By design, I have been fairly involved in entrepreneurship-related things during my visit here. I have spoken with government officials, entrepreneurs, NGO leaders, educators and private citizens and I have learned some things.
Among the more important things learned are that: 1. ) the role of entrepreneurship as public policy for economic growth needs to be broadened and 2,) the context of economies in transition influence a great deal how we assess especially the longer term impacts of entrepreneurship promotion programs.
The broadening of the role of entrepreneurship programs as economic development policy
The argument used to support government intervention to generate more entrepreneurial activity is founded in the thinking that entrepreneurship per se generates not only direct economic benefits like jobs and income but it also produces positive economic externalities. And, economic theory suggests that when the production of something generates positive externalities, market solutions result in too little of that activity being produced – to the detriment of society.
When applied to entrepreneurs, externalities theory tells us that the market is not likely to produce enough entrepreneurs, the assumption being of course that entrepreneurs generate economic growth. Getting more entrepreneurs requires some market intervention like government programs and other incentives to get more than what the market alone would produce. This is the realm of public policy.
Entrepreneurship as public policy also has gained favor stemming from the pragmatic needs of policy makers to have some policy alternative they can use to grow regional and local economies. Old regional growth policies aimed at attracting existing businesses from elsewhere through elaborate and generous tax incentives are proving to be not successful.
Policy makers around the world have become increasingly aware that not every region in every state is going to get that next Toyota or Volkswagen plant - no matter what the size of tax incentives a region or nation is willing to offer. Regions are not likely to be able to use incentives to grow jobs in a region by importing them. Consequently, to grow, regions may have to rely on growth from within through entrepreneurship, small business growth, jobs and income expansion.
The above text is pretty much orthodox thinking as it relates to places like Northeast Pennsylvania. Entrepreneurship policy and programs in Macedonia presents us with a different context in which to look at policies and programs related to entrepreneurship and economic growth.
Macedonian Context: Economy in Transition
Macedonia falls into a category of a developing transitional economy and as such I suggest that in a developing, transitional economy any entrepreneurial activity is good. Entrepreneurship literature might suggest that to have growth, a nation or region should allocate resources to activities that promote entrepreneurship of the kind that actually contributes to the growth of the regional or national economic pie. It is of the kind of entrepreneurship Professor Baumol labeled “productive”*.
To be sure, productive entrepreneurship is desirable and some evidence of it can be found in Macedonia. USAID support has produced a major study that has identified sectors where entrepreneurial activity could generate growth based on certain comparative advantages. The identified sectors are: Electro-mechanical (light manufacturing), Fashion industries (apparel, footwear and furniture) and Information and communication technology. And policy and program dollars are following this path as support is available to existing firms in these sectors. But the curious part of this effort is that there are no direct linkages between this work and the entrepreneurship support programs of the national government support. While they are no precluded from seeking support from other government programs, there is no direct support available that set aside as incentives to start up new ventures in these three sectors. At best this renders the policy incomplete.
Productive entrepreneurship while most desirable may be the most difficult to generate in an environment of ineffective government, poor education infrastructure, weak legal and financial systems, poor transport and postal systems and corruption, etc. It might be true that at certain stages of economic development, public policy aimed only at producing “productive” entrepreneurship may be unrealistic. The basic economic infrastructure may be insufficient to allow for productive entrepreneurship to drive economic growth.
Baumol also described a brand of entrepreneurship labeled “unproductive”. The label sounds pejorative and I think not wholly satisfactory in the context of under developed transition economy like Macedonia. In keeping with Baumol’s description, unproductive entrepreneurship is “less good” than productive because they only end up dividing up a constant economic pie and clearly are not growth engines. In an examination of the status of entrepreneurship in Macedonia most of entrepreneurship is of this kind. But, unlike what the term “unproductive” implies, the context of Macedonia in transition from command to market causes us to look at so called unproductive entrepreneurship in a more favorable light for two reasons: 1.) unproductive entrepreneurship can have use as employment policy and 2. ) unproductive entrepreneurship can build a business culture which has significant positive intergenerational effects.
Employment Programs. Unproductive entrepreneurship programs can be used to sop up excess talented labor. Indeed, the Macedonian Ministry of Economy has a specific program that provides 2500 Euros to unemployed people to help them cover the costs of registering and formalize their own businesses – any business. This program as of 2008 provided 530 grants to register new businesses and an additional 170 grants for formalizing plans.
In an economy that is not yet able to provide enough jobs for its skilled and educated people, entrepreneurship of ANY KIND appears to be a clever way to get people to use their talents as entrepreneurs and be self-employed. The annals of entrepreneurship in the US are filled with stories of people who used being fired or laid off or downsized as an opportunity to start their own business. Why not incentivize the unemployed in Macedonia to start their own businesses? In this sense, unproductive entrepreneurship may fall short as development policy but may be good as employment policy.
Business Culture. Programs that encourage, create and support private entrepreneurs create a business class that did not exist but which are vital to the future of transition economies. The transition from more than 50 years of command type systems to market systems with private ownership of business, can be made easier if there is an indigenous business class to draw upon. As in most transition economies in the post-command economy era, there are no few models and mentors for new entrepreneurs to draw upon and few children are able learn business from their parents. Foreign business advisors do not help. There are no locally grown and owned social or cultural or behavioral business models to pass on the next generation. So, government programs that increase the number of business owners – could be seen as laying a foundation in the form of a business class on which future generations can draw.
Overall, current entrepreneurship programs in Macedonia will surely help identify entrepreneurs who do have the potential for business activities that could generate growth – export sales, import substitution and locations for foreign investment. If Baumol is correct and there is a fixed amount of entrepreneurial talent available to Macedonia given its population, then Macedonia cannot afford to miss even one potential entrepreneur.
With this perspective based in the context of a transitional economy entrepreneurship takes on a much broader role as an engine of growth. This broader model is probably something worth much further investigation over the longer term- especially the intergenerational transfer of business culture. Also, to what extent is entrepreneurship as employment policy setting the stage for subsequent entrepreneurial activity that does produce economic growth, more jobs and more income wealth and prosperity? I don’t know that such a question has ever been addressed before.
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Note: In Baumol’s work, reference is made to a type of entrepreneurship labeled “destructive”. Destructive entrepreneurship refers to activities that might fall into the realm of illegal or corrupt or use of power for personal gain. This idea is elaborated upon in a paper by Desai and Acs which explores the extent of destructive entrepreneurship in developing economies where opportunities for profit outpace the evolution of institutions” [page 3]. While I agree with their observation that this kind of entrepreneurship may be a very large part of entrepreneurial activities in Macedonia, I do not have enough information about these kinds of activities to offer any comment but I did want to acknowledge their existence in Macedonia. Some estimates of the underground economy say that, if measured, it would add about thirty percent to the reported national GDP.
References
Baumol, William, J. (1990), “Entrepreneurship: Productive, Unproductive and Destructive”, Journal of Political Economy, 98(5), 893-921
Desai, Sameeksha and Zoltan Acs (2007) “A Theory of Destructive Entrepreneurship”,
JENA Economic Research Papers, 2007-085
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