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PROFESSOR: We're going to talk
about something we've sort of

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00:00:30,720 --> 00:00:36,050
touched on, in many different
contexts, but more head on

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00:00:36,050 --> 00:00:38,700
this time, and that's
entrepreneurship.

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00:00:38,700 --> 00:00:53,610
And sort of the starting point
of that, I think, there's a

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00:00:53,610 --> 00:01:02,750
story that somebody once told
me, which, I thought, kind of

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00:01:02,750 --> 00:01:05,810
frames one side of the
debate very well.

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00:01:08,460 --> 00:01:17,060
I was on the plane with a man,
who was clearly sort of a

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rich, Indian businessman.

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00:01:19,030 --> 00:01:22,010
And he was quizzing me
about what I did.

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And I said, I study economics
and poor people.

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00:01:26,440 --> 00:01:31,020
And he was very much
of the view.

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He said, look, you know, there's
all this stuff about

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00:01:33,450 --> 00:01:34,720
poor people.

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00:01:34,720 --> 00:01:39,000
You guys don't understand
poor people.

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00:01:39,000 --> 00:01:43,790
They have an entrepreneurial
genius in them.

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00:01:43,790 --> 00:01:45,990
You think I'm a successful
entrepreneur.

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The way I learned
entrepreneurship

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was from the poor.

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So I was kind of saying, yeah,
yeah, yeah, right.

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Well then he told me a story
that was actually quite

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compelling.

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And mostly people--

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whatever this means, it's
never clear to me.

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00:02:02,860 --> 00:02:04,610
So I was being slightly
skeptical.

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00:02:04,610 --> 00:02:06,820
But then he told me a story
that was very compelling.

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00:02:06,820 --> 00:02:10,389
So he said that he had
an MBA from the US.

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00:02:10,389 --> 00:02:11,820
I think from Kellogg.

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00:02:11,820 --> 00:02:15,750
And he went back to India
after doing his MBA.

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00:02:15,750 --> 00:02:22,540
And when he arrived in India,
his uncle, who was a

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00:02:22,540 --> 00:02:27,190
businessman in Bombay, said
look, you want to be an

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00:02:27,190 --> 00:02:28,510
entrepreneur.

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00:02:28,510 --> 00:02:30,910
Let me show you what
entrepreneurship is.

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So basically, they got
in his uncle's car.

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The uncle drove him
all the way to the

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00:02:39,790 --> 00:02:41,250
Bombay stock exchange.

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00:02:41,250 --> 00:02:44,220
The Bombay stock exchange, well,
he thought that they

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would just go inside
the stock exchange.

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00:02:46,640 --> 00:02:52,030
But in fact, he parked his car
in front of the exchange and

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00:02:52,030 --> 00:02:58,470
pointed to four women who were
sitting on the side of the

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street that goes in front
of the exchange.

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00:03:02,930 --> 00:03:07,620
And he said, you know, can you
figure out what those women's

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00:03:07,620 --> 00:03:08,870
business model is?

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So he says, well, I
looked and looked.

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And they would just get
up, from time to time.

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They'll scrape something off the
street, then they'll come

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and sit down.

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And then they'll be sitting
and talking to each other.

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It's early in the morning, like
8:30 in the morning or

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9:00 in the morning.

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Cars were driving by.

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People were showing up to work
at the stock exchange.

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But what does it have anything
to do with entrepreneurship?

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So he kind of tried to come up
with some answer, completely

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didn't manage, and finally
told his uncle,

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look, I have no idea.

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Why don't you tell me?

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His uncle said, these women get
up at 5:30 in the morning.

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They go to the beach.

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In the morning, the tide has
receded, so there's wet sand

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on the beach.

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They collect the wet sand and
then they put it in a bag.

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They come to the
stock exchange.

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This is one place where
lots of cars go by.

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And there's a nice
sidewalk to sit.

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Before the traffic starts,
they lay the

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sand out on the street.

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And then they sit there.

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And as people drive on the
stand, the heat from the tires

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dries the sand.

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So the sand gets heated and
eventually dried by the tires.

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Once the sand is fully dry, they
scrape off the sand and

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put it in a bag and take
it back to the

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slums where they live.

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Women use this dry sand
as like a scrubber.

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To clean dishes, you use
this dry sand as a

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scrubber for that.

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And so they use this
dry sand to scrub

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off their dirty dishes.

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And that's all dirty--

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00:05:33,800 --> 00:05:34,990
I don't know, whatever--

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00:05:34,990 --> 00:05:36,280
cook pot and pans.

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And that's how these people
make a living.

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They dry the sand,
and they sell it.

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So this was his example of how
infinitely creative poor

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people are.

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And my reaction to that was,
you know, isn't that saying

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00:06:03,930 --> 00:06:06,570
much more about how creative
you have to be to make a

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00:06:06,570 --> 00:06:10,760
living if you are poor then
how creative the poor are?

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00:06:10,760 --> 00:06:14,880
So it's the same proposition,
in a sense.

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You could say that this
shows that the

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poor are very creative.

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00:06:18,350 --> 00:06:20,520
Or you could show that the
poor have no business

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opportunities so they have to
do this completely bizarre

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thing to make a living.

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And those are just two sides
of the same coin.

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And I don't know.

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So what I want to talk about
today is a bit on this

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00:06:38,810 --> 00:06:41,130
implicit and often
explicit debate--

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So before we get there--

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00:06:49,750 --> 00:06:53,450
on whether the poor are
entrepreneurial in some

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meaningful sense of
the word or not.

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So let's start at
the beginning.

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00:07:01,200 --> 00:07:02,170
Who's an entrepreneur?

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00:07:02,170 --> 00:07:03,587
How do you define
an entrepreneur?

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AUDIENCE: I guess I would define
an entrepreneur as

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00:07:18,684 --> 00:07:24,244
someone who goes about creating
a new venture that

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00:07:24,244 --> 00:07:28,640
often involves a greater than
average amount of risk.

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00:07:31,230 --> 00:07:43,040
PROFESSOR: So if I am someone
who works for Toyota and

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designs a slightly different
car, am I an entrepreneur?

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AUDIENCE: I would say not.

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00:07:47,922 --> 00:07:49,360
PROFESSOR: Why not?

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It's risk.

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00:07:50,350 --> 00:07:51,590
I could fail.

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00:07:51,590 --> 00:07:54,970
I would look really, really
stupid to my bosses.

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00:07:54,970 --> 00:07:57,425
AUDIENCE: But it creates
a new venture.

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00:07:57,425 --> 00:08:00,200
I mean, right there, you're
developing a product inside.

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PROFESSOR: New venture?

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00:08:01,870 --> 00:08:03,750
So it has to be a new,
separate company.

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00:08:03,750 --> 00:08:05,780
Is that the definition?

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00:08:05,780 --> 00:08:09,260
AUDIENCE: No, but I'd say a
venture not a design, right?

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00:08:09,260 --> 00:08:12,300
PROFESSOR: But I haven't
got what that means.

