costs through digital innovations. The current work by the Department of Trade and Industry on incubators could be leveraged to support South Africa’s innovators.
These examples are all affordable, within existing resources, but require careful  reprioritisation of both taxation and expenditure. Importantly, the small business ministry in these examples would not be playing an “integrating and coordinating” role but rather as a space to test several carefully selected ideas. In this process, it would construct its relevance and provide leadership to government departments.

Structural Change?

The Achilles heel of adopting a more experimental approach; critiques would argue; is that it does not tackle wider structural changes needed in the economy. This warning must be heeded, if we are to proverbially “get bang for our public bucks”. Thee lessons learned from the experiments would be vital to understanding how to scale interventions in the small business sector, especially the links to industrial policy . In so doing, projects selected to scaled up would support wider structural changes.
In providing a mandate to experiment with several ideas would create a model of evidence based public policy making, where government learns by doing. In adopting such an approach the speed of getting products to support small business is increased, as is the ability to scale up what works. In making decisions on small business ministry President Zuma must focus on the development of strategy through experiments, rather than a staid process that leads to a White Paper that emphasises “coordinating and integration”.
An edited version of this column first appeared in the Sunday Times on May 18, 2014.

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