23 Things they don't tell you about Capitalism

According to some free-market economists, entrepreneurship is essential to a dynamic economy, and a lack of entrepreneurial spirit is holding back developing countries. Chang counters that the opposite is true: People in developing countries have no choice but to be entrepreneurial, and many of them are self-employed. By contrast, in rich countries, most people work for large corporations rather than taking the risk of starting their own business.

However, entrepreneurial spirit alone is not enough to raise individuals and countries out of poverty. Despite the proliferation of small loans offered to poor individuals in developing countries, known as microcredit (or “microloans”), in recent decades, little evidence shows that this practice is successful. Lending institutions must charge high interest rates to cover their costs, and many individuals use the funds to cover personal expenses instead of starting a business. Additionally, as microcredit saturates a given region, borrowers tend to gravitate toward a limited range of feasible business enterprises, which become overcrowded and thus decrease their value and their earnings.

In Chang’s view, the real issue holding back developing economies is a lack of technologies and social organizations to coordinate large-scale collaboration. Even celebrated entrepreneurs such as Thomas Edison and Bill Gates accomplished what they did only because of supportive legal, educational, scientific, and economic frameworks.