Two Steps Forward, One Step Back? SME Policy During Uncertain Times Tanya Jurado Massey University Wellington, New Zealand [email protected] SUMMARY This paper considers changes to New Zealand SME policy during the aftermath of far reaching structural 1984 economic reforms and reflects upon changes undertaken recently by government in the wake of the current global recession and the 2010-2011 Christchurch earthquakes. It identifies four broad policy areas: the re-focus of support on generic business programmes; a focus on SMEs as a driver of employment, particularly at the regional level; the development of a multi-tiered approach to the delivery of SME support; and the potential information asymmetries that can lower SME uptake of assistance programmes. An understanding of SME policy making influences and processes of an economy under strain has implications not only for how SME policy is developed, but also for what small business owners and their advocates can do to influence policy, and what ‘good’ policy should avoid succumbing to if long term benefits are to be realised. Keywords: SME policy; small business; global financial crisis; New Zealand

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INTRODUCTION Audrestch et al., (2002) have observed that small and medium-sized enterprises (SMEs) have mattered to governments in the past, but the way they have mattered has changed over time. There is also a longstanding worldwide recognition that SMEs make a significant contribution to employment generation and economic growth (for example, Birch, 1979; Storey, 1994; Wennekers & Roy, 1999; Van Praag & Versloot, 2007; OECD, 2010; Dennis, 2011). For the last two decades governments have sought to improve the business-operating environment in particular, as it is perceived that good incentives and structures are needed to generate more productive entrepreneurs (Baumol, 1990; Minniti, 2008). This has also been the case in New Zealand, a market based economic with a unicameral parliamentary democracy. It comprises 0.1% of the world’s population, its economy contributes 0.3% of the world’s GDP per capita and it is ranked in the lower half of OECD member countries (Easton, 2010). This poor OECD ranking, largely due to low productivity, has spurred successive governments to develop policies that can address this. Currently, 97 percent of all enterprises employ 19 or fewer employees and contribute 31 percent of total employment, 40 percent of the economy’s total output on a value added basis and 13 percent of exports (MED, 2011a). Within this framework SMEs play an important role in New Zealand economic policy. Traditionally New Zealand’s economic development has been driven by its ability to export and sell primary products like wool, dairy products and meat. The very sharp trend upwards in population in industrialised economies after the Second World War increased the demand for food and industrial raw materials. The consequence for economic policy settings in New Zealand has been that it increasingly oriented its own development (and macroeconomic policy) on its burgeoning commodity sector (Dalziel & Lattimore, 1991). Trade flows were narrow and focused on the United Kingdom, particularly over the first sixty years of the twentieth century. When the latter sought closer integration in the then European Economic Community, New Zealand’s trade flows diversified, even if their composition (in broad terms) did not. External economic crises in the late seventies, including the oil shocks and the changing nature of international economic trends drove the demand for domestic economic liberalisation which culminated in 1984 with the initiation of a series of farreaching reforms which restructured both the New Zealand domestic economy and fundamentally changed the country’s economic policy settings. Today New Zealand is still strongly focused on primary industries, but others such as tourism and the creative industries

