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This article claims that traditional supply of public support programmes for small and medium-sized enterprises (SMEs) in remote locations fails to achieve its objective: it is not met by 'hidden' demand. An experiment was conducted in SMEs that did not use available consultancy programmes in three remote regions in the state of Ceara in Brazil: a consultant was sent to each of them on a diagnosis mission. The results indicate that there is a 'hidden demand', in the sense that most of the enterprises need consultancy, but do not apply for the available services, and that they are generally incorrect in their assessments of the problems they face and how the issues identified should be prioritized. After benefiting from short-term diagnostic consultancy, they are better able to evaluate problems and, consequently, use available professional consultancy services more efficiently.

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This article presents a simplified model for comparison of the spatial distribution (core—periphery) of economic activity resulting from free market conditions, with the distribution that would lead to a social optimum. It further examines the public policy measures required to lead the economy towards the optimal distribution. Simulations are conducted to illustrate the mechanism of intervention of public policy and to test the feasibility of various measures. An important conclusion is that public investment in the creation of competitive ability in the periphery may provide the solution to market failure and therefore lead to the achievement of a social optimum greater than the free market optimum. Another preliminary conclusion is that public policy should consider a combination of measures (such as improving both regional infrastructure and the quality of the labour force), since focusing on a single measure may not be sufficient to achieve a social optimum.