My Say: Entrepreneurship a solution to many of nation’s woes

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This article first appeared in Forum, The Edge Malaysia Weekly, on April 4 - April 10, 2016.


WHEN learning human history, some of the “greats” of our collective past tend to become our favourites. The reader will likely have his own list. Mine is as follows: Abraham Lincoln, Martin Luther King Jr, Michael Jordan, Amelia Earhart, Thomas Jefferson, J R R Tolkein, Arthur Conan Doyle, Zeti Akhtar Aziz, Jane Austen, Charles Darwin, Larry Bird, Bill Russell, Jose Mujica, Ismail Abdul Rahman, Kareem Abdul Jabbar, Rosa Parks and Onn Ja’afar.

Of course, this is only a partial list because I have left out the economists — an entire group unto itself — given my background. In any case, when we think of the greats, we think not only of the persons but also of their greatest triumphs and, sometimes, greatest failures. The names I have listed above are synonymous with some very significant micro and macro events in human history.

For instance, on a micro level, Abraham Lincoln will forever be famous for the Emancipation Proclamation and the Gettysburg Address while on a macro level, he will always be associated with the American civil war. Similarly, the civil rights movements of the 1950s and 1960s are the macro lens through which to view Martin Luther King Jr, and who can forget his iconic “I Have a Dream” speech?

The legacy of these people is assured — the deeds they have done, the people they were, although the myth often becomes more than the man. Thomas Jefferson was an intellectual giant and a former US president who wrote the American Declaration of Independence — proclaiming all men as equal — but he was also a slave owner, even if he was a product of his time.

Michael Jordan is a cultural icon, often labelled as the greatest basketball player of all time and, according to Fortune magazine, is credited with having made a US$10 billion impact on the economy through his basketball career. But he is also a notorious gambler, pathologically competitive and well known for his harsh behaviour towards his teammates.

Having said that, I have always found the US$10 billion calculation very interesting. For one, it quantifies a legacy, which is an incredibly difficult and, as some would argue, abhorrent thing to do. For instance, what is the quantifiable impact of Rosa Parks refusing to give up her bus seat to a white man? Even if the figure may not be high, there is still incredible value to the act itself. However, while figuring out the impact of a particular individual may be tricky, we may also ask what type of individuals are more likely to have a strong impact on their society. For instance, should our society try to produce more political leaders, more artists, more entrepreneurs, more athletes or, heaven forbid, more economists?

This is the question that a recent paper by French economists Olivier Gergaud, Morgane Laouenan and Etienne Wasmer tries to answer. What is the real influence of notable people on a city’s growth in the long run, the economists ask. They collected data on 1.2 million people through an in-depth analysis of their Wikipedia biographies, aiming to identify the causal impact of the presence of these famous people on the growth of about 2,000 cities located in 30 countries around the world since 800 AD.

The principal finding of the authors is that there is a positive correlation between the contemporaneous number of entrepreneurs and the urban growth of the city in which they are located in the following decades. This is also true of artists. On the other hand, they found zero or negative correlation between military personnel, politicians and religious people and urban growth in the following decades.

This is compounded by their finding that the fraction of notable people in governance occupations has decreased while the fraction in occupations such as the arts, literature/media and sports has increased over the centuries. In addition, there has been an exponential growth over time of notable people with more than 60% of them still living in 2015.

Together, these three findings explain why over the past century or so, the world has seen much faster growth than ever before. Indeed, the growth rate of the UK during the Industrial Revolution was only about 1% to 2%, according to most historical estimates. Certainly, it was a time of great change in terms of technology and manufacturing but economic growth was measly.

However, in the 20th and 21st centuries, global growth has averaged between 2% and 3% per annum. This is consistent with the findings of the paper. If most of the notable people are still alive, then more are becoming artists and few are undertaking governance occupations. Also, if artists are positive for urban growth while governance occupations are not, then this change in types of notable people may explain global growth in the past 100 years or so.

Nevertheless, the study is open to potential critique. For one, it is not clear if the historical data on city growth is accurate, given a lack of standardised record-keeping in the past. Secondly, it is not clear if all the notable people were captured; with regard to the historical figures, we only know of those who were documented. Many more may not have been.

Thirdly, occupations can overlap — Benjamin Franklin was an inventor as well as a politician while Leonardo da Vinci was a scientist as well as an artist. Fourthly, there are issues of confounding variables. Perhaps, it is not a city of entrepreneurs that drives growth but rather something inherent in the institutions that enabled entrepreneurs to thrive.

Nonetheless, the basic findings of the paper are still instructive. If we take these as a guide, it is reassuring that the Malaysian government is focusing heavily on entrepreneurship.

However, the ecosystem is still murky with loads of stakeholders playing loads of roles, many of which tend to overlap. Furthermore, we do not yet have a prioritised list of barriers to entrepreneurship in Malaysia that is data-driven. What is the ranking of binding constraints to entrepreneurship in Malaysia?

There are many opinions but few facts. This is something we need to solve. Entrepreneurship is a solution to many of our country’s woes, including job creation and crime reduction. It may also be a spark for economic growth.

Nicholas Khaw is an economist with the Khazanah Research and Investment Strategy division