WHY some nations are Poor, while other are Rich...

The discussion on entrepreneurship and economic development in my older posts shows that both are highly linked to each other. Moreover, it is obvious that entrepreneurial activities lead to an economic development of a country. I also talked about the importance of university spin-offs and how university spin-offs lead to high economic performance of a country. It is mostly evident in countries encouraging collaboration between private companies and university research departments. From my point of view, it is hard to encourage university spin-offs before the environment necessary for productive entrepreneurship is present. For that reason, I think a country should develop favorable environment for entrepreneurial activities and then, encourage company owners to cooperate with universities to increase overall level of economic stand.

Finding answer to the question proposed by Powel (2008) ´´in what countries do you get rich by inventing a new product, and in what countries do you get rich by wresting control of government from your rivals?´´, helps us understand why some nations are so behind and others are introducing radical innovations almost every day. Everyone would agree that entrepreneurs are in almost all countries, but process of economic development is not observed in every country. Is that because of resource scarcity, labor availability or something else? Powel (2008) calls it existence of an institutional environment rewarding entrepreneurial activities. In addition, he emphasizes on the presence of private property rights and economic freedom in a country. I would strongly support his idea and apply the concept to my country’s environment and economic stand.

Most importantly, I have lived and experienced an environment where working in the government gave people and authority, while entrepreneurs or small business owners had a few incentives. Mostly they had to share net income or profit with the government either paying directly government officials or financing ´´government´´ projects. This system definitely affected the existence or creation of such private businesses and was conducive to entrepreneurship. Small business owners never considered to grow and did not exploit opportunities. On the other hand, my country, Georgia, is endowed with natural resources and labor is not constrained with their abilities and are very adaptive to new environment. So, we come to the point where we can freely state the importance of institutional environment. Besides to those factors mentioned, people would have capital in form of cash and never use it to finance private entities due to government policy and environment. At the same time, demand on financial services, particularly on bank services was low. But let’s look at the current environment of Georgia after famous Rose revolution and change in government policy. We could observe that every single person starts to form a business, exploit opportunities in the rapid developing market and also, try to create new markets. Some people started to save money in form of deposits at banks and others demand credit or loans from banks to develop something new or enter existing markets. Therefore, many commercial banks are founded and competition gets high. Thus, leading to low interest rates on loans and new service packages are introduced. As a result, entrepreneurs find it easy to finance new venture growth and their desire to market products internationally becomes achievable. Besides, as a result of changes in government policy, government introduced subsidy programs for entrepreneurs in some sectors of economy, particularly in agriculture. Entrepreneurs are highly motivated to come up with innovative ideas and get low-percent credit. Further increasing country’s economic development. Another significant trend observed in the country is that people started to specialize in narrow fields instead of broad fields such as law and economics. They recognize existing opportunities in IT management, BA and engineering, while in past environment being a lawyer or economic theory specialist seemed cool and advantageous for getting employed.

Finally, economic freedom indicator in Georgia is 69.2%, meaning that the economy is 69.2% free. Even though, it is ranked as the world’s 32nd freest economy, we could observe that property rights are undeveloped and judicial corruption still is the great problem in the country. On the other hand, business freedom, trade freedom and other significant components of economic freedom indicator are quite high. (see figure 1).

Figure 1. retrieved from http://www.heritage.org/Index/country.cfm?id=Georgia

References:
Powel, B. (2008). Making Poor Nations Rich/ Entrepreneurship and the Process of Economic Development. Stanford: Stanford University Press.