Post on 21-Feb-2021
An equation for prosperity
Standard assumptions
• Knowledge is power
• Time is money
• Work=power*time
Therefore
• Money= work/knowledge
Hence
The less you know, the more you make
or
“Die duemmsten Bauern ernten die dicksten Kartoffeln.”
(“Fortune favors fools”)
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Ways out of povertySupport for promising SMEs
DEG Atrium Dialogues:
SME – entrepreneurship at its best
Michael Klein
Cologne, November 16, 2010
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More hope than ever for a world free from extreme poverty
Chart Title
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0.10
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0.90
1.00
1820
1825
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1835
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1845
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1960
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1990
1995
2000
Poor/Total (W orld) Poly. (Poor/Total (W orld))
Source: David Dollar, Frank Lysy and Guy Pfeffermann.
Share of world population living in extreme poverty, 1820-2000
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The way out of poverty: Income
growth from productive enterprise
0.0
50.0
100.0
150.0
200.0
250.0
1960 1965 1970 1975 1980 1985 1990 1995 2000
Con
stan
t 198
5 U
S$ (
billi
ons)
Korea, M anufacturing Value Added
Official Net Resource Flows to Dev. Countries
Total Grants to Dev. Countries, Excl. Tech. Coop.
Source: World Bank WDI Database.4
Business does the heavy lifting in the fight against poverty
Informal labor market in ChinaSource: Wang Qiang
Waiting for Work in Bhutan Source: Bhutan Observer, March 28, 2010
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Not any job will do
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"We have to end forever the
notion that Cuba is the only
country in the world where
you can live without working.“
Raul Castro
BBC September 14, 2010
Productive jobs are needed
Ohorongo (Namibia):
cheaper cement, efficient
energy useAsian Bamboo (China):
Improved Bamboo
plantations
Tiscan (Tanzania):
efficient container trade
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Go for “promise”, not “size”
Most value from allowing promising firms to emerge and grow…
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Stunted ecologies of firms:
Barriers to entry and growth
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8.1
3.3
-2.2-5
0
5
10
15
20
25
1 to 10 11 to 50 51 to 200 200 +
%
Firm's Number of Employees in Baseline Period
Employment Growth Rates by Firm Size
Source: Aterido, Hallward-Driemeier and Pagés (2009)
Affiliated Computer Services (ACS) employees in Ghana: Keying in US healthcare records
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Accra
10
License to sell
2,6%
-1,0%
-3,5%
formal jobs prices revenue of old firms
Effects of business registration
reform in Mexico
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Credit Information; Creditor Rights
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SME support: The first line of defense:
The business environment
• SMEs get funding when the environment is ok – Latin America
– 45 emerging markets
• Business models for SME finance emerge– Special departments
– Service offerings
– Assessment methods (e.g. scoring)
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SME support: The second line of defense
The large firm
• Large firms are typically not large because technology requires gigantic scale, but because size helps solve reputation, commitment and financing problems
• Large firms are often like collections of small firms and operate an internal market for corporate control
• Large firms may provide funding along the supply chain for SMEs
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Market failure?
Market failure?
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• Failure means: good deals left on the table– Know-how– Finance
• The likelihood of market failure– 2/3 of SME finance gap for
companies with bank accounts; 2/3 of major cost due to loss given default
– Who knows best: borrower or lender?
SME support: The third line of defense
Government support programs
Can government do better?Evidence
– Less than a dozen impact evaluations worldwide
– Many schemes are ineffective or plagued by corruption
– Some schemes work, but impact evaluations do not say why and typically no evaluation of costs and benefits
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Entrepreneurship and a public push
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Public Support for SMEs
Public finance is just a small piece of the equation
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True “leverage”
Support good examples
AND
Drive policy reform
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Public Support for SMEs
• Expect less and you are more easily satisfied (e.g. “SMEs reached” and “money out the door”)
Market failure means good deals are left on the table – not bad ones, therefore:
As demanding a measure as for business:
profit as high as the risk-adjusted cost of capital
- a measure of success not just a necessary evil
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Measures of success
“Business model” for public SME
support– Allow for failures:
• a broad portfolio
– Measure of success: • profit for the portfolio as a whole
• profit for partners
(no demonstration effect without profit;
no first loss with taxpayer)
– Subsidy and special engagement:• for “public” goods
(business environment, social and environmental concerns)
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SMEs and the way out of poverty
• The way out of poverty– Productive jobs through enterprise
• The engine of growth– Developing productive firms
• Help from government– Competition on the basis of rules: the business environment
– Supporting examples: finance and training
• The business model for SME support– Allow for failures: portfolio approach
– Measure of success: profitable portfolio
– Subsidy and special engagement for “public” goods (business environment, social and environmental concerns)
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