The seeming absence of entrepreneurial consciousness among the governments of African countries considerably hinders their country’s prosperity. In Nigeria, for instance, only about four subnational governments are economically independent. The rest of the subnational governments depend on centrally distributed revenue allocations for survival. This inconvenient reality is avoidable in these governments internalizing the fact that they should lead the prosperity creation process in cooperation with business organizations, and other individual economic actors. And much like these co-creators of prosperity, they should wear the toga of entrepreneurship.
The focus of the entrepreneur is always the creation of economic value which is narrowly expressible in terms of profits for the strictly business-minded. Nevertheless, it goes beyond that to include deliberately taking risks to create net economic worth regardless of whether it is in a commercially focused enterprise, non-government organizations or government institutions. Three distinguishing characteristics make this possible, namely, the entrepreneur’s focus on finding and acting on opportunities, coordination of other factors of production and the management of the underlying risks necessary for success in the two preceding characteristics.
The government of African countries must, therefore, cease to see their roles narrowly in terms of the management of market failures which nevertheless has some fundamental elements of entrepreneurship. They should instead begin to create opportunities with ultra-high net economic values proactively. Succeeding in this requires that the government should assume and internalize the characteristics of the entrepreneur beyond the level that is consistent with the management of market failures. Central to this is that governments should prospect for enduring very long-term prosperity-creating opportunities as well as fund the costs of attendant uncertainties associated with such exploration. That is one significant way that African countries can climb the ladder in innovation as well as become respected players in the international economy.
There is a four-stage hierarchy in the accomplishment levels of governments. Governments that are struggling to overcome challenges with the rule of law, transparency, and corruption populate the base of the ladder. This base stage is where many African governments belong. At the second stage are governments that are focused on the management of market failures. Their primary concern is to effectively deal with negative externalities as well as adequately provide the publicly needed infrastructure. They have considerably overcome the challenges of the rule of law, transparency, and corruption. Governments at the third stage in the hierarchical ladder have overcome challenges in the first two phases and focus more on the welfare of their citizens through increased improvements in resource distribution and economic inclusion. At the final stage in this hierarchy of government accomplishments, are those that have successfully navigated through the first three stages and have fully assumed the nature and characteristics of the entrepreneur. They take risks just like typical entrepreneurs. Such governments make massive investments in scientific research and innovation as well as plan almost a century ahead. They master the art of navigating in the dark in search of treasure. Factually speaking, all governments possess some elements of the characteristics that define each of these stages. What differentiates one from the other is the intensity of the defining aspects that it possesses. Most developing countries are in phase two, while most developed countries such as the United States are in the final stage.
It is undeniable that the effective management of market failures creates the right environment for economic prosperity. Nevertheless, there is enough evidence to show that countries whose governments have advanced beyond this level perform much better. Managing market failures is the fundamental role of government. It is not debatable that governments that perform very well in this will also orchestrate enormous prosperity for its people. However, sustained, and robust performance of economies will require that governments participate in the prosperity creation process at the fourth phase in the hierarchy of accomplishment. That entrepreneurial evolution phase, as earlier explained, requires both the effective management of market failures plus a long-term focused exploration of economic values which often involves the funding of uncertainty.
If governments had assumed leading roles in digging deeper into the realms of known-unknowns and unknown-unknowns to explore prosperity-creating opportunities, then they would have become well steeped in state entrepreneurship. A useful extension of such a mindset is the conscious rejection of the theoretical stereotypes that turn weaker governments into economic victims of global trade. Entrepreneurs do not necessarily compete based on comparative advantage. Sound entrepreneurs deploy all means possible to create the positions (advantages) that they use to succeed. Most African governments uncritically accept that they are endowed mainly with natural resources which should be their comparative advantage. This notion and the supporting economic theory are absurd and hardly confers a meaningful long-term benefit to the countries that swallow that pill. To strongly succeed, governments of African countries should identify those areas where they feel that they can build their strengths regardless of whether it currently exists or not. Using state resources and other means available to the government, they should invest over a long time to create those competitive advantages.
Apart from the setting of the preconditions for business success via the management of market failures, there are at least four diverse ways in which the government can become entrepreneurial. By leading the entrance into the known-unknowns and the unknown-unknowns opportunity environment, the government can effectively facilitate the emergence of non-existent markets. For instance, it will require the backing of the government for Africa to have any share in the search for and mining of solid minerals in outer space. Only African governments that sincerely believe in such a venture can muster the financial resources and courage required to compete with the rest of the developed world in that quest.
