Institutions and entrepreneurs: A team effort towards development

Opinion article by: Estefanía Tirado *. (etirado2@eafit.edu.co)
*Economics and International Business Student at Universidad EAFIT, Colombia.

Considering institutions as a mechanism of social character that pursues order and regulation of conduct within a group of individuals and therefore has an influencing power on people’s acts and notions, it is undeniable that it has an impact on diverse areas of the social atmosphere, including people’s capacity and willingness to develop, organize and manage a business, what could be commonly define as entrepreneurship.

The order and regulation institutions pursue are based on the principle of reducing transaction costs, what are commonly defined as the costs incurred in the process of carrying out any transaction and in this case, economic transactions. When a country has inefficient institutions, as has been the case of most Latin-America and the Caribbean, where opening a business takes 52 days, 4.4 times the time it take in the OECD economies (World Bank, 2013), and the time for both importing and exporting takes the double than in OECD economies, there will be an evident disincentive for both local and foreign entrepreneurs to invest and star new projects. 

Taking into account that the corruption index of Transparency International for Latin-American has fluctuated between 3.6 and 3.4,10 being least corrupt (ECLAC, 2013), it is evident that in this region there are not only inefficient institutions, in terms of extremely high bureaucracy, but they are also immersed in a significant level of corruption. When there is such a low level of transparency, it makes it very hard for projects to reach their ultimate goals, so no matter the amount of resources expended in improving infrastructure, education, health or promoting entrepreneurship, as resources are not managed transparently, institutions lose their character and contribute to the underdevelopment of most of these countries.

In this context the beginning of an efficiency program inside institutions, that has the support and commitment of both citizens and government, is necessary to reduce bureaucracy and barriers to entrepreneurship. This process must be accompanied by strict anti-corruption policies that allow the maximum use of resources by the entire population. Upon reaching a level of transparency favorable for the economic activity, the path of entrepreneurs for driving economic development, by the new ventures that add value to the entire economy, would be extremely facilitated. 

The key role of entrepreneurs lies especially in their ability to create new value, and therefore strengthening a country’s economic growth as well as speeding up modernization, what would have an impact in both the amount of people employed and the life quality of individuals. Taking this into account, if institutions give entrepreneurs security and a propitious atmosphere to celebrate their business, both private and public sector will find their way to work together towards the country’s development, but it is extremely important to keep in mind that this can only happen in a society that is structured under principles such as transparency and respect for other individuals’ property.

References:

World Bank (2013). Doing Business 2013. Available online at:
http://espanol.doingbusiness.org/data/exploreeconomies/colombia/#trading-across-borders

CEPALSTATS (2013). Statistics. Available online at: http://interwp.cepal.org/sisgen/ConsultaIntegradaFlashProc.asp

Transparency International (2013) Corruption Perception Index. Available online at: http://www.transparency.org/research/cpi/overview