Between a rock and a hard place

   When Napoleon called the English a nation of shopkeepers, he was not being complimentary – but he was being accurate. The U.K. built its wealth around the concept of small and medium-sized businesses (SMEs in 21st century parlance), and 200 years later it is still reliant on them for its economic success. Indeed, the economies of the European Union (EU) are SME based, with up to 70% of SMEs behind much of the EU economic powerhouse.

   So last week's report by PricewaterhouseCoopers (PWC) on the implications of EU accession on businesses in the region sent a shiver down the spine of many regional economy watchers. While many businesses Euro-wide are worried that a broader EU will mean greater competition, more troubling is the pessimism of businesses in Central Europe – and in Poland these reservations are not entirely unwarranted.

   Bluntly speaking, the government is not doing nearly enough to encourage the growth of SMEs in Poland. While they account for 45% of GNP, funds that are funneled back to them are small and taxes on them are cruel. In Poland, the government taxes SMEs on a monthly basis. Most businesses would not even receive credit before they have to account for expenses. In the U.K., SMEs pay value-added tax on a cash-received basis, a process that can take up to 60-70 days.

   So far, the government has simply mouthed platitudes without seriously committing itself. True, there have been a few initiatives during the past year, but these have still yet to receive any serious funding. Financial heavyweights such as Citibank have also issued welcome packages for SMEs, but real power behind the small business person in Poland has to be the government. Measures are needed to strengthen credit guarantees for SME exports. The corporate monthly tax has to be scrapped. The government also has to bring inflation under control and knock down interest rates. In addition, analysts say the zloty is still too high to be SME friendly.

   Unfortunately, there is little in the short term to be optimistic about for owners of SMEs. Realistically, little is going to be debated on the issue until after next year's elections. As one analyst put it, "everyone is caught between a sharp object and a stone."

   However, looking a few years down the road, help for SMEs could come from an unexpected quarter. With EU accession, companies from Western Europe and the United States could bring a welcome injection of capital into Polish companies by buying up or consolidating with the locals. That foreign capital could trigger a much-needed expansion for Polish SMEs, which have the local knowledge that foreign businesspeople need. This will help jump-start employment and boost consumer spending.

   So maybe the shopkeepers and mill owners shouldn't despair of the encroaching European superstate. It could eventually ignite the kind of bright spark that has been missing from policymakers these past years.