LS17 - Competition, Protecting Suppliers and Workers Flashcards
why do governments support SMEs and small businesses?
• They create competition.
• They create jobs.
• Choice is increased for consumers by their presence in the market.
• Some are a source of exports.
• Can be a seed-bed for innovation (particularly start-ups).
• They may be more innovative, flexible and quick in responding to changes in market conditions and reacting well to the different needs and wants of their customers.
What problems do start-ups and SMEs face?
• Credit - Banks view smaller businesses as a greater risk. This means that often small businesses struggle to find funding/ affordable funding.
• Business skills - Some people feel they lack the skills and/or experience to succeed in business.
• Recruitment - Finding competent staff can be difficult even for large firms. SMEs often find it tricky to recruit suitable staff.
What can the government do to support start-ups and SMEs?
• Provide information on how to set up businesses.
• Deregulate to make it easier to enter markets.
• Streamline the process for setting up and running a business.
- this creates windows for tax evasion.
•e-g. no tax on first £50,000 earned.
- relax immigration rules.
• Provide training to help people gain business skills.
• Educational reform to increase the skills of the overall workforce.
• Provide business mentoring services e.g. experienced businesspeople offer advice to business people who are starting out in commerce.
Describe competitive tendering and the rationale behind it
A process in which private-sector firms compete to win contracts to perform tasks on behalf of the government e.g. providing catering for a school, constructing a hospital. The government chooses the firm they believe will be best for the public both in terms of quality and cost.
What is the rationale behind competitive tendering?
The idea is that introducing the profit motive to economic activity previously performed by the state should lead to an increase in efficiency and quality. The taxpayer should then benefit from improved and/or cheaper public services.
This relies on the assumption that there will be a competitive market for government contracts and that the government will be able to competently administer contracts.
What are the benefits of competitive tendering?
If there is a competitive market for government contracts, the private sector will be responsible for allocating more resources in the economy. This should allow for market forces to improve quality and choice. Prices should fall too. The taxpayer will therefore benefit.
What are the downsides of competitive tendering?
• If the government focuses heavily on the price of contracts firms may respond by reducing quality. This is not ideal given these are public services e.g. the construction of a hospital.
• Firms involved in competitive tendering, referred to as outsourcers, often have the ability to drive a hard bargain in contract talks. This results from their large size and experience.
Consequently, they are often more adept at negotiating contracts than the government. As a result, the taxpayer often ends up with poor value for money.
• The contracts the UK government puts out to tender often only have a few bidders. The lack of bidders means that competition is limited.
Done up to pg4
