South Africa is characterised by extremely high unemployment, at a level that has the potential to derail its future political stability. This paper explores constraints on the job creation capabilities of micro and small enterprises, specifically focusing on the consequences of existing institutional and regulatory frameworks, looking at a panel of firms within the manufacturing sector. This study revealed that most of the small firms interviewed were locked into a 'coping mode', and were extremely reluctant to expand, which owners ascribed to inappropriate regulation, outright regulatory failures and/or poor labour relations. At the same time, many employers openly admitted to not adhering to at least some labour regulations. At a theoretical level, it is argued that there is much more to promoting enterprise than the formal protection of owner rights. The paper concludes with an assessment of the possibilities and challenges of the practicalities of reform.