Terms of reference
A crucial issue in evaluating policies and programmes is the terms of reference to be
used when assessing them. Four terms of reference that should be incorporated into the
evaluation process are: i) overall government objectives; ii) the specific objectives of SME
policies and programmes; iii) market, government and systemic failures; and iv) framework
conditions.
Government policies and programmes towards SMEs should support overall
government objectives, e.g. growth, job creation, innovation, enhanced competitiveness,
export promotion, regional policies to develop industrial districts or distressed urban
areas, etc. Therefore, it is necessary to identify overall government objectives and priorities
in order to evaluate whether or not SME policies and programmes are relevant and
effective. The purpose is to allow the SME policy or programme to be evaluated in terms of
the efficiency criteria of superiority and appropriateness (see above).
It is necessary to know the specific objectives of the SME policy or programme and to
know if and how these objectives have changed over time due to changes in the policy/
programme operating environment. Only by knowing the specific objectives can it be
determined whether or not the policy or programme has been successful (with success
measured by the extent to which the objectives have been met by having an SME policy or
programme).
Market, government and systemic failures must be established to provide a rationale
for government intervention. This allows for applying the appropriateness and superiority
efficiency criteria (see above).
● Traditional market failures usually fall into one or several of the following four categories:
externalities, public goods, imperfect and asymmetric information, and market power
and barriers to entry.
● Interventions should also take into account the possibility of “government failure”. In
order to justify government intervention it is not sufficient to show that a market failure
exists, but it should also be shown that intervention in the market actually improves
upon the imperfect market outcome.
● The nature of factors shaping the development of the SME sector calls for policy
measures to address the lack of coherence among institutions and incentives. “Systemic
failure” occurs when there are conflicting incentives of markets and non-market
institutions or when structural factors prevent new market solutions from emerging (e.g.
venture capital as a new market tool to finance risky investment). The performance of
the SME sector depends not only on how specific actors (e.g. firms, financial institutions