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have experienced significant growth. The manufacturing and high technology sectors, on the other hand, are considerably smaller. In terms of SME policy, the series of external shocks, which culminated in the economic reforms (discussed more fully below) implemented from 1984 resulted in the government ‘stepping away’ from direct support for SMEs, with a clear preference for indirect forms of assistance. By 2011, the economy was undergoing another period of economic uncertainty due to the onset of the global financial crisis (GFC) in 2008 and the 2010 and 2011 Canterbury earthquakes. SMEs were badly affected and “for the first time in a decade more SMEs were closed than were established in New Zealand” (MED, 2011a, p. 4). During, the 2008-2010 period there was also a decline of 4.3 percent in the employment generated by SMEs (MED, 2011a), while overall unemployment rose from 3.6 to 6.5 percent in the same period (Statistics New Zealand, 2008b, 2011). The upshot of the ensuing budgetary constraints led the government to recalibrate its business policies with a view to boosting employment through regional economic development and innovation in a similar way that it did following the 1984 reforms. This paper considers changes to SME policy during the aftermath of the 1984 reforms and concludes by reflecting upon the changes undertaken so far by the government in the wake of the current global recession. This paper therefore traces the re-calibration of New Zealand’s approach to SME policy in the context of the economic recession and reforms that took place between 1984 and 1999. It begins by providing an overview of the overall economic situation and the reforms that were undertaken to address this. It then proceeds to identify four broad policy areas in which the Government sought to move away from direct forms of assistance to SMEs towards more indirect measures including: 1) the re-focus of support on more generic business programmes that were not necessarily tailored specifically to SMEs; 2) a focus on SMEs as a driver of employment, particularly at the regional level; 3) the development of a multi-tiered approach to the delivery of SME support, delivered through a range of both Government and nongovernment organisations; and 4) addressing potential information asymmetries that appeared to lower the uptake by SMEs of existing programmes of indirect support. The paper then concludes by reflecting on the current economic recession in New Zealand– in no small part a consequence of the Christchurch earthquakes of 2010 and 2011. The period 1984-1999 is instructive in this regard. It underlined that, during periods of economic uncertainty there is a change in the focus of policies to encourage more productive entrepreneurship, and SME policy in general. This paper considers some of the more recent 3

policy measures undertaken and highlights the essential thematic similarity between the approaches being adopted now and those used between 1984 and 1999. It reinforces therefore the abiding theme of the period between 1984-1999: that during an economic recession, Government’s tend to pare back their policy making to focus on macro-economic settings “one step back”, with an emphasis on addressing the ‘enabling environment’ and employment, rather than direct forms of assistance to SMEs.

METHOD This study used a qualitative research method using in-depth, semi-structured interviews with policy makers and key New Zealand government officials closely involved in SME policy in the period 1984-1999. Interviews provided data on what policies were developed and why, as well as details as to the influences on the development of SME policy. These data were cross-matched with a range of secondary sources, including relevant Government policy documents and media reports of the period, as well as academic scholarship. The use of semistructured interviews was considered the most effective approach because it allows the researcher to better understand the participants’ experiences, perceptions and perspectives (Collis & Hussey, 2009; Patton, 2002) during their time of involvement in SME policy development, and to offer rich insights into present day SME policymaking, with particular attention paid to its focus. The research draws on a larger study into the historical development of SME policy between 1978 and 2008 by making use of a combination of the personal recollections of key players as well as of official archival materials, media reports and relevant scholarship. Patton (2002) identifies three types of qualitative data that can be used: interviews, observations and documents. The study used two of these: in-depth, semi-structured interviews and document analysis. The researcher will conduct interviews using open-ended questions and probes to “yield in-depth responses about people’s experience, perceptions, opinions, feelings and knowledge” (Patton, 2002, p. 4). Data were collected through a series of interviews with the key players in the development of SME policy in New Zealand throughout the period 1978 – 2008. Data collection triangulation was undertaken to mitigate the biases or limitations of one data collection method (Maxwell, 1996) by cross comparing interview data with secondary sources (such as government policy documents and other written material). This was done to

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verify and assess interview data and reduce the risk that the research conclusions would be affected because the sample is drawn from a small circle of informants. Informants were selected according to their involvement in policy development that impacted on SMEs over the period 1978 – 2008. Key informants were identified and other participants were selected using a form of purposeful sampling approach known as ‘snowball sampling’, where participants nominate others (Patton, 2002; Bryman, 2008). This was appropriate because the research is reliant on the knowledge and experiences of a relatively narrow group of informants (Maxwell, 1996) involved in New Zealand SME policy development. The researcher is mindful that purposeful sampling involves a form of selection bias, particularly involved with policymaking over the period of the study. Neergarde and Ulhoe (2007) suggest that this type of bias can be overcome by rigorous disclosure of the selection criteria and this approach has been utilised for this study. Ethics approval was received from the Massey University Ethics Committee. Each participant was offered confidentiality, and interviews were transcribed and sent back to interviewees for their signature and approval.

