Academic journal article Journal of Small Business Management

Small Scale Entrepreneurs and Private Sector Development in the Slovak Republic

Academic journal article Journal of Small Business Management

Small Scale Entrepreneurs and Private Sector Development in the Slovak Republic

Article excerpt

The building of private sector economies in East Central Europe is receiving a great deal of attention in both the business and academic worlds. Thus far, most of the focus has been on the sale of older, state-owned enterprises to the private sector (privatization). However, enterprises newly created by local entrepreneurs, often small in scale, are making contributions to the private economy as well. This paper will discuss both aspects of private sector development using data from the Slovak Republic. Specifically, it will discuss the relationships among the growth of newly-created enterprises, the privatization of state assets, and regional economic differences (measured by unemployment statistics). It will be shown that a healthy local entrepreneurial climate can ease the transition to a market economy, and should therefore be given greater attention in the planning and policymaking of local governments and international aid agencies.

The Privatization Debate

Privatization of state-owned assets is sweeping through much of East Central Europe in an attempt to vitalize the region's economy and thus find a niche for these nations in the global marketplace. Transferring state-owned enterprises into the private sector and a market economy could increase efficiency, production, and generally modernize the economic infrastructure of the region (Engholm 1994). However, some negative aspects of the privatization of state assets have come to light.

One of the main topics of debate regarding privatization is the relationship between the pace of the process and the potential for rising unemployment (Engholm 1994; Murrell 1993; Simoneti 1993; Hughes and Hare 1992; Wilson 1992). One philosophy is that expedient privatization of the state sector will bring about a more rapid transition to an efficient, healthy economy (Engholm 1994; Sacks 1993), and therefore, quicker successful placement in the world economy. Speeding up the pace of privatization, however, can help generate high levels of unemployment which can sever a nation's economy and ethnic harmony.

Newly-privatized businesses are finding that part of the source of inefficiency in the state system has been severe overemployment. Thus, transforming a state-owned enterprise into an efficient private-sector business, coupled with the severe market decline associated with the demise of the guaranteed market structure of the Council for Mutual Economic Assistance (CMEA), has created regional unemployment dilemmas (Table 1). The hope was that enough newly-created enterprises would be formed by private entrepreneurs to pick up the unemployed masses from the privatization process. Thomas (1993) argues, however, that the rate of new firm formation has riot kept up with the unemployment generated from market decline and the privatization process. Therefore, the pace of privatization has become a matter of serious debate within the region, and some of the nations are now aggressively striving to strike a balance between the rate of privatization and the growth rate of newly-created enterprises by local entrepreneurs (Porvaznik 1993).

Small-Scale Entrepreneurship and Economic Development

The increasing numbers of small and medium-sized enterprises (SMEs) in many nations around the world and the role they are now playing in the regeneration of many declining industrial regions has attracted the attention of economists and planners alike (Julien 1993; Sengenberger 1990). Small-scale entrepreneurs can be the main agent of change in an economy thanks to the dynamism of their simple and flexible structures and the driving force of the entrepreneurs themselves. SMEs compensate for the lack of economies of scale by production flexibility, which is very important in today's turbulent global economy (Mills and Schumann 1985). Julien (1993) found that the diffusion of new technology through small firms is much quicker than through large firms due to the less complex organizational structure of the former, and that rapid change or recovery in a region's economy can be explained, for the most part, by the growth of entrepreneurship and the small firms created by it. …

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