A healthy entrepreneurial culture is not just a requisite for a thriving economy but also for equitable prosperity. From the mid-20th century onward, economies that have incentivized fair entrepreneurship have consistently shown more economic growth, domestic innovation, and upward mobility, all of which are ingredients of a resilient and politically stable society.
When it comes to building an equitable entrepreneurial environment, policymakers and business leaders in many developing countries have their work cut out for them. In many cases, the basic physical and policy groundwork that enables entrepreneurship is either unsatisfactory or missing, causing difficulties for entrepreneurs and investors as well as incentivizing business activities that only benefit a privileged few.
Fortunately, conscientious policymaking can help build the groundwork for a thriving and equitable entrepreneurial culture. As successful economies like the US, Germany, Singapore, and China demonstrate, legislation and policymaking can be used to not only incentivize entrepreneurship, but also make it part of the wider social fabric. Below are policy strategies that developing countries must implement to build an environment that is conducive to entrepreneurial activity:
1) Provide High-Quality Public Infrastructure
Developing countries often have to make very tough choices about what to do with their limited funding. However, there is a strong argument for developing economies to prioritize infrastructure spending. Spending on assets like roads, seaports, hospitals, and digital infrastructure may take away some funds for more immediate needs, but they will almost always ensure better cost efficiency and life quality in the medium and long term. This is critical, as a healthy entrepreneurial culture cannot develop if the vast majority of the population is focused on survival or finds the costs of doing business too much to bear.
In recently thriving middle-income economies like the Philippines, policymakers were able to offset some of the infrastructure costs by having their private sector partners handle some of the development initiatives. Some private developers have also built economic estates with state-of-the-art infrastructure and liberal taxation policies to incentivize local and foreign investors to set up ventures within the country.
2) Offer Readily-Available Funding
Access to capital is a significant barrier for many entrepreneurs, particularly in developing countries. Domestic policymakers should focus on establishing mechanisms that provide readily available funding. This may involve creating government-backed programs, forming relationships with financial institutions, or developing venture capital ecosystems. Offering a variety of funding options within a market will better enable entrepreneurs of different means to bring their ideas to fruition.
3) Reduce Bureaucratic Red Tape
Cumbersome bureaucratic processes can stifle entrepreneurial initiatives and lead to the creation of underground economies that do not contribute to a country’s wider prosperity. Moreover, there is a noted relationship between the amount of red tape within organizations and institutional corruption. Even in cases where blatant corruption is not a concern, excessive institutional red tape can often serve to deter new entrepreneurs and consolidate power in the hands of a few well-positioned business leaders.
Given these serious downsides, streamlining administrative procedures, simplifying business registration, and minimizing regulatory hurdles should be regarded as essential steps in promoting entrepreneurship. By reducing red tape, policymakers empower entrepreneurs to focus on innovation and growth rather than navigating complex administrative procedures.
4) Invest in Human Capital Development
Policymakers in developing nations need to ensure their people have the skills demanded by the modern economy. This can be done through consistent investments in education, particularly in relevant areas such as STEM and business management.
Such initiatives ensure that businesses have consistent access to a workforce that is adaptive and ready to meet the challenges of global markets. Importantly, these initiatives also create conditions that give rise to the next generation of leaders.
5) Incentivize Innovation
A culture that values taking risks and exploring new ideas will directly nurture entrepreneurial innovation. Targeted investments in education as well as research and development (R&D) may promote such a culture. To incentivize entry into technical fields and investments in R&D, subsidies and similar incentives can be considered over the short term. For a long-term solution, policymakers should consider the next strategy.
6) Develop a Mutually-Supportive Entrepreneurial Ecosystem
Countries with dynamic entrepreneurship scenes invariably have an environment where businesses and regular individuals are interested in seeing each other succeed. Moreover, in these economies, entrepreneurship is most often seen as something open to everyone, not just a privileged few.
Creating thriving entrepreneurial ecosystems requires collaboration among public and private stakeholders. Government bodies, private enterprises, educational institutions, and individuals in these economies are easily able to collaborate and support each other through incubators, mentorship initiatives, and similar programs.
7) Stamp Out Corruption
Corruption is a significant impediment to entrepreneurial growth. Unfortunately, rooting out corruption in the developing world is often a serious challenge. In countries with weak economies, there are often several strong incentives to act unethically. Over time, this often results in an environment that favors individuals who are willing to act immorally to get ahead, dissuading entrepreneurship among the general population.
Eliminating corruption is difficult and also occurs in wealthy countries. However, it can be minimized by instituting reforms such as creating a professional civil service, increasing compensation for regular government workers, and implementing transparent and accountable governance structures. Such reforms should, eventually, build an environment where regular individuals and institutions alike are encouraged to do business above board.
Creating a democratic culture of entrepreneurship in a country that is already beset by multiple economic challenges is difficult, even in the best of times. Thankfully, policies such as those described above offer a proven way to promote both economic growth and social mobility within a country. With consistency and a view toward the long term, developing countries can eventually create an environment that supports entrepreneurship as well as prosperity for all.