DISCUSSION The following section considers the evolution of SME policy in the context of the economic reforms of 1984-1999, and identifies three areas where the government moved away from direct forms of assistance to more indirect measures of support for SMEs. The Reforms of 1984 – 1999: The Development of SME Policy In 1983-4, New Zealand’s general macroeconomic situation deteriorated markedly. Some of the country’s key economic indicators were signalling a serious problem, including rising unemployment and inflation, as well as ballooning fiscal deficit and external debt levels. Against this background of grim economic indicators, New Zealand undertook a series of sweeping economic reform within a framework of ‘neoliberal’ economic principles (Roper, 2005). The reforms by the newly elected Labour Government included floating (and devaluing by 20%) the currency and deregulating the banking system. Subsidies to the agricultural sector were reduced and many were removed altogether and industry assistance and import protection were also gradually reduced (Bollard, 2005).

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“There was a big swing to ‘let’s get the institutions right, restructure the institutions, set up the frameworks, the fundamentals, the markets, etc’ and ‘government move away and let the business sort itself out’” (Interviewee 3, 2011) “The attention for about two decades were small business and the creation of entrepreneurs…Small businesses had a very high role to play” (Interviewee 2, 2011) Until 1984, the primary focus of SME policy in New Zealand had been through direct government intervention and support, through the establishment of a Small Business Agency (Devlin, 1984) and a set of policy approaches that actively and directly emphasised regional employment creation and protection from external competition (Nyamori & Lawrence, 1997). The economic reforms of 1984, however, were premised on the ability of the market to efficiently allocate resources, and this helped frame the government’s approach to the SME sector. Consequently the role of the government in relation to this sector moved away from direct forms of support to instead providing SMEs with an improved ‘enabling environment’ in which they could operate. This approach has been described as the ‘competitive model’ of small business policy, involving an emphasis market incentives to encourage entrepreneurial activity. This model also involves the deregulation of tax and labour regimes and a reduction in administrative requirements (Parker, 2002, p. 938). A Move to Generic Business Assistance to SMEs After 1984, the underlying government philosophy was that the market should regulate the economy, and this was extended to businesses being able to operate, with limited government intervention and direct support (Easton, 1997). As commentators reflected at the time, “the general aim of industrial deregulation has been to eliminate [under performing managers] by forcing firms to actively compete, with only the best surviving” (Bollard & Savage, 1989). According to this argument there was simply no need for a government agency to continue to deliver business assistance and direct government assistance to SMEs. As a consequence, the Small Business Agency, which used to provide counselling and small grants, was disestablished. A researcher at the time reported, there was a sense that the government “were not thinking of small business specifically” (Interviewee 1, 2011) and SMEs were subsumed in wider economic policy. Ensuing deregulatory reforms affected the manufacturing sector to a degree that key informants recalling that between 1986 and 1989 New Zealand lost up to a third of the manufacturing sector (Interviewee 1, 2011; Interviewee 4, 2011). These reforms affected some SMEs but many other enterprises in the services industries, in particular, were able to adapt and develop these new areas of economic activity, as was the case in other 6

