Thinking small about inclusive growth  

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TS & IGToday I’m posting my fourth and final blog in this inclusive growth mini-series (you can click here for the first, second and third blogs).

Working on economic justice issues here at CAFOD one of my main areas of work is on small businesses: the role that these play in economies and to the lives of the poorest women and men and the support that they need (you can see some of our other small business blogs here). So what’s the connection…? Do small businesses have a role to play in inclusive growth?

Our recent discussion paper has a brief section looking at this issue in more detail, but I’ll cover some of the main findings here.

As we highlighted in earlier CAFOD research, (thinking small 2) small businesses play an important part in national and local development. There is also evidence clearly linking the role of small businesses to key aspects of inclusive growth including:

  • Employment and job creation: Roughly twice as many of the working population in Africa and Latin America are employed in MSEs compared to large enterprises[1] and 85% of people in Sub-Saharan Africa are involved in small businesses including home-based or micro enterprises and small-holder farming enterprises.[2]
  • Reaching the poorest and most marginalised: There is good evidence that targeting MSEs is beneficial to tackling inequality and reducing poverty (see our full Inclusive Growth discussion paper for a discussion on this and links to the literature) and small businesses owners in CAFOD research reported that their businesses played an important role in tackling multi-dimensional poverty.
  • Tackling discrimination and promoting social inclusion: Small businesses can play an important role in tackling social exclusion given the large number of poor and marginalised people employed in this sector.
  •  Providing avenues for economic participation: If participation is taken as an integral part of inclusive growth, then MSEs are the main conduit for poor men and women to contribute to and benefit from inclusive growth, as demonstrated by employment numbers. This is especially important given the limited other job and economic participation opportunities there are for poor people in developing countries.
  • Having benefits beyond income: The economic participation, described above, brings significant other benefits to individuals. Maqueen [3] finds that MSMEs play a “unique part in reducing certain elements of poverty such as insecurity, powerlessness, social inequality and loss of cultural identity”.

 

Whilst not a silver bullet, an increased focus on small businesses is clearly significant and has the potential to emerge as an important consensus priority as part of the ongoing inclusive growth debate.  There is a clear priority to investigate this link more directly and to support poor women and men where they are currently working for better inclusive outcomes.

My recommendation? We need to think small about inclusive growth. Small businesses – where most poor people work – play a role in making growth more inclusive. They therefore need to be prioritised in inclusive growth strategies.

We’d be really interested in hearing your thoughts on inclusive growth. Please feel free to post your thoughts below or email me.

 

[1] Liedholm (2002) “Small Firm Dynamics: Evidence from Africa and Latin America” in: Small Business Economics Vol 18, pp. 227–242

[2] Fox & Sohenson (2012) Household enterprises in Sub-Saharan Africa: Why they matter for growth, jobs, and livelihoods. World Bank Policy Research Working Paper (No. 6184). ILO

[3] Macqueen, D. (2005). Small scale enterprise and sustainable development: Key issues and policy opportunities to improve impact (policy discussion paper). IIED.

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