Sunday, October 22,  2017

Economy

Entrepreneurship: Expanding the Circle of Opportunity

BY Brock Dahl

Economic freedom is the ability to make personal decisions about jobs, education, family, money and other critical issues in a way that suits one’s own hopes and aspirations.


The desire for opportunity rests at the core of the democratic impulse.Every human being yearns for fulfillment, and opportunity offers the chance to satisfy that yearning.  A critical question for working through any transition to democracy, therefore, involves how to lay a proper framework for widespread opportunity to exist.  Opportunities for everyday Egyptians have been limited by government corruption, bureaucratic restrictions, and limited financing.  I want to address each of these, in turn, and share some brief thoughts about how the Egyptian public can better ensure expanded opportunities for a new generation of talented Egyptians.  My intention in doing so is not to provide an exhaustive list of solutions, but to encourage Egyptians to consider the challenges they face within a certain entrepreneurial framework and to debate and agree on uniquely Egyptian solutions to the challenges of transition.


Entrepreneurship, or starting and operating a small business, is one of the greatest conduits for opportunity in free economies.  The ability to own and run one’s own venture, whether it sells food products or provides needed education or medical services, is one of the most rewarding ways to add value to a community.  It is important therefore, that a government take all steps that are necessary to facilitate an individual's ability to turn ideas into real ventures – whether companies, non-profits, or otherwise.


The political freedom that is implicit in democracy is unequivocally tied to economic freedom. The original meaning of the word “economic” connotes an idea of the proper way to organize all aspects of one’s life.It means something more than merely money and business.  By economic freedom, therefore, I am talking about the ability to make personal decisions about jobs, education, family, money and other critical issues in a way that suits one’s own hopes and aspirations.There are a number of reasons why this broader understanding of "economics" is important.


The Morality of Money

Of course, economics involves money, yet money is simply a paper means for converting work intopotential.  If one works today, they get paid.  That payment is a physical representation of the work a person has done.  In that sense, money is merely a symbol of the value he or she is creating for society.


Truly democratic governments must create a framework that ensures opportunities are available.  A democracy must expand the circle of opportunity so that all can fully participate in the democratic life, and this requires establishing a legal and regulatory environment wherein people are able to turn their ideas into action.Moreover, because money can be used to buy things tomorrow, money is also a means for allowing a person to translate current efforts into future value.  Money then, rather then being an evil, can merely be a good way of representing the value contributed to society that allows us to continue to contribute in the future.  The money that is made from running a business, therefore, is something far more than material. The same is true of donations received for running non-profits and civil society organizations.  That donation places a value onthe contribution and effort one is making.


We can, of course, lose sight of the real “value” of money in ways that are harmful. People are sometimes paid for things that are not socially good, and not all socially valuable work pays well.  It is easy, when thinking of democratic societies, to see these downsides of political and economic freedom: moral failings, greed, and an over-emphasis on the material things of life.  While freedom does allow for the abuse of such temptations, the benefits of a free, democratic system - the ability of citizens to develop their talents, pursue their potential, and use those talents and potential to benefit their society - are too important to sacrifice in order to exclude all sins.  Those who seek opportunity and fulfillment must embrace democracy while encouraging their fellow citizens to move beyond the temptations of freedom.  They must not be fearful of granting freedom because theyfear the challenges it can bring.


Government Creates the Framework for Opportunities

Truly democratic governments must create a framework that ensures opportunities are available.  A democracy must expand the circle of opportunity so that all can fully participate in the democratic life, and this requires establishing a legal and regulatory environment wherein people are able to turn their ideas into action.


The transition period to democracy is a delicate time when the critical groundwork will be laid that ensures a wide circle of opportunity later.  If mistakes are made during that transition period, agoverning structure may result that limits opportunity in ways that were never intended.  In order to ensure full opportunity later, citizens should focus on three things which will, if not properly addressed, eventually limit opportunity: government corruption, overbearing bureaucracies, and limited access to finance.  I will now discuss why each of these is important.


Clarity on Corruption

Corruption is a term that is frequently used, but often only vaguely understood.  The current situation with Hosni Mubarak and his close circle offer one example of corruption.  Ahmed Ezz’s control of the steel industry seems to capture the type of relationship that unfairly inhibits opportunity seeking by others.  It is incredibly important to make a proper distinction, however, between fair and unfair success.  Business successdoes not in and of itself signal corruption.  Where rules are equally applied to all, and one individual or group through their own hard work and ingenuity are successful, this is merely the product of their talents and the ability to take advantage of opportunities.  It is critical, therefore, to think clearly about what we mean by corruption.