OECD countries at the time. The changing nature of the global economy meant that many developed countries were transforming themselves into knowledge-based economies. In New Zealand this was coupled with the privatisation of state owned enterprises and produced a significant growth in the services sector (Morrison, 1999). Although this phase saw an overall reduction of government intervention, there remained a preparedness to assist, but only in circumstances where market failures were clear and identifiable, for example in areas of poor managerial competence. The delivery of this support was generally provided indirectly and generically by non-state actors that received funding from government and regional development agencies. SME Policy and Employment One of the consequences of the reforms and the resulting closures of manufacturing enterprises was a sharp increase in unemployment rates rising to 10.9 percent in 1992 (Statistics New Zealand, 2008a). The pace at which many of the economic reforms had been implemented, combined with the 1987 share market crash, left many sectors in New Zealand in a weakened state. It was against this background that policy makers judged that SMEs could play a positive role in regional and local development, not least in terms of employment creation. The government, therefore, re-considered its initial ‘hands-off’ approach to the sector, especially in the regions. While the government remained determined not to ‘pick winners’ and promote specific industries, it was caught in the paradox of New Zealand being a nation of small firms with complex and not easily generalised characteristics. There was a move, therefore, for the “government having a role in a slightly more selective way, not selecting products and firms but having a view about what builds up a competitive environment, well environmentally inputs available to capital .... skills” (Interviewee 1, 2011). Unemployment rates were particularly high amongst ethnic minorities, women and the indigenous Maori. To address this, the government set up the Enterprise Assistance Programme, a multi-agency programme to foster enterprise amongst these groups. By focusing on the development of an enterprise culture among disadvantaged groups, the government hoped to lift local employment levels. A similar objective underpinned the Business Development Programme, while Technology for Business Growth programmes sought to capture the commercialisation of technological advances (Nyamori & Lawrence, 1997). The Department of Labour develop other measures to address unemployment, through the fostering and indirect support of SMEs. These included, for example, the community7

based Employment Development Unit and the Local Employment and Enterprise Development Scheme, which continued with the regional policy focus on local initiatives to foster local growth and employment (Perry, 1991; Massey & Jurado, 2005). The government’s drive to generate employment in both existing SMEs and new firms, caused researchers at the time to call for “a comprehensive small business policy” (Tweed & Cameron, 1991, p. 55), while others expressed doubts that employment policies would result in economic growth as they were considered to be more of a political measure to ease the pressures of unemployment (Perry, 1991; Harper, 1994; Massey & Cameron, 1999). Doubts about the effectiveness of these policies to deal with high unemployment levels were summed up by one interviewee who stated that “so many of the policies were, in my opinion, the government being seen to be doing something about [unemployment]” (Interviewee 2, 2011). A second consequence of the opening up of the economy was the exposure of poor management practices, a so-called ‘failure of management’ in New Zealand businesses (Jones, 1992). The importance of developing managerial competences and capabilities became a feature of discussions among policy makers (Bollard, 2005). A further indirect effect of the 1984 reforms on SMEs was the need for many micro businesses to acquire more formal operating procedures as a result of the newly introduced goods and services tax (GST) which, among other things, required traders to register their firms and identify how they would manage their indirect taxation payments. This new level of formalisation resulted in SMEs becoming more professional in their accounting and even human resource practices. Legislation, such as the Commerce Act (1986) also changed business practices to the point that SMEs could no longer rely on trade associations or government protectionist measures to operate successfully: “Small businesses had to stand on their own, they had to compete much more and they had to take on new skills” (Interviewee 1, 2011). Notwithstanding this emerging emphasis on developing managerial capability in order to increase business competitiveness, the policy focus remained on providing SMEs with generic business assistance through locally run regional development boards, while still relying on market forces. Policy instruments to deliver assistance included start up assistance such as the Regional Development Investigation Grant (introduced in 1986) and the New Business Investigation Grant Scheme (introduced in 1989) (Nyamori & Lawrence, 1997). The Regional Development Councils played an important role in another area, again mainly that of employment creation through the management of self-employment schemes such as the Local Employment and Enterprise Development Unit and the Community Employment and 8

