Africa: Thinking Outside the Aid Agency Perspective
The plight of the developing world, specifically the African continent, has been of particular concern for social scientists and economists alike. In general the substance of the debate has been whether or not the various aid agencies and lending institutions — the IMF and World Bank — are fulfilling their role in the developing world or making that region worse. Although discussing whether the IMF is good or bad, or whether aid should be increased or decreased are relevant questions to social scientists, they are outside of the purview of this paper. These debates have overwhelmingly focused on macroeconomic factors for development and growth and ignored relevant microeconomic factors, like the role of small businesses and entrepreneurs in developing countries. As Hernando De Soto has argued, some have viewed solving the growth problem as akin to “baking a cake,” add a little capital, some technology, and education and one can have a strong economy (De Soto and Litan 2001: 251). Obviously the problem is not that simple to solve, and as I suggest, the success or failure of African economies might depend on entrepreneurs and an “entrepreneurial spirit”. This essay will highlight the relevant debates on the IMF, World Bank and aid agencies, proceed to explain the importance of the entrepreneur in capitalist systems, and lastly, place the entrepreneur in the context of the African case.
IMF, the World Bank, and Aid
Devesh Kapur argued that “if the IMF had a dollar for every criticism of its purpose…it would perhaps never again have to approach its shareholders for more money to sustain its operations” (Kapur 1998: 54). The purpose of the IMF, the first pillar of the Breton Woods system, was to promote exchange rate stability and global cooperation and act as a “lender of last resort” for countries in financial crisis. But for its critics, the IMF overburdened poor countries with unfettered financial markets and placed too much pressure on debtor countries to solve their economic problems. Moreover, while the IMF spoke of the benefits of democratic government, they felt threatened by regimes with too much self-rule (Kapur 1998: 57, 59). On the other hand, supporters of the IMF argue that IMF debtor countries seek assistance voluntarily, and blaming all the problems of debtor countries on the IMF – like for example budget constraints — would be “like blaming the fund for gravity” (Rogoff 2002: 42).
The World Bank and various other aid agencies have had similar polarizing affects on pundits and scholars. The World Bank, the second pillar of the Breton Woods system, was responsible for longer-term loans to developing nations as well as providing developmental aid to build up infrastructural, educational and medical capabilities in the societies. Critics like William Easterly claim that foreign aid agencies like the World Bank create a “cartel of good intentions,” whereby the “aid” gets trapped in webs of bureaucracy and never finds its way to the people who need it most (Easterly 2003: 1). Rather, the aid agencies focus on volume — the amount of aid given — and neglect actual economic development (Easterly 2003: 6). For Jeffrey Sachs, volume does matter however, and economic powers like the
Whether the IMF or the World Bank is the villain or the victim is out of the scope of this paper, but these arguments do illuminate the nature of the debate in the contemporary literature. Rather than focus on certain domestic attributes of the various developing nations, the aid agency debates addressed the theoretical concepts of neoliberalism and the macroeconomic agendas of the agencies. The onus for development shifted from domestic polities to the agencies, and growth became, as
Entrepreneurship: Critical for Capitalism
One of the other surprising aspects of the aid agency debates is the absence of any discussion of business or entrepreneurship as contributing to economic growth. Historically, the literature on capitalism and free-market economies has placed entrepreneurs at the center of those systems. For Joseph Schumpeter, the entrepreneur is the lifeblood of a free-market system. The entrepreneur was responsible for revolutionizing “the pattern of production by exploiting an invention…an untried technological possibility for producing a new commodity or [for] producing an old one in a new way” (Schumpeter 1950: 132). Schumpeter’s fear in the 1950s was that without these talented, risk-taking entrepreneurs, the walls of capitalism would crumble and give way to socialism of a “very sober type.” (Schumpeter 1950: 130). Although Schumpeter’s fears were not realized in most of the world, his emphasis on the importance of the entrepreneur would be one of the definitive legacies of his work. Another scholar, economic historian Alexander Gerschenkron, believed that the “entrepreneurial spirit” was critical to development among industrializers. In Gerschenkron’s analysis of
The role of entrepreneurs was important for the development of the Western economic powers, and many economists and social scientists have recognized this. The role of entrepreneurs in the developing world, places like
Africa: Signs for Hope or Despair?
Informal sectors were particularly important in
The talents that bode well for entrepreneurship — risk-taking, ingenuity, hard work — were not absent from African culture and society and can be seen in some ways as a product of these informal arrangements. Thus, states where informal sectors were robust are also states that have been witness to the proliferation of entrepreneurs and small business owners. Technology specialist Hermann Cinrey-Hesse of
It is the failures of entrepreneurs, however, in each of these African states that has given some pause for concern. In
Conclusions and Future Research Implications
The problem that exists for entrepreneurs is an obvious one, but a problem that is largely ignored with all of the attention paid to external aid agencies. Although there are signs of hope for small business in
This essay has hopefully been a call for a more thoroughgoing and systematic explanation to determine the importance of the entrepreneur in the developing world. Most of the research used in this study was compiled from journals on economics, history and oddly enough, social psychology. Political science has unfortunately avoided this important topic in favor of more structural and macroeconomic explanations. I can think of two reasons for this lapse. First, the time and effort it would take to conduct field research on entrepreneurs in some of the most remote and dangerous parts of the world would be hard to accomplish. The task would not be so simple as to look up World Bank statistics and indices, but require rolling up the sleeves and immersing oneself in the everyday goings-on of the entrepreneurial class. Second, political science as a discipline is hesitant to propagate so-called Horatio Alger “myths”. In other words, celebrating the entrepreneur as one who “pulls himself up by the bootstraps,” ignores the big economic picture and sets an unrealistic standard that everyone has the equal opportunity to amass wealth. Hopefully those that endeavor to understand the role of the entrepreneur in the developing world are sensitive to this critique, and do not lay the burden for economic growth solely at businessperson’s hands. Nevertheless, we must realize the potential role they do play in not only creating growth but sustaining it.