I. Introduction 

        Business assistance programs have developed out of the greater framework of the ‘third wave’ (Toffler 1980) of economic development policies. In theory, they are demand-driven and focus on existing businesses within a given jurisdiction. The goals of the programs are to create jobs, increase tax base revenue, and invest in human capital. The justification for business assistance programs is to correct for market failures by providing knowledge and skills to small businesses that they often lack, thereby creating a level playing field among businesses. 

        There is a vast amount of literature disputing the contributions that small businesses make to the economy. Critics contend that policy makers often design programs based on misunderstandings of the small business sector and their role in the economy. The results of these oversights are business assistance programs that are uncoordinated, scattered, and unfocused. There is no consensus for an appropriate method to evaluate business assistance programs. Consequently, there exists no good empirical evidence of the effectiveness, efficacy, or efficiency of the programs. Finally, various writers provide suggestions for improving business assistance programs. Examples from abroad offer viable solutions to combating the shortcomings of U.S. programs. 

        Nevertheless, business assistance programs have become increasingly important in economic development policies. This paper examines the literature on these programs, and divides the research into four major categories: goals of business assistance programs, justifications for government provision, methods for evaluating the programs, and suggestions for improving programs. 
 

II. Goals of Business Assistance Programs 

        Demand-driven economic development policy requires the policy maker to assess the needs of 'homebased' firms and develop instruments to empower these firms. Fosler (1990 p.188) writes that policies must therefore exhibit a "strong synergy between programs and location." A business assistance program is a tool applied primarily for small businesses and used to create jobs, increase tax base revenue, and invest in human capital. 

        The menu of a business assistance program can be quite expansive when properly developed. Business assistance programs attempt to transfer basic skills such as product development, marketing strategies, basic operations, record keeping, personnel management, and legal services (Vaughan 1983). Fosler (1990) argues that the most beneficial services are not project oriented; programs can also offer access to information and create networks among companies, suppliers, technology developers, regulators and financiers. Erickcek (1997) adds that mentors or counselors are also valuable. Other options for an assistance program include below market loans with standard collateral requirements, market rate loans with lower than standard collateral requirements, special set-asides in public research and procurement programs, special tax incentives, technical assistance in management and accounting, seminars on key issues/topics, buyer-seller linkages, and assistance in developing business plans (Erickcek 1997; Vaughan 1983). 

        Fosler (1990) identifies four ways of providing assistance. First, providers can develop different programs to target each aspect of running a small business. Second, services can be administered through small business assistance offices, which act as one-stop clearinghouses. A third alternative is to connect a state’s small business program with those of local government, community colleges, universities, and chambers of commerce. Finally, business assistance can be provided through incubators. 
 

III. Justification for Business Assistance Programs 

        Writers delineate the justifications of business assistance programs by reviewing the influence of small businesses on our local and national economies, provision of assistance programs, and determining what level of government is most effective at providing this service. 
 

The Role of Small Businesses in the Economy 

        MIT's David Birch (1979) conducted research that heightened the role of small businesses in the nation's economy. The purpose of Birch’s research was to "examine how the behavior of individual firms leads to change and to use this information in developing more appropriate economic development policies" (Birch, 1979 p.1). Birch concluded that the job-generating firm is small, new, independent, and volatile. Therefore, policy makers should develop programs to decrease instability and volatility among small firms (Birch 1979). 

        Subsequent research devalues and contradicts Birch’s findings (Erickcek 1997; Fosler 1990; Vaughan 1983). Researchers at the Brookings Institution reexamined the evidence and concluded that small businesses play a far smaller role in the economy (Vaughan 1983). Aram (1986 p.567) also finds fault with Birch’s research, but concedes that, "a strong and independent small enterprise system disperses economic power, localizes economic decision-making, and protects democratic processes." Despite the controversy, lobbying groups for small businesses embraced Birch’s research, mostly out of self-interest. Today, the Small Business Administration (SBA Website) claims that, "small businesses are the backbone of the American economy. They create two of every three new jobs, produce 39 percent of Gross National Product, and invent more than half the nation's technological innovations." 
 

Why Should Government Provide Assistance? 

        Literature on business assistance programs explores the justification for government provision of business assistance programs. Writers discuss barriers that small businesses face (Flynn and Forrant 1997; Shapira 1993). These include barriers to entry due to monopoly powers. Breaking down the barriers through government intervention is deemed necessary to allow small businesses and the market to operate at their full capacity and to grow to their potential (Aoyama and Tietz 1996). 

        Economic development literature about small businesses discusses market level barriers and identifies the numerous problems they cause for small businesses. Small businesses may not have the capital nor skills to gain access and actively compete in the market. In addition, an inequitable distribution of income and economic opportunities is a market failure. Vaughan (1983) asserts that minorities and residents of distressed neighborhoods have less access to the resources necessary to begin and operate a healthy business. Aram has also contributed to this literature highlighting various problems faced by small businesses. Tax and accounting practices lead to biases against small businesses because loopholes exist that only larger companies with larger staffs, resources, and time to invest can detect. Government regulation requires time and money for compliance. Lack of information and access to capital remain a large problem among small firms (Aram 1986). 