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00:08:12,300 --> 00:08:14,780
AUDIENCE: Like a venture in
the sense that it doesn't

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00:08:14,780 --> 00:08:16,400
necessarily have to be entirely
its own company, but

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00:08:16,400 --> 00:08:17,740
it's more than just a design.

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00:08:20,455 --> 00:08:24,292
In the sense of a design, but
then you're not taking into

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00:08:24,292 --> 00:08:26,377
account the other things that
would actually go into making

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00:08:26,377 --> 00:08:27,640
it a car and then
selling that.

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Like let's say Toyota decides
to launch a new line, where

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they're going to do a new
dealership agreement, new

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00:08:33,559 --> 00:08:35,229
factory, all that, then that
would be a new venture.

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00:08:35,229 --> 00:08:38,568
If I was running that, then I
could be classified, under my

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00:08:38,568 --> 00:08:39,530
definition, as an
entrepreneur.

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PROFESSOR: OK.

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00:08:39,990 --> 00:08:42,280
So you would--

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00:08:42,280 --> 00:08:43,440
OK, go ahead.

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00:08:43,440 --> 00:08:45,713
No, you should go ahead.

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00:08:45,713 --> 00:08:49,164
AUDIENCE: I think the term, that
we'd have to go into the

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00:08:49,164 --> 00:08:50,150
definition.

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00:08:50,150 --> 00:08:53,360
Besides just creating a new
venture, it would be create a

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00:08:53,360 --> 00:08:57,600
new venture that is, somehow,
innovative and

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00:08:57,600 --> 00:08:59,470
unique in it's own.

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00:08:59,470 --> 00:09:03,830
So I think, whether not,
necessarily, the business idea

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00:09:03,830 --> 00:09:08,950
or the business strategy of the
product, but maybe even in

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00:09:08,950 --> 00:09:12,028
how the person operates the
company, they can be

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00:09:12,028 --> 00:09:13,330
entrepreneurs in that way.

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00:09:13,330 --> 00:09:17,905
PROFESSOR: So you don't think
that if I have a set of taxis

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00:09:17,905 --> 00:09:19,155
I'm an entrepreneur?

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00:09:22,490 --> 00:09:25,070
I just bought a set of taxis.

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00:09:25,070 --> 00:09:27,616
I rent them out.

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AUDIENCE: I would imagine if you
were the person who took

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00:09:32,382 --> 00:09:34,120
the initiative to--

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00:09:34,120 --> 00:09:37,560
PROFESSOR: But this was after
there had been 500,000 taxi

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00:09:37,560 --> 00:09:38,760
companies in the world.

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00:09:38,760 --> 00:09:42,400
If I go tomorrow, quit my job,
and I start a taxi company, I

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00:09:42,400 --> 00:09:46,030
would not be an entrepreneur?

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00:09:46,030 --> 00:09:47,157
AUDIENCE: Well, to some
degree, you could

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00:09:47,157 --> 00:09:48,766
that's still unique.

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00:09:48,766 --> 00:09:50,694
You're starting a taxi company,
in a particular city,

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00:09:50,694 --> 00:09:52,480
with a particular
set of drivers.

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00:09:52,480 --> 00:09:53,830
PROFESSOR: But then everything's
unique.

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00:09:53,830 --> 00:09:58,210
Once I go down that road, I
don's see how anything.

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00:09:58,210 --> 00:10:00,570
I can't have a taxi company
which has the same set of

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00:10:00,570 --> 00:10:02,000
drivers as theirs,
everybody else.

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00:10:02,000 --> 00:10:03,750
So this is unique
by definition.

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00:10:03,750 --> 00:10:05,250
Somebody else from
that side, yeah?

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00:10:05,250 --> 00:10:09,090
AUDIENCE: I think someone was
actually saying before that

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00:10:09,090 --> 00:10:11,840
created a normal
amount of risk.

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00:10:11,840 --> 00:10:16,680
But it's like the financial
risk, as well, absorbing that

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00:10:16,680 --> 00:10:21,036
yourself, as opposed to being
responsible for it underneath

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00:10:21,036 --> 00:10:21,530
an organization.

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00:10:21,530 --> 00:10:21,840
PROFESSOR: Right.

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00:10:21,840 --> 00:10:25,690
I think that's actually one
key piece of what I would

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00:10:25,690 --> 00:10:28,080
consider the definition.

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00:10:28,080 --> 00:10:31,110
The fact that you a lot
of the risk comes

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00:10:31,110 --> 00:10:34,620
from raising capital.

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00:10:34,620 --> 00:10:38,580
The risk is a significant
part of the reason why.

185
00:10:38,580 --> 00:10:40,560
If I work for Toyota
there would not be.

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00:10:40,560 --> 00:10:42,460
It could be career
risk for me.

187
00:10:42,460 --> 00:10:46,000
But it would not be risk that
is driven by my having to

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00:10:46,000 --> 00:10:46,900
raise capital.

189
00:10:46,900 --> 00:10:52,250
So I think you're making one of
the key points, which is, I

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00:10:52,250 --> 00:10:54,640
think, exactly as you said.

191
00:10:54,640 --> 00:10:55,780
Risk is a big piece of it.

192
00:10:55,780 --> 00:10:57,990
The next piece of it
is the risk comes

193
00:10:57,990 --> 00:11:01,100
from raising capital.

194
00:11:01,100 --> 00:11:03,920
I would not say that it has to
be a new product, because I

195
00:11:03,920 --> 00:11:05,820
think that's too narrow
a definition.

196
00:11:05,820 --> 00:11:06,790
I mean you could define it.

197
00:11:06,790 --> 00:11:10,830
But I think that would mean no
poor people are, essentially,

198
00:11:10,830 --> 00:11:13,240
entrepreneurs.

199
00:11:13,240 --> 00:11:19,540
But I think raising capital,
the financing side of it.

200
00:11:19,540 --> 00:11:20,490
So do you take the risk?

201
00:11:20,490 --> 00:11:25,440
And a lot of the risk comes from
owning the asset that's

202
00:11:25,440 --> 00:11:27,100
generating the output.

203
00:11:27,100 --> 00:11:30,790
That, I think, is a key part
of being an entrepreneur.

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00:11:30,790 --> 00:11:35,600
The risk comes from putting
money or your own

205
00:11:35,600 --> 00:11:36,910
assets on the line.

206
00:11:36,910 --> 00:11:39,250
It's not just that you're
putting your career or your

207
00:11:39,250 --> 00:11:40,930
name on the line.

208
00:11:40,930 --> 00:11:44,310
When I write a book, I also
take a risk in that sense.

209
00:11:44,310 --> 00:11:47,880
People could say, my god,
what a stupid book.

210
00:11:47,880 --> 00:11:50,590
That's a risk, but I wouldn't
call myself an entrepreneur.

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00:11:53,500 --> 00:11:56,820
So I think that I want to
emphasize that I think the

212
00:11:56,820 --> 00:11:58,540
poor are entrepreneurial.

