An economy can show confident growth in industrial output, expand exports, and invest in large flagship projects – and still get stuck with low-quality growth. Without a stable middle segment of business and without productive services, growth quickly hits a ceiling. This is no longer a theoretical issue. It has become a key structural constraint for countries that have already passed the phase of an industrial push.
The main trend of recent years is simple and uncomfortable. Strong industry no longer guarantees sustainable growth.It stops pulling the whole economy on its own. If there is no dense layer of fast-growing small and medium companies, and if the service sector lags in productivity, the economy starts to stall. This is exactly what has happened in a number of countries with advanced industrial bases. And this is the point Kazakhstan is approaching today.
At first glance, the picture does not look bad. Industry takes a meaningful share of the economy. Exports are concentrated in large companies. For many years, policy has supported industrial projects. But behind this facade sits a structural gap. Between large corporations and microbusinesses there is almost no middle layer. And the service sector often grows mainly through employment, not efficiency.
This gap is more dangerous than it looks. It hits productivity. It limits the creation of high-quality jobs. It reduces resilience to shocks. And it makes growth dependent on a narrow circle of sectors and companies.
In mature economies, it is precisely the middle segment of business and modern services that become the main engines of value added. They adapt faster. They adopt new processes more often. They create jobs outside commodity and capital-heavy sectors. When that layer is missing, the economy becomes fragile – even if industry performs well.
One of the core problems starts with how entrepreneurship is understood. The number of small firms and self-employed people is often confused with the quality of the business environment. But the gap between the two is huge. The economy needs not just small firms, but companies willing and able to grow. Firms that move beyond survival. That invest, scale, and enter new markets.
In many economies, the share of fast-growing SMEs stays low. Most firms either remain micro by design or do not survive long enough to reach a growth stage. The reasons are not only about access to finance. They run deeper – into the design of support policy.
Government programs often encourage the creation of businesses, but not their development. Success is measured by the number of registered companies or the number of jobs. This is convenient. But it distorts incentives. Entrepreneurs begin to optimize for eligibility, not for growth. Companies stay small on purpose because growth means losing benefits, facing more inspections, and entering a tougher compliance zone.
These threshold effects become a trap. The economy gets many small firms, but few strong ones. The middle layer does not form. Productivity does not rise. Innovation does not scale.
Kazakhstan knows this pattern well. For many years SME support was built around maintaining employment and social stability. That logic is understandable for a transition period. But at the next stage it becomes a brake. Firms learn not to grow. They learn to stay inside a comfort zone. They learn to work for subsidies, not for markets.
Another distortion comes from how the state evaluates support programs. Often the main KPI is job creation. It looks socially appealing, but it can be economically misleading. Fast-growing companies at early stages may create few jobs. They invest in technology, processes, and market expansion. The big employment effect comes later – once the firm enters a stable growth path.
If incubators and accelerators are judged by employment, they start selecting not the most promising projects, but the most labor-intensive ones. That lowers the quality of portfolios and reduces the payoff from support.
Finance can fall into a similar trap. Governments build venture and quasi-venture tools. Funds are launched. Co-investment programs appear. Formally, capital is available. But the real bottleneck shifts to the demand side.
Investors struggle to find quality projects. There are too few robust business models. Too few teams ready to scale. Money starts chasing projects, not projects chasing money. This is a warning signal. It shows that the growth ecosystem is not formed.
In such conditions, even a sophisticated financial market does not solve the problem. It only highlights the missing middle layer. Firms are not ready to take capital – or not ready to grow.
The situation is worsened by the structure of the service sector. In many economies, services become the main source of jobs, but not the main source of productivity. That means employment growth does not translate into income growth. The economy expands sideways, not upward.
The reasons behind weak service productivity are well known. Limited competition. Regulatory barriers. Closed markets. Low investment in technology. Lack of pressure for efficiency. In countries with strong industrial policy, services were often treated as secondary – a supporting layer. That logic no longer works.
In the knowledge economy, services become the core. Engineering. Design. Logistics. IT. Professional services. Healthcare. Education. This is where a large share of value added is created. If this sector lags, industry itself loses competitiveness.
A separate problem emerges when large corporations keep services inside their own walls. Internal logistics, IT, marketing, and engineering do not spill into the market. They do not create competition. They do not diffuse best practices. The service ecosystem does not develop. SMEs do not gain access to contracts and experience.
This structure reduces the overall payoff from industrial growth. Manufacturing companies can be strong, but the economy around them stays weak. And the missing middle layer remains.
For Kazakhstan, this risk is especially relevant. Large players dominate. Many service functions remain trapped inside corporate contours. The service market is fragmented and often low-productivity. Regulation in places protects not efficiency, but the status quo.
Add labor market frictions. Mobility is limited. Transitions between sectors are hard. Social protection weakly compensates for the risks of change. Structural shifts slow down. People hold on to low-efficiency jobs. Firms keep old models.
Skills and education add another layer. Services require a different competence set: communication, process management, digital skills, data work. If training systems remain oriented mostly toward industrial occupations or formal qualifications, services remain in the shadows.
All of this creates a closed loop. Weak services slow growth. Weak growth does not create demand for high-quality services. SMEs do not scale. The economy hangs between the industrial model of the past and the knowledge economy of the future.
Breaking the loop requires changing framework conditions. Not launching one more support program. It requires a rebuild of incentives. Competition. Regulation. Taxes. Social policy. Support must stop keeping firms “small by design.” It must help them move into growth.
For Kazakhstan, this means a painful but necessary shift. From preservation to development. From protecting jobs to protecting mobility. From quantity metrics to quality outcomes.
A middle layer of business cannot be created by decree. It emerges where it is more profitable to grow than to stay small. Where services can compete. Where markets punish inefficiency. And where the state does not replace the market, but sets the rules of the game.
An economy without a middle layer can exist. It can even grow. But it cannot be resilient. And it cannot keep high speed for long. This lesson is too well known to ignore.
