Why I Believe in Entrepreneurship

Africa is poorer now than it was 40 years ago, when the modern age of aid found its feet. There’s something wrong with aid, but no one is sure exactly what. That’s the trick, the hurdle and the nightmare, all rolled into one.
There’s more than one kind of “aid”:
  • Public development aid: This is government-to-government or quasi governmental org-to-government. This is the kind of aid that governments spend to reinforce humanitarian or policy goals in the developing world.
  • Private development aid: This is the kind of aid generally executed by organizations like Save the Children, CARE, Mercy Corps and thousands of other, smaller organizations. Whether they’re building schools or sending advisers to improve agricultural practices, this aid is defined by an organization pursuing humanitarian goals.
  • Emergency aid: This is the kind of aid that’s required in both the developed and developing world, as natural disasters and other unexpected events destabilize existing economies. Tsunamis, earthquakes, droughts, civil wars, etc.
In her book Dead Aid, economist Dambisa Moyo makes a case that government-to-government aid (let’s call it public aid, for short) is bad for Africa. Why? Aid flows prop up broken governments and institutions and discourage the development of capital markets. Big cash flows are susceptible to corruption and disincentivize entrepreneurial behavior.
While Moyo argues about the deleterious effects of public aid specifically, I believe the same dynamics apply in private development aid. This is not to say that no private aid is successful, but that giving things away – whether to governments, communities or individuals – is bad finance and bad practice. Aid of both the public and private variety reinforces old-fashioned relationships, with toxic results.When you give things away – buildings, money, equipment – you stifle the inspiration for people and communities to build systems and economies for themselves. (Nonetheless, I strongly believe that all people should be guaranteed a minimum level of subsistence, through health care, education, food and shelter.)

Moyo argues that the solutions lie in international capital markets: in African countries issuing debt in order to raise money for investment in their infrastructure and social programs.

She argues that the practice of issuing debt reinforces positive mechanisms within a democracy. Governments who must act responsibly in order to repay loans are better governors. And, in turn, people are motivated to vote for governors who exhibit responsible behavior.

Perhaps Moyo’s model about public aid applies to private aid as well. What’s the private equivalent of issuing bonds? Debt or equity investments in enterprise. This is why I believe in social entrepreneurship:

  • Ownership is empowering. It’s empowering for the investor and the invest-ee. It has powerful psychological effects.
  • Businesses are perpetual; not one-time infusions of activity or cash. Instead of building a single building or infrastructure project, investing in a business on a venture basis ensures that you’re investing in a future.
  • Businesses have knock-on effects. Funding the growth of a business creates self-sustaining jobs for the future. As a result, you’re funding the development of a whole class of entrepreneurs, the world over.
  • When an investor believes that his/her investment will produce a return, he or she believes in a future of growth for that country.

Organizations like the Acumen Fund, Grameen Bank, Kiva and Root Capital are making capital accessible to the poor in order to enable them to found and develop businesses.

I believe entrepreneurship is the future. This is why, this mother’s day, I gave my mom a Kiva card.

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