Frequently, corruption is just a general term often used with reference to people in power for doing things we do not like.  The general sense that underlies the concept of corruption is that a small group of people are abusing their authority to enrich themselves, and causing other people to suffer because of their abuses.  In a way, they are constraining the circle of opportunity by impermissibly excluding certain individuals or groups from the realm of competition.  In order to ensure the proper breadth of opportunity, we must clearly articulate what activities improperly constrain such opportunity.


The only type of corruption that can be attacked is that which is actually defined in the laws of the country.  The most effective way to end corruption is by arresting and prosecuting those who are responsible for it, and such actions can only be taken on the basis of an adequate law.  At a speech before the Canadian Egyptian Business Council, Dr. TaimourMostafa-Kamel, the Head of the Administrative Prosecution Authority in Egypt, noted that Egyptian law is currently structured not to attack corruption, but to protect the powerful.   There are many actions that can be considered corrupt.  Some are obvious: taking a bribe, channeling government contracts to relatives or friends in violation of proper procedures, or embezzling public funds.  Others are not as clear, and emerge through the structure of laws that favor certain groups or even individuals.  There may be a virtually unnoticeable exception in an anti-monopoly law, for example, that gives power to one particular individual or group, such as Ahmed Ezz.


In reviewing the legal foundations of corruption, Egyptians canfocuson prohibiting those actions which inappropriately constrain or distort legitimate opportunity-seeking behavior. Essential to any such framework will be an equal application of the laws to all Egyptians.  Any law that, in practice, favors one group over another is going to limit opportunities for other groups.  However, laws should not punish the successful simply for doing well where they have acted fairly and in a normal competitive fashion. Laws, therefore, must be written to apply to all, to not make special exceptions for the well-connected, and to clearly define what actions constitute official corruption and the penalties that will be pursued for such actions.It is the responsibility of citizens to review those laws that are passed, and to hold their representatives in parliament accountable where they are not passing adequate laws.  Civil society organizations created for the purpose of holding government accountable to such standards provide one avenue for focusing citizens’ attention on these issues.


In addition to properly drafting the laws, Egyptians must also ensure that there are institutions capable of investigating violations and enforcing the law.  In countries where corruption is prevalent, laws attacking certain activities frequently exist on the books; they are just not enforced.  There may be a number of reasons for their non-enforcement: prosecutors and police may be threatened, under intense political pressure to do nothing, or actually complicit in the improper activities.  Ensuring enforcement requires citizen engagement.  Egyptians must demand that parliament adequately resource and review the activities of law enforcement, for example.  Egyptians can create organizations that are responsible for investigating and reporting about corruption and government transparency issues.  The free press also has a crucial role to play in reporting on government activities.  Such “watchdog” organizations play an important part in informing the public and ensuring that officials considering corruption and law enforcement responsible for attacking it know that the public is watching.


Corruption, of course, is not the only factor that constrains opportunity.  Even legal government activities can create problems.


Battling Bureaucracy

Unfortunately, according to reports by the World Bank, Egypt ranks 94th in the world when it comes to the ease of doing business.   This puts it behind seven other Arab countries in terms of the ease of operating an enterprise.Although Egypt has adequate procedures in several categories that are relevant to starting and operating a business, in others the government hasput substantial restrictions in place that constrain one's ability to do so.  For example, it takes up to 72 days to register a piece of property in Egypt.   In contrast, this process takes only six days in Turkey. The average medium-sized firm in Egyptmust spend roughly 433 hours per year addressing tax issues.   If a firm needs to enforce a contract, they have to spend close to three years to get any resolution - which puts Egypt in the lowest 20% of countries in the world in the ability to enforce contracts.


In the examples cited above, government impedes, rather than facilitates,the potential of its people.  This imposition shrinks the circle of opportunity because, as will be discussed below, it is frequently necessary to get access to bank financing to pursue new opportunities.  To get such financing, you need to have a firm that is formally registered and has taken all the legal steps necessary to be a legitimate business.  A bank may want to see, for example, that you have legal title to land that is properly registered.  They will want to lend to companies that are in good standing with the government, which requires paying the necessary taxes.  They will also want a borrower to be able to operate in a legal environment where promises, in the form of contracts, can be enforced if necessary.  All of the impositions mentioned above discourage firms from engaging in the formal economy because it is simply too time-consuming and costly to do so.


These bureaucratic constraints, moreover, encourage corruption.  In some instances,By focusing their attention on attacking corruption, reducing bureaucracy, and expanding access to finance, young Egyptians will go a long way towards increasing the opportunities through which they can find personal fulfillment and add value to their communities. individuals may circumvent onerous rules by bribing officials or using connections to get necessary paperwork without having to follow normal procedures.  Many average Egyptians have neither the money nor the connections to evadecumbersome bureaucratic procedures. Therefore, they will be locked out of the circle of opportunity because they cannot create a legitimate business the "legal" way.  Theyalso cannot do so the "illegal" way because of a lack of connections, money, or an unwillingness to compromise their morals.


