Entrepreneurship in Development

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This is the second post in a series on how international models can be designed to best promote the flourishing of human life in communities around the world. The previous post, which you can read here, focused on how people are inherently creative and therefore need development models that enable them to act upon that part of their nature. This week’s post will take a look at what the research has to say about the opportunities or challenges associated with models that reflect this recognition, particularly the entrepreneurial aid model.

As soon as you begin to sift through the research, one thing becomes clear: the power of entrepreneurship is undeniable (Lame & Yusoff, 2015). It’s not difficult to see why this is. Leading authorities in this field all recognize entrepreneurship to be a driving force behind job creation and economic growth (Koltai, 2016). Considering that unemployment, particularly among youth, and stagnant or depressed economies are both critical factors that perpetuate the cycle of poverty at local and national levels, investments in efforts to encourage the startup or expansion of businesses are very promising. In fact, much of India’s success in poverty reduction– a drop from 40% to 11% between the 1970s and 1990s– can be credited to such efforts (Robinson, 2002). Research shows that entrepreneurial activity in India added value to the country’s economy in addition to generating wealth, reduced unemployment by creating jobs, and improved the standard of living by raising the average income level. Additionally, investments in entrepreneurship are linked to equitable redistribution of wealth, meaning that the positive outcomes that India derived from such activity actually benefited even the more marginalized and less economically advantaged members of its society (Verma, n.d.).

As you can see, the case for entrepreneurial aid is compelling. The question becomes, then, how should we go about putting it into practice? Some schools of thought have advocated for focusing efforts heavily on entrepreneurial training and additional education, the thinking being that this would equip individuals with the the necessary skills to become job creators instead of job seekers, who would then be prepared to succeed in any venture (Lame & Yusoff, 2015). Unfortunately, this approach is about as effective as trying to get someone hired in a film by teaching him or her to act, but offering that same person no assistance whatsoever in getting any auditions. Is it possible that the person could still get one and be selected for the role? Of course. But does it ultimately seem counterproductive to stop midway through the process of helping that person land a role? Yes. The same can be said for initiatives that focus on entrepreneurial training and education alone without providing individuals with the necessary capital to start up a business and put those skills into practice. For example, in a study by Clark et al. (1984), only 10% of those who had undergone such a training program eventually started a business.

However, the answer is not necessarily to start handing out cash transfers to just anyone, either. Referring back to our previous analogy, what would be the value in booking someone a number of acting auditions without first making sure that they knew how to act? This principle is reflected in a study by Chris Blattman and Laura Ralston (2015) who found that among Ugandan youth who received small grants to create their own businesses, venture success was largely tied to the fact that these youth invested about a third of their capital in skills training. Not to mention, training a group of youth together builds social capital and cohesion that cannot be achieved simply by distributing grants to individual young men and women. When considering the issues that plague the Congo, this point cannot be overlooked.

So where does the answer lie? You’ve probably put two and two together at this point. The best model for entrepreneurial aid is found in providing both skills training and opportunities to put those skills into practice. Only by appreciating the benefits that both of these elements bring can a program be comprehensive enough to produce optimal and lasting results.

References

Blattman, C., & Ralston, L. (2015). Generating employment in poor and fragile states: evidence from labor market and entrepreneurship programs. Available at SSRN.

Clark, B. W., Davis, C. H., & Harnish, V. C. (1984). Do courses in entrepreneurship aid in new venture creation?. Journal of Small Business Management (pre-1986), 22(000002), 26.

Koltai, S. R. (2016). Entrepreneurship needs to be a bigger part of U.S. foreign aid. Retrieved from https://hbr.org/2016/08/entrepreneurship-needs-to-be-a-bigger-part-of-us-foreign-aid

Lame, S. M., & Yusoff, W. F. W. (2015). Poverty Reduction in Nigeria: The Role of Entrepreneurship Education.

Robinson, M. S. (2001). The microfinance revolution: Sustainable finance for the poor. World Bank Publications.

Verma, J. K. Impact of entrepreneurship on economic development in India: A critical study. Indian Journal of New Dimension, 3.

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