I personally think that society is responsible for a very significant percentage of what I’ve earned. If you stick me in the middle of Bangladesh or Peru or someplace, you’ll find out how much this talent is going to produce in the wrong soil. I will be struggling thirty years later. I work in a market system that happens to reward what I do very well – disproportionately well.
– Warren Buffet
Among development workers there is often an inclination to look for inspiring, entrepreneurial, individuals amongst the citizens of developing world who seem to break the mould and aspire to achieve more than their peers. These individuals are a step ahead; they’re hard-working and innovative, and in being so they set higher standards for their society as a whole, ostensibly changing the culture to make it more conducive to development.
This notion lends itself in support of the idea that the target of development interventions should be individuals, most often based on their role in the market. This is what explains the popularity of microfinance initiatives in the last decade, though the idea finds itself appearing in many other reaches of aid and development work – “investing in people” seems to be the general buzz-phrase for it.
Unfortunately, despite the fact that it’s well-meaning, the way in which “investing in people” is currently done is based on a dramatic misjudgment of how development takes place. The entrepreneurial spirit of individuals does not set trends through which development does or does not occur, but rather, the shape of a society’s institutions determines the trends that will find form in the will and actions of individuals.
Institutions, and especially economic systems, have a profound influence in molding the characters of men and women. They may encourage adventure and hope, or timidity and the pursuit of safety. They may open men’s minds to great possibilities, or close them against everything but the risk of obscure misfortune. (Bertrand Russell, Political Ideals)
In any case, as far as the entrepreneurial spirit of individuals goes, poor countries are leaps and bounds ahead of the developed world. This is simply a result of the fact that people have to work a lot harder, and be more innovative in their work, to make a living. In 23 Things They Don’t Tell You About Capitalism economist Ha-Joon Chang points out that in Ghana 66.9 percent of the population outside of the agriculture sector is self-employed, whereas the number is only 12.8 percent for the developed world. “What makes the poor countries poor is not the absence of entrepreneurial energy at the personal level, but the absence of productive technologies and developed social organizations, especially modern firms.”
Unlike poor countries, rich countries are able to, as Chang puts it, “channel the individual entrepreneurial energy into collective entrepreneurship.”
[E]xceptional individuals like Edison and Gates have become what they have only because they were supported by a whole host of collective institutions: the whole scientific infrastructure that enabled them to acquire their knowledge and also experiment with it; the company law and other commercial laws that made it possible for them subsequently to build companies with large and complex organizations; the education system that supplied highly trained scientists, engineers, managers and workers that manned those companies; the financial system that enabled them to raise a huge amount of capital when they wanted to expand; the patent and copyright laws that protected their inventions; the easily accessible market for their products; and so on.
Chang insists, as must I, that “we reject the myth of heroic individual entrepreneurs and help… build institutions and organizations of collective entrepreneurship”. Invest in institutions: that’s the right way to go about investing in people. This will involve, to begin with, shedding the unhealthy fetishization of the private sector currently prevalent within the development sector.