One of the important discussions we had in Dr Duflo´s and Dr Banarjee’s course was regarding the apparently greater presence of an entrepreneurship spirit among the poor. The question was if they can be considered true entrepreneurs or if they are simply pushed to start micro-businesses by the circumstances they live in.
This question was again raised this past week at a seminar we had in the ITESM (where I´ve been lecturing for the past semester) where we were asked to come up with ways for instilling the entrepreneurship spirit in our students. Some professors wondered: what is an entrepreneurship spirit? Do we need to create enterprises to be considered entrepreneurs?
To some extend these questions are well sustained since the concept of entrepreneurship has been generally vague, and economists and politicians haven´t told us very clearly how they use it for defining the wealth of a nation.
An argument is that an entrepreneurial spirit is the normal tendency of every healthy human been. Entrepreneurship can be interpreted as the act of overcoming the fears and risks of new circumstances through the creation of means to achieve a better state in our life. This is the general concept which implies that entrepreneurship can happen in any place even if it does not imply the creation of new businesses but it does imply the creation of new, more creative and better ways of living.
However, the concept that is truly of interest for governments is that which can be measured in relation to wealth creation. As such, we are interested in those entrepreneurs creating products and services having a long-term impact in the economy. Because of this, (the conclusion of Dr Duflo´s and Dr Banarjee is that) when people is driven to create micro businesses by the circumstances of poverty they live in, this is more a sign of the failure of governments to provide better employment alternatives than a sign of true entrepreneurial spirit.
So, for instance, by looking at this graph one may be prompt to believe that the large number of self-employed persons per household among the poorest income levels indicates a very dynamic economy. The truth is that these businesses hardly ever are able to cover a stable income for anyone person, moreover, the persons usually employed in micro-business are part of the entrepreneur’s family who work, basically, for free. In conclusion, given the circumstances under which micro-entrepreneurs create their modes of support, progress is not brought to countries. To do so, it would be necessary to provide them with the means needed to overcome the stagnation of their very small businesses and ensure that every time a larger portion of their income is reinvested in updates to productivity. Unless this is done, the outcome will be a large set of small, informal businesses offsetting the progress made by governments in other economic areas. Mexico represents a good example for this since while the most modern companies have seen an annual productivity growth of over 6% in the past two decades, the most traditional (and smallest) ones have seen a similar change in the opposite direction, thus, resulting in an overall productivity growth for the country of only 0.08% annually.