Egyptians, therefore, have a significant role to play in demanding simpler procedures that allow the pursuit of opportunities by facilitating the ability to put ideas into practice.  Even with more simplified bureaucratic procedures, however, pursuing new opportunities in a free economy still frequently requires financial assistance.


Expanding Access to Finance

A final facet to expanding the circle of opportunity is facilitating access to credit for small and medium-sized enterprises.  Banking is often a relationship-based business.  Those who are willing to lend money to help a businessperson or social entrepreneur pursue a new venture must trust the borrower.  Laws are important to facilitating that trust.  If a banker, for example, makes a contract with a new company for a loan, and the company eventually goes bankrupt, the banker must have a high level of confidence that he can be repaid in some way. As we have seen above, if it is difficult to enforce a contract, the necessarylevel of trust will be more difficult to achieve.  When such trust is not fostered by a legal system, it will be more heavily reliant on personal relationships.


The restriction of financial networks to personal groups who know and trust one another is one of the most serious impediments to expanding the circle of opportunity.  While in some cases, it may be that money is explicitly restricted to certain groups, in many cases there is simply a small group of people who are aware of how to get financing and who have the relationships necessary to do so.  A key element of expanding the circle of opportunity, therefore, lies in increasing the ability of normal Egyptians to gain access to financing to pay for their new ventures.


Egypt remains a fairly difficult place for bankers to feel comfortable providing money to people.  When a bank lends money, it usually requires collateral, which is a pledge that if the borrower cannot pay back the loanthe bank can seize some assetsof that business.  The ability to postcollateral is essential to a banker’s ability to feel comfortable providing financing. In Egypt, unfortunately, the current laws do not adequately protect a banker’s ability to take possession of collateral if he is not repaid.  Again, as in the situation with corruption and bureaucracy, young Egyptians must push for changes in commercial laws that will make it easier to access finance.


In addition to improving the legal structure, it is also important to promote the development of banks that will focus on lending to small and medium-sized businesses.  Institutions involved in microfinance play a partial role, buttheir impact is limited when it comes to creating businesses capable of employing larger numbers of people.  Slightly larger financial institutions can provide money that helps start businesses whichcan create more jobs - more opportunities - for the community.  There are a range of programs that the government can open in order to facilitate this banking process.  The government can, itself, give loans to banks in order to start or expand their operations in smaller cities or other places where there is currently insufficient financing available.  The government can also provide loan guarantees, a type of insurance thatbacks loans in certain situations.  These give bankers a higher confidence in lending to people who do not have strong track-record of opening businesses.  These alternatives increase financing to new communities and to new individuals who have ideas but whose access to capital has previously been constrained.


Conclusion

Egypt stands on the verge of a new era of freedom and opportunity.  I have argued here that small businesses and entrepreneurial initiatives can provide Egyptians a means for contributing to their community while achieving a sense of personal growth and fulfillment.  The Egyptian government, however, must play a key role in facilitating such opportunities, and the public must pressure the government to do so through voting and oversight. 


While corruption has been a big part of the problem in Egypt’s past, creating opportunity involves much more than hunting down corrupt officials.  In order to properly attack corruption, Egyptians must think very clearly about how to define it, andincorporate those definitions into law.  They must alsowork to ensure the proper enforcement of those laws. Equally as damaging, however, are the restrictive bureaucratic rules and regulations which impede Egyptians’ ability to operate legitimate businesses in the formal economy.  The democratic movement must pressure the government to revise these bureaucratic constraints to enable greater freedom.  Finally, expanding the ability to pursue new opportunities often requires access to finance.  Such access is currently hindered by laws that do not adequately facilitate trust, and by practical constraints on the willingness of commercial banks to expand to smaller and medium-sized markets and borrowers.  The democratic movement must aim to revise banking laws and urge the government to provide programs that facilitate the activities of community banks.


There is a long road ahead in the transition to democracy, and many facets of the fight to expand the circle of opportunity.  By focusing their attention on attacking corruption, reducing bureaucracy, and expanding access to finance, young Egyptians will go a long way towards increasing the opportunities through which they can find personal fulfillment and add value to their communities.

 

Brock Dahl worked in Baghdad and on the Afghanistan Interagency Operations Group with the U.S. Department of the Treasury. He has studied Arabic and performed academic work on political economics, corruption and human rights issues in Egypt, Lebanon, Jordan, Turkey and Afghanistan



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