The agreement under the Single European Act to establish an area without internal frontiers in which the free circulation of goods, services, capital and persons, is ensured represents the single most important step that the Community has made towards a rational economy and greater prosperity. Ensuring that this ambitious objective is translated into practical reality is an essential condition for economic growth, competitiveness and employment in the Community.
The Community has met most of the original targets which it set itself for the establishment of a single market. The one outstanding failure to date is the maintenance of physical controls on the free movement of people, although the economic impact of this gap may be limited as the most economically-significant parts of Community legislation in this area, i. e. recognition of the right of establishment and of professional qualifications, are already in place.
The establishment of a genuine single market in the Community is not, however, a matter of once-and-for-all enacting Community legislation within a deadline. It is a continual process of ensuring that, as far as possible, a single legislative framework governing economic activity is enforced and, where necessary, developed in a coherent way within a continually changing environment. The decisions of individual enterprises and citizens are the hard core of a working single market. The challenge before the Community now is to make sure that they are note hindered from taking full advantage of it and to respond quickly to any signs if it is not working well.
Views of the Member States
Making the most of the opportunities offered by the single market is perceived in the Member States' contributions as one of the keys to making the European economy more competitive. Liberalizing sectors that have not yet been opened up to competition (energy and telecommunications in particular), developing standardization in certain areas, monitoring the application of single market legislation more closely, removing tax barriers and harmonizing certain taxes are seen as priorities. Several Member States stress the need for the single market to create a propitious business environment; in this context, they suggest streamlining existing administrative rules and procedures, carrying out cost/benefit analyses before going ahead with new measures, and studying ways and means of reducing the cost of red tape for businesses.Opinion des Etats membres
The Commission has therefore decided to publish in parallel with this White Paper a strategic programme for the internal market which provides a comprehensive view of priorities for action in this area and which will serve as a "road map" for the development of the single market.
The strategic programme contains three parts.
(a) Completing the programme
The Commission will press for early decisions on the limited number of measures identified in the 1985 White Paper which have not yet been agreed, as well as on new proposals aiming at securing the free movement of people.
It has to be recognized that the Internal Market is not yet a reality in certain sectors where national legislation and the granting of exclusive rights deny access to the market and prevent competition in any form. For energy, telecommunications and postal services, for example, proposals have been made but these may have to be strengthened in order to achieve liberalization while ensuring that public policy objectives, such as "universal service", are fully realized where appropriate. Further liberalization of the transport sectors also needed, notwithstanding the considerable progress in recent years.
(b) Managing the Community area
This part of the programme is intended to ensure that the necessary arrangements are in place to permit adopted legislation to be applied effectively and efficiently, so that individuals and enterprises will be able to take full and fair advantage of the possibilities which the internal market offers them. This is not a bureaucratic exercise. It is a joint effort by the Community Member States and enterprises to avoid unnecessary costs, to ensure fair competition, to build up the confidence of both producers and consumers - a condition for economic recovery and to guarantee that the single market is a practical reality.
The main priorities are effective control of national transposition of Community law, a reinforcement of administrative co-operation between Member States in the application and enforcement of Community law, notification procedures to prevent the emergence of new barriers to free movement, the auditing of national enforcement measures and measures to facilitate legal redress where Community law is infringed.
The need for administrative co-operation also requires the establishment of an efficient, reliable and user-friendly system of communication and data exchange between administrations. Until it is operational, unnecessary costs resulting from inefficient administration will be borne by the economy as a whole. What is called for is :
It is proposed that this initiative to establish an effective communications network - a new trans-European network for effective administration - be taken by the Community public authorities quickly in order to facilitate the priority objective of the efficient management of the internal market, while contributing directly to reduced costs for business and the citizen.
A dynamic view of the single market is necessary for the Community's achievement to be sustained and preserved. The third part of the strategic programme aims to ensure that the internal market can develop to meet new needs and to launch new initiatives to ensure that a continental-scale open market is fully realized. Not all such initiatives will be of a legislative nature; they also include close co-operation between the Commission and the Member States, and between public authorities and the private sector.
The following objectives are identified in the strategic programme as essential for this purpose :
It is impossible today to assess the full effect of all the measures designed to bring about a single market because they are not yet fully in force. Although the internal market has not reached its full potential, however, its credibility and irrevocability have exerted profound effects on business behaviour. On average, econometric calculations show that the contribution of integration to economic growth has accounted for around 0.4 % per year in the period 1986-1992.
