Promoting entrepreneurship in Jamaica
David Storey, Guest Columnist
Virtually all countries in the world, outside of the socialist regimes, view entrepreneurship as a source of wealth and job creation. In this respect, Jamaica is no exception, and the Mona School of Business and Management, to which I was invited as keynote speaker at their inaugural Business and Management Conference, January 7-9, reflects that interest.
Every country would love to have a population that comprises enterprising individuals, funded by far-sighted financial institutions, and with a supportive government. Many non-Americans see the United States as an exemplar in this respect, and so governments around the world seek to create the conditions that they believe have been the basis of US success. This is expected to lead to job and wealth creation.
Unfortunately, my experience of acting as an adviser to numerous governments of high- and middle-income countries suggests that a simple copying of what is perceived to be the 'US formula' is not only difficult, but also unlikely to be successful. This is primarily because the 'starting conditions' in each country are so different from those currently in place in the US.
For this reason, the minister responsible for entrepreneurship - who is sometimes in the finance ministry, sometimes in the industry or employment ministry - has to be clear what it is that his or her country is trying to achieve.
So, the first issue I raise with all ministers is precisely what they mean by entrepreneurship. In effect, I ask them what their objectives are and how the electorate will know if they have succeeded.
At its most simple, are they trying to get more firms in the economy or are they trying to create 'better' firms? The two are clearly not the same, and require different policies. More firms, for example, often appear during a recession as people lack employment options, whereas 'better' firms are more likely to be found in existing prosperous locations.
The normal ministerial response that I receive to this kind of probing is that they want both more firms as well as better firms! I then have to move on and ask whether they wish to achieve these ends by the use of micro or macro policies.
Micro policies are the provision of training, advice, information or finance to specific firms or individuals or groups of individuals. Examples of such policies could be support for high-tech firms or for women-owned businesses. In contrast, macro policies do not focus on individual firms. Instead, their focus is on creating an economic and social environment in which new and small firms can thrive.
So macro policies comprise not only macroeconomic stability, but also the establishment of a legal framework that is business-friendly, as reflected in contract enforcement, ease of starting a business and, perhaps most important, one that promotes competition in the market for new- and small-firm finance.
My observation of the impact of both micro and macro policies in a range of countries is that micro policies, although popular with their beneficiaries, generally do little to enhance the performance of the firms towards which they are directed.
In contrast, productive entrepreneurship only thrives when markets are competitive and so, without the appropriate macro framework being in place, the best government efforts to promote entrepreneurship are likely to be derailed.
IMPLICATIONS FOR JAMAICA
So, what does this all mean for Jamaica? It is, of course, necessary to emphasise the vital caveat that an outsider inevitably has an incomplete picture and awareness of local circumstances and traditions. Nevertheless, I was delighted to hear Minister Anthony Hylton, when opening the MSBM Conference on January 7, emphasise the importance of the legal framework in its pursuit of entrepreneurship policies. Of course, it is only a start but, as the minister emphasised, Jamaica has made good progress in this respect, as reflected in an improved ranking in the most recent World Bank Ease of Doing Business surveys. The benefits of this improved environment are likely to be felt in the coming years.
However, for a country such as Jamaica, the core issue is the extent to which new and small enterprises are able to access finance that is appropriate for their needs. That does not mean that every firm should be able to access all sources of credit whenever they choose, since many firms are too risky, in part because their owners lack the appropriate skills and experience to manage that funding.
What it does mean is that those businesses with the skills and ideas should not be denied access to finance because the providers either have easier lending options or know that their competitors will offer equally challenging conditions and charge high interest rates.
In technical jargon, the market for finance should have informed firms and competitor banks. In less technical terms, the market has to be one in which the good guys get the money and the bad guys get rejected. The key to such a market is having competition in the finance marketplace, which provides a strong incentive to encourage financial institutions to undertake the research to better assess the riskiness of customers and potential customers.
If the market is not competitive, that incentive is not present, so new and small firms lose out compared with similar firms in countries where markets are less imperfect. A core task for governments is, therefore, to ensure markets are fully opened up to competition.
A final theme that emerged from the conference was the potentially powerful role of a diaspora of individuals that consider themselves to be Jamaicans. Having moved overseas and perhaps acquired some wealth, it is likely that a number of them see Jamaican enterprises as either an investment opportunity or as a way of 'giving something back', or both.
Such individuals are referred to as business angels, but the problem is to find a suitable honest broker who can bring together those businesses seeking investment with the angels. This role can be played by private institutions, but is frequently played by university business schools. In the case of Jamaica, the Mona School of Business and Management is clearly in pole position to undertake this role.
Finally, on that note, in virtually every entrepreneurial community with which I am familiar, there is an influential role played by the local university business school. This may involve raising awareness of the entrepreneurial option among not only its own students, but also those taking subjects, as diverse as engineering, hospitality or history.
But, perhaps even more important, the business school has to be an independent source of knowledge and expertise to business, government and the financial institutions. Each has to work in partnership with the other parties to provide informed advice. In that way, the entrepreneurial adventure currently taking place in Jamaica is more likely to bear fruit.
Professor David Storey, OBE, works at the University of Sussex, England. Email feedback to email@example.com.