Why the Personal Achievements of Billionaires are Irrelevant
Entrepreneurs play a pivotal role in driving economic growth and development. Their contributions to an economy cannot be underestimated or downplayed. These individuals are the driving force behind the investment in setting up firms, innovation, and job creation. By providing products and services that people value, entrepreneurs not only meet consumer demands but also stimulate economic growth.
Throughout history, societies that have prospered are those that have recognised the importance of commerce and trade. Entrepreneurs, specifically merchants and traders, act as vital components in keeping the wheels of the economy turning smoothly. Their ability to identify opportunities for exchange and facilitate transactions has been instrumental in fostering economic progress.
Undoubtedly, business owners deserve recognition as unsung heroes behind national economic “miracles” witnessed over the past half-century. Countries such as Taiwan, South Korea, Singapore, Malaysia, and China experienced remarkable advancements when their political leaders embraced a more business-friendly environment. By loosening previous restrictions on enterprise activities, entrepreneurs were confident to take more risks and these nations unleashed immense potential for growth.
People interested in learning about the link between entrepreneurship and economic development may find themselves torn between two distinct opinions. On one side, there are those who recognise the wealth, accomplishment, and prestige that comes with successful entrepreneurship. On the other side, some advocate that governments are the driving force behind growth and development, citing the role of the state in the rapid growth of countries like Singapore and China as evidence of their argument. Political leaders from these countries, such as Lee Kwan Yew and Deng Xiaoping, tend to be more popular than the founders of their largest companies.
Despite the focus on the role of government, entrepreneurial energy is still connected to economic development. Experts advise governments to create a “friendly” business atmosphere to attract more investment. During his reelection campaign, President Barack Obama was heavily criticised for saying “You didn’t build that”, which was seen as a slight toward business owners. The reason why such a quip drew criticism can be seen through Jeff Bezos, the founder and former CEO of Amazon. In his recent testimony before the United States Congress, he asserted that hostility towards enterprise and entrepreneurship is “Un-American”:
‘’Unlike many other countries around the world, this great nation we live in supports and does not stigmatize entrepreneurial risk-taking. I walked away from a steady job into a Seattle garage to found my startup, fully understanding that it might not work. It feels like just yesterday I was driving the packages to the post office myself, dreaming that one day we might be able to afford a forklift.’’
‘’Amazon’s success was anything but preordained. Investing in Amazon early on was a very risky proposition. From our founding through the end of 2001, our business had cumulative losses of nearly $3 billion, and we did not have a profitable quarter until the fourth quarter of that year. Smart analysts predicted Barnes & Noble would steamroll us, and branded us “Amazon.toast.” In 1999, after we’d been in business for nearly five years, Barron’s headlined a story about our impending demise “Amazon.bomb.” My annual shareholder letter for 2000 started with a one-word sentence: “Ouch.” At the pinnacle of the internet bubble our stock price peaked at $116, and then after the bubble burst our stock went down to $6. Experts and pundits thought we were going out of business. It took a lot of smart people with a willingness to take a risk with me, and a willingness to stick to our convictions, for Amazon to survive and ultimately to succeed.’’
Critics of Mr. Bezos have two points that are pertinent to the foregoing argument. One is that many businesses and industries came to be due to taxpayer-funded inventions and grants, not only from the determination of entrepreneurs. This is what Barack Obama’s campaign team was expressing. The other point is that large corporations can manipulate the market by manipulating the legal system and policies to keep out competitors.
The idea that entrepreneurs are not important in economic development is misguided. While public subsidies and investments can help create new markets, especially in developing countries, these same subsidies can also lead to companies being shielded from competition due to their political connections. On the other hand, some people may be too focused on the success of certain entrepreneurs while ignoring the policy environment that enables them and their impacts. Industrial policies in developing countries can further this problem by creating big domestic companies — which then prevent local and foreign competition, without providing enough value to the economy.
Varieties of entrepreneurship
A recent Twitter thread about Nigerian industrialist and Africa’s richest man Aliko Dangote is an illustrative example of how development policy objectives and entrepreneurial ambitions can sometimes be at odds.
Regardless of what one thinks of Dangote’s abilities as a businessman, it is irrefutable that he benefitted immensely from a deliberate government policy — as this piece from The Conversation laid out:
‘’Dangote Industries Limited dominates the Nigerian cement market and is a key player in the rapidly expanding African cement business. The conglomerate has also expanded its manufacturing activities in a range of food processing industries such as sugar and salt. This expansion has made it the biggest group listed on the Nigerian Stock Exchange.
By 2020, the three Dangote subsidiaries listed on the Nigerian Stock Exchange employed 19,672 workers. This is equal to 51% of all workers in listed manufacturing firms.
Dangote has been a main beneficiary of Nigeria’s backward integration policy. Introduced in 2002, it was operated through tariffs, levies and tax breaks. In the last few years Nigerian manufacturing has shown some degree of recovery. Manufacturing’s share in output increased to 9.3% in 2017, up from 6% in 2002 (calculations based on UN National Accounts).
The policies were initially designed for cement and beverages. They were later extended to sugar, rice, tomato paste, automotive, oil and gas and textiles. The changes led to Nigeria emerging as the largest cement producer in sub-Saharan Africa’’
The authors of the piece conclude that Nigeria has not fared better from the rise of Dangote:
‘’Is the rise of Dangote’s group therefore an illustration of successful industrial policy? Not quite, we argue in our recently published research.
In Nigeria, public policy has failed to support the development of structures that can nurture the growth of domestic demand for goods. This is itself the result of historically formed power relations or asymmetries between actors in their ability to influence and exert power.
The industrial policy that made import licenses contingent on setting up domestic supply capacity — backward integration — may have encouraged increases in output and productivity in individual firms such as Dangote’s. But these productivity increases were not passed down to consumers through price reductions, higher wages for workers or other redistributive measures such as taxation of corporate profits.’’
So, the bottom line is that what is good for Dangote is not necessarily good for Nigeria. In addition to the things mentioned in the cited essay, Nigeria is not a net exporter of cement and gets almost no foreign exchange from the commodity — something that could have been a fair deal given the foreign exchange demands of Dangote’s other ventures. The presence of a thriving domestic cement industry has not led to a construction boom that will lower the cost of housing.
But the point is not to complain about Dangote. The point is that successful entrepreneurship does not always lead to a successful economy. There are many routes to entrepreneurial success, and not all those routes lead to good outcomes for society. A political economy that is insensitive to this is prone to capture and will keep serving the narrow interest of the few.
The late economist William Baumol, in one of his finest contributions, distinguished entrepreneurial activity as “productive, unproductive, and destructive’’. Using historical examples from ancient Rome and medieval China, he persuasively argued that entrepreneurs are responsive to the rules set by public policy. The dominant form of entrepreneurship depends on what society celebrates and what policymakers choose to reward.
In a similar vein, Erik Werker and Lant Pritchett also have a very useful typology (see image) about the difference in entrepreneurial activity. While some win through market competition and innovation, others win through preventing competition and monopoly rents. What is important to keep in mind is that the policies that are good for one group may not favour the other — hence policymakers will have to make a political choice.
The countries that do well are those where the political choices reward exporters, innovators, and the most competitive.