Development Unit, not least through their delivery of a range of generic business assistance programmes which included: the Individual Exporter Programme; Assistance to Tourism; Mana Enterprises; a range of Department of Labour training schemes; reduced cost access to the Department of Science and Innovation Research technical advisory and testing facilities; Department of Internal Affairs Small Co-operative Enterprise Schemes; and New Zealand Export-Import Corporation’s marketing and export assistance programmes. A Multi-tiered Approach to SMEs The difficult economic conditions of the early 1990s had generated intense debate into the role of government in business policy. This debate was partly resolved, for SME policy at least, in the late 1990s with a ‘multi-tiered’ approach being adopted to SME policy. More generally, government approaches to SME business assistance over the period 1984-1999 were premised on SMEs becoming significant contributors to wider economic growth, yet not all SMEs were able to contribute to this objective. The government responded by developing a multi-tiered SME policy, with ‘high growth’ SMEs receiving more targeted funding than the bulk of SMEs, which shared low growth ambitions. This phase, therefore, saw the development of the so-called ‘champagne glass’ approach to SME support (Massey, 2006). This involved a tiered from of assistance for businesses where the high growth, exporting firms (the bubbles of the champagne) were supported by Trade New Zealand, the remaining growth oriented firms (those in the glass) were supported by the Ministry of Commerce and the rest of the firms (those in the stem of the glass) were supported by the Community Employment Group (Massey, 2006). This meant that government policy was increasingly focused on the more glamorous high-growth oriented enterprises and, as a result, government engagement with SMEs was at a lower level (i.e. via the Community Employment Group rather than the centralised and better funded Trade New Zealand and Ministry of Commerce). Throughout, notwithstanding this ‘multi-tiered’ approach, this period the government was determined not to ‘pick winners’ and promote specific industries. Industrial policy, as such, had fallen out of favour. It was considered a feature of the protectionist economic policy of the 1970s and was also associated with big business and ‘think big’ projects. The development of an SME policy, therefore, was not “there was renewed focus on small business and business start up but they didn’t really have a small business focus specifically” (Interviewee 1, 2011). Broadly speaking, at this time SMEs could be grouped into three distinct groups: SMEs with growth ambitions; SMEs with no growth ambitions; and SMEs that were beneficiaries of 9

the protectionist policies pursued before the economic reforms of 1984. The economic rationale for the 1984-1999 reforms made it inevitable that the government would favour policies that would allow the market to decide which of these groups would survive. This approach led to the essential disappearance of the third category of SMEs as a consequence of their exposure to meaningful domestic competition. However it not only became apparent that not all remaining firms were taking advantage of reforms undertaken but, more disconcertingly, that only a very small proportion was growing (Harper, 1994). Information Asymmetries As described above, by the late 1990s there was a range of indirect assistance available in areas of management development, export incentives and technological ventures. This was largely generic and employment-generation focused. There was, however, limited uptake of these schemes. A review into why this was happening concluded that not only were the existing programmes not reaching the intended groups because of information asymmetries, they were not always addressing the needs of SMEs (Nyamori & Lawrence, 1997). In addition, one of the conclusions reached at the time was that not all SMEs were interested in growing. There were also concerns that these measures were not reaching those targeted for such mechanisms (New Zealand Government, 1990). In fact, the Small Business Agency, which had been disestablished in 1986, was widely missed for its counselling services (Bollard, 1988). Despite the fact that many providers of business assistance existed, not enough firms were aware of what was available, or were accessing this form of support. Furthermore, with the demise of the SBA there was no longer a single point of information for SMEs to inform themselves on what assistance was available. Concerns about poor growth rates, and rising unemployment led to the establishment of a nation-wide network of Business Development Boards (BDBs) to facilitate access to business assistance grants and information, thereby enabling SMEs to contribute to regional development. “In terms of government [SME] policy there are booms and slumps in the policies” (Interviewee 2, 2011). In particular, the BDBs were a move spurred on by the downturn in the economic climate, to more SME directed policies in the regions. The support provided to SMEs by these BDBs was considerable in terms of start-up grants such as the Business Development Investigation Grants; the Expert Assistance Grant Scheme to access management consultants, and the Enterprise Growth Development Scheme,

