strategy

Improving regulatory framework for business development

Context:
Improvement of the legal and regulatory framework in which SMEs operate may also be necessary. This may involve removing or easing regulatory constraints, as in many developed and developing countries, or improving the overall legal framework governing business activities, as in many countries in transition, where the commercial framework is characterized not only by a lack of basic laws but also by a lack of consistency and stability in the existing laws. Regulatory constraints act on SMEs in different ways, for example by imposing barriers to entry to their operations (thus restricting competition) and by imposing a cost for business start-ups and development. On the other hand, inconsistencies and gaps in the overall legal framework, or lengthy or unpredictable legal enforcement procedures, can also act as impediments to SME development. A recent study stated that government barriers to competition rather than labour market rigidities explain why recent employment creation has been lower in the European Union than in the USA and Japan.

It has been noted that, in Italy, the absence of government involvement in the development of SMEs (other than recent legislative measures to reduce restrictions on small firms), together with a policy of not actively levying taxes and payments of national insurance contributions on such firms, has created a considerable degree of independence and self-reliance among SMEs and fostered rather than hindered their development.

"Regulatory failure" may also help to explain why many micro-enterprises are associated with the informal sector and why the informal sector, rather than receding, is in fact growing in some countries, such as Brazil. Understanding the reasons, and in particular the role played by the leg and regulatory framework, can help to shape policies that can assist micro-enterprises in the informal sector to grow or to graduate to the formal sector without destroying their important economic and social role, including the empowering of women in the process of development or worse still forcing them into illegal activities, while recognizing that not all such enterprise wish to grow or to join the formal sector. Various kinds of measures may be taken for th purpose, including providing finance and physical facilities, as well as simplifying registration procedures and reducing the cost of administrative compliance. The creation of physical facilities for micro-enterprises in the informal sector can help to formalize their operations as well; provide them with stability and the type of environment which facilitates their access to credit ar productive assets. In the final analysis, programmes to promote basic education and to raise ski levels may be the most effective way of helping them to be integrated with the formal sector investment in such programmes can bring long-term benefits in terms of strengthening entrepreneurship, increasing competition and enlarging tax receipts.

Claim:
A more transparent and sounder regulatory framework would assist developing countries. Within the framework of the GATS, particular efforts should be made to liberalize sectors and modes of supply of interest to developing countries, including the supply of services via the temporary movement of natural persons. Disciplines need to be formulated in such a way that provisions on requirements, qualification procedures, licenses and technical standards must not constitute unnecessary barriers to trade.
Subjects:
Business enterprises
Regulation
Development
Reform
Type Classification:
E: Emanations of other strategies