What works at the top doesn?t work at the base
Monday, August 7, 2006
By Charo Quesada
Hobbled by an inadequate and often incomplete basic education, low-income people in Latin America and the Caribbean are forced to take low-skill jobs that offer few opportunities for training or advancement. Obviously, they are also a distinct disadvantage when it comes to starting and running a business. As Alejandro Espinosa of Grupo Nueva of Chile put it at the IDB conference “Building Opportunities for the Majority, ?successful businesses can?t happen in failed societies.?
The problem is compounded by the fact that small and medium-sized businesses, which account for 20 percent to 40 percent of formal employment in Latin America, cannot afford training for their workers without government funding. Informal enterprises, which provide half of all jobs in the region, cannot even afford to make social security payments for their workers.
This lack of training undermines the region?s competitiveness and limits its productivity.
The vast informal market is by definition unregulated and remains highly segmented in terms of occupations. Women, for example, dominate domestic work, teaching and clerical jobs. Indigenous and Afro-descendent workers represent between 68 percent and 80 percent of workers earning wages below the poverty line.
Without the instruments and opportunities available to formal enterprises, entrepreneurs in the informal market cannot organize their work and time rationally, nor those of their employees, through legal contracts that commit both parties. They thus lack the legal support provided by law and cannot access credit that could help them grow their businesses or separate their personal and family assets from their business assets.
Value chains and business clusters are two strategies that have been shown to help small enterprises to compete more effectively. Value chains are based on ?chain? relations between vendors and clients, from raw materials to manufacturing, packaging and distribution of finished goods for sale. Business clusters emphasize the links among various companies with the same type of operation or in the same area. Both systems reduce transaction costs and build trust among enterprises. By working together, the companies obtain a higher level of collective efficiency.
?The region needs enterprise compacts with governments. Let them agree on who will do what to create a new economy that involves low-income consumers,? suggested Nancy Barry, president and CEO of Women?s World Banking. She cited an agreement between the Colombian government and commercial banks as a successful example of such a compact.
The IDB is proposing an Enterprise Compact for the Majority, whose main purpose is to increase productivity, reduce business registration times, improve the quality of secondary education, reduce informality and eliminate salary differentials.
?As entrepreneurs, we have to have a vision of commitment to society,? said Espinosa. ?We all have to change the way we operate. What works at the top of the pyramid doesn?t work at the base.?