213
00:11:58,540 --> 00:12:00,570
When we talk about somebody who
is an entrepreneur, I'm

214
00:12:00,570 --> 00:12:06,330
going to emphasize the fact that
they bear a lot of the

215
00:12:06,330 --> 00:12:12,100
risk, from production, and that
risk is closely tied to

216
00:12:12,100 --> 00:12:14,000
the ownership of the asset.

217
00:12:14,000 --> 00:12:20,540
So it is that they have to
finance the asset and hold on

218
00:12:20,540 --> 00:12:23,240
to the risk generated
by that asset.

219
00:12:23,240 --> 00:12:24,490
So they could be a farmer.

220
00:12:27,540 --> 00:12:30,100
They must have to own
the land and then

221
00:12:30,100 --> 00:12:31,746
take the farming risk.

222
00:12:31,746 --> 00:12:33,204
Yeah?

223
00:12:33,204 --> 00:12:35,342
AUDIENCE: But in the US, don't
a lot of the people, who we

224
00:12:35,342 --> 00:12:38,220
think of as entrepreneurs, they
get venture capital or

225
00:12:38,220 --> 00:12:41,510
somebody else to take on
the financial risk.

226
00:12:41,510 --> 00:12:42,818
AUDIENCE: But it kind of defers
the financial risk.

227
00:12:42,818 --> 00:12:45,750
They're still taking on
financial risk of their own.

228
00:12:45,750 --> 00:12:48,780
PROFESSOR: But first, I think,
nobody gets 100% venture

229
00:12:48,780 --> 00:12:50,030
capital funding.

230
00:12:54,370 --> 00:12:57,730
Even to get to the venture
capital stage, you typically

231
00:12:57,730 --> 00:12:59,720
spend a fair amount of money.

232
00:12:59,720 --> 00:13:02,550
And nobody gets 100%
funding even then.

233
00:13:02,550 --> 00:13:07,730
And second, in some ways, you
still take financial risk, in

234
00:13:07,730 --> 00:13:14,730
the sense that the upside on
the venture capital is

235
00:13:14,730 --> 00:13:17,830
precisely your earnings
in the future.

236
00:13:17,830 --> 00:13:21,300
So you, basically, dock
your earnings.

237
00:13:21,300 --> 00:13:22,730
You are an owner.

238
00:13:22,730 --> 00:13:25,930
You have arranged a particular
form of financing, which says

239
00:13:25,930 --> 00:13:28,520
that I don't make any payments
for the time

240
00:13:28,520 --> 00:13:30,090
being, on this financing.

241
00:13:30,090 --> 00:13:32,960
But it's exactly like any
other form of financing.

242
00:13:32,960 --> 00:13:35,610
I have an obligation
to pay you.

243
00:13:35,610 --> 00:13:37,870
That obligation, in venture
capital, is

244
00:13:37,870 --> 00:13:39,360
maybe in five years.

245
00:13:39,360 --> 00:13:44,390
If the company goes public,
then I will

246
00:13:44,390 --> 00:13:46,680
pay you $100 million.

247
00:13:46,680 --> 00:13:49,230
That's a venture capital
contract.

248
00:13:49,230 --> 00:13:54,520
It's still, basically,
a sharing of risk.

249
00:13:54,520 --> 00:13:59,320
And I'm taking ownership
of the asset.

250
00:13:59,320 --> 00:14:02,124
It's just a different
contract.

251
00:14:02,124 --> 00:14:02,598
Yeah.

252
00:14:02,598 --> 00:14:04,731
AUDIENCE: It's also the
opportunity cost of actually

253
00:14:04,731 --> 00:14:07,575
putting all of your energy into
this venture to see it

254
00:14:07,575 --> 00:14:10,040
come to fruition, like all the
earnings that you could have

255
00:14:10,040 --> 00:14:12,230
earned in that time working
[INAUDIBLE].

256
00:14:12,230 --> 00:14:15,290
PROFESSOR: But that's a bit
like I could have spent my

257
00:14:15,290 --> 00:14:18,500
time consulting or I
could write a book.

258
00:14:18,500 --> 00:14:21,000
I mean that's not
that different.

259
00:14:21,000 --> 00:14:26,790
I think the key is that my
earnings are significantly

260
00:14:26,790 --> 00:14:30,678
connected to the outcome
of the project.

261
00:14:30,678 --> 00:14:33,486
I was just adding to the cost of
what of entrepreneur takes

262
00:14:33,486 --> 00:14:34,890
on [INAUDIBLE].

263
00:14:34,890 --> 00:14:38,070
AUDIENCE: I mean, if you wrote
a book that sold 10 million

264
00:14:38,070 --> 00:14:41,018
copies or something, then your
future earnings would be

265
00:14:41,018 --> 00:14:42,300
significantly.

266
00:14:42,300 --> 00:14:47,040
PROFESSOR: Yeah, but mostly, I
think the first order risk,

267
00:14:47,040 --> 00:14:52,050
sadly, for me is that people
will just think I'm stupid.

268
00:14:52,050 --> 00:14:54,020
I think the risk, in my case.

269
00:14:54,020 --> 00:14:57,750
You could imagine everybody has
a small chance of being an

270
00:14:57,750 --> 00:15:01,050
entrepreneur, but I think that
mostly, most of my risk has

271
00:15:01,050 --> 00:15:05,180
something to do with my ability
to convince other

272
00:15:05,180 --> 00:15:09,100
people that I have not lost my
marbles and very little of my

273
00:15:09,100 --> 00:15:10,690
risk comes from money.

274
00:15:10,690 --> 00:15:12,800
AUDIENCE: Yeah, but at the same
time, there's some people

275
00:15:12,800 --> 00:15:14,020
who are like full-time
authors.

276
00:15:14,020 --> 00:15:15,190
And they take out loans.

277
00:15:15,190 --> 00:15:15,985
And they write this book.

278
00:15:15,985 --> 00:15:17,570
PROFESSOR: Oh, they are
entrepreneurial.

279
00:15:17,570 --> 00:15:19,600
I'm not saying they are
not entrepreneurs.

280
00:15:19,600 --> 00:15:22,770
I think I am not an
entrepreneur, to first

281
00:15:22,770 --> 00:15:27,100
approximation, because my risk
is mostly reputational risk,

282
00:15:27,100 --> 00:15:29,970
very little of it is
financial risk.

283
00:15:29,970 --> 00:15:31,650
AUDIENCE: Even though you're
sort of doing a similar thing?

284
00:15:31,650 --> 00:15:33,790
PROFESSOR: Yes.

285
00:15:33,790 --> 00:15:37,790
My lifetime earnings are,
essentially, with a 99%

286
00:15:37,790 --> 00:15:42,350
probability, are unaffected by
this decision, or almost

287
00:15:42,350 --> 00:15:43,600
unaffected.

288
00:15:45,620 --> 00:15:48,780
So who is and isn't
an entrepreneur?

289
00:15:48,780 --> 00:15:51,090
So we've sort of been
talking about that.

290
00:15:51,090 --> 00:15:53,780
I'm not, but who is?

291
00:15:53,780 --> 00:16:02,660
So clearly, Larry Page and
Sergey Brin are entrepreneurs.

