A number of different responses have been made by governments to the recession which has gripped the economies of many of the world's leading industrialised countries since the mid-1970s. Faced with both a declining total market and increased competition from LDCs most governments have offered financial and non-financial incentives for manufacturing industry to become more price competitive. Government policies have also stressed the importance of both moving into technologically more sophisticated products and of using more efficient production methods (‘automate or liquidate’). The increased use of robots in manufacturing and the relatively slow rates of increase in labour productivity within the service sector have encouraged the belief that an increasing proportion of new employment will be created in services, based upon high incomes but low manning levels in manufacturing.

Nowadays, at the forefront of any discussion of new employment initiatives and new productive developments is the small firm. Evidence presented by Birch (1979) and by Birch and MacCracken (1983) suggests that the large corporation cannot be regarded as the major source of new jobs, even though multi-national corporations as a group are significantly more important in influencing both the volume and nature of world trade than any single national government, or perhaps any collection of governments. Yet if large firms are viewed as playing a major role in economic development it is in conjunction with smaller enterprises.

Over the last twenty years major changes have taken place in the attitude of governments towards small firms.