The Madagascan government showed a ray of this vital role of the government when it ventured into the manufacture of a cure for COVID-19 infection. That way, it broke through the barriers of drug accreditation and validation and consequently stamped the manufactured remedies as fit for use despite the hues and ululations of the Western world. Many African countries immediately commenced the patronage of the drug. In similar ways, the earliest scientific exploration by most of today’s developed countries was government-funded. This venture included oil extraction as well as the exploitation of other natural resources from the African continent. It is that kind of behaviour that confers on governments the unique role as innovation agents. That is so because governments can set aside legislative hurdles as well as take financial risks to bring about certain marketable benefits to its people. This risk-taking is very much the case in the initial expeditions to the moon and today’s satellite technologies.
The government is, therefore, the most suited to take the highest risk required for new frontiers of national economic success. An excellent example of such a boundary could be the funding of the research that would enable the exploration of the sun or other outer galaxies. In a more general sense, the entrepreneurially focused government should either partially support or fully make available all the resources needed for innovative breakthroughs that will benefit the citizens even if that is going to be in the next century. That way, the entrepreneurial government becomes the chief risk-taker in such new frontiers that define long-lasting prosperity for the country. It is the absence of this quality that partially differentiates virtually all the governments of the developed countries from those of the African continent.
Several examples abound to prove how country governments are beginning to wear their entrepreneurial armour to attract sustainable long-term prosperity for its people. Developed countries unarguably reached their current status in the wings of protectionism, which was a conscious entrepreneurial action by governments to create competitive advantages for itself. They are alert to opportunities and always either create or sustain one by establishing substantial competitive advantages. And now, the developed countries are massively projecting the comparative advantage to perpetuate their status and prevent poorer countries from climbing the ladder. From China to Mexico, to Japan and the United States and Canada, they are all neck-deep into protectionism through which the state entrepreneurially protects its competitive advantages.
One of the world’s undebatable entrepreneurially focused governments is that of China. China’s meteoric economic transformation, which included the upliftment of hundreds of millions of Chinese people out of poverty, is ascribable primarily to the government’s entrepreneurial leadership. The government, through numerous ways, financed science and technical skill acquisition as well as significant technological breakthroughs. With the backing of the government, China’s banks generously funded long-term projects that fall within the areas that the government has shown interests in developing local expertise and competitive advantages. Again, in response to Marianna Mazzucato’s “The Entrepreneurial State,” Teresa Tritch wrote in the New York Times on March 23, 2014, that “it is, in fact, the way the United States has operated since World War II. Through the National Institutes of Health, the Defense Advanced Research Projects Agency and other agencies and departments, the government has for decades gone beyond financing research and creating the conditions for innovation to occur; it has also envisioned the future, engaged in the riskiest experimentation and overseen the commercialization process”.
Finally, while this is not an exhaustive checklist, the governments of the African continent can quickly climb the hierarchy of accomplishment ladder by implementing the following four steps. The first is to alter the direction of policy almost entirely in favour of the markets. Entrepreneurship is natively embedded and delivers excellent results when in the market superstructure. Pro-market systems create the right set of incentives for innovation and powerful profitable performance. The second step is for governments to evaluate their programs and policies through the lens of innovation development and higher revenue performance. Traditionally most government institutions hide under the “citizen welfare mentality” to shirk the assessment of their achievements in terms of increases in revenue and net income. By changing its self-evaluation templates to capture improvements in revenue and net income without necessarily sacrificing citizen welfare, the incentive for innovation will more naturally spring up. The third step is a massive organizational change in the public sector in favour of high-risk taking and the exploration of the treasure-hiding world of the known-unknown, and unknown-unknown. Entrepreneurs, food, and water is risk-taking and exploration of uncertainty. Sound entrepreneurs grope in the mist convinced that profit-making opportunities are in there. Likewise, if the government’s consciousness to entrepreneurship is to awaken, then it must be ready to shift its mindset towards risk-taking without gambling with the lives of the citizens. Finally, entrepreneurial incentives primarily come in terms of profits. Public sector reward systems should also reflect that shift in entrepreneurial awakening. The reasonably inflexible uniformity of compensation, which has promoted free-rider incentives, should give way to handsomely rewarding entrepreneurial performance and vice versa.
Finance February 6, 2020
Frontpage December 13, 2018