Diverse Property Forms within Planned or Partly Planned Economies: NEP, NEM and TVE

This Working Paper discusses mixed systems in which SMEs functioned successfully in the presence of extensive state ownership of large enterprises and even classical central planning. Past and present examples are considered in which a small enterprise system worked around, with, and in the interstices of, a large enterprise system made up of state-owned enterprises (SOEs). If SMEs could survive and even in some cases thrive, under such fundamentally 'hostile' old system conditions, it is at least superficially puzzling that their experience in transition has been so difficult or at best mixed.This paper considers some of the pieces of this puzzle, using unconventional systems as examples. First, they suggest the importance of studying the specific character of the specific links and working relationships between large and small enterprises. Second, these examples suggest that there are opportunities for SME growth even in transition environments that provide far from free-market conditions. Ideological assumptions about what would happen automatically in transition led to neglect the policy and institutional framework necessary for real SME success.It is clear that SME 'success' does not come automatically and that an active SME policy is vital. It is also clear that when such measures are not built-in at the beginning, the path becomes much harder and must overcome new obstacles. The surrounding macro environment, the role of reform sequencing in avoiding pervasive criminalization and a broader concept of institutional development are discussed. Reference to comparable Western experience shows that there has been wide use of localized 'industrial policy' in those cases were SMEs have moved beyond services and small-scale retailing to become SME-based productive systems.