Sustainable development is enshrined as a global goal in the 2030 Agenda for Sustainable Development adopted by the international community in 2015 as an aspirational vision to shape the development strategies and policies of all countries, including the least developed countries (LDCs).
Sustainable development implies a radical reconfiguration of patterns of production and consumption, and changes in the relationship between societies and the natural environment. It therefore requires the structural transformation of economies, especially in LDCs, which need to transition to high-productivity economic activities and sectors in order to tackle the traditional challenges of economic and social development in a new way that mainstreams environmental considerations.
The concept of sustainable development links three dimensions of sustainability-economic, social and environmental- and the 2030 Agenda emphasizes the unity of, and mutual support between, these dimensions. This three-dimensional view reflects the understanding that an exclusive focus on economic growth ignores and potentially hinders social development and environmental protection. It therefore calls for an integrated approach to development concerns, combining a growing and sustainable economy with environmental protection and the satisfaction of basic needs.
Successive policy statements issued by Member States of the United Nations have emphasized the right and obligation of both developed and developing countries to pursue sustainable development strategies, while also acknowledging the policy space that this necessitates.
UNCTAD has long emphasized the importance of economic structural transformation to poverty eradication and long-term development in LDCs. Structural transformation refers to the transfer of production factors-particularly land, labor and capital-from activities and sectors with low productivity and value added to those with higher productivity and value added, which are typically different in location and organization, as well as technologically. This process allows an economy to continually generate new dynamic activities characterized by higher productivity and greater efficiency.
The 2030 Agenda is thus transformative, in so far as it requires a radical change in economic processes, in methods of production, consumption and transportation and in lifestyles. It also requires a transformation of the socioeconomic relationship within different societies, as well as with the natural ecosystem, to focus on the attainment of societal goals within environmentally sustainable boundaries.
In this context, LDCs need to undergo a process of structural transformation analogous to the historical transformations of developed countries and emerging market economies. However, they need to embark on this process while starting from a position of heightened structural vulnerabilities and in such a way as to avoid repeating the negative environmental consequences of the past.
Such structural transformation has become a sine qua non for LDCs to fulfill the economic, social and environmental dimensions of sustainable development and achieve the Sustainable Development Goals.
Rural development in LDCs is an imperative, as agriculture continues to play a disproportionate role in LDC economies, absorbing two thirds of the labor force and generating some 22 percent of economic output on average, compared with 8.5 percent in other developing countries. This makes the transformation of rural economies central to the overall structural transformation of LDCs.
The expansion of productive capacities plays a pivotal role in sustainable development. According to UNCTAD, the notion of productive capacities encompasses the resources, entrepreneurial capabilities and production linkages that jointly determine a country’s capacity to produce goods and services.
Strengthening productive capacities is thus a key dimension of growth and structural transformation, which occurs through three interrelated processes, namely capital accumulation, technological progress and structural change. The development of productive capacities is thus inevitably influenced by the nature of the interaction between entrepreneurs, the State and markets.
Entrepreneurship is a diverse and multifaceted phenomenon that has been conceptualized in different ways. Behavioral definitions of entrepreneurship define an entrepreneur as a coordinator of production and an agent of change through innovation. Occupational definitions conceptualize entrepreneurship as the result of an individual’s choice between wage employment and self-employment based on an evaluation of the returns offered by each.
The latter conceptualization was formulated with the situation of developed countries in mind. However, self-employment in LDCs is less a matter of choice than a result of prevailing labor market conditions and a lack of alternatives. This underlies the distinction between entrepreneurship by necessity and by choice.
Most definitions of entrepreneurship share common elements, in particular innovation, opportunity seizing and opportunity creation, risk-taking, judgment in decision-making and the development of business organizations. Entrepreneurial activity occurs primarily in private firms or self-employment, but also in State-owned enterprises, cooperatives and non-governmental organizations.
The most common organizational form in which entrepreneurial activity takes place is the firm, which encompasses a wide variety of types, including domestically owned and transnational companies, private firms and State-owned enterprises, and firms of different sizes and ages, operating in all sectors of economic activity.
Entrepreneurship, in particular through its innovative dimension, can make an important contribution to structural transformation in several ways. First, it is an important mechanism for shifting productive resources from economic activities with low value added and productivity to those with higher value added and productivity, whether in agriculture, industry or services. Second, it can stimulate investment and contribute to building a knowledge-driven economy, which plays a central role in economic growth.
Third, even unviable innovations in production that introduce goods, services, production technologies or business models that are new to a particular setting may provide valuable information for future entrepreneurial decisions, including those of other entrepreneurs, in the form of cost discovery. All of these effects are particularly critical in LDCs that are in the initial stage of structural transformation. Entrepreneurship is thus a sine qua non of sustainable development.
Entrepreneurial activity also directly contributes to economic growth by stimulating job creation, improving skills and encouraging technological innovation, and can increase productivity by encouraging competition. Differences in the level of entrepreneurship or in types of entrepreneurship can have a significant effect on economic performance, and control for the traditional factors of production, namely land, labor and capital.Along with the benefit of increased incomes, economic growth is an important element of structural transformation.
However, different types of entrepreneurs and firms vary in their contributions to structural transformation and economic growth. In particular, dynamic, opportunity-driven entrepreneurship may have significant positive effects in this regard, while survivalist entrepreneurs by necessity are typically less innovative, operate mostly in low productivity and low value added activities and produce traditional goods and services with established technologies.
Their growth potential is therefore limited, and most related firms remain at a microenterprise stage. Such activities, although important to the survival of the entrepreneurs themselves, do not generate significant wider benefits.
Survivalist entrepreneurs may become opportunity – driven entrepreneurs and have a more positive impact, yet such instances are rare.
The relative contributions to structural transformation and other developmental goals of different types of entrepreneurs and firms are an important consideration in policy making. Resource allocation and vertical industrial policies directed towards particular sectors or economic activities should primarily target those firms with the greatest potential contribution to structural transformation.
Equally, horizontal, economy-wide policies should be aimed at creating an environment conducive to the emergence of those types of entrepreneurship with the greatest potential to contribute to structural transformation.
The level and quality of entrepreneurship in a given country is influenced by both individual and social factors. A number of idiosyncratic factors influence an individual’s propensity to engage in entrepreneurial activity, ranging from psychological, social and personality traits, to demographic characteristics such as age, gender and cognitive skills.
The personality approach interprets entrepreneurial behaviors as reflecting behaviors such as a desire for success, a limited fear of failure, openness to experience, conscientiousness, extraversion, agreeableness, persistence in the face of failure and alertness to perceiving and acting on opportunities. Gender-based research has shown that the propensity of women to start a business may differ from that of men for cultural reasons or because of discrimination.
Entrepreneurship typically involves individuals yet occurs within an economic and social context that has a strong bearing on the types of entrepreneurs that arise and their chances of success. On the one hand, dynamic, innovative entrepreneurs can contribute to growth and structural transformation.
On the other hand, the features of the broader environment, including the structure and dynamism of the local economy, can have a major impact on the kinds of enterprises than can be established and successfully operated. This relates in particular to the geographical location of entrepreneurial activity, specifically with regard to rural and urban areas in LDCs, as well as the level of development and structural characteristics of the national economy.
Several structural features of LDC economies, including limited financial development, insufficient infrastructure, lack of institutional development, elevated risk levels and the dis empowerment of women, tend to weaken entrepreneurship and enterprise development. Finally, limited urbanization and the disproportionate role of agriculture also have an important bearing on the nature of enterprises in LDCs.
The Ethiopian Herald July 31/2019
BY STAFF REPORT
