Entrepreneurship as Foreign Policy (Blog Post)
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As the largest driver of economic growth, the innovation market and entrepreneurship ecosystem are key component of any nation’s financial engine. Intaking a fuel of novel ideas and motivated business people to churn out almost all new businesses and the vast majority of new jobs, micro and macro economists agree that entrepreneurship has resounding positive effects. Entrepreneurship has also been linked to non-economic benefits such as community development, social change, and increases in egalitarianism and democracy.
Such was this case in the “Miracle of Chile,” a resounding example of how entrepreneurship-focused economic policy can uplift a nation through economic and democratic reform to a place on the global stage. When army chief Augusto Pinochet led a successful coup d’etat in 1973 against democratically elected socialist President Salvador Allende, he inherited a yet unimplemented economic policy known as El ladrillo, translated literally to “the brick.” Co-created by right-wing Chilean economists, University of Chicago taught U.S. economists, and the CIA, El ladrillo recommended deregulation and privatization. Specifically it made the central bank independent, cut tariffs, privatized the state-controlled pension system, state industries, and banks, and reduced taxes. Pinochet’s stated aim was to “make Chile not a nation of proletarians, but a nation of entrepreneurs”.
This focus on entrepreneurship-sparked, free-market capitalism had incredible effects. Chile’s GDP rate of growth went from -5% in 1973 to 5% in 2004 but that was not even considered its most powerful effect. As American economist Milton Friedman, one of the architects of the plan stated, “the Chilean economy did very well, but more importantly, in the end the central government, the military junta, was replaced by a democratic society. So the really important thing about the Chilean business is that free markets did work their way in bringing about a free society.”
Using entrepreneurship in economic development and democracy building abroad is not only a seemingly successful strategy, but a highly recommended one. Major policy institutions such as the World Bank and the Small Business Administration have suggested state-sponsored venture capital as a means to bring western socioeconomic forces to developing nations throughout the world in a benign way. Brown University’s Watson Institute for International Studies even went as far as to claim that for a very small investment, the United States could see major returns from foreign aid implemented in an entrepreneurial enterprise manner.
Despite all of the potential benefits of entrepreneurial foreign policy, there seems to be a disconnect between these proposed successes and actual implementation. Inc.com reports that venture capital, both private and public, largely avoid foriegn companies, and Foreign Affairs calls for more developing nations to follow venture capital strategies in their near future. While past precedent such as the “Miracle of Chile,” and major institutions such as the World Bank lend credence to the policy of “developmental entrepreneurship,” implementation still appears to be falling short. If smart policies focused on non-competition, entrepreneurial institutions, available capital, and ecosystem growth can be implemented in viable nations abroad, perhaps future socio economic miracles can spring up all throughout the world.
