Should government be thinking small?

PUBLISHED : Thursday, 06 April, 1995, 12:00am
UPDATED : Thursday, 06 April, 1995, 12:00am

ASK anyone which companies drive Hong Kong and you would be given a list that roughly equates to the Hang Seng Index, and are run by people instantly recognisable on the cocktail circuit.

This would be a far from complete inventory. One of the real driving forces behind Hong Kong is the huge network of small companies, known only to their employees, customers and the families which run them.

As a sector, the small business community is remarkably resilient. Individual companies come and go, often unnoticed, but there is constant renewal, and from their number are born the potential giant companies of tomorrow.

The vital role to the economy of small business is highlighted by their contribution to employment.

The Company Secretary magazine calculates that in the manufacturing sector, 24 per cent of those employed are in small businesses. In the combined wholesale, retail, import/export and restaurant and hotel trades, 48 per cent of employment is provided by smaller enterprises.

These are defined as those with less than 10 employees - and which make up 89 per cent of businesses in key sectors in the territory's economy. If medium-sized businesses are included - those that employs less than 100 people, then we are talking 99 per cent.

So they are important, but do they need special treatment? Company Secretary has this month raised some of the questions which regularly arise over small businesses.

The key subject is whether small companies should be treated differently to big ones. Are they being strangled by red tape? If they were treated more leniently, would it be easier for entrepreneurs to get going, and easier to stay in business, with obvious benefits to the economy? It is easy to be sentimental about small companies. Britain has been doing it for a long time, starting with the discovery of the Macmillan Gap in financing of companies, continued with the John Bolton report of 1969 - which made many recommendations to improve the performance of the sector, and was examined again by Sir Harold Lever in the 1970s.

Then prime minister Margaret Thatcher supported the sector, and politicians were all too well aware that if each small company employed just one extra worker, there would be no unemployment problem. Today the unemployment rate in Britain is still close to 10 per cent and small businesses die as frequently as they ever did.

The lesson was that government's could do little to improve the lot of small businesses. Those with enough guts and intelligence to make them work provide their own solutions.

The last thing required is feather bedding of small businesses. Most ask only for a reasonable climate in which to operate - low tax, low interest rates, a minimum of interference, and more efficiency in granting necessary licences.

In Hong Kong tax is low, interest rates are out of the Government's hands, but regulation is open to debate. Company Secretary airs complaints from those who feel that the compliance requirements in Hong Kong are too stringent.

No allowances are made for size. Outside listed companies, everyone is subject to the same rules, whether they measure their turnover in tens of thousands or hundreds of millions of dollars.

Does this make sense? The concessions which are suggested for small companies include the release from the need to file annual returns - they can already produce a simplified, no-change form - and the requirement to produce annual accounts.

But before legislators rush to gain the support of their local businessmen by reducing the amount of information available, they should remember that these are usually limited companies.

Among duties of these companies is the need to make available enough information for potential clients to ascertain credit-worthiness of those they deal with. This may sometimes be a little onerous, but the price has to be paid.

Former Security and Futures Commission excutive director, Ermanno Pascutto, is now reviewing the Companies Ordinance in Hong Kong, and the differing degrees of suitable regulation for different classes of companies should be on his agenda.

There are areas where burdens can be lifted, but the target must be to retain sufficient transparency to ensure that the system is not abused.