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Capillaries of the Economy: Why Small Businesses Decide a Nation's Health

  • 1 hour ago
  • 5 min read

Small and medium enterprises are like the capillary system that nourishes every economic cell. If this segment is blocked, an economy can have powerful main arteries and still fail to function.


Although small and medium enterprises (SMEs) are everywhere, and everyone agrees the segment needs support, discussions of economic development still get pulled toward big numbers: billion-dollar conglomerates, massive investment projects, headline-grabbing M&A deals, the firms with the highest market capitalization on the stock exchange. Big things draw attention.


But the experience of many prosperous countries shows that the real strength of an economy does not lie in a few giants. It lies in millions of small actors who are dynamic, persistent, and spread broadly and deeply through society.


If the capital market runs on the trust of small investors and minority shareholders, the national economy likewise runs on the vitality of small and medium enterprises. To put it another way, the understory is the foundation of the ecosystem in which the canopy trees can stand.


SMEs are the vitality of the Vietnamese economy

The vitality of the economy comes from the SME sector, where jobs are created, innovation happens, and competition stays alive. Photo: VTV.


1. The logic of the many, and the foundation of market trust

In the financial market, retail investors typically hold a much smaller share of market capitalization than institutional investors, investment funds, or controlling shareholders. Yet their numbers are vast. Behind every trading account is an individual, a family, an aspiration to accumulate wealth and improve the future. If the stock market leaves small investors exposed to price manipulation, insider trading, financial-statement fraud, or self-dealing by controlling shareholders, trust collapses. When trust disappears, capital flows out, liquidity dries up, and the market stagnates.


That is why the maturity of a capital market is often measured by how it protects small investors: through transparent disclosure rules, vigorous enforcement against insider trading, conflict-of-interest safeguards, and a level playing field for all participants. Investor-protection laws exist in nearly every market. What differs is how rigorously they are enforced.


The same principle applies to the economy as a whole. SMEs may not own as much aggregate wealth as a few large conglomerates within a country, but they make up an absolute majority of the business count, generate the bulk of jobs, sustain millions of households, build the middle class, and inject competitive vitality into the economy. By 2025, Vietnam had more than 900,000 active enterprises; more than 97% were small and medium-sized, accounting for over half of total employment and roughly 45% of GDP (Ministry of Planning and Investment). They are the small investors of the national economy.

The understory is the foundation of the ecosystem in which the canopy trees can stand.

2. Four pillars of the SME sector

A country can grow on the back of a few large conglomerates, but it can hardly achieve durable prosperity if its SME sector is weak. The reasons are clear.

  • First, SMEs create broad-based employment. Large enterprises tend to be capital-intensive and technology-intensive, but they do not always absorb large amounts of labor. SMEs, by contrast, are present in every locality, from cities to the countryside, from manufacturing to services, from trade to digital innovation.

  • Second, SMEs spread business opportunity more widely. When a person can open a small workshop, a shop, a technology firm, a service business, or a processing facility, they become creators of wealth rather than people waiting for a job.

  • Third, SMEs are the cradle of innovation. Many breakthrough ideas begin in small enterprises, where decisions are fast, structures are lean, bureaucracy is minimal, and the firm sits closer to the market.

  • Fourth, SMEs build resilience into the economy. An economy that depends on only a few giants is prone to risk concentration: if a single large enterprise enters crisis, the consequences spread widely. With hundreds of thousands of SMEs, risk is dispersed and the capacity to adapt is greater.


3. When policy tilts toward the giants

A state that focuses too heavily on national-champion conglomerates (the so-called quả đấm thép, or “iron fists” of state-led industrial policy in Vietnam), or on interest groups with strong lobbying power, while underweighting the SME sector, erodes the long-term foundations of the economy.

  • First, society loses its drive. When citizens see that small business is hard to sustain, that procedures are cumbersome, that capital is hard to access, and that competition is unfair, they lose the will to start ventures and to invest.

  • Second, resource allocation distorts. Without appropriate regulatory mechanisms, land, credit, preferential policies, and market opportunity tend to concentrate in large enterprises, while the SME sector, which creates the most jobs, faces restricted access.

  • Third, the economy drifts toward "too big to fail" dependence. When certain companies grow to a scale that is simply too large, the state can come under pressure in a crisis to intervene to contain systemic risk. China’s Evergrande case is one example. If the dynamic takes hold, it erodes market discipline and breeds moral hazard.

  • Fourth, inequality widens. When economic opportunity has not been broadly distributed, growth may still be achieved, but social cohesion can come under strain.

The business community asks for a transparent environment
The business community looks for a transparent business environment, streamlined administrative procedures, and lower costs. Photo: Báo Lao Động.

4. Trust is the most precious capital

What small investors in the stock market and SMEs in the economy share is this: they only commit at scale when there is trust.

They only commit at scale when there is trust.

Small investors need to believe the market is fair. SMEs need to believe the rules are transparent, that access to capital is unbiased, that taxes and procedures are reasonable and predictable, that property is protected, that disputes are resolved fairly, and that competition is not distorted.


When trust is present, millions of people will commit capital, open businesses, hire workers, invest for the long term, and innovate. When trust is absent, they retreat, hold cash, or migrate to the informal sector. Protecting SMEs, therefore, is not the granting of favors. It is an investment in social trust and an expansion of the foundation for national growth.


A nation’s economic strength is not measured only by the number of billionaires or by the size of a few listed conglomerates. A truer measure is the capacity to widen business opportunity: how many citizens can participate in business, how many small businesses can grow, how many new ideas are tested, and how many people are willing to invest for the long term on the basis of trust in the rules of the game.


The right policy for SMEs is not blanket subsidy. It is: lowering barriers to market entry; reforming administrative procedures; protecting property rights; broadening sound credit access on prudent terms; advancing digital transformation; curbing monopoly and rent-seeking privilege; ensuring fair competition; and supporting training in management, technology, and exports.


When that is in place, SMEs will not need to engage in "xin cho," the “ask-and-grant” patronage of supplicating officials for permits, licenses, and discretionary favors. They will grow on the strength of their own capabilities.

Capillaries are small, but they nourish each living cell.

If the capital of small investors is the lifeblood of the capital market, then SMEs are the capillaries of the national economy. Capillaries are small, but they nourish each living cell. A body cannot be healthy if it has only a large heart and large arteries while the capillaries are blocked.

Likewise, an economy can hardly be sustainable if the SME sector has not grown in step with the large enterprises. Supporting SMEs is therefore a strategic choice: to widen the foundation of growth and the breadth of opportunity. Behind every small business is a family, a community, and a part of the country’s future…



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