Until very recently, small shops and cottage industries were the dominant mode in the world, often forming part of sophisticated and complex production and distribution systems. Small-scale economic activities will, for the foreseeable future, constitute the primary source of employment and income for poor populations; this alone renders such activities critical in terms of the pillars of the bridge between unmet basic needs and prosperity. There is now ample evidence that small loans to low-income entrepreneurs starting or operating a micro and/or small enterprise can be made available on commercial terms or with a very modest subsidy. Governments without adequate methods for financial delivery to these enterprises could initiate such a programme after careful investigation of the experiences of countries with such mechanisms in place. The primary impetus must be at the national level, although international actors can be instrumental in conducting evaluative case-studies of credit delivery to low-income entrepreneurs in developing countries; non-governmental organizations might be useful as a conduit and screening agency between the centrally provided credit and the borrowers.
However unintentional, certain macroeconomic policies frequently have deleterious effects on both labour-intensive production techniques and smaller enterprises. Given the importance of the informal sector, governments should consider ways to reduce antagonism between players in the informal sector, the formal sector and the state. Monetary and fiscal policies, as well as policies affecting trade, exchange rates, pricing, labour and wage regulations, can be biased against micro and small and medium-sized enterprises. Given this possibility, it may benefit nations with poor populations to examine systematically their policy framework and take measures to address any unwarranted disincentives to the promotion of the micro and small/medium-sized sector. Other aspects are also critical, particularly technical assistance, including assistance for identifying promising projects, preparing feasibility studies, organization and management of an enterprise, the process of selecting technologies and using them efficiently, quality control, means of transportation, and marketing. The advisability of regulatory provisions hampering the technical progress of enterprises in the informal sector should come under close critical scrutiny. While the national level is the prime mover, technical assistance from international agencies should be available as needed.
This strategy features in the framework of Agenda 21 as formulated at UNCED (Rio de Janeiro, 1992), now coordinated by the United Nations Commission on Sustainable Development and implemented through national and local authorities. Agenda 21 recommends appropriate support by individual countries for activities aimed at promoting the development of small-scale economic activities, particularly the production of food, to support local income generation and the production of intermediate goods and services for rural hinterlands.
By supporting small-scale enterprises, encouraging government institutions to transfer some of their functions to small contractors, opportunities are concentrated on the working poor. They may be aided by employment opportunities, labour-based public works programmes and assistance to home-based industries in the form of small loans, encouragement of association for home workers and minimum levels of servicing. Obviously a balance must be struck between a low wage which benefits labour-based works and allows most people to at least have some income, and a system of exploitation.
ILO assists governments to promote micro-enterprise development by increasing the availability of improved techniques, and by the more efficient dissemination of technological information and advisory services.
An analysis from the 1980 USA Census, based on a question of travel to work, estimated 2 million Americans with home-based businesses. The Small Business Administration of the USA estimated 5 million people run home-based businesses (1986). A 1984 survey by AT and T projected 10 million USA households are involved in home-based businesses, with fewer than one-third employing someone outside the family in the business.
As a rule of thumb, it is better for a country to encourage low-cost, labour-intensive development using local technology and small-scale enterprises. This provides the highest benefit to the local economy and employment. In addition, local small-scale manufacturing allows for short journeys to the site whereas large plants must be geographically centralized, entailing long-distance transport.