292
00:16:02,660 --> 00:16:05,980
Now let's take something
less obvious.

293
00:16:05,980 --> 00:16:08,790
What are other forms of
entrepreneurship, like in the

294
00:16:08,790 --> 00:16:16,860
US, less obvious ones then
starting a software company?

295
00:16:16,860 --> 00:16:19,660
AUDIENCE: I mean someone who
owns and rents a foodtruck.

296
00:16:19,660 --> 00:16:20,540
So

297
00:16:20,540 --> 00:16:22,200
PROFESSOR: That's an
entrepreneur, sure.

298
00:16:22,200 --> 00:16:24,730
AUDIENCE: Someone who
starts a laundromat.

299
00:16:24,730 --> 00:16:26,980
PROFESSOR: That's
an entrepreneur.

300
00:16:26,980 --> 00:16:30,870
AUDIENCE: So I kind of disagree
with the fact that

301
00:16:30,870 --> 00:16:32,665
you've got to have some
sort of earnings

302
00:16:32,665 --> 00:16:35,660
attached to your venture.

303
00:16:35,660 --> 00:16:39,385
I think if somebody starts a
business that focused on

304
00:16:39,385 --> 00:16:42,710
community service but is very
unique, entrepreneurial, I

305
00:16:42,710 --> 00:16:45,050
think that is still.

306
00:16:45,050 --> 00:16:47,712
If it is innovative in some way,
I still think it should

307
00:16:47,712 --> 00:16:49,280
be considered as
entrepreneurship.

308
00:16:55,840 --> 00:16:57,900
PROFESSOR: I think they say,
sometimes, somebody is a

309
00:16:57,900 --> 00:16:59,190
political entrepreneur.

310
00:16:59,190 --> 00:17:02,470
But I think that gets the term
to be a little bit too hard to

311
00:17:02,470 --> 00:17:03,180
understand.

312
00:17:03,180 --> 00:17:06,849
I mean, I think you could make
the case that you're making.

313
00:17:06,849 --> 00:17:10,280
I'm going to sort of resist
that a little bit.

314
00:17:10,280 --> 00:17:12,030
Because I think, then,
I don't know what

315
00:17:12,030 --> 00:17:13,359
the limits are anymore.

316
00:17:13,359 --> 00:17:15,079
Who's not a political
entrepreneur?

317
00:17:15,079 --> 00:17:19,410
If I go and claim that President
Obama was born in

318
00:17:19,410 --> 00:17:22,180
Kenya, am I a political
entrepreneur or not?

319
00:17:25,380 --> 00:17:26,700
Is that entrepreneurial?

320
00:17:26,700 --> 00:17:28,050
Yes, it's entrepreneurial.

321
00:17:28,050 --> 00:17:29,300
It's innovative.

322
00:17:32,090 --> 00:17:36,575
I feel like that's making
it too easy.

323
00:17:36,575 --> 00:17:39,950
AUDIENCE: So were the people
collecting sand entrepreneurs?

324
00:17:39,950 --> 00:17:41,200
PROFESSOR: Sure.

325
00:17:47,710 --> 00:17:49,800
They owned this enterprise.

326
00:17:49,800 --> 00:17:52,880
Their entire earnings
was subject to that.

327
00:17:52,880 --> 00:17:56,900
They had financed whatever
needed to be financed.

328
00:17:56,900 --> 00:18:01,940
They had paid for the
plastic bucket.

329
00:18:01,940 --> 00:18:04,790
They collected the
sand, the spade.

330
00:18:04,790 --> 00:18:10,370
They had paid the bus fare to
get from the beach to the

331
00:18:10,370 --> 00:18:12,540
Bombay stock exchange.

332
00:18:12,540 --> 00:18:13,650
They had done all
of the financial

333
00:18:13,650 --> 00:18:14,820
investment that was involved.

334
00:18:14,820 --> 00:18:16,640
It just happens to a small
amount of money.

335
00:18:16,640 --> 00:18:19,560
But that doesn't mean that
they hadn't done--

336
00:18:19,560 --> 00:18:22,120
they had put in 100% of
the capital in there.

337
00:18:25,365 --> 00:18:29,260
But another example, just to
not get too stuck on it.

338
00:18:29,260 --> 00:18:34,240
Lawyers, for example, most
lawyers are, effectively,

339
00:18:34,240 --> 00:18:35,030
entrepreneurs.

340
00:18:35,030 --> 00:18:42,040
Because most lawyers actually
have a two-person,

341
00:18:42,040 --> 00:18:43,470
three-person partnership.

342
00:18:43,470 --> 00:18:44,650
They're bearing a lot of risk.

343
00:18:44,650 --> 00:18:46,000
They pay for the staff.

344
00:18:46,000 --> 00:18:47,020
They pay for the office.

345
00:18:47,020 --> 00:18:52,440
They pay for the whatever,
the furniture.

346
00:18:52,440 --> 00:18:56,160
And so, in that sense, they
would, under this definition,

347
00:18:56,160 --> 00:18:57,435
also count.

348
00:18:57,435 --> 00:18:59,682
AUDIENCE: I was going to say
you could also say that for

349
00:18:59,682 --> 00:19:00,630
doctors as well.

350
00:19:00,630 --> 00:19:03,430
PROFESSOR: Doctors the same,
a lot of doctors.

351
00:19:03,430 --> 00:19:08,690
I think that's relevant, because
the typical way--

352
00:19:08,690 --> 00:19:11,610
there's no measurement of
entrepreneurship in the data.

353
00:19:11,610 --> 00:19:15,380
Because nobody knows who's an
entrepreneur, for the same

354
00:19:15,380 --> 00:19:17,540
reason as we were having
trouble with it.

355
00:19:17,540 --> 00:19:20,840
What is measured in the data
is whether you describe

356
00:19:20,840 --> 00:19:23,240
yourself as self-employed.

357
00:19:23,240 --> 00:19:25,220
That's described in the data.

358
00:19:25,220 --> 00:19:28,520
So if you look at most
countries, one of the

359
00:19:28,520 --> 00:19:30,890
employment categories
is self-employed.

360
00:19:30,890 --> 00:19:35,320
And that number, which includes
lawyers, doctors,

361
00:19:35,320 --> 00:19:40,880
consultants, many other such
people, and not just

362
00:19:40,880 --> 00:19:45,060
laundromat owners and Google
owners, but lots of other

363
00:19:45,060 --> 00:19:48,430
people, that category turns
out to be about 12% of the

364
00:19:48,430 --> 00:19:49,160
population.

365
00:19:49,160 --> 00:19:52,620
So 12% of the population,
under a very generous

366
00:19:52,620 --> 00:19:57,450
definition of entrepreneur,
which is self-employed, are

367
00:19:57,450 --> 00:19:59,540
entrepreneurs.

368
00:19:59,540 --> 00:20:00,530
That's for the OECD.

369
00:20:00,530 --> 00:20:03,390
The OECD is like all the rich
countries in the world.

370
00:20:03,390 --> 00:20:06,870
In the rich countries, roughly
12% of the population would

371
00:20:06,870 --> 00:20:10,070
call themselves self-employed.

