Beyond individual success stories: Promoting entrepreneurship through institutional reform

In search of private enterprise, jobs, and economic growth

Ahmed Muhammad Sayyid was an Egyptian student with a university degree who had high hopes and aspirations for a successful career in tourism. Instead, he ended up living with his mother and working as a driver for less than $100 a month. Certainly, this was not the future to which he aspired, especially having higher education in a country where about one-third of the population is illiterate. Frustrated by his inability to get a job, make money, and start a family, Sayyid lost hope in himself and in the government’s ability to help him.

Sayyid is not alone. Millions of youth in the Middle East and North Africa (MENA) region enter the workforce with high hopes and cannot find jobs. Left on the sidelines of development, young people lose faith in governments and instead close themselves off from a society that has no place for them. They are the “generation in waiting,” confined to idleness in the streets and spend their time drinking tea, smoking arghileh, and waiting for jobs to arrive.

The problem of unemployment goes beyond youth and beyond the MENA region. Although a lack of skill contributes to the problem, something else is responsible for persistently high unemployment in some parts of the world and the inability of the small business sector to become an engine of growth. Something else is preventing individuals from opening their own businesses and keeping existing firms stuck at the micro level in the informal sector, unable to expand and create jobs for others. Even individuals who learn how to put together business plans, keep financial records, develop a business strategy, and create new products and services are stymied in their pursuit of success. What is preventing all of these potential growth engines from lifting off?

The answer has much to do with the quality of the enabling environment for doing business and broader institutional failures. As countries seek to jump start their economies, create jobs, and support and unleash the entrepreneurial spirit of their citizens, they must take to heart the secret of economic development. That secret, captured by Nobel Laureate Douglass North, is that countries with sustainable economic growth trajectories are able to establish institutional structures that allow them to move from personal interactions to impersonal exchanges.

In other words, countries that succeed in developing stable economies move beyond simple individual cash transactions with family and friends to establish economies that resemble the likes of Amazon or Ebay – millions of transactions with anonymous actors. An individual’s ability to engage in business is reinforced by institutions such as formal and informal norms, rules of behavior, laws, and regulations. The strength and reliability of these institutions is the fundamental key to economic development and unleashing entrepreneurship.

Aleksandr Shkolnikov, Ph.D. is the Director for Policy Reform at CIPE, where he manages a variety of programs on corporate governance, anti-corruption, democratic development, and business association advocacy. A native of Moscow, Russia, Shkolnikov holds a Ph.D. in economics, a master’s degree in international commerce and policy, and a bachelor’s degree in marketing – all from George Mason University in Fairfax, Virginia.

The views expressed by the author are his own and do not necessarily represent the views of the Center for International Private Enterprise (CIPE). CIPE grants permission to reprint, translate, and/or publish original articles from its Economic Reform Feature Service provided that (1) proper attribution is given to the original author and to CIPE and (2) CIPE is notified where the article is placed and a copy is provided to CIPE’s Washington office.

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