Supporting entrepreneurs in developing nations

Top-down or bottom-up economics?

Sunday Times (6th October, 2013) reports:

 

“The London-listed miner founded by former England cricketer Phil Edmonds has won a breakthrough export licence in Guinea after appointing to its board a businessman with close ties to the president.”*

*Nb. refers to Sable Mining Africa – a British Virgin Islands incorporated, AIM-registered company

 

Market economics has achieved substantial results worldwide – mainly because of huge success in China (and, to an extent, India), the percentage of those deemed at the worst stage of poverty (those living on less than $1.25 per day) according to the World Bank has fallen dramatically in the last ten years, from over half in the developing world to 21%.

Despite this, around 1.2 billion people are still impacted by extreme poverty and many areas of the world remain blighted by lack of economic progress.

Forget GDP per capita numbers – it is irrelevant where all the proceeds go to 0.1% of the population. Equatorial Guinea has a per capita GDP of nearly $20,000 – yet, the vast majority of the population live in conditions of extreme poverty.

In post-conflict states and many others where there is poor access to economic opportunities for the majority of the population, extreme poverty stubbornly persists. There are many reasons for economies to be mired in lack of progress. As Dani Rodrik states in his “The Globalization Paradox”, “the most pressing problem could be a shortage of finance; it could be government practices (such as high taxes or corruption) that depress private profits; it could be high inflation or public debt that increases risk; it could be learning spillovers associated with infant industries that prevent private entrepreneurs from reaping the full social value of investments.”

Macro, Top-down attempts at change

Normally, the response has been for nations to work to remedy this on a macro-economic basis by implementing major, nationwide changes – often hand-in-hand with the IMF or similar. Countries in Latin America were good examples of this in the 1980’s. This led countries like Argentina to see rapid growth through the dramatic reduction in capital controls, for example, and then to debilitating recessions. The WTO model – opening up to huge changes quickly through the freeing of capital and exchange controls – relies heavily on the nation’s capability for being up to the job – overnight. The problem is that the rapidity of the change is usually too much, too soon. It often leads to rapid increases in fund flows – maybe inward as the search for investment grows and maybe outward as the indigenous population (maybe the top 1%) find better investment opportunities elsewhere – and upheaval.

While it is important that positive (and well thought-through) macro-economic change happens, Rodrik shows how important it is for states to nurture their manufacturing, design, distribution and other industries. China is held up as a prime example of this. It did not join the WTO until its economy was healthy and competitive.  The same is true about Taiwan or South Korea.

Micro revitalisation– tunneling through the transaction costs

The problem in many countries is that while there may be an appetite for economic progress at government level (where an understanding of economics may be poor to non-existent and the “appetite” may be for quick profits, legally or corruptly gained), it is bound up with difficulties. These often include entrenched positioning of those in power –  an elite that has vested interests in the status quo. This is clearly seen in resource-rich countries – where small elite groups manage to take over the profits of a country’s natural resources and the mass of the population sees no economic improvement. Countries like Angola have gone way beyond corruption – the dos Santos family now owns the country’s natural resources and the companies (like Sonangol) which manage their energy wealth; or in the Democratic Republic of the Congo – see Dan Snow Wednesday 9pm BBC2; or government and business collusion (such as alleged in the Sunday Times article mentioned at the start of this post. Guinea has just has just had elections – and is a country rife with corruption as noted recently by the Economist.

Of course, some wealth filters down into the wider country, but only so that the elite (and those associated with them) becomes fatter. This remains a tiny proportion of society.

In such countries, there remains a massive desire for economic advancement through their own efforts amongst the people despite all the problems put in their way.

Organisations like the World Bank, GEM, GEDI and others are researching, for example, these obstacles to entrepreneurship and economic advancement worldwide. All show the huge desire of people to fend for themselves and not to rely on handouts from top-down aid.

GEM (Global Entrepreneurship Monitor – http://www.gemconsortium.org/) produces an annual assessment of global entrepreneurship activity; GEDI (The Global Entrepreneurship and Development Institute) also ranks countries by their ability to be entrepreneurial and works on a macro basis to provide ideas on improving economic performance. GEDI works with large multi-nationals and claims that:

“Entrepreneurship-focused support not only improves the business environment, creating economic value, it kicks off virtuous cycles that create waves of social value.”

The World Bank itself produces rankings in its global “Doing Business” listings. Along with such as Transparency International’s Corruption Perception Index and countless economists, it is a continuous process to develop new macro-economic methodologies.

Rodrik himself was asked by the South African Government in 2007 to address the problem of unemployment and developed significant opportunities for real improvements in “social value” – which benefits the many not the few.