372
00:20:10,070 --> 00:20:13,100
That number is much
higher among the

373
00:20:13,100 --> 00:20:14,720
poor in poor countries.

374
00:20:14,720 --> 00:20:15,970
And I'm going to show
you some numbers.

375
00:20:18,670 --> 00:20:20,120
So here's some numbers.

376
00:20:23,610 --> 00:20:29,770
So self-employed in agriculture,
rural population,

377
00:20:29,770 --> 00:20:34,310
you can see that, in many
countries, over 75 to even

378
00:20:34,310 --> 00:20:39,840
100%, nearly, are self-employed
in agriculture.

379
00:20:39,840 --> 00:20:46,470
Take Panama or Pakistan, like
70% of these people are

380
00:20:46,470 --> 00:20:47,830
self-employed in agriculture.

381
00:20:47,830 --> 00:20:54,940
Meaning that they, basically,
exactly using the equivalent

382
00:20:54,940 --> 00:20:59,180
definition to the one that's
used in the OECD, which is

383
00:20:59,180 --> 00:21:01,480
that they describe themselves
as self-employed.

384
00:21:01,480 --> 00:21:04,980
Meaning that, typically, they
are putting up the capital,

385
00:21:04,980 --> 00:21:07,630
usually the land and the inputs,
and they're getting

386
00:21:07,630 --> 00:21:08,270
the returns.

387
00:21:08,270 --> 00:21:10,660
So they are risk taking.

388
00:21:10,660 --> 00:21:17,740
And they're betting a lot of
risk, and they own the assets

389
00:21:17,740 --> 00:21:20,210
that are generating that risk.

390
00:21:20,210 --> 00:21:22,225
So that's a number
that's high.

391
00:21:26,960 --> 00:21:29,050
As you will see, that number
is, in a sense, an

392
00:21:29,050 --> 00:21:31,490
underestimate of how
many people are

393
00:21:31,490 --> 00:21:32,910
self-employed overall.

394
00:21:32,910 --> 00:21:37,250
So this is just in
agriculture.

395
00:21:37,250 --> 00:21:40,020
This is how many people who
have somebody who's

396
00:21:40,020 --> 00:21:42,960
self-employed in
non-agricultural work.

397
00:21:49,780 --> 00:21:54,290
In Brazil, rural Brazil,
60-something-percent are

398
00:21:54,290 --> 00:21:58,530
self-employed in
non-agricultural work.

399
00:21:58,530 --> 00:22:01,285
So who are these people?

400
00:22:03,830 --> 00:22:09,520
They're like somebody who
provides any services, a

401
00:22:09,520 --> 00:22:16,615
barber, carpenters, somebody
who builds, a bricklayer.

402
00:22:20,510 --> 00:22:24,670
Instead of a working as a part
of a company, most of these

403
00:22:24,670 --> 00:22:28,130
people just work as
single-person enterprises.

404
00:22:28,130 --> 00:22:30,380
So bricklayers are
bricklayers.

405
00:22:30,380 --> 00:22:33,530
They have a brick laying
company, which is themselves.

406
00:22:33,530 --> 00:22:38,920
And they, typically, will do the
brick laying for somebody.

407
00:22:41,810 --> 00:22:52,180
In many ways, this is another.

408
00:22:52,180 --> 00:22:58,190
So if you have to take the
fraction of people who are

409
00:22:58,190 --> 00:23:02,440
self-employed, either in
agricultural or not, or

410
00:23:02,440 --> 00:23:07,320
somebody in their family is
self-employed in either

411
00:23:07,320 --> 00:23:10,110
agriculture or outside
agriculture, that's and even

412
00:23:10,110 --> 00:23:11,020
higher fraction.

413
00:23:11,020 --> 00:23:18,050
That's like 70% of most poor
people have somebody in the

414
00:23:18,050 --> 00:23:19,660
family who is self-employed.

415
00:23:19,660 --> 00:23:24,540
So this is a combination of
these two sets of numbers.

416
00:23:24,540 --> 00:23:26,010
And some of them are both.

417
00:23:26,010 --> 00:23:29,310
Some of them have one family
member who is self-employed in

418
00:23:29,310 --> 00:23:32,105
agriculture, one family member
who is self-employed outside

419
00:23:32,105 --> 00:23:33,020
agriculture.

420
00:23:33,020 --> 00:23:35,270
But even if you take
the average, it's

421
00:23:35,270 --> 00:23:36,180
quite a high number.

422
00:23:36,180 --> 00:23:41,660
So most poor people, in our
definition, are at least

423
00:23:41,660 --> 00:23:42,910
self-employed.

424
00:23:46,630 --> 00:23:49,030
Well, why is this?

425
00:23:49,030 --> 00:23:49,250
Yeah?

426
00:23:49,250 --> 00:23:51,166
AUDIENCE: What would we consider
sharecroppers, who

427
00:23:51,166 --> 00:23:54,040
have to bear a lot
of the risk?

428
00:23:54,040 --> 00:23:55,920
PROFESSOR: I think, here, they
are considered self-employed.

429
00:23:58,580 --> 00:23:59,595
But that's a good question.

430
00:23:59,595 --> 00:24:05,205
I don't know the answer to
whether they should be or not.

431
00:24:12,990 --> 00:24:15,040
So why should we think
there is anything

432
00:24:15,040 --> 00:24:16,290
interesting about this?

433
00:24:19,000 --> 00:24:22,850
Why would it be at all
surprising if a lot of poor

434
00:24:22,850 --> 00:24:24,350
people were entrepreneurs?

435
00:24:24,350 --> 00:24:26,440
Why would it be even worth
commenting on?

436
00:24:35,440 --> 00:24:38,440
AUDIENCE: I don't understand
the question?

437
00:24:38,440 --> 00:24:43,180
PROFESSOR: I said that 12% of
the people in rich countries

438
00:24:43,180 --> 00:24:43,785
are entrepreneurs.

439
00:24:43,785 --> 00:24:49,072
Maybe 70% of the poor, in poor
countries, are entrepreneurs.

440
00:24:49,072 --> 00:24:52,390
Is that something that
has anything

441
00:24:52,390 --> 00:24:54,880
interesting about that fact?

442
00:24:54,880 --> 00:24:59,080
And there I want to get you
to these two questions.

443
00:24:59,080 --> 00:25:02,110
Is it the case that the poor
have specific advantages being

444
00:25:02,110 --> 00:25:03,300
an entrepreneur?

445
00:25:03,300 --> 00:25:05,690
Do they have specific
disadvantages in being

446
00:25:05,690 --> 00:25:06,636
entrepreneurs?

447
00:25:06,636 --> 00:25:08,810
So let's start with
the disadvantages.

448
00:25:08,810 --> 00:25:11,336
Is that clear?

449
00:25:11,336 --> 00:25:14,689
AUDIENCE: The risk is higher,
because the overall capital

450
00:25:14,689 --> 00:25:18,910
they have is less.

