Grants to SMEs could harm, more than help

In recent years the Government has been providing grants to small- and medium-sized enterprises (SMEs) to encourage more people to start their own business.

Instilling the idea that the Government will always bail out failing SMEs so people should go ahead and start their business venture is not really a good way of encouraging business start-ups in Singapore.

Economics has taught us that for a free market economy to thrive, weak competitors that are unable to survive on their own should be eliminated by market cleansing so that new, more capable industries will rise to replace the less efficient ones in the market.

Misallocation of resources to SMEs can be a moral hazard to successful businesses due to the misguided sense of being insured to take excessive risks - more than they can handle.

Instead of providing grants to SMEs, incentives could be provided to enterprises with a good long-term track record, allocating resources to the highest valued users following the Invisible Hand Theory.

Justin Chong Rui Ming