In order for a country to rise out of poverty, it is necessary to replace the country’s economic system with a system which encourages a thriving business sector, according to Glenn Hubbard and William Duggan in a new Strategy+Business article. There is a direct relationship between prosperity and how business-friendly a country is. The poorer countries have regulatory systems which make it very difficult to start a business, get a licence, employ workers, register property, get credit, protect investors, pay taxes, trade across borders, enforce contracts and close a business.
Countries that have failed to create business-friendly environments often have competing systems such as a government which uses a system of patronage to entrench its own power. In Africa, Rwanda is taking the lead in creating a business-friendly environment, and the initial results are positive. But individuals cannot change government policies by themselves, so what can one person do to make a difference?
Hubbard and Duggan encourage private citizens to find pro-business projects to help, particularly projects related to microfinance and business training. They say that charity money should go only to refugee, medical or emergency relief, with economic development money going to support the business sector. I am not sure that their prescription is a complete cure for poverty, but it has some attractive elements.