451
00:25:18,910 --> 00:25:22,880
PROFESSOR: So risk is at least
relatively higher, because

452
00:25:22,880 --> 00:25:25,800
they have--

453
00:25:25,800 --> 00:25:29,660
I don't know where this came
from, but I kind of know where

454
00:25:29,660 --> 00:25:30,910
it should go.

455
00:25:36,460 --> 00:25:38,890
So one thing that's
clear is that

456
00:25:38,890 --> 00:25:40,140
entrepreneurship is risky.

457
00:25:45,450 --> 00:25:50,210
If you're at the margin of not
having enough money for

458
00:25:50,210 --> 00:25:53,480
something really essential,
then the same

459
00:25:53,480 --> 00:25:56,120
risk hurts you more.

460
00:25:56,120 --> 00:26:00,120
Because you're really
in danger of

461
00:26:00,120 --> 00:26:02,140
something awful happening.

462
00:26:02,140 --> 00:26:06,040
Like you couldn't pay for your
mother's hospital stay if your

463
00:26:06,040 --> 00:26:07,870
business collapses.

464
00:26:07,870 --> 00:26:10,640
So the risk is much
more important.

465
00:26:10,640 --> 00:26:13,600
We talked about this
some few weeks ago.

466
00:26:16,150 --> 00:26:18,280
Other reasons, other
disadvantages?

467
00:26:26,315 --> 00:26:28,740
AUDIENCE: It's harder
to raise capital.

468
00:26:28,740 --> 00:26:30,100
PROFESSOR: Sure.

469
00:26:30,100 --> 00:26:31,330
It's harder to raise capital.

470
00:26:31,330 --> 00:26:35,330
If you don't have a bank
account, if you don't have

471
00:26:35,330 --> 00:26:39,690
assets that you can pledge, if
you don't have contact among

472
00:26:39,690 --> 00:26:42,840
financials, it's harder to
raise capital, surely.

473
00:26:42,840 --> 00:26:43,010
Yeah?

474
00:26:43,010 --> 00:26:45,950
AUDIENCE: You have to rely on
your business more, because

475
00:26:45,950 --> 00:26:48,073
it's harder for you to get a
steady paying job at some

476
00:26:48,073 --> 00:26:50,850
other company.

477
00:26:50,850 --> 00:26:52,810
PROFESSOR: Is that a
disadvantage or an advantage?

478
00:26:52,810 --> 00:26:55,260
AUDIENCE: I think it's a
disadvantage, because then you

479
00:26:55,260 --> 00:26:58,200
bear a lot of the risk
of the business.

480
00:26:58,200 --> 00:26:58,710
PROFESSOR: I see.

481
00:26:58,710 --> 00:27:03,100
So you may not have skills
that you would get you an

482
00:27:03,100 --> 00:27:05,925
alternative job, so if your
business fails, then it

483
00:27:05,925 --> 00:27:07,175
really hurts you.

484
00:27:07,175 --> 00:27:08,510
I see.

485
00:27:08,510 --> 00:27:09,888
Yeah.

486
00:27:09,888 --> 00:27:11,864
AUDIENCE: Particularly, if
you're really poor, in a rural

487
00:27:11,864 --> 00:27:15,850
area or a slum, it's really
hard to get the resources.

488
00:27:15,850 --> 00:27:18,672
I mean, I feel like in America
today, we have a whole lot of

489
00:27:18,672 --> 00:27:20,332
resources to encourage
entrepreneurship and help

490
00:27:20,332 --> 00:27:20,830
entrepreneurs.

491
00:27:20,830 --> 00:27:22,822
I would imagine, based on what
I've read, that that really

492
00:27:22,822 --> 00:27:24,820
doesn't exist.

493
00:27:24,820 --> 00:27:28,830
PROFESSOR: So you may not have
the know-how to be an

494
00:27:28,830 --> 00:27:29,300
entrepreneur.

495
00:27:29,300 --> 00:27:32,490
You may not know what market
opportunities are available,

496
00:27:32,490 --> 00:27:34,910
because you're not that well
connected to the media.

497
00:27:34,910 --> 00:27:40,370
You may not know, even, what the
best prices are for what

498
00:27:40,370 --> 00:27:43,350
you will buy and the best prices
are for what you will

499
00:27:43,350 --> 00:27:47,340
sell, where to sell, all the
information that you need.

500
00:27:47,340 --> 00:27:50,050
Presumably, that's correlated
with being educated.

501
00:27:50,050 --> 00:27:53,780
And so if you are poor in a
poor country, you are less

502
00:27:53,780 --> 00:27:58,855
likely to have all
that information.

503
00:28:07,118 --> 00:28:09,336
AUDIENCE: This is something
that applies to all

504
00:28:09,336 --> 00:28:10,569
entreprenuers.

505
00:28:10,569 --> 00:28:15,030
But I think it would affect the
poor more, specifically.

506
00:28:15,030 --> 00:28:17,790
I was thinking about the
benefits you get from working

507
00:28:17,790 --> 00:28:18,960
for a corporation.

508
00:28:18,960 --> 00:28:23,545
Sometimes you get health
care, things like that.

509
00:28:23,545 --> 00:28:26,697
And so being an entrepreneur
is like taking a risk with

510
00:28:26,697 --> 00:28:27,425
respect to that.

511
00:28:27,425 --> 00:28:30,335
And then for the poor, depending
on where they live,

512
00:28:30,335 --> 00:28:33,245
or what atmosphere is around,
it might disproportionately

513
00:28:33,245 --> 00:28:35,200
affect them.

514
00:28:35,200 --> 00:28:38,320
PROFESSOR: Yeah, that's also
possible that there's some

515
00:28:38,320 --> 00:28:40,710
additional benefits to
having a steady job.

516
00:28:40,710 --> 00:28:43,380
That's particularly important
if you have no

517
00:28:43,380 --> 00:28:44,750
other source of support.

518
00:28:49,500 --> 00:28:49,975
Yeah?

519
00:28:49,975 --> 00:28:52,320
AUDIENCE: On the advantages
side, couldn't you say--

520
00:28:52,320 --> 00:28:54,360
PROFESSOR: Let's do
the disadvantages.

521
00:28:54,360 --> 00:28:55,690
Hold that.

522
00:28:55,690 --> 00:28:57,570
AUDIENCE: Wouldn't your
income not be regular.

523
00:28:57,570 --> 00:28:59,920
It would be really uncertain.

524
00:28:59,920 --> 00:29:00,190
PROFESSOR: Yeah.

525
00:29:00,190 --> 00:29:05,002
So that's related to, I think,
the first point that was made.

526
00:29:14,388 --> 00:29:15,460
AUDIENCE: Chances are,
you're not going to

527
00:29:15,460 --> 00:29:16,475
have an original idea.

528
00:29:16,475 --> 00:29:19,670
You're going to be copying what
other people are doing.

529
00:29:19,670 --> 00:29:20,860
PROFESSOR: Yeah.

530
00:29:20,860 --> 00:29:23,414
But why would it be less true
of the poor than the rich.

