1 Who are Russia’s Entrepreneurs? Discussion Simon Johnson

2 Outline 1)Some Big Questions 2) This Project 3) Suggestions 4) Conclusion

3 1. Some Big Questions How important are entrepreneurs in economic development? –Is it informal microbusinesses? –Or registering as small entrepreneurs? –Or the process of growing up to be large private firms? What can entrepreneurs do when property rights or contracting institutions are weak? –What should be the institutional reform agenda: What is first order? What can we really do?

4 2. This Project Survey entrepreneurs and non- entrepreneurs (matching?) in 5 large emerging markets: R, C, B, I & N –Why not Indonesia, Pakistan? Ask about personal characteristics, e.g., attitude to risk, family background, network-type connections

5 The Authors’ Question To what extent is entrepreneurship driven by: –Institutions –Social variables –Individual characteristics (Presumably), what policies would increase the tendency to form new companies?

6 What do you mean by Entrepreneurship? The MIT model: high tech, spin-offs from university or large companies –Ed Roberts: biographies of entrepreneurs; who sets up and develops companies best? –Diane Burton: it’s about the initial organizational structure –Need to network with venture capital, motivate star scientists etc (Shane, Stern etc) But is this relevant for most of the world? –Individuals who like risk and have family wealth are more likely to be independent business people –Survivor and endogeneity bias –And, at the end of the day, so what?

7 Intriguing Preliminary Results, from Russia It’s all about mothers: education and prior experience (sign conflict?) –Fathers are not that important (or not around any more? demographic issue) Entrepreneurs are short Entrepreneurs are oblivious –They don’t think there is corruption (or didn’t get hit up yet…?)

8 3. Suggestions Make this project central to the institutional reform debate –What prevents people from forming and, particularly, from growing businesses? –Is there a glass or iron ceiling? What obstacles can entrepreneurs find ways around and what is impassable? Is there regional or individual variation in strategies to cope with weak institutions? –Bring us all the details

9 We need to unbundle institutions E.g., 1.Politics: distribution of political power, determined by political institutions –When political power of elites unconstrained, weak property rights for investors because of holdup potential for blocking of new technologies 2.Law: legal procedures, legal formalism, and judicial control of economic activity –Greater legal formalism leads to less fair outcomes and greater gov. intervention –French civil law conducive to legal formalism –Similar results with procedural complexity etc

10 4. Conclusion Institutions matter? –Definitely for long-term growth ( years) –Maybe for medium-run growth (10-30 years) but this relationship is much less robust –Definitely for medium-run volatility/crisis severity Evidence on entrepreneurship-in- development essentially missing –Private sector investment is central to development –More than just investment by cronies? –But investment by whom, when and with what beliefs about returns? –Are the entrepreneurs the central mechanism?