The en­tre­pre­neur and Guyana’s eco­nomic de­vel­op­ment

Stabroek News Sunday - - REGIONAL NEWS -

Next week I am pre­sent­ing a paper at the first en­trepreneur­ship con­fer­ence to be hosted by the School of En­trepreneur­ship and Busi­ness In­no­va­tion, Univer­sity of Guyana. My task is to tease out the role, if any, the en­tre­pre­neur plays in Guyana’s eco­nomic de­vel­op­ment. This is not a straight­for­ward as­sign­ment, so I con­sulted the eco­nom­ics lit­er­a­ture. At min­i­mum a def­i­ni­tion of en­trepreneur­ship is nec­es­sary be­fore we can dis­cover its role in de­vel­op­ment. In my pre­sen­ta­tion I ar­gue that if en­trepreneur­ship is con­tribut­ing to Guyana’s de­vel­op­ment, and will con­tinue to do so, it must have the po­ten­tial to in­flu­ence the very long-term trend per capita in­come. The cy­cle around the trend will be de­ter­mined by short-term busi­ness sen­ti­ments and ex­ter­nal shocks.

Econ­o­mists de­fine en­tre­pre­neur as a risk-taker, in­no­va­tor and some­one in con­trol of a pro­duc­tion tech­nol­ogy. The per­son owns a busi­ness and as such is the also the man­ager of the busi­ness. She looks for op­por­tu­ni­ties and in do­ing so is al­lo­cat­ing so­ci­ety’s re­sources, hope­fully in an ef­fi­cient use­ful man­ner. How­ever, not all man­agers are busi­ness own­ers. For ex­am­ple, the CEO, chief ex­ec­u­tive of­fi­cer, com­pany sec­re­tary and other man­age­ment of a pub­licly traded com­pany may not be own­ers of the com­pany. They man­age the com­pany that is owned by share­hold­ers, but they can also in­no­vate and they take risk, al­beit with the funds of share­hold­ers. The mis­match between man­age­ment and own­er­ship could re­sult in in­for­ma­tion­based prob­lems and abuse. A ma­jor is­sue in cor­po­rate fi­nance is to ad­dress ex­actly this prob­lem.

The same can be said about state-owned cor­po­ra­tions like GuySuCo. The com­pany is owned by the peo­ple of Guyana, but it is man­aged by pro­fes­sion­als. An en­light­ened gov­ern­ment would be able to de­sign an in­cen­tive sys­tem to make sure the man­agers’ in­ter­est is aligned with the best na­tional in­ter­est. The task of gov­ern­ment is to min­i­mize the kind of in­cen­tive prob­lems that can oc­cur. There­fore, the sec­ond point of my pre­sen­ta­tion is the Univer­sity of Guyana should be think­ing about man­age­ment, pub­lic and pri­vate, as an equal com­ple­ment to en­trepreneur­ship. In my time as a stu­dent there, the univer­sity had a gen­eral man­age­ment de­gree that was closely aligned to the eco­nom­ics pro­gramme. I can­not fathom how one can study en­trepreneur­ship with­out a broad per­spec­tive in the nat­u­ral and so­cial sciences and sta­tis­tics, as well as arts and lit­er­a­ture. Jeff Be­zos and oth­ers are well aware of the ne­ces­sity of a broad ed­u­ca­tion, thus point­ing out how well lib­eral arts stu­dents do as en­trepreneurs.

We can think of en­trepreneurs as the self-em­ployed per­son out of ne­ces­sity. These folks could be our ven­dors and small shop own­ers. Another cat­e­gory would be op­por­tu­nity-based en­trepreneurs and yet another cat­e­gory would be dis­rup­tive or in­no­va­tive en­trepreneurs. The use of the word dis­rup­tive goes back to Schum­peter who saw Cap­i­tal­ism as a mal­leable sys­tem of creative de­struc­tion. The en­tre­pre­neur, ac­cord­ing to Schum­peter, is the in­no­va­tor churn­ing out new tech­nolo­gies that de­stroy old ones, but over­all do more good than harm. Schum­peter got the metaphor of creative de­struc­tion from the Hindu Trin­ity: Brahma, Vishnu and Shiva.

It is im­por­tant to con­sider what we mean by tech­nol­ogy. A tech­nol­ogy is a process of pro­duc­tion that trans­forms labour in­put, ma­chine, land, man­age­ment, etc, into use­ful goods and ser­vices. We have tech­no­log­i­cal in­no­va­tion when a new tech­nol­ogy can pro­duce the same out­put with less in­puts or pro­duce more out­put with same amount of in­puts. A tech­nol­ogy does not nec­es­sar­ily mean a gad­get like the iPhone or lap­top com­puter, although they be­come an im­por­tant in­put in the man­age­ment de­ci­sion. A tech­nol­ogy could be a man­age­ment method that or­ga­nizes busi­nesses bet­ter for greater pro­duc­tiv­ity. For ex­am­ple, con­tainer­ized ship­ping, justin-time man­age­ment and 3D print­ing are im­por­tant in­no­va­tions re­sult­ing in ef­fi­ciency gains. While the for­mer two en­hance ef­fi­cien­cies for ex­ist­ing busi­nesses, 3D print­ing is cre­at­ing small and medium-scale en­ter­prises cater­ing for niche and het­ero­ge­neous de­mands.

