From little businesses big economies grow

As Australia and its developed counterparts seem to be slowing, Malaysia's economy is streaking ahead, largely as a result of its intense policy-driven focus on small business.

As the older, developed economies of Europe and North America are seemingly caught in a steady decline spiral, the global economy is being saved by the Asian economies. But is Asian growth the result of some mysterious, happy sequence of events or something else?

In the case of Malaysia and small business development at least, there’s evidence that growth outcomes are the result of sound, and consistent;y good policy heavily lead from the political top. Malaysia is a case study in positive policy.

Over the last decade or so I’ve been attending key international small business and entrepreneur development conferences. My observations have lead me to believe that small business and entrepreneur development has mostly occurred in spite of government policies rather than because of them.

This impression was somewhat confirmed in 2010 at a peak international conference in Taiwan. One of the world's pre-eminent authorities on small business policies, Professor Ken O’Neill declared that globally, the prevailing, "…enterprise entrepreneurship and small business policy probably doesn't work – with great waste of money as a result.”

However I’ve kept meeting academics and government officials from Malaysia that consistently impressed with a quiet self-assurance and resolve. For example, when discussing with several Malaysia academics how they ‘teach’ entrepreneurship within their universities their replies have been quick. "We challenge students,” they say. "We ask them to risk failure!”

Being prepared to take risks with the possibility of failure is the key to entrepreneurial behaviour. These Malaysians understand the idea of entrepreneurship!

My conclusion has been that there’s something different happening in Malaysia to what I’ve witnessed being the norm across most of the globe. Recently, I listened to a presentation from the head of the Small/Medium Enterprise Corporation of Malaysia, that indicated there’s structure to this small business entrepreneurship understanding.

What the presentation showed is a level of sophistication to economic development (in this case in the small business sector) that is often hard to find in the so-called advanced economies.

Since 2004, Malaysia has had an SME Development Council chaired by the Prime Minister. The Council guides small business policy long-term, measuring outcomes against key performance indicators. Since 2004 the growth of the small business sector, in its contribution to Malaysian GDP, has outstripped overall GDP growth.

This measurement of GDP outcomes is just part of more detailed KPI measurements the Malaysians apply. They look at volume of business formation, increases in productivity, profitability and so on. The KPIs facilitate diagnostic tools for the targeting of assistance at the individual business level.

This Malaysian precision compares to the general alleged KPI measurements much criticised by Professor O’Neill and which are common in developed economies. Mostly program KPIs measure how many people attend small business promotions events, and more recently, traffic on government information websites for example. Actual outcome evidence is rare. The Malaysians appear to have gone well beyond this.

This Malaysian diagnostic assessment and targeted assistance is integrated into a tight partnership between government and the private sector. There’s a strong consultative process in the designing and progressing of SME policy. Malaysia is now lifting this to an entirely new level.

Since 1986 Malaysia has implemented a three-stage economic development plan. This involved several stages of ramping up economic activity through their industrial and manufacturing bases.

Malaysia is now entering a planned, fourth stage of development through until 2020. The government’s aim is to transform Malaysia from a middle-income into a high-income, advanced economy. The plan entirely involves the "creation of business ecosystems for SMEs". And given that 86 per cent of Malaysian small businesses are in the services sector, the plan is presumably also about developing the services sector through SMEs.

What’s most interesting about this Malaysian approach is that they see a direct connection between a high-income economy and the proliferation and strength of small business. I can’t say that I’ve seen this sort of economic development analysis before and certainly not one translated into direct government policy and action.

Within the orthodoxy of what constitutes most economic development policies the Malaysians stand out as different and in front. What’s almost unique is the degree of hard evidence based analysis driving their policies. In comparison to Malaysia, small business policies in the developed economies of Europe, North America and Australia frequently look like knee-jerk reactions to political imperatives rather than thought through economic policy.

Malaysia is a country to watch. There’s a sense that they’re not doing small business development merely for the sake of pandering to a defined political constituency. Rather, progressing to a small business-dominated economy is the required step to having an advanced, high-income economy.

Malaysia, as one example of what’s happening in Asia, can teach the weakened developed economies a lot.

Ken Phillips is executive director of Independent Contractors Australia. (www.contractworld.com.au) and author of Independence and the Death of Employment.