Do micro-enterprises promote equity or growth?

Introduction: There has been a growing awareness since the early seventies that small enterprises are important for economic growth. They are seen as the engines of employment, alleviating poverty and improving equality. The eighties saw an intensification of this interest and a consequent expansion of policy into the sector of micro-enterprises, following the discovery of widespread entrepreneurial activity in both developed and developing countries. In the case of the latter, entrepreneurial activity was particularly salient among the poor. The idea that intuitively followed was that enhancing these small businesses could effectively and rapidly fight poverty. The evidence supporting the view of micro and small enterprises as the engine of growth is in fact not conclusive. Research findings in both developed and developing countries show that job creation and growth are highly concentrated. The great majority of SMEs are not very growth prone. The European Commission found that 50% of total net job creation in the SME sector is created by a mere 4% of these firms (Manu, 1998). Research in Sub-Saharan Africa indicates a similar pattern: the enterprises that significantly contribute to employment growth are in fact just 1% of the SME universe (Mead, 1994). By implication, it would appear that small-enterprises fall into two categories. There is a very large group of them that, for various reasons, will not develop their business beyond a certain (small) scale, and there is a very small group of entrepreneurs who are capable of expanding their business.