In many countries, though, macroeconomic policies do not work. William Easterly strongly makes the case that it is not the “planners” (with their top-down policies) that work for poor nations but the “searchers” – those providing bottom-up opportunities. Indeed, the annual studies show that entrepreneurialism is higher in poor countries than the rich ones. This is partly due to less opportunity to find employment but is also down to the natural and instinctive ability of humans to fend for themselves exists throughout, when the incentives are apparent and not made impossible.

Micro-economic incentives and opportunity provision are always required. These incentives may be financial or they may be educational or they may be motivational. They may be needed to provide networks and distribution facilities. There may be the need for leadership skills training or the development of manufacturing or design skills. Each nation or region or even city may well be different.

If the natural tendency to trade (so common in all countries) is allied to the skills and abilities needed to create, develop and manufacture together with some motivation and belief in the future, then real progress can be made – allied to the profit motive that underpins the market economy.

Fighting through the mayhem

The big question is how? There are a number of ways to do this – but, all rely on somehow creating the entrepreneurial business ethic and safe passage through the morass of so-called “transaction costs” which are often traumatic in countries where wealth is uneven or normally unobtainable. It also requires the desire to build an economy that is wider than an elite – where trading does not just enrich a tiny bunch.

The transaction costs may be how long it takes to register a company or gain permission to sell products or find the training and skill-up or find staff or understand royalty and tax issues or accounting problems. It may be that there is rampant corruption that stifles progress or downright intimidation. It may be that women are not allowed to participate.

All these and many more factors are grouped together to dramatically hinder progress. To resolve them takes a bottom-up approach – which has to be allied to changes on a national / macro scale. These changes must focus on, for example, eradicating corruption, developing proper taxation systems, ensuring that tax is collected and used for public good.

The bottom-up approach can be successfully done by the hardest working acting on their own – and there, of course, are examples of businesses that progress despite all the problems thrown at them.

It may, though, be provided with external help – but, this is generally through business arrangements where companies operating from developed nations see opportunity – again, mining in Guinea is an example. This is often where natural resource recovery takes place – where the Chinese now dominate throughout Africa – but where the mass of local populations doesn’t benefit. This is the case for energy and other natural resources like wood and minerals or gold.

There is another way just beginning. This is where organisations from the economically developed world (some may be social enterprises, some may be charities) that have business ability and seek out those bursting to improve their economic lives that also show some capability. By analyzing the obstacles in their way and providing an “economic tunnel” through the mayhem – for example, through training, networking, distribution channels, financing, motivation, skill development – small pockets of entrepreneurialism can be assisted to grow.

This “micro-economic tunnel” will be different in each country or region or city, but there are already examples where social entrepreneurs are providing enablement into countries that face the harshest of obstacles – like Afghanistan. Recently, two, different examples have been shown in that country – both encouraging the development of inherent capability in different ways – one through perfume, one, Future Brilliance, through jewellery design and distribution into the global marketplace.

With examples provided on a daily basis that show how lack of economic opportunity provide incentives for corruption and even terrorism, more needs to be done at the micro-level where real people with real capability and drive can be provided with the tools and incentives to thrive and provide social value. The days of top-down aid and macro-focused solutions may not be at an end, but bottom-up opportunity is the lifeblood of a nation’s success and needs to be nurtured.

 

1.2bn people still attempt to live on less than $1.25 per day. 

 

“Entrepreneurship-focused support not only improves the business environment, creating economic value, it kicks off virtuous cycles that create waves of social value.”

Jeff Kaye is a Director of Future Brilliance http://www.futurebrilliance.net

 

 

Creative Destructionism in World Education

Joseph Schumpeter called it “creative destruction” – the dramatic changes that occur when a new economic or business model completely destroys its predecessor.

From railways and motor cars in transport to the telegraph and the Internet in communications, each generation witnesses such creative destruction.

Now, a combination of factors is coming together, which may well alter the education system – at all levels and worldwide. These changes could not just impact the status quo education establishment but cause changes across the world – impacting many for who such education was previously in the preserve of the wealthy.

The whirlwind of Change – remote learning

 

In February 2011, the Socionomics Institute published a report, which contended that the economic cycle was reaching a position where high levels of spending on higher education were likely to tail off as society came around to overt criticism as a result of the economic climate.

They said at the time: “Traditional educational institutions may eventually lose control of the manufacture and distribution of education much as the music and publishing industries lost their grip on music and text. Bear markets topple dominant players and open the field to nimbler entrepreneurs, who will develop alternatives to institutional education.”

The trend was focused on the opportunity being taken by online courses, which were receiving accreditations and providing formal teaching anywhere that broadband is receivable and anywhere that a computer capability exists.

Scientific American published an article in March, 2013 highlighting the move to MOOC’s – Massive Open Online Courses.

