Entrepreneurship and the failing states

Citation

Ali, A.J. (2010), "Entrepreneurship and the failing states", Competitiveness Review, Vol. 20 No. 3. https://doi.org/10.1108/cr.2010.34720caa.001

Entrepreneurship and the failing states

Article Type: Entrepreneurship and the failing states From: Competitiveness Review: An International Business Journal, Volume 20, Issue 3

How vital are entrepreneurs? In countries where the environment has been favorable for entrepreneurship, economic prosperity, and the standard of living have been exemplary. In these countries, entrepreneurs have created wealth and jobs and in the process have generated opportunities for fellow citizens and, as a result, there have been ample possibilities within reach for increasing numbers of people.

In the quest for lifting developing countries from their economic and technological backwardness, international institutions (e.g. World Bank and UN), along with industrialized countries, have embarked on various aid programs; especially economic assistance and loans to developing nations. In addition, Western countries have prescribed extensive and costly programs to upgrade government functions and approaches for unlimited numbers of developing countries.

While some countries such as South Korea and Taiwan, for various reasons, have benefited from Western assistances and relations and realized exceptional development, other countries have not been that fortunate. In many situations, developing countries do not need military aid and costly government programs. What they need is simple and less intrusive programs essential for economic and knowledge and skill enhancement. That is, these countries are in need of sound economic governance and human capital formation. Neither military aid nor sophisticated economic programs will help these developing countries achieve stability and economic progress.

An often neglected or unappreciated path to enhancing economic development is to engage and energize local entrepreneurs and to create an environment that facilitates their success and contributions. Unlike industrialized countries, developing countries have long heavily depended on the public sector and bureaucrats for creating jobs and improving living standards. These countries, however, before and during early years of colonization, had the active participation of local entrepreneurs in their national economies. In countries, from Syria to Argentina, and from Thailand to Tanzania, entrepreneurs were instrumental in building thriving economies. These entrepreneurs, however, have seen their fortunes fall as the states have imposed stiff restrictions on their activities and the public sector has become the dominating economic actor.

In 2009, there were 40 nations which were classified as either failed states or in danger of being failed states (Foreign Policy, 2009). The global recession, which started in 2008, and economic instability may further deepen the calamity of these states and incite fears that many other countries could slip into the ranks of the failing. While the UN and the G-7 have a high stake in seeing that this downward trend is revised, the leaders of these countries and NGOs have to refocus their efforts on organizing and energizing local entrepreneurs to be involved in economic revitalization. A first step in this direction is enacting and enforcing laws that protect the rights of entrepreneurs and that make it easier for them to have access to capital and economic opportunities.

The role of entrepreneurs in preventing the collapse of the state should not be minimized. These actors, due to their pragmatism, foresight, sense of urgency, and willingness to boldly embark on daring projects, have a better chance than government agencies in revitalizing the economy and enlarging the economic arena and market opportunities. More importantly, entrepreneurs’ participation on the global stage may be one of the best strategies to counter foreign military ventures. To a large degree, most of the failed states have reached this stage of misery due to foreign intervention or invasion (e.g. Afghanistan, Haiti, Somalia, Iraq, and Congo). Active involvement and economic contribution of entrepreneurs are more likely to strengthen the vitality of civic and legal institutions, and, along with economic prosperity, render today’s invaders’ justifications for intervention indefensible.

While entrepreneurs are known for their discovery, engagement, and determination to make a difference, it is their organizing skills which are needed most in developing countries. These countries, while having the resources, are often unable to mobilize and deploy them effectively. The McKinsey Quarterly (Khanna, 2008) contrasted the state of entrepreneurs in two villages in India and China. The report indicated that the Chinese government actively spurred the village economies, largely through agricultural reform. In India, agricultural mandates require peasants to sell their produce through wholesale yards or mandi. The latter was thought to free poor peasants from the clutches of local moneylenders, but it has become a monopoly and the peasants are exploited by local political interests. These peasants start their day before dawn and come to the auction yard in crowded public buses, bullock carts, trucks, and even tractors and sell their produce for whatever they can get. Lacking organization and essential support, peasants often leave piles of supposedly fresh produce lying everywhere, rotting in the sun.

In contrast, in a village of Qiu in China, the paved roads are in better condition than the Massachusetts Turnpike and the village has none of the desperation so obvious in many Indian villages. That is because in China the government has understood the significance of rural development for the overall development of a nation’s economy. Thus, China’s economic progress began with the reform of its village enterprises. Entrepreneurs have been encouraged and supported and the government has embarked on an impressive infrastructure to connect rural areas to urban centers. Entrepreneurs have seized opportunities in agricultural reform and since have thrived and contributed to the overall economic development.

The point is that developing nations, especially those which are either categorized as failed or in danger of being failed states, have at their hands untapped resources; local entrepreneurs. These nations face serious challenges not only to economic progress but also to their national security. After years of experimentation with a variety of economic models and programs, they might find it practical to grant their own entrepreneurs the freedom to start businesses without intrusive policies that limit their imagination and ability to compete. These entrepreneurs have the capacity to chart profound economic change through discovering, mobilizing, and deploying resources in the most effective ways. Unlocking their talents is essential for economic revitalization, building sound institutions, energizing the workforce, improving living standards, and escaping the stigma of underdevelopment.

Abbas J. Ali