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designed to assist with export related costs (Austin et al., 1996). After initial successes, the proliferation of consultants of variable quality, and the inconclusive results in terms of growth called into question the effectiveness of the BDBs. They were eventually dismantled in 1998. The lesson learned from this set of policies was the importance of evaluation, and more awareness of unintended consequences, in particular in policies like these that sought to address information asymmetries and promote regional development. As an interviewee recalls, “the difficulty is then you find people that are very aware and knowledgeable of the system and latching on to those support mechanisms but who really have enough wealth or capital to do it themselves, and other people who are less well informed missing out” (Interviewee 2, 2011). In the mid-nineties, the Minister for Business Development announced a change in the means of the provision of business assistance. This involved a shift from one-off type grants to ongoing assistance that was founded on existing business strengths and skills. Against expectations, the numbers of applications for these grants did not increase at the anticipated rate (Austin et al., 1996). A study commissioned by the Ministry of Commerce to address growing concerns that firms were not accessing available funds identified three reasons for the low take-up: a lack of management competence; low growth ambition; and a preference by owner-managers to remain in control of their business. This absence of “growth ambition” was linked to the type of firm involved in the study as “the majority of the firms surveyed appear to be owned and managed by a ‘craftsperson’ type who places a high value on maintaining his or her independence to operate” (Austin et al., 1996, p. 48). In effect, the findings of this study challenged the assumptions of policy makers about the needs and expectations of SME owner-managers, in particular regarding growth. The cluster of SME polices designed to deliver generic business assistance, as well as (to an extent) enhancing SME managerial competence provide a demonstration of the central argument of this paper. Initially, these policies were developed in response to New Zealand’s economic crisis and were thus a product of the early period of reforms, i.e. a classic case of ‘one step back’. Subsequently, however, there was a re-calibration of the existing policies which while they do not take precisely the same form as the pre-economic crisis phase, they are more ‘direct’ forms of assistance than those formulated in the ‘white heat’ of the economic reform process. By 1999, SME policy was firmly positioned as an important component of economic policy, despite the fact that only a small portion of the SME sector was made up of high11

growth firms. Moves were underway to put in place more institutional frameworks in order to foster entrepreneurship, for example through school entrepreneurship education programmes: “Young Enterprise Schemes at schools where kids at school start small businesses in various forms with certainly a start-up approach – sometimes an entrepreneurial approach, sometimes a high tech approach” (Interviewee 1, 2011). Furthermore, there was an awareness of the failure of some policies to continue to deliver, despite having been initially successful. The role of government in relation to SMEs was to remove any barriers that impeded the ability of SMEs to operate in the market, and to intervene “in selected limited cases where markets and private arrangements do not work satisfactorily, and where the benefits of intervention exceed the costs” (Bollard, 1988, p. 63). The basis was laid for the approach that the government followed in the ensuing years: to target specific market failures and position government assistance to SMEs in this context. The focus of government was also firmly on providing an environment that allowed for start-ups with an entrepreneurial orientation as well as high technology ventures. SME Policy in 2012 By 2012 SMEs, as important contributors to economic growth, were an integral part of government policy discussions. Unlike the 1984-1999 period, there was now a political focal point for SMEs, i.e. a Minister for Small Business (outside of Cabinet) whose role was to coordinate and influence the work of other agencies that may affect small business (MED, 2011). Besides, the Small Business Advisory Group (SBAG), made up of SME owner/managers, had been established to give an SME perspective to the Minister for Small Business on what their needs were. However, there were many other aspects of SME policy that retained some features of those described in the above section. The following considers these in more detail. The first similarity is the consistent approach of delivering business assistance through market mechanisms. There has been a long debate as to how to approach business assistance for SMEs (e.g. Storey, 1994, 2005, 2008; Minniti, 2008; Dennis, 2005; Gilbert et al. 2004). After several decades researching the SME sector, Storey (2008) concluded that macroeconomic policies are more effective than micro-economic policies in supporting SME development. Since 1984, New Zealand has supported policies that affect the environment SMEs operate in, through reforms and policies in macroeconomic areas. This has included the extensive reforms to the economy through financial and fiscal changes, and more limited government involvement in microeconomic policies, the delivery of which was left to non12