In the UK, Thomas Telford School has pioneered online learning and sells these through its company TTS Online.

In the USA, The Khan Academy – www.khanacademy.com – has a mission, for example, which states:

 A free world-class education for anyone anywhere.

Khan Academy is an organization on a mission. We’re a not-for-profit with the goal of changing education for the better by providing a free world-class education for anyone anywhere.

All of the site’s resources are available to anyone. It doesn’t matter if you are a student, teacher, home-schooler, principal, adult returning to the classroom after 20 years, or a friendly alien just trying to get a leg up in earthly biology. Khan Academy’s materials and resources are available to you completely free of charge.

The Khan Academy (a 501 (c) (3) charity in the USA) is supported by a number of well-known Foundations including Bill and Melinda Gates and Google and claims over 3,000 videos produced to date. The offering is to all schools on a very wide range of subjects.

The key, of course, is the ability to develop education modules that can be used anywhere.

Others, like Sugata Mitra (winner of the 2013 TED Prize), have for some years promoted such remote learning He is well-known for the “Hole in the Wall” – remote learning placed in kiosks in Delhi that provided extraordinary learning opportunities for those without educational opportunities. It provided great evidence of the value of remote learning and the ability of the young to self-educate – given good material and the opportunity (low-cost or free).

Even more recently, wider usability has been provided by Datawind – a British based company but operating out of India – makers of the Aakash Tablet for the Indian Government at around $45 each. They state:

 “Our motto is ‘Bridging the Digital Divide’. We are committed to bringing the next billion people into the internet age by offering internet access devices with very affordable, anywhere, anytime internet connectivity.” (www.datawind.com).

Founded by Suneet Singh Tuli, products are now in service and this is beginning to create the hardware to complement the software that is now available.

The final piece is the communication system, which the internet (ever-growing) is supplying in quantities quite capable of providing access to almost all – worldwide. Where this is patchy (or vulnerable through security issues) satellite communications is feasible (such as offered by Inmarsat.

Global Education

The opportunity that has been witnessed on a small scale through YouTube and other, on-line video technology in the west is now opening up in two, main ways.

First, remote learning is beginning to be seen as an alternative to the high cost of a tertiary education. As the Socionomics Institute article puts forward – “Stanford professor Sebastian Thrun offers remote students the same lectures, assignments and exams that on-campus students pay $50,000 a year for.”

 This means that the standard model for education can change – remote education can offer all potential students at any time progressively higher standards of education wherever they are. Distance learning is now becoming a real alternative – although it is bound to take years to establish and years to wean us off the “establishment” consensus. Of course, education is more than just study  – it includes many of life’s social requirements, too. However, while we don’t get to go to Eton or Oxbridge – we can all aspire to inspirational teaching wherever it comes from.

More than this, though, remote learning opportunities are now opening up the potential for the world outside the land of Yale and Harvard, Oxford and Cambridge. This is the world where education is prized such as in India or China, but not obtainable to the mass of people there. It is also the world where education is not prized – such as in Afghanistan where girls are omitted from the education system.

Future Brilliance, a non-profit and where I am a Director, is opening up this area through its work (www.futurebrilliance.net) in Afghanistan and through the potential that distance learning provides is now working on a number of solutions that could drive education into areas that have not benefited in the past from technological change and the reach that educationalists and the internet now enable.

This is an example of creative destruction where education norms could be shattered worldwide but where education (the basis for any society) is now becoming attainable everywhere. Although massive hurdles need to be overcome in terms of technology and, in many areas, social norms and security, the potential for the world to entertain new educational horizons is enormous.

Embracing the Online

The opportunity is also a challenge – not just technological but social. In countries such as as the UK, there is an opportunity to provide the best in remote education to the most deprived areas and government should work not just to have federalism in schools but also ensure that the best schools (many of them independent – i.e. private, fee-paying schools and benefitting from charitable status) are required to provide such learning modules as part of their charitable status. Excellence can be shared in ways that teacher transfer agreements cannot be – from one to one to one to many. The same can be done throughout education.

The challenge is then to promote the ethos of the best – and that links to parental and community responsibility and access. However, the learning essentials can be made real.

Elsewhere, education opportunities can be established where none exist now. Here the challenges may be those of normal business (where bribery and corruption are the norm) or where real social attitudes need radical change – and may lead to threats against the educated for just taking advantage of the opportunity. In Afghanistan, there is a deep-seated social antipathy to girls taking advantage of education. In Pakistan, Malala Yousafzai is a shining example of the courage of a girl (and her father) determined to be educated as well as a dismal example of the threats against such progress.

Nevertheless, technology opens up the opportunities and the creative destructionism that is on offer is being backed by individuals and companies and by some governments. the opportunities are now endless.