The following indications also suggest that the internal market is acting as the catalyst for a shift in the competitive environment to the benefit of the consumer and of greater prosperity in the years ahead:
For many SMEs, completion of the single market means a change in the environment in which they operate, although they do not always see any scope for actively exploiting the new opportunities available because of the lack of a European or international framework for their markets or production processes.
Unless the confidence of SMEs in the prospects opened up by the single market is restored, an important potential for growth will go unexploited. The Community must therefore devise a back-up strategy designed to make it easier for businesses, particularly SMEs, to adapt to the new requirements of competitiveness and thus ensure that economic operators are properly mobilized in support of growth, competitiveness and employment.
SMEs play a crucial role in the link between growth and employment. On the usual definition of SMEs (fewer than 500 employees), they provide more than two thirds of Community employment (70.2%, of which 29% is accounted for by firms with fewer than 10 employees) and generate more than two thirds of Community turnover (70.3%) and between 65% and 85% of value added in those countries for which data are available. They are considered to be the greatest potential job creators. In qualitative terms, SMEs play a major role in providing young people with their first jobs, thereby being instrumental in the training of the labour force, and they also help to provide productive employment for the less sought-after categories of individuals on the labour market since they recruit disproportionately large numbers of young people, women and unskilled workers and operate wage and productivity structures of their own.
However, the rate of SME failures, which, according to certain indicators, seems to be on the increase in most Member States, is a worrying factor as regards the maintenance and growth of total employment.
Analysis/Assessment
However, SMEs are not short of strengths that can help them cope with the changes in the economic situation in the Community, notably the recession in the European economy and in the other developed countries.
The strengths of SMEs are, firstly, their presence on expanding new markets (activities less vulnerable to international competition, the service sector, market niches, the development of particularly innovatory technologies) and, secondly, their internal organization (flexibility due to the disproportionately high level of recruitment of certain labour-force categories, notably young people and women, and the greater willingness to adapt working conditions as and when necessary).
The weaknesses of SMEs will be determined by their structural capacity to deal with the complexity of the administrative and legislative environment (administrative and legislative requirements, including those performed on behalf of the authorities, such as VAT formalities and the deduction at source of employees' taxes and social security contributions; the introduction of new environmental or social security rules, and a new standardization/certification system as part of the arrangements for implementing the single market; barriers to the carrying-out of certain activities, notably in the service sector along the dividing line between market and non-market services); to overcome financing difficulties despite the increase in the number and diversity of the financial instruments available to firms; to come to terms with the complexity of managing a firm and to develop strategic policies, a problem which stems in particular from the fact that in small businesses most management functions are performed by the head of the business himself even though he does not always possess the necessary specialized skills and knowledge and that he has to switch between the production function and the management function.
In the contributions they sent to the Commission for the purpose of preparing the White Paper, most Member States highlighted the priority they give to measures to assist the activities and development of SMEs. Suggestions were made for improving access by SMEs to sources of financing, the results of research, and training. Other suggestions concerned support aimed at facilitating subcontracting and cooperation between SMEs and their participation in information, advisory and cooperation networks. Some Member States also emphasized the need for simpler administrative procedures and formalities, including those relating to social security, labour or tax rules, and for arrangements to promote job creation by SMEs.
This shows that the Member States are aware of the need to step up their current efforts, which the Community could support through the action programme adopted on 14 June. However, to meet the expectations of Member States and firms, a mass effect must be sought, in partnership with the Member States, so as to enhance the effectiveness, coherence and visibility of the measures in support of SMEs. In this context, a number of specific measures can be launched by the Community under an integrated programme.
It is essential to identify a series of back-up measures which the Community should launch with the broad aim of taking account of SME requirements within the single market, bearing in mind the need to increase competitiveness.
The general objective of such measures should be to integrate SMEs more closely into the single market so as to underpin their competitiveness as they take up the national, Community and international challenges facing them, with the accompanying dual aim of (i) helping to preserve the number of jobs in the Community by supporting existing SMEs and assisting with the renewal of the productive base, and (ii) increasing the number of jobs by supporting firms with a high growth or employment potential.
To help entrerprises face up to the dual challenge of growth and competitiveness, on the one hand, and employment, on the other, an enterprise pact for employment could be proposed;
As part of an integrated programme, such measures would be grouped together under two headings:
(a) Making credible in the short term the potential available to SMEs in the single market
Restoring the confidence of firms prior to encouraging them to increase their competitiveness and job-creating capacity requires two types of action:
(i) Identifying and alleviating the constraints of a tax, social security, administrative, financial or other nature that hamper the establishment or continued operation of SMEs
Concerted action with the Member States and the organizations representing SMEs could be proposed with a view to examining existing legislation that impedes the creation and development of businesses; action could be taken to exchange information on best practices for simplifying and harmonizing legislation and to devise improvements in priority areas (for example, payment terms, taxation and the transfer of businesses).