government organisation providers. Government officials have described their approach to SME policy to be “focused on improving the macro-environment for doing business in New Zealand, simplifying regulations and providing information, management tools and training” (MED, 2011). At the onset of the current economic recession the newly-elected National Government set out its economic policy around four major themes: helping firms survive the downturn; reduce regulatory burdens; increasing infrastructure investment; and curtailing public spending (MED, 2009). However, the 2010 and 2011 Christchurch earthquakes and the ongoing effects of the global financial crisis (GFC) have forced a re-calibration of public policy1 in much the same way as the economic crisis of the early 1980s forced a re-think of government policies towards SMEs through until the late 1990s. By way of context it is worth first recalling the significance of the impact of the Christchurch earthquakes on New Zealand’s economic indicators. The damage to infrastructure and more broadly is generally estimated to be around 8 percent of GDP. By comparison, the earthquake in Japan is estimated to have caused damage equivalent to around 4-5 percent of Japan’s GDP (New Zealand Treasury, 2011). The GFC also took its toll more generally on the New Zealand economy, including through a rise in debt with the government’s double A-plus rating placed on a negative outlook with two rating agencies. Productivity growth in the past decade in New Zealand was also less than one-sixth of that in the 1990s. This was the economic context for New Zealand’s 2011 Budget, which heralded a series of significant cuts to government expenditure, including to public services, most recently with the announcement of a recalibration of a range of services provided to the private sector. Current SME policy is embedded in the over arching Economic Growth Agenda set up in 2009. The EGA frames policies that affect SMEs through its ‘science, innovation and trade driver’, particularly those policies that affect innovation, business assistance, and access to finance. Whereas in the period following the 1984 reforms, the main motivation behind business assistance was to improve competitiveness and encourage growth through the development of management capability, the current focus is to increase R&D and innovation. The provision of assistance aimed at increasing levels of innovation has been linked to the delivery of generic forms of business assistance through the introduction of Regional 1

This is also the case in governments worldwide (see Mason (2009)), including the EU and the United States (OECD, 2010; Wymanga et al., 2011).

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Economic Networks. The REN merge business support information and services provided by the main arm of delivery of small business assistance NZ Trade and Enterprise and the R&D information provided by the Foundation for Research Science and Technology. These agencies will work closely with organisations such as local chambers of commerce and industry associations for the delivery of these policies (NZTE, 2010). As well as providing business assistance these firms did a screening of firms with “high growth innovation and internationalisation potential” and used a voucher system to encourage market competition in the delivery of training to business (MED, 2011c). Further assistance in accessing finance was also provided in the form of Technology Development Grants (that cover twenty percent of the business’s annual R&D spend) and the New Zealand Venture Investment Fund, aimed at encouraging private investment in capital funds. The economic recession, therefore, produced a series of direct policy interventions aimed at improving the enabling environment for business, including SMEs: a reduction in company tax and financial reporting simplification measures to help ease cash flows; export credits to traders; and high-growth businesses, irrespective of size, were targeted through the Growth Service Fund to encourage global expansion (MED, 2011b). In terms of reducing the regulatory burden the government also increased employment flexibility by allowing a ninetyday probation period for new employees. Most recently a new ‘super Ministry’, the Ministry of Business, Innovation and Employment, has been announced to come into effect in July 2012. The purpose is to “ensure we have clear, co-ordinated and focused government policy leadership with a commitment to economic growth and innovation” (NZ Government, 2012). They key findings of this paper are that, while governments are willing to devote resources to SMEs during times of economic stability, this commitment changes as the economic situation deteriorates. This underlines that SME policymaking is not unique. As with many other parts of the economy, during an economic crisis, policy makers pare back levels of both direct and indirect financial assistance to SMEs, and focus primarily on broader economic policy settings as the primary driver of domestic productivity and growth. The implications of how SME policy was developed in the period 1984-1999 can, therefore, inform thinking today, when short-term pragmatism and responsiveness to external and internal shocks needs to be balanced with a more long-term strategic approach to SME policymaking. An understanding of SME policymaking influences and processes of an economy under strain also has implications not only for how SME policy is developed, but also for what small

