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The development discussion in Washington has noticeably shifted. Over the
past decade, the conversation has moved beyond large-scale government
initiatives to homegrown, entrepreneurial approaches to ending poverty. To be
fair, the IFIs, USAID, and other traditional foreign assistance programs are
still around, but their centrality is fading. The darling of Washington’s
development thinkers is now the private sector, not the public sector. This is a
step in the right direction and can be attributed n part to forums like
However, the rush to embrace private-sector solutions to development
challenges can lead us to ignore the importance of sound public policy.
Innovative development techniques like microfinance and social entrepreneurship
have demonstrated their worth but are no substitute for government policies that
unleash on a national level the productive power of entrepreneurs.
At a recent AEI conference, the former prime minister of Georgia, Lado
Gurgenidze, argued that coherent national policies are a prerequisite for
entrepreneurship. “For instance, if you do not have a reasonable climate for
starting up a business, if you do not have a flexible labor code, and if you do
not have credit availability in the country, you simply will not have much of
the entrepreneurial momentum,” said Gurgenidze. Far-reaching national policies
are needed to address the whole development equation, not merely isolated
Georgia’s story is a case in point. The country launched an aggressive and
far-reaching reform agenda in 2004 to improve its business climate. According to
the World Bank’s Ease of Doing Business Index, the country jumped from 137th
place in 2004 to 15th in 2009. This progress was the result of state efforts to
streamline business registration, bankruptcy codes, financial regulations, and
trade policies. These interventions were enacted as part of a comprehensive and
coherent reform agenda. If taken in isolation, the interventions’ collective
impact would have been incomplete and possibly counterproductive. According to
Gurgenidze, these reforms are “so basic that they are equally applicable and
appropriate in G7 countries as they are in small African nations.”
And African countries have taken up the mantle of broad-based reform.
Rwanda’s Vision 2020 plan is an exemplar. It says that “productive
entrepreneurship must be fostered to perform its traditional role of creating
wealth, employment, and vital innovations through opportunities for profit.”
Thanks to Vision 2020, Rwanda has reformed property rights, its justice sector,
and banking and finance, making the country a more attractive and enabling
environment for entrepreneurship. These kinds of broad-based and coherent
national plans not only catalyze domestic entrepreneurship, but also give
external investors confidence that the country is serious about doing business.
Rwanda’s Vision 2020 has caught the attention of large U.S. companies like
Costco and Starbucks.
The Georgian and Rwandan examples of broad-based national plans should
encourage other developing countries to take up similar reforms. AEI conference
participants agreed that tapping into entrepreneurship requires these kinds of
strategies. According to Mary Ryckman, assistant U.S. Trade Representative for
trade and development, “it is a coherent approach on policy that that we are
seeking to obtain.”
The microfinance revolution, SME development, and social entrepreneurship are
organic, private-sector-based solutions to development that have changed our
discussion of the topic in positive ways, especially among Washington’s cadre of
development scholars. According to the Whitaker Group’s Aubrey Hruby, “the
debate of whether the market or entrepreneurial spirit exists [in developing
countries] is just completely ridiculous. It is there.” The challenge is to
match entrepreneurial drive with policy coherence at the level of national
governments. Locally conceived, private-sector success stories have not erased
the need for a serious discussion of public policy.
David Peyton is a research assistant at AEI.
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