Summary of an article published in Spanish in Revista Gestión of Ecuador, Dec. 2013
By Luis Fierro Carrión
Latin America suffers from a problem of low productivity:
the human and physical capital of the economies of the Region are not used
adequately in the production of goods and services. This phenomenon explains in part why the
Region has not achieved more dynamic growth rates since the past century, which
in turn has prevented its average income per capita to converge towards the
levels observed in more advanced countries.
Among other factors, this low productivity is due to a
relatively low level of creation and growth of enterprises of high productive potential. Even the government of Ecuador has expressed
its interest in promoting a “change of the productive matrix” to achieve higher
levels of productivity, and, tied to this, higher income per capita.
The relative absence of high-growth companies in the Region
is the main topic of the “Economic and Development Report” (RED 2013) of the
Andean Development Bank (CAF) this year, with the title "Entrepreneurship in Latin
America: From Subsistence to Productive Change" (http://goo.gl/QU9Z0d).
According to the report, what are the
main causes of the low level of creation of enterprises with high productive
potential in the Region?
The study asserts that the small size
of the companies and their poor growth dynamic is not due to the lack of
individuals with entrepreneurial skills: that is, persons with a creative and
innovative thought, with managerial skills, focused on results, and able to
tolerate risks.
The document postulates the hypothesis that there is an “informality
trap”: “given the lack of employment
opportunities in the formal productive sector, an important proportion of the
individuals with relatively low entrepreneurial skills decide to open micro and
small businesses, that not only generate low and unstable income, but that also
prevents them from accumulating labor skills and capacities, which in turn
reduces over time their potential to transition towards a formal sector
employment”.
In this context, the proliferation of microenterprises
becomes an obstacle for the “emergence of transformative new companies, and the
expansion of the already existing ones, given that there is not the sufficient
skilled labor force that would be needed in case these would grow at an
elevated rate. This situation places the
region in a sort of informality and low productivity trap, in which there is no
entrepreneurial growth because, among other things, there are no workers with
the required skills and this, in turn, occurs because there are few companies
that generate labor opportunities that would create disincentives for informal
micro-entrepreneurship” (p. 5).
Another factor would be the lack of access to credit, and
the absence of companies that can “spill” technological know-how in the
different productive sectors.
According to the Report, some tax, credit, labor and social
policies would have the effect of “limiting the growth of formal and high
productivity enterprises, while incentives are generated for the creation and
survival of microenterprises that only provide employment to their founder and
perhaps some family members, and that usually have scarce added value”. For
example, their high costs of firing workers would inhibit these small
enterprises form hiring personnel from outside the family.
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