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business owners and their advocates can do to influence policy, and what ‘good’ policy should avoid succumbing to if long term benefits are to be realised. Government policies impact on SMEs in a range of ways. Most recently, New Zealand SME policy has been directed at enhancing management and business capability, particularly in areas such as innovation, in order to encourage firm growth. The purpose of this has been to offset some of the existing “in-built” challenges to the New Zealand economy, such as the small population base and the distance from global markets. Despite the successful provision of an ‘enabling environment’ New Zealand’s low productivity rates have meant that it has lagged behind OECD countries and calls from business for government to provide more direction in a strategic sense have increased (Interviewee 5, 2011) with particular reference to financial regulation and internationalisation assistance. Through the use of frameworks to advance an innovative and internationalised economy, SMEs continue to be encouraged to export and to play a significant role in regional development and thereby to mitigate unemployment and encourage growth. The success of this ‘enabling environment’ approach is reflected in the high ranking New Zealand routinely receives in surveys on ease of doing business. However, it cannot be overlooked that the government still plays an important role in the ‘micro’ aspect of SME policy. For instance, it has retained a stake in the provision of business support, focused on building research and development, and productivity. Another significant aspect of New Zealand SME policy is the input of SME owner/managers through the SBAG and the more recent use of social networks to organise SME stakeholders to present the current Minister for Small Business with a White Paper2. Policy development is therefore more likely to be in touch with unintended consequences with the better coordination of all different aspects that affect SMEs. These effectively drew from different stakeholder areas to highlight areas of concern for SMEs. The government continues to seek ways to deliver successful ‘macro’ policies that make doing business easy, and to coordinate through policies in areas as varied as education, immigration and access to finance. One of the shifts at a macro-economic level that has influenced New Zealand SME policy is the expectation SMEs have of the type of government assistance they should receive. In the pre 1984 period assistance was sought financially and the government was expected to provide protection from external competition. After 1984, the expectations of SME owner/managers were re-shaped within the context of the economic 2

For example the New Zealand SME Business Network at http://www.linkedin.com/

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neoliberal reforms and government’s role was re-defined as being the provider of an ‘enabling environment’ that facilitates business development in general and SMEs in particular. The facilitation of this ‘enabling environment’ continues today3, with government providing leadership in awareness in good business practices, export assistance and increasingly more input into R&D. Finally, the multi-tiered approach to SMEs continues with the use of the ERN to screen and promote R&D and internationalisation. The focus on specific sectors with high growth potential (for example minerals and petroleum, processed foods and beverage and knowledge intensive firms) is one example that this is still the case. Policy makers have made more concerted efforts to redress the information asymmetries by providing business information on assistance in various formats, and by aiming to target and match it better to generate economic development and growth. CONCLUSION This paper has considered the way in which New Zealand’s approach to SME policy changed in the context of the economic reforms and the recession that characterised the period between 1984 and 1999. Four broad policy areas were identified where the Government deliberately moved away from very direct forms of intervention and support, to a rather more cautious and ‘hands-off’ approach, including in terms of: 1) more generic business programmes designed for firms in general, rather than SMEs only; 2) SMEs as ‘enablers’ of employment including through regional development; 3) the re-calibration of a multi-tiered approach to SMEs; and 4) seeking to remove information asymmetries between SMEs and business assistance programmes. What was true for the period of economic uncertainty after the 1984 economic reforms appears, therefore, also to be true after the 2008 GFC and the Christchurch earthquakes of 2010-11. The government has the over arching target of increasing exports to 40 percent of GDP by 2025 and has signalled that high-growth firms in knowledge intensive and high technology firms is the way to achieve this. However, as in the earlier period discussed in this paper, for every two steps taken in this direction (the innovation policies for instance), the government is forced to take one back to deal with significant economic uncertainty (for instance, efforts have been put underway to stimulate regional development with the Regional 3

For instance, public policy has ensured the establishment of a business friendly regulatory environment, as reflected in good standings in ‘ease of doing business’ reports (e.g. World Bank, 2012).

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Economic Network). In sum, as new priorities emerge, the focus given to certain policies also changes in a one step back, and with luck and good policy design, a two steps forward process. In this context, the level of government intervention continues to ebb and flow.

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