In ad­di­tion, there are fun­da­men­tal in­no­va­tions that re­sult from the ba­sic sciences in­vented at uni­ver­si­ties, gov­ern­ment re­search labs and pri­vate labs. There is a de­bate among econ­o­mists, how­ever, that the new in­ter­net-based tech­nolo­gies of to­day are not cre­at­ing the kind of broad pros­per­ity like old ones such as the light bulb, power gen­er­a­tion, steam ships, air travel, au­to­mo­biles and many oth­ers. This prompted the great Joseph Stiglitz to say that the in­ven­tion of toi­let was much more im­por­tant than in­ven­tion of Face­book.

In the Guyanese con­text, we can think of the en­tre­pre­neur as pro­duc­ing in the trad­able sec­tor, non-trad­able sec­tor and un­der­ground econ­omy. The trad­able sec­tor is the one which is the net earner of for­eign ex­change. This would be your ex­porter of var­i­ous kinds. In­no­va­tion would be nec­es­sary for ex­port suc­cess since pref­er­en­tial prices are gone. The non-trad­able sec­tor would be the net user of for­eign ex­change, but in­volves im­por­tant pro­duc­tion ac­tiv­i­ties where in­no­va­tion can take place. This sec­tor in­cludes ed­u­ca­tion, health­care, le­gal ser­vices, telecom­mu­ni­ca­tion, in­ter­net providers, ac­count­ing firms, waste man­age­ment, builders and con­trac­tors, bar­ber shops and all the small mom and pop busi­nesses. Clearly this sec­tor presents the po­ten­tial for in­no­va­tion, par­tic­u­larly in the area of drainage of the coastal plain. The ac­count­ing or le­gal firm are non-trad­able and likely op­por­tu­nity-based.

The un­der­ground econ­omy in­cludes the small itin­er­ant ven­dor or the big time smug­gler of all things like fuel, gold and il­le­gal sub­stances. The curb side ven­dor is non-trad­able and driven by ne­ces­sity. He would prob­a­bly pre­fer em­ploy­ment with ben­e­fits in a large cor­po­ra­tion. It is true the gold or drugs smug­gler might bring back some for­eign ex­change, but this can­not com­pen­sate for the de­struc­tion and cor­rup­tion of le­gal man­age­ment and po­lice work. It also redi­rects hu­man re­sources from the of­fi­cial to crim­i­nal econ­omy. It de­stroys hu­man cap­i­tal more than mi­gra­tion. This can never be a good thing as it de­stroys the so­ci­ety’s ca­pac­ity to gen­er­ate new sys­tems and in­no­va­tion. Fur­ther­more, money laun­der­ing in­flates as­set prices, such as homes and land, thus mak­ing life more dif­fi­cult for teach­ers, nurses, busi­ness man­agers, civil ser­vants, ven­dors and oth­ers. The only in­no­va­tion the smug­gler does is in cheat­ing, cor­rupt­ing and un­der­min­ing, which can never re­sult in broadly shared pros­per­ity.

No doubt, en­trepreneur­ship and man­age­ment – both pub­lic and pri­vate – will be cru­cial if Guyana is to es­cape the nat­u­ral re­source curse. The reader can dis­cern which sec­tor is more likely to have con­trib­uted to Schum­pete­rian in­no­va­tion and will con­tinue to do so. I think tremen­dous pos­si­bil­i­ties ex­ist in the non-trad­able sec­tor as well. Over the years, I have iden­ti­fied a few of the deep con­straints in­hibit­ing the pri­vate sec­tor in Guyana. I pro­vided some trend anal­y­sis in my paper and a dis­cus­sion of deep struc­tural con­straints that must not be mis­placed for prima fa­cie con­straints. For ex­am­ple, sur­vey data from an IDB study in­di­cated that fi­nanc­ing is a prob­lem. As a re­sult, many small busi­nesses self-fi­nance. Self-fi­nanc­ing, how­ever, has been around since be­fore and af­ter 1838 in Guyana when Africans pooled sav­ings for buy­ing land. Fi­nanc­ing is there­fore a prima fa­cie con­straint, sig­nalling a deeper con­straint per­tain­ing to the con­testa­bil­ity of bank­ing in Guyana. Con­testa­bil­ity means the ex­tent to which new banks are chal­leng­ing in­cum­bents for en­try. If the bank­ing sec­tor is not very con­testable, then it is no sur­prise why small en­ter­prises have to self-fi­nance. This is im­por­tant from a pol­icy stand­point. If we fo­cus on the prima fa­cie con­straint, then we look to­wards mi­cro­fi­nance. If we think about con­testa­bil­ity, then we can­not take in­dus­trial pol­icy and de­vel­op­ment bank­ing off the radar.

My paper closes off with a math­e­mat­i­cal model of growth sce­nar­ios, de­ter­mined by in­no­va­tion, un­der the fol­low­ing: (i) cen­tral gov­ern­ment pro­vides the pub­lic goods that com­ple­ment pri­vate enterprise; (ii) cen­tral gov­ern­ment has a preda­tory re­la­tion­ship with pri­vate sec­tor; and (iii) cen­tral gov­ern­ment re­ceives oil rents and has to de­cide whether to be de­vel­op­men­tal or preda­tory. The re­sults point to mul­ti­ple equi­lib­ria that de­pend on the ini­tial con­di­tions. There are hints of hit and/or miss for Guyana for the next 50 years.

Com­ments: tkhem­raj@ncf.edu

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