In view of the difficulties which social security and labour provisions pose for SMEs, particular attention should be focused on these aspects, both in terms of the rules applicable and in terms of simplifying their application, including the provision of information, so as to promote more flexible use of the workforce, particularly by very small businesses.
(ii) Improving the financing of firms
In this area, which is of crucial importance for SMEs, the first aim should be to give practical effect to the renewed calls by the Heads of State or Government for an increase and improvement in the financial resources made available to SMEs (Edinburgh and Copenhagen facilities, and Brussels decisions). Steps should also be taken to improve relations between financial institutions and SMEs, paving the way for more generous allocation of private finance to SMEs and broader use of the most appropriate financial instruments.
(b) Exploiting the dynamics of the single market in order to boost competitiveness in the medium term
(i) Supporting cooperation between firms
The Community could step up its efforts to foster cooperation between firms by providing financing beyond the first stage of the search for partners. It has already taken steps aimed mainly at encouraging the search for partners and initial contacts between entrepreneurs, but in many cases appropriate back-up (at national or regional level) for a given period would make it possible to follow up developments in a way that could increase the scope for cooperation between SMEs.
Another means of fostering cooperation would be to provide support for participation by SMEs in enterprise networks aimed at introducing flexible and specialized production systems. This concerns in particular the networking of subcontracting firms in the face of the threats posed by the major changes taking place in their relations with their main customers.
(ii) Improving the quality of management in SMEs
A key factor in safeguarding the competitiveness of SMEs and hence their long-term employment potential is an improvement in managerial skills in order to remedy the structural weaknesses of SMEs. The measures already taken in this field could be made much more effective if coordinated action on the part of all intermediaries placed emphasis on a number of key areas so that SME managers could become aware of the changes they need to make in their role.
There is a need to foster, in cooperation with the Member States and chambers of commerce and industry, a demand for information, training and advice in order to overcome the specific obstacles in business. Among these initiatives, appropriate advice could significantly increase the rate of survival among SMEs.
To achieve this, the potential existing among business intermediaries should be exploited to the full. In this connection, the Community could also look into the scope for improving the supply of direct advice to firms on the various aspects of their day-to-day management.
(iii) Supporting the development of firms with a high growth potential
Among the smallest firms in the economy, the firms most likely to create a large number of permanent jobs are those with the determination and skills to expand their business either because their markets are not yet saturated or because they are in as yet uncharted markets. Such firms are to be found both in manufacturing and in the service sector; the problem though is to identify them.
Identification will be possible only if the firms themselves are encouraged voluntarily to gear up for growth. A number of measures that could be widely applied have been tried out in order to encourage SMEs to take the initiative, either by having recourse to a synergistic approach (membership of "business clubs") or by way of an audit method (e.g. "Euromanagement"). Coordination at Community level and quality control would make it possible to confer on firms taking part in technological audits recognition that they were capable of participating in national or Community R&TD programmes.
(iv) Supporting employment growth in service SMEs
Recent work on the growth of service activities has highlighted the importance of improving productivity in this sector, a development which, far from creating a problem in terms of employment, would be a decisive factor in ensuring the growth of service firms and in the future competitiveness of the developed economies. We must thus turn our attention away from improving productivity in the classical sense to improving performance, that is to say a combination of quantitative development and better quality.
Improved performance depends first and foremost on conducting an awareness and mobilization campaign among service firms and their representative organizations. Through its role of anticipating and supporting changes, the Community can, in cooperation with the partners concerned, assist in identifying and disseminating models for service activities that could be developed in the future but have not yet been created for want of sufficient knowledge among individual creators of markets and their potential or of the technological changes likely to influence the provision of services and the market in services. It can also support the development of professionalism in service activities, this being essential if the growth and employment potential in these branches of activity is to be exploited, notably by identifying - preferably within the context of the social dialogue - professional profiles and by providing corresponding vocational training leading to the award of approved qualifications.
In order to strengthen within the framework of broader partnerships the effectiveness, consistency and visibility of the measures to assist SMEs, it is necessary to examine practical proposals for an integrated programme involving a Community initiative for SMEs.
As a matter of priority, the integrated programme should address three objectives from among all the measures set out above; these objectives correspond to measures which could not be implemented without appropriate financing or the scale of which would be restricted by the ability of the Member States or the intermediaries concerned to finance their general application in full: