Table of Contents:

Entrepreneurship as the key to development

We at Kookyplan strongly believe that the key to economic development is entrepreneurship.  But in order to have a strong entrepreneurial base, there are some cultural elements that need to be discussed. 

#1.  Fear of failure.  In countries where failure is accepted ("try again attitudes"), there is more likelyhood that someone will risk failure and start up a company.  Many cultures, especially in Latin America, see failure in business as extremely shameful, and to be avoided at all costs.  In many of these cultures, you only get on chance, and the idea of a "serial entrepreneur" is a bit foreign. see our discussion on culture and entrepreneurship

#2.  "Why not me?" attitude:  in cultures like the USA, people think that everyone is equal, and that anyone can achieve great success.  This is based on a very egualtarian view of all mankind, mixed with extreme optimism that anyone can achieve anything.  This optimism is reinforced by stories of everyday people turning into millionares.  The legend of the garage, turned multinational corporation fuels this optimism that anyone can achieve greatness.  Also, the ideal that "all men are created equal", and that rich people are not better, or smarter than you or I is a great motivator for someone to take a chance.   In other cultures, however, where there is a more "heirarchial" view of the society, it is common for people to think that richer and more powerful people see opportunities.  So, if they are not doing it, then the opportunity must not exist.

#3.  Venture capital readily available.  This is key, because great ideas need funding if they are going to turn into great businesses.  If ample funding is available to fund 9 failures, in hopes of finding that 10th one that will succeed...then there is a chance. 

But, is VC money necessary for innovation?

According to a new paper

"What they found was surprising. VC investment lagged behind "total factor productivity" (TFP) growth by two years. And follow-on rounds of investment caused a decline in TFP in the first year. In other words, venture capital slowed down the innovation process. Additionally, they found that delayed TFP growth is correlated with first round VC investment. That essentially means that the money goes where the innovation is, not the other way around."

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1242698

Policy makers typically interpret positive relations between venture capital investments and innovations as an evidence that venture capital investments stimulate innovation ("VC-first hypothesis"). This interpretation is, however, one-sided because there may be a reverse causality that innovations induce venture capital investments ("innovation-first hypothesis"): an arrival of new technology increases demands for venture capital by driving new firm startups. We analyze this causality issue of venture capital investments and innovation in the US manufacturing industry using both total factor productivity (TFP) growth and patent counts as measures of innovation. Using a panel AR regression as well as industry-by-industry AR regressions, we find that TFP growth is often positively and significantly related with future VC investment, which is consistent with the innovation-first hypothesis. We find little evidence that supports the VC-first hypothesis. More surprisingly, one-year lagged VC investments are often negatively and significantly related with both TFP growth and patent counts.

read more: http://www.businessweek.com/smallbiz/content/sep2008/sb20080930_920684.htm

Key to Development:

Kookyplan suggestion for using entrepreneurship for economic development:  try to nurture a culture of people that are not afraid to take risks, eliminate the social punishment for failure, and actively promote risk capital industry to take chance on "kooky"  ideas.

Innovation and economic development:

Innovation is essential for sustainable growth: The impact of innovation is shown to be particularly positive on growth for medium-income countries. CEE governments should therefore not be tempted by the argument that, as catch-up countries, they only need to imitate and assimilate foreign ideas in order to sustain economic growth.

MNC innovation brings few benefits to domestic enterprises: Despite massive foreign direct investment into the region, and the introduction of modern production and management methods, there have not been sufficient “spillovers” of technology and “know-how” into the domestic economy.

How to boost inputs and improve the innovation environment: Improving innovation performance requires an increase in direct inputs—such as R&D spending, better science education and IT infrastructure—as well as improvement to the overall innovation environment such as less bureaucracy, fairer taxation and more flexible labour markets. 

Talent-related issues are a major concern: Three of the four business operational issues regarded as very important by a majority of our survey respondents were talent-related: availability of university graduates; availability of scientists and engineers; and technical skills of the workforce. Finding the right staff can be made harder by the persistence of a “brain drain” from the region.

Innovative firms have mixed views about the ability of government to help:  Typical complaints include lack of effective tax legislation, particularly regarding tax advantages for start-up businesses and employee share ownership, and weak links with universities.

source:  economist

Links from KookyPlan:

related pages:  emerging markets  ,  Rise of purchasing power in emerging markets ,   Economic Development

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