Lessons from the Poor: Triumph of the Entrepreneurial Spirit

Citation

by Garreth Bloor, R. (2013), "Lessons from the Poor: Triumph of the Entrepreneurial Spirit", Journal of Entrepreneurship and Public Policy, Vol. 2 No. 1, pp. 98-100. https://doi.org/10.1108/20452101311318710

Lessons from the Poor is a rigorous analysis of the successful role entrepreneurship plays in economic development. The book brings together case studies from various parts of the developing world, outlining the profound importance of the act of enterprise that is evident within all societies. As Florida State economist James Gwartney posits in the foreword, human beings have a natural tendency to act entrepreneurially – “to discover opportunities and better ways of doing things”. This essential recognition not only informs the economic framework of the book, but underlies the inspiring narratives and case studies that cater to both academics and non‐academics alike.

Much like the work of Austrian School economist Israel Kirzner, Lessons from the Poor places the entrepreneur back as the driving force in economics. As the book itself acknowledges, no central planner of development official could foresee the entrepreneurial successes told by the book's contributors. By taking a look at the stories of successful entrepreneurs in Latin America and Africa, the authors demonstrate the power of free enterprise in regions often analysed from the perspective of state action. In addition, the stories illustrate the importance of entrepreneurship to economic development in a manner often not captured in traditional journal papers. Regardless of reasons behind a lack of attention on the entrepreneur in the scholarly literature, under the editorship of Alvaro Vargas Llosa this book is an important contribution to the field.

While providing a work of important scholarship, the book does not exclude audiences outside of the academy. If anything, the narrative format employed in the collection provides an inspirational account of the profoundly human spirit that underlies the creative energy driving private enterprise. As New York University economist William Easterly writes of the book, we see that the “mightiest soldiers in the war on poverty are poor people themselves”. It is this critical premise that underlies a work that stands in contrast to a seemingly endless array of top‐down policy solutions.

As an Africa‐based researcher, one of my favourite chapters describes the emergence of the Kenyan supermarket, Nakumatt. June Arguna and Scott Beaulier recall that during a 2004 meeting of the Ford Foundation a series of presentations “sounded the death knell” for the country, a statement to which most of the audience agreed. However, economist David Ndii of the Kenya Leadership Institute broke from the subdued acceptance of Kenya's failure by stating the obvious: government needed to leave people alone to run their businesses and their lives. Ndii argued that the ability of Kenyans to survive the massive corruption, poverty and bad governance was proof enough the country's people were more than able.

The story of Nakumatt is that of a small family‐owned store that uses local knowledge to meet the needs of ordinary people. This point underscores the fundamental importance of the Hayekian argument that displays the flaws of top‐down planning (a flaw seemingly ignored by so many aid activists). Using local knowledge, Nakumatt succeeded. The supermarket positioned itself with a strong focus on human resources and long‐term planning, succeeding against a lack of property rights and leases which challenge many small businesses.

The book's second chapter, “Defeating Poverty Doing Business: The Case of the Flores Family and Topy Top”, is essentially a theme for the entire collection. Topy Top, a textile and garment company, is launched in Peru by a young man who earned his first income by washing cars. The author's thorough analysis of the company does not detract from the important economic point often associated with the Austrian School: human beings act. Human action, not the bureaucracy of the state apparatus is the starting point of economic activity. Another Peruvian success story, Kola Real, also receives extensive treatment in the opening chapter to the book. Underlying the entrepreneur's ability to serve as an agent of change are subjective, unquantifiable personality traits which distinguish the entrepreneurial personalities from those of their fellows citizens. These traits are profound and ultimately responsible for the secondary effects of cultural innovation, economic growth, political freedoms and improvements in overall standards of living and human well‐being.

Lessons from the Poor does not only serve economics classes, but can inform business schools and public policy departments with its analysis. As Llosa points out in the introduction, it is not surprising that the economist Joseph Schumpeter identified entrepreneurial creativity and risk taking as the driving force in economic development. “Creative destruction” as Schumpeter described it, translates to new innovations in the market place, leading to the constant changes that are responsible for ongoing increases in productivity, economic growth and an increased array of goods and services. It is a reality not missed in Lessons from the Poor, with careful attention paid to the overall social effect the featured business in the markets they serve.

A perspective of spontaneous order is brilliantly evident in chapter 5 from the first sentence. The authors, Simonetta, Lizzari and Gazave, describe the emergence of private currency through barter clubs in Argentina following the country's economic crisis in 2001 and 2002. The authors illustrate the work of Murray Rothbard on the emergence of direct exchange by offering Rothbard's historical account with the more contemporary situation that emerged in Argentina following the major economic downturn. The combination of theoretical analysis and application work is illuminating as they show that these informal barter clubs evolved to meet the needs of individuals whose currency needs were not being met by an inefficient state.

We know entrepreneurs are crucial; the growth of nations depends on the innovation of its people. The human mind is, after all, the greatest resource – the precursor to all external actions. Individuals lament the loss of what can be seen, but the worst losses are often those that are unseen. How many potential businesses, from family enterprises to multinational empires, did not come into existence because of a bad institutional framework?

Which brings me to the final chapter of the book, which helps to quantify the unseen by providing evidence on the importance of economic liberty to entrepreneurship. Joshua Hall and Russell Sobel, writing in “Freedom, Entrepreneurship and Economic Growth”, provide evidence that economic freedom is a primary determinant of entrepreneurship. Competitive behaviour drives growth and growth lowers prices and increases efficiency. The Economic Freedom of the World Index published annually by the Fraser Institute consistently shows that it is precisely freest countries that consistently enjoy the greatest levels of prosperity. Hall and Sobel show that economic freedom creates an environment where individuals’ entrepreneurial energies are channelled to positive‐sum entrepreneurship instead of towards rent seeking and corruption.

Classical liberal scholars who focus on the law might point out that a more rigorous analysis of a country's legal structures is missing in the book. Certainly the rule of law is important to entrepreneurship. As the Acton Institute's Samuel Gregg has pointed out elsewhere “in the midst of this enthusiasm about entrepreneurship, we risk forgetting that entrepreneurship's capacity to create wealth is heavily determined by the environments in which we live”. However, while Lessons from the Poor is centred primarily on individual entrepreneurs, it implicitly recognises the importance of the rule of law. For example, in the final chapter, Hall and Sobel use a figure titled “The Entrepreneurial Process” to illustrate the importance of government policy – including legal institutions – in fostering positive‐sum entrepreneurship.

A Lesson from the Poor rightly recognises the agency of world's poor and how they are able to thrive, despite what appear to be insurmountable challenges. By doing so the authors all afford a particular dignity to the world's poor which is not always apparent in recommendation reports seeking to address poverty. By recognising the abilities of the poor themselves, the book avoids undermining the role of the individual living out his or her self‐determination. At the same time, this work provides important empirical findings that affirm the value of enterprise and the need to remove onerous barriers that hinder the poor doing business. The book is an important read for NGOs, policy makers and particularly those academics and students alike who are keenly aware of the poverty that still afflicts so many on our planet.