How enabling environments can foster Entrepreneurship and innovation in an economic crisis

“Economic depression cannot be cured by legislative action or executive pronouncement. Economic wounds must be healed by the action of the cells of the economic body–the producers and consumers themselves.”

Those were the words of the United States’ 31st President, Herbert Hoover, in response to the potential threat of a Great Depression surfacing in 1929. Although the Laissez-faire economic theory, which President Hoover was a big fan of, might not have been the best solution to the crashing stock market that sent the entire world into the most prolonged and disastrous recession in the last millennia. The principle, built on the foundation of entrepreneurial capitalism, remains responsible for the prosperity of some of the world’s largest economies by GDP.

The importance of an enabling environment that fosters entrepreneurship and innovation cannot be overstated. With such an environment, entrepreneurs can create innovations that promote economic growth and development.

Lessons from China

China grew from being one of the poorest countries in the world to having arguably the strongest economy in the world in the space of 40 years. The World Bank described the pace of China’s economy as “the fastest sustained expansion by a major economy in world history.” Which begs the question of how China managed to achieve this seemingly impossible feat. It is going to be hypocritical to gravitate all of China’s economic success to innovation and entrepreneurship, but it did, in fact, play a major role in the build-up.

Prior to the economic reform of 1979, China strictly implemented policies that kept them cemented in a centralized and highly inefficient environment dominated by state government resulting in an era of unparalleled poverty, acute deflation, hunger and death. In 1960, China had a GDP of $59.7 billion, (for context, Tunisia in 2021, had a GDP of $46.48 billion) and recorded a GDP of $17 trillion (second behind the United States). The change started after the government reversed, and even rebuked some of their communist policies, shifting into an economic system heavily inspired by the Laissez-faire principle, which roughly translates as ‘allow to do’

The Laissez-faire theory preached the gospel of minimum intervention by the government and supported the ideologies of a capitalist system. One where private enterprises and foreign investors were invited into special economic zones (Shenzhen, Zhuhai, Shantou, and Xiamen) under special benefits like tax incentives dedicated to actualizing innovative concepts and plans.

These policies attracted foreign investors and motivated local investors. The result of this was the industrialization of the Chinese special economic zones which increased the demand for labour, provided jobs and encouraged people to move to these areas. These zones contributed significantly to the economic growth of China through employment and exports.

Shenzhen, a megacity, for lack of a better word, has seen its population grow measly figure of 33,000 in the early ’70s to 11 million. From being a town of fishermen, the city has now become a hub for technological advancement and innovation in electronics, very much like Silicon Valley. Today, colossal enterprises like Apple, Sony, and Microsoft have manufacturing sites in Shenzhen.

China also benefitted from the flooding wave of private establishments regarding basic infrastructures. Revenue by tax generated from a larger percentage of working-class citizens was heavily invested into the development of basic amenities like high-way roads, electricity, security, and education, all in a bid to attract more investors and entrepreneurs into the country.

Enabling environments increases innovation

“Governments will always play a huge part in solving big problems. They set public policy and are uniquely able to provide the resources to make sure solutions reach everyone who needs them. They also fund basic research, which is a crucial component of the innovation that improves life for everyone.” — Bill Gates

History shows that periods of rapid innovation have acted as catalysts for eras of economic prosperity like the 9-year bull run of the US stock market. This was led by a wave of technopreneurs who took the bull by the horn (pun intended) and changed the way we use technology. These entrepreneurs are fundamentally industrialists, technologists and innovators that accelerate the improved development of technologies and infrastructures.

With active support from the government like tax incentives, awarding private companies with projects, friendly trading policies, grants, loans, and disbursements, technopreneurs can turn ideas into viable ventures that stimulate economic growth.

Take the internet and mobile phone as practical examples. 20 years ago, none of these technologies existed or was important. But today, they have become interwoven with everyday life that it almost seems archaic or primitive not to have access to either of them as they make us operate more efficiently.

Lessons from the United States

“The United States is definitely ahead in the culture of innovation. If someone wants to accomplish great things, there is no better place than the U.S.” — Elon Musk

The phrase itself — the American dream — was incepted from the belief that regardless of race, gender, financial status, ethnicity, or age, anyone can attain any level of success in the United States. This ideology is backed by heavy government action and policies set in place to encourage and support entrepreneurial and innovative activities. Leveraging these policies to push its electric cars to the market, Elon Musk took a loan of $465 million in 2008.

In 2014, NASA awarded a $1.5 billion dollar contract to Space X when the company was on the verge of financial collapse. Today, Tesla is worth $940.14 billion and Space X is worth over $100 billion. It goes without saying that Elon’s entrepreneurial success relied strongly on America’s business-enabling environment through loans and public-private dialogue.

In conclusion…

More than natural resources and high population density, an enabling environment is a crucial component for innovation and economic growth. With this foundational leveller, innovators and entrepreneurs can capitalize on support and policies to create innovative and viable ventures that can improve lives and foster economic growth.

Now more than before, Africa needs to improve its environment to support innovation and entrepreneurship if it hopes to catch up with the rest of the world.