531
00:29:23,414 --> 00:29:25,406
AUDIENCE: The rich might have
access to educational

532
00:29:25,406 --> 00:29:29,390
resources that will allow them
to come up with better ideas.

533
00:29:29,390 --> 00:29:31,382
AUDIENCE: You could also make
the converse argument that

534
00:29:31,382 --> 00:29:33,124
since the rich have access to
more stuff, they're more

535
00:29:33,124 --> 00:29:35,366
likely to copy other ideas.

536
00:29:35,366 --> 00:29:35,864
PROFESSOR: Good.

537
00:29:35,864 --> 00:29:38,105
AUDIENCE: But that would also
mean they might not be as

538
00:29:38,105 --> 00:29:39,848
likely to make a lot of money.

539
00:29:39,848 --> 00:29:42,338
So those would be the bad,
rich entrepreneurs.

540
00:29:42,338 --> 00:29:43,334
AUDIENCE: Not necessarily.

541
00:29:43,334 --> 00:29:46,322
Microsoft copied Apple's
architecture [INAUDIBLE].

542
00:29:46,322 --> 00:29:47,572
AUDIENCE: Well, that's
a different story.

543
00:30:00,764 --> 00:30:03,752
AUDIENCE: I mean this was
already said before.

544
00:30:03,752 --> 00:30:07,479
But just thinking about like,
if you're poor, you're going

545
00:30:07,479 --> 00:30:08,694
to have to use--

546
00:30:08,694 --> 00:30:12,217
an entrepreneur, let's say you
had some savings or you had

547
00:30:12,217 --> 00:30:13,068
family that was helping
support you.

548
00:30:13,068 --> 00:30:15,984
You have support system that has
some sort of capital, even

549
00:30:15,984 --> 00:30:16,956
if it's not that much.

550
00:30:16,956 --> 00:30:20,034
But when you're poor, you have
to use everything that you

551
00:30:20,034 --> 00:30:21,330
have to put into
that business.

552
00:30:21,330 --> 00:30:25,370
And that takes away from just
living, even things like that.

553
00:30:25,370 --> 00:30:35,060
PROFESSOR: So the risk is
higher, and your ability to

554
00:30:35,060 --> 00:30:36,310
self-finance is lower.

555
00:31:18,480 --> 00:31:19,290
Anything else?

556
00:31:19,290 --> 00:31:19,720
Yeah?

557
00:31:19,720 --> 00:31:22,316
AUDIENCE: You could say, if
other people copied your idea,

558
00:31:22,316 --> 00:31:25,384
it would hurt you more, because
then they'd just

559
00:31:25,384 --> 00:31:28,230
increase the supply and decrease
your overall--

560
00:31:28,230 --> 00:31:29,570
PROFESSOR: But why would
it be any different

561
00:31:29,570 --> 00:31:32,790
from anybody else?

562
00:31:32,790 --> 00:31:36,620
If I'm rich and you copy my
idea, that still hurts me.

563
00:31:36,620 --> 00:31:41,630
It is not clear, especially in
the sense if the poor use

564
00:31:41,630 --> 00:31:44,330
ideas that are particularly--

565
00:31:44,330 --> 00:31:46,210
they've already copied
from somebody.

566
00:31:46,210 --> 00:31:48,508
They're less hurt by copying.

567
00:31:48,508 --> 00:31:50,002
Yeah?

568
00:31:50,002 --> 00:31:53,488
AUDIENCE: Perhaps, if you
think about the social

569
00:31:53,488 --> 00:31:58,257
infrastructure, people are
more able to copy ideas,

570
00:31:58,257 --> 00:32:02,249
because of the lack of legal
support or an ability to check

571
00:32:02,249 --> 00:32:04,930
or to enforce that people are
not copying your ideas.

572
00:32:04,930 --> 00:32:07,960
PROFESSOR: Right, so you might
thing that they have less

573
00:32:07,960 --> 00:32:10,360
access to lawyers
and things like.

574
00:32:10,360 --> 00:32:12,560
They may not understand
the law well.

575
00:32:12,560 --> 00:32:16,820
So they may not be able to use
the legal system to protect

576
00:32:16,820 --> 00:32:18,210
themselves as effectively.

577
00:32:25,710 --> 00:32:30,520
What's another thing that helps
an entrepreneurs other

578
00:32:30,520 --> 00:32:33,560
than money and ideas?

579
00:32:33,560 --> 00:32:36,683
What's the third thing that?

580
00:32:36,683 --> 00:32:39,138
AUDIENCE: Sort of broadly
speaking, a social safety net.

581
00:32:39,138 --> 00:32:42,450
In the sense that, let's say,
in American, you're

582
00:32:42,450 --> 00:32:44,287
entrepreneur and you absolutely
fail, there's still

583
00:32:44,287 --> 00:32:48,787
a social safety net that you
could at least rely upon.

584
00:32:48,787 --> 00:32:51,210
And that doesn't
exist in poor--

585
00:32:51,210 --> 00:32:51,610
PROFESSOR: Right.

586
00:32:51,610 --> 00:32:55,235
That's true of poor countries,
but not necessarily more of

587
00:32:55,235 --> 00:32:56,485
poor people.

588
00:32:58,420 --> 00:33:00,250
That's a point about
poor countries,

589
00:33:00,250 --> 00:33:02,920
less about poor people.

590
00:33:02,920 --> 00:33:06,520
One other thing that I think
matters a lot is contacts.

591
00:33:06,520 --> 00:33:15,850
I think that, if you know
somebody, if your uncle is the

592
00:33:15,850 --> 00:33:18,200
CEO of a company, they
may be more willing

593
00:33:18,200 --> 00:33:19,550
to give you a try.

594
00:33:19,550 --> 00:33:24,770
If you're starting up, you're
making widgets, somebody has

595
00:33:24,770 --> 00:33:25,910
to buy them.

596
00:33:25,910 --> 00:33:28,850
It's much easier if you know
somebody than if you don't.

597
00:33:28,850 --> 00:33:30,710
I mean, why would anybody
trust you?

598
00:33:30,710 --> 00:33:35,110
So you often get your first
breaks by having some

599
00:33:35,110 --> 00:33:38,980
connection to somebody else,
who will do the buying.

600
00:33:38,980 --> 00:33:41,290
And I think that's a very big
piece of what makes it very

601
00:33:41,290 --> 00:33:44,790
difficult for the poor to be
effective entrepreneurs is

602
00:33:44,790 --> 00:33:47,290
that they actually don't
know anybody.

603
00:33:47,290 --> 00:33:49,620
And so it's much harder
for them to

604
00:33:49,620 --> 00:33:51,770
break in with a products.

605
00:33:51,770 --> 00:33:54,380
So I think contacts are a
very big piece of it.

606
00:33:54,380 --> 00:34:01,380
The other part of it is that it
might be that, in order to

607
00:34:01,380 --> 00:34:02,790
be in business, for example--

608
00:34:02,790 --> 00:34:04,870
take the venture capital
example.

609
00:34:04,870 --> 00:34:12,440
Typically, the way a lot of
start-ups work is that you

610
00:34:12,440 --> 00:34:16,050
know that you're going to
lose money for a while.

