Private sector development and micro-enterprises in small states

Abstract

This chapter seeks to highlight the importance of private sector development in building the economic resilience of small states. It refers to small-sized enterprises stressing that such firms can enhance economic flexibility, an important element in economic resilience, defined as the ability to withstand and rebound from exogenous shocks. The private sector, compared to the public sector, is generally more exposed and therefore more responsive to market realities. As a result, a strong private sector is vital for resilience building, and this is especially so in small states, which tend to be highly exposed to external shocks. However the private sector can be inefficient and characterised by inertia, especially if there is a proliferation of monopolies and oligopolies. The chapter contends that the development of this sector should be accompanied by appropriate policies to encourage competitiveness and efficiency. The chapter also discusses the role of micro-enterprises in small states and their role in resilience building. In the case of small states most firms are likely to be micro-enterprises, employing fewer than 10 persons. The chapter argues that small states should attempt to maximise the contribution of micro-enterprises towards the enhancement of competitiveness, by creating an atmosphere congenial to entrepreneurship, improving access to funds, particularly venture capital, and encouraging clustering.