        Market failures also arise when it comes to seeking assistance. Flynn and Forrant (1997) succinctly summarize these barriers. These barriers include unawareness of new technology and innovative business strategies, poor access to unbiased information and advice, isolation, limited time, and lack of capital. In addition, many small businesses realize that they need assistance only once it is too late. Economists write that there "may be lack of a market for a good whose marginal social benefit exceeds its marginal social cost" (Hyman, 1990 p.72). Therefore, the private market may not provide a useful service, such as a business assistance program. Private consultants are expensive and often only have expertise relevant for large companies. Nearby academic institutions may not be viable options either because many academic business programs prepare students for work in large corporations, and not entrepreneuralism (Fosler 1990; Vaughan 1983). This situation strongly suggests that government should provide the service as a public good. 

        The justifications described above greatly support deeply-rooted American small business policy which actively protects the rights of all firms to fair competition (Aoyama and Tietz 1996; Aram 1986). Vaughan (1983), however, provides a cautionary note that policy makers must analyze and have a clear understanding of the barriers faced by small businesses. Only once this feat is accomplished, can business assistance programs accurately address local small business concerns. 

 
Who is the Appropriate Provider of Assistance? 

        All levels of government, universities, and the private sector provide business assistance. This phenomenon offers critics ample writing material. The majority of writers contend that new partnerships with the private sector, universities, and an active entrepreneurial state are necessary to service the demands of businesses (Reddy 1993; Fosler 1990). 

        Federal government services are valuable because they create shared resources, common tools, and an exchange of ideas and learning experiences. In the late 1980s, states began to increase their role in business assistance programs. This was, in part due to decreased funding from the Federal government, and in part due to states actively seeking ways to enhance their internal economies (Feller 1992; Osborne 1990). Today, all levels of government provide some level of business assistance programs. The table lists a few government-provided business assistance programs. 
 
 

Level of Government	Program	Sub-Program	Mission/Objective	Services	Year Created
Federal	Small Business Administration		Help America's entrepreneurs form successful small enterprises	Financining, training, and advocacy	1953
		Small Business Development Centers	Cooperative effort of the private/ academic/public sectors to enhance economic development	Counseling, training, and research assistance	1977
		Service Corps of Retired Executives	Advise and assist entrepreneurs with their business planning and operations	Counseling, workshops, and seminars	1964
	Manufacturing Extension Partnership		Strengthen the global competitiveness of small US manufacturers	Access to information and building networks among companies, suppliers, technology developers, regulators, and financing	1988
State	Pennsylvania's Ben Franklin Partnership Program		Regional support network for technology innovation	Advanced Technology Centers, seed venture capital funds, seed research grants, and small business incubators	1982
City	Birmingham Business Assistance Network		Intermediary operating between local universities, federal labrotories and corporate research institutes and local companies	Financial management, planning, technical assistance, and identifying financial resources	?

 

        Luger and Goldstein (1991) report that approximately 13 percent of surveyed U.S. research and doctoral-granting universities answered that they had small business assistance centers. The National Research Council's Committee to Assess Barriers and Opportunities to Improve Manufacturing at Small and Medium-Sized Companies, (1993) commends the positive linkages between public sector assistance and universities. They claim that universities can extend valuable business assistance to private industry; and, students are an "effective, affordable resource to assist both public and private service providers" (National Research Council, 1993 p.59). The Small Business Administration (SBA Website) is able to provide more than half of their counseling and two-thirds of their training efforts through Small Business Development Centers (SBDC). SBDCs are operated by "any public or private institution of higher education, including but not limited to any land-grant college or university, any college or school of business, engineering, commerce, or agriculture, community college or junior college" (SBA Website). 
 

IV. Have Business Assistance Programs Been Successful? 

        Evaluation of business assistance programs has been dominated by qualitative studies. Writers discuss the role of small businesses in the economy, misunderstandings of their role, the need to design appropriate programs to meet the diverse nature of small business industry, and the plethora of programs administered by all levels of government. Quantitative research is sparse. 

        First, business assistance programs are largely based on David Birch's highly criticized research of the role of small businesses in our economy. Evaluations illustrate that often assistance is not targeted to industries with the highest growth potential. Policy makers need to examine more carefully the current economy and impact of diverse industries on the economy. Erickcek (1997) argues that policies will be more effective when they target small business startups/expansions rather than simply allocating scarce resources to retention efforts. The former encourages entrepreneuralism and innovation, while the latter supports businesses that no longer meet the needs of customers. 

