Transitional Lessons

 Transitional Lessons

Which strategies—offering tax advantages and other benefits to potential investors or enhancing the nation's general investment climate—have been most effective in luring direct foreign investments?

Empirical studies have shown that tax benefits and other financial or fiscal incentives do not entice investors. They will exploit current programs (and demand more, setting one nation against another). However, these will never be the decisive elements in their choices. More factors are likely to influence them: degree of property rights protection; degree of corruption; transparency; physical infrastructure condition; education; foreign language proficiency; "mission critical skills"; geographic location and accessibility to markets; and cultural and mentalities.

What effective strategies have nations used to change their previously unfavorable reputation as investment destinations?

The nation's politicians must be perceived as promoting business in an open, honest, and unsullied manner while also liberalizing the economy and defending investors' property rights. One real, transparent (for instance through international tender) privatization; one case when the government supported a foreigner against a local; one politician harshly punished for corruption and nepotism; one fearless news channel – transform a country's image.

Is it appropriate to impose limitations on the repatriation of foreign investment capital, given that they may avert an investment panic while also undermining investor confidence?

Capital flows over the short and long terms are two quite different processes with very little in common. The former has nothing to do with basic realities and is more theoretical and technical in character. The latter is focused on investments and dedicated to boosting the prosperity and well-being of its new home. Thus, discussing "global capital flows" is incorrect. There are two types of money: speculative, "hot" money and investments (including long-term portfolio investments and venture capital). "Hot money" can be detrimental in less liquid, developing, or transitioning economies, but it can also be a very helpful lubricant on the wheels of liquid capital markets in wealthy nations.

Different approaches should be used with the two phenomena. Short-term, "hot money" capital flows should be restricted, if not outright banned, whereas long-term capital flows should be fully liberalized, welcomed, and promoted. One option is the implementation of fiscally-oriented capital controls, like those in Chile. I immediately think of the less appealing Malaysian model. Because it penalizes both long-term and short-term financial participants, it is less appealing. However, it is evident that the management of speculative capital in the quest for ever-higher returns MUST be a significant and essential component of the new international financial architecture. High yields are not inherently bad; nevertheless, the capital markets use specific derivatives and the technique of short selling to create yields that are linked to price crashes and economic depressions. This aspect needs to be neutralized, or at the very least, challenged.

Which strategy—using government agencies, business organizations, or private business support firms—has proven most effective in meeting the needs of small businesses?

Where it is depends. The state supplied the required guidance and assistance in South Korea, Japan (until 1997), and Israel (until the early 1990s). Within the United States, the private sector created incredibly successful support systems (like venture capital funds) on its own. The best course of action depends on the specifics of the nation in question, including how entrepreneurial its people are, how easy it is for SMEs to obtain loans and microcredits, how forgiving the bankruptcy laws are (which are always a reflection of the social fabric of the nation), how well-developed its physical infrastructure is, how well-educated its populace is, and so forth.

What is the best way for a large number of scattered small and medium-sized business owners to address problems through collective action?

In the era of transatlantic travel, computer networks (such the Internet), and communications, it is an odd question to pose. Geographic dispersion has no bearing at all. The conflicting self-interests of the several players are the source of the issue. The greater their number, the more focused on specific niches, and the lower the common denominator. The disintegrating influence of trade unions and cartels, on the one hand, and business trusts, monopolies, and cartels, on the other, is evidence of this fragmentation. It is not a question of whether this can be overcome, but rather, should it be? The modern market economy, which is predicated as much on the capacity for conflict and disagreement as it is on the ability to ultimately compromise and find a consensus, depends on this kind of diversity of interests.

The two main things that must be done are education and public relations. It is necessary to educate the public, policymakers, and large organizations about the benefits of small businesses, entrepreneurship, and intrapreneurship. And there's a continuing need to come up with fresh strategies to help this industry.

What is the greatest way to help small businesses get access to start-up financing and other resources?

Globally, traditional banks have been unable to continue striking a balance between reward and risk. A massive shift to the capital markets was the outcome. Globally, stock exchanges catering to the trading of shares of startups and technology businesses proliferated, such as the Neuemarkt in Germany, the USM in London, and the NASDAQ in the USA. Quantitatively, investment and venture capital funds emerged as the second most significant source. In addition to providing funding, they mentored aspiring business owners and supported them during the torturous and hazardous stages of research and development.

However, they are first-world problems.

Inventing "third world solutions"—like microcredits given to the textile or agricultural industries, mostly to women and involving the entire community—is a significant breakthrough.

Q: Since women launch one-third of new companies in the area, is there any way to further encourage this contribution to economic growth?

by giving them the tools they need to work and practice being entrepreneurs. by setting up daycare facilities for their kids. through the provision of microcredits (women have shown to be exceptionally trustworthy borrowers). by the provision of tax credits. by promoting or permitting work from home, part-time employment, or flexible scheduling. by acknowledging the residence as the place of business (particularly by means of the relevant tax legislation). by paying them the same as they are legally entitled to. by shielding them from harassment that is sexual or gendered.

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