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Entrepreneurs and the State

Written by: United Nations University

Article Overview: Entrepreneurs require an "enabling state" to provide the policy framework, supportive services, and the public goods of a social and physical infrastructure. Government officials are more likely to support their entrepreneurs if they can identify private sector industrialization as being in their interest. Both Southeast Asia and Subsaharan Africa have had challenges in this area.

Entrepreneurs and the State

Entrepreneurs require an "enabling state" to provide the policy framework, supportive services, and the public goods of a social and physical infrastructure. Government officials are more likely to support their entrepreneurs if they can identify private sector industrialization as being in their interest. Both Southeast Asia and Subsaharan Africa have had challenges in this area. For example, James Jesudason notes that in Malaysia, "the lack of co-operation between the state and Chinese capital has compromised the nation's ability to enhance its technological capabilities and develop a strong manufacturing sector." Likewise, Coughlin comments that in Kenya, "Africans own very few medium or large-sized manufacturing firms. This has seriously impeded an identification of interests between local industrialists and the political circles. As a result, the government's economic policies and bureaucratic decisions are frequently detrimental to the nation's long-term industrialization."

The World Bank's study on the East Asian "miracle" gave some of the credit for East Asia's (including Thailand, Indonesia, and Malaysia) success to the relationship between entrepreneurs and the state. In particular, states were said to have engaged in productive discussions with their entrepreneurs, receiving and giving guidance on industrialization. While this does seem to characterize the northern tier of Asian countries, with Japan as the foremost example, this kind of consultation has been nascent at best in Southeast Asia. Yet the countries there have made some efforts to institute consultative mechanisms. Malaysia is probably the furthest along in this regard, and its major formal consultations only began in 1991. As of 1993, Indonesia had no formal government-business links for policy coordination, and although Thailand did establish such links, there is considerable debate over whether or not they have been effective.

States also have the option of direct intervention to promote entrepreneurship. Again, both regions have attempted to "indigenize" their productive base. The Southeast Asian countries seem to have been more serious about using government to provide a boost to indigenous entrepreneurs. For example, Indonesia promoted indigenous investment in oil sector support services by closing certain services to foreign investment and allowing only indigenous firms to bid. The government also promulgated "buy Indonesian" procurement regulations for all government agencies in 1980. In Malaysia, where the state was "relatively autonomous from the dominant foreign and Chinese business groups," its desire both to promote Malay interests and larger-scale projects led to joint ventures between state enterprises (with shares held in trust for Malays) and foreigners. While the government could have promoted subcontracting to build up the capacity of the small and medium-size entrepreneurs in Malaysia, most of these entrepreneurs were Chinese, and thus the state chose the option of creating "a new Malay business and managerial class." Indonesia did institute a program to support small and medium-size enterprises, but "largely because of weak institutional capabilities" these programs have not been very successful.

Recent work on industrial clusters, districts, and regions such as Baden Würtenberg in Germany, Sakaki Township in Japan, and Emilia Romagna in Italy point to the important influence of regional and municipal governments, in addition to, or instead of, national governments, in providing an enabling environment, establishing supportive institutions and public goods, and encouraging industrialization. There is, however, little evidence that regional and municipal governments have had this kind of nurturing role in either Southeast Asia, or Subsaharan Africa.

By: Deborah Bräutigam
Local Entrepreneurship in Southeast Asia and Subsaharan Africa: Networks and Linkages to the Global Economy
School of International Service
American University
Washington, DC

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Article Tags: chinese capital, consultative mechanisms, coughlin, east asian miracle, economic policies, foremost example, formal government, industrialists, industrialization, manufacturing sector, physical infrastructure, policy coordination, policy framework, political circles, productive discussions, public goods, southeast asia, subsaharan africa, supportive services, technological capabilities



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