        The dominant criticism of the programs is that they are uncoordinated, scattered, unfocused, and not sufficiently demand-driven (Aram 1986). Markusen and Tietz (1985 p.194) state that, "small businesses are quite diverse with varying needs, therefore, we must carefully design and respond to demand." Frequently, policy makers erroneously copy popular business assistance programs elsewhere, and ignore local demand which is a critical component of developing a successful policy. Consequently, there has been a great impetus at the state and local level to develop programs that are more appropriate than umbrella-type federally administered programs. 

        There exist various methods to measure the success of business assistance programs. The following is list of recommended methods: client satisfaction (Weinstein, Nicholls, and Seaton 1992), efficiency (Lang and Golden 1989), sales, employment, and profits of client (Robinson 1982; Chrisman, Nelson, and Hoy 1985), and cost-benefit analyses to measure economic impact of the program (Wood 1994). The list is not exhaustive, nor does any one method fully capture all the social and economic costs and benefits of business assistance programs. 

        Today, the most widely used method is to examine the performance of assisted businesses by use of the following indicators: sales, employment, and profit gains. Wood (1994) criticizes this method because it overestimates benefits and does not measure client demand. His basic argument boils down to primary and secondary benefits. Primary benefits include help and consultation offered to the client. Secondary benefits then include increased new sales and employment to the local economy resulting from applying that advice. Wood (1994) argues that current methods overestimate secondary benefits. He claims that there are few, if any, new sales and employment, rather, the effects of business assistance programs are to reshuffle the local economy. Additionally, Wood claims that demand is not measured. How do you determine demand for a service when its price is zero? Wood (1994) suggests employing a travel cost method adopted from Christaller’s central place theory. This method measures the cost a firm faces to travel to the business assistance service center. Chrisman and McMullan (1996) reject this argument because it is biased downward since most centers are centrally located within urban areas. 

        Despite these contemporary disputes, there still exist no good empirical evidence on the effectiveness, efficacy, or efficiency of business assistance programs (Bartik and Bingham 1997). Vaughan (1983) concurs that there has been no comprehensive evaluation. However, considering the large sums of taxpayer money contributing to these programs, good evaluation needs to be done. 
 

V. How Can We Improve Business Assistance Programs? 

        Reviewers consistently write that improving business assistance programs requires tailoring programs to satisfy demand within local jurisdictions. Adopting successful programs is dangerous because while they may be successful, they are not transferable (Feller 1992). The main lesson to be learned from successful programs is how to cater to the local demand and support endogenous growth. 

        David Osborne (1990) has outlined seven tips for creating better, more effective business assistance programs, particularly at the state level. Osborne champions the efforts made at the state level because they address local demand and counteract location specific market barriers. His suggestions include: know your economy, wholesale, don’t retail, put business in the driver’s seat, fund programs on the basis of outcomes, do not neglect the needs of traditional industries, and create comprehensive, but decentralized programs, owned and run by local actors (Osborne 1990). 

        Looking to successful programs in Europe can shed some light on U.S. policy makers' attempt to alter their programs. Small businesses receive attention around the world (Hulpke 1994). Policy makers, however, use various methods to promote the growth of small firms. Two cited examples are in Italy and in Ireland. 

        Fosler writes that in Italy government assistance is channeled through a service center for individual industries. The program recognizes that sectoral differences between businesses result in varying needs. Since service centers are under the direction of a board whose members include the client businesses, the assistance is more likely to meet the needs of the businesses and be operated more effectively and efficiently. This method of financing "contrasts sharply with programs in the United States where government funds are provided directly to individual firms" (Fosler, 1990 p.181). 

        Hulpke compares government business assistance programs in Ireland to those in the U.S. (Hulpke 1994). Ireland has Innovation Centres that operate similarly to the SBA’s Small Business Development Centers. They receive substantial funding from the European Business Network and local Irish sponsors and government agencies. By contrast to U.S. practices, these centers charge clients for the services they receive. A typical fee is 400 dollars in 1994 dollars, for a session. This practice is premised on the belief that services that are paid for are more respected and consequently more often used. In the United States, the majority of the programs are offered at no cost. Fees are not popular in the US because they may act as a barrier to programs. An attractive solution may be to follow the model developed by the Pennsylvania Management Group. They have firms pay two-thirds of the costs, but do not charge for the initial consultation (Shapira 1990). 

 
VI. Conclusion 

        Policy makers and beneficiaries strongly support the goals of business assistance programs. The justification for creating business assistance programs is not highly contestable. Much of the debate then falls to the development of individual programs, who should provide, and how those services should be provided. Umbrella programs are not the answer. The term "small firm" is not generic; by contrast, it is characterized by great diversity in size, industry, and life cycle. Therefore, there can be no single blueprint program. Local policy makers must take responsibility for examining their local environments and responding with programs that identify differences in small businesses and their demands. Finally, the construction of a business assistance program must include comprehensive methods for evaluation. Without a comprehensive means of evaluation, no one can state with certainty whether or not business assistance programs have been, or can be, an effective tool to ameliorate the role of America's small businesses in local economic development. 

  
References 

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