611
00:34:16,050 --> 00:34:17,929
Because you have to build
a reputation.

612
00:34:17,929 --> 00:34:20,230
And the way you build a
reputation is by going to

613
00:34:20,230 --> 00:34:24,540
someone and saying, look, you're
buying from him for $5.

614
00:34:24,540 --> 00:34:27,159
I'll sell it to you for $3.

615
00:34:27,159 --> 00:34:31,310
And you know you lose money at
$3, but you're willing to lose

616
00:34:31,310 --> 00:34:34,980
money for a while, because that
way he'll see that you're

617
00:34:34,980 --> 00:34:36,360
really good at doing it.

618
00:34:36,360 --> 00:34:40,889
And then, maybe, you could
charge $4 and get the market.

619
00:34:40,889 --> 00:34:44,270
So a lot of way new businesses
start is by actually

620
00:34:44,270 --> 00:34:47,190
undercutting other businesses
and losing money.

621
00:34:47,190 --> 00:34:49,560
So if you can't lose money,
effectively--

622
00:34:49,560 --> 00:34:52,699
so if you're poor and you can't
afford to lose money,

623
00:34:52,699 --> 00:34:56,570
it's often very difficult
to enter a new product.

624
00:34:56,570 --> 00:35:01,450
Because part of the way you
enter the new product is by

625
00:35:01,450 --> 00:35:03,890
actually selling
it very cheap.

626
00:35:03,890 --> 00:35:08,870
And it's very difficult to
sell it very cheap if you

627
00:35:08,870 --> 00:35:11,590
can't afford to lose money.

628
00:35:11,590 --> 00:35:14,720
So those are all the
disadvantages.

629
00:35:14,720 --> 00:35:17,100
Are there advantages?

630
00:35:17,100 --> 00:35:21,560
So I don't know how many of you
know, but there's a very

631
00:35:21,560 --> 00:35:26,785
famous book called The Fortune
at the Bottom of the Pyramid.

632
00:35:30,000 --> 00:35:32,740
If you've read that book, it
makes the case that there's

633
00:35:32,740 --> 00:35:35,500
actually lots of entrepreneurial
opportunities

634
00:35:35,500 --> 00:35:38,030
for the poor.

635
00:35:38,030 --> 00:35:40,680
And that, in some sense, they
might have an advantage.

636
00:35:40,680 --> 00:35:43,060
What are potential advantages?

637
00:35:43,060 --> 00:35:44,001
Yeah?

638
00:35:44,001 --> 00:35:46,210
AUDIENCE: Because you have
access to a unique market that

639
00:35:46,210 --> 00:35:48,174
the rich don't even know
about, like the

640
00:35:48,174 --> 00:35:51,790
women who sell sand.

641
00:35:51,790 --> 00:35:53,930
PROFESSOR: So they might know
about things which are

642
00:35:53,930 --> 00:35:54,970
underserved.

643
00:35:54,970 --> 00:35:58,480
So maybe the way capitalism has
developed, it's better at

644
00:35:58,480 --> 00:36:03,740
serving the demands of
the middle classes.

645
00:36:03,740 --> 00:36:07,060
The poor might demand certain
products which are not

646
00:36:07,060 --> 00:36:08,190
supplied by the market.

647
00:36:08,190 --> 00:36:11,890
So at this point, it might be
easier to find a new product

648
00:36:11,890 --> 00:36:14,520
to supply if you know
what the poor want .

649
00:36:14,520 --> 00:36:17,260
That's one of the cases
that's being made.

650
00:36:23,500 --> 00:36:25,850
We'll see to what extent
that's true.

651
00:36:28,460 --> 00:36:29,120
Any others?

652
00:36:29,120 --> 00:36:30,783
You were going to mention
something?

653
00:36:41,629 --> 00:36:43,847
AUDIENCE: Maybe it's easier to
make use of some resources

654
00:36:43,847 --> 00:36:46,805
than it would be if you were a
richer person trying to start

655
00:36:46,805 --> 00:36:47,545
a [INAUDIBLE].

656
00:36:47,545 --> 00:36:51,242
Like, for example, the women
with the sand, they can go to

657
00:36:51,242 --> 00:36:53,461
the beach and dig up some
sand and carry it away.

658
00:36:53,461 --> 00:36:54,940
No one's going to say
anything to them.

659
00:36:54,940 --> 00:36:57,569
But if someone was trying to do
this on larger scale, then

660
00:36:57,569 --> 00:36:58,400
there would be issues.

661
00:36:58,400 --> 00:37:00,080
PROFESSOR: That's
exactly right.

662
00:37:00,080 --> 00:37:07,860
So it may well be that, if I'm
the person who comes and--

663
00:37:07,860 --> 00:37:09,950
imagine that I'm rich.

664
00:37:14,350 --> 00:37:20,650
Let's say, I can either take
a job or I can be an

665
00:37:20,650 --> 00:37:21,540
entrepreneur.

666
00:37:21,540 --> 00:37:25,430
To compensate me for my job, I
would need to be able to do

667
00:37:25,430 --> 00:37:28,900
the business at a particular
scale.

668
00:37:28,900 --> 00:37:33,520
Imagine I'm in the business of
sorting through garbage and

669
00:37:33,520 --> 00:37:37,900
finding things which
are sellable.

670
00:37:37,900 --> 00:37:44,360
Just doing that, physically, if
I started to use that much

671
00:37:44,360 --> 00:37:46,010
garbage, I'll need
a lot of space.

672
00:37:46,010 --> 00:37:50,530
Whereas a poor person may be
able to cover her daily wage,

673
00:37:50,530 --> 00:37:54,810
which is very low, by just
sorting through the garbage

674
00:37:54,810 --> 00:37:57,970
she finds in the neighborhood
or something.

675
00:37:57,970 --> 00:38:02,940
Another advantage of being poor
might be that you may be

676
00:38:02,940 --> 00:38:09,880
less considered or less easily
monitored, so you may be able

677
00:38:09,880 --> 00:38:13,030
to bend the rules more
effectively.

678
00:38:13,030 --> 00:38:18,590
So you might be able to make
products, which somebody else

679
00:38:18,590 --> 00:38:21,110
would not want to do, because
it would too easy to

680
00:38:21,110 --> 00:38:22,470
scrutinize.

681
00:38:22,470 --> 00:38:24,870
So you may be involved in--

682
00:38:24,870 --> 00:38:27,350
I'm not saying illegal products,
but you might use

683
00:38:27,350 --> 00:38:34,330
techniques which are possibly
less hygienic or something.

684
00:38:34,330 --> 00:38:43,570
So if I setup a big factory
dyeing garments, that pollutes

685
00:38:43,570 --> 00:38:44,570
the water supply.

686
00:38:44,570 --> 00:38:46,440
And the city will
shut me down.

687
00:38:46,440 --> 00:38:49,840
If I have a very small operation
inside my house,

688
00:38:49,840 --> 00:38:53,370
dyeing garments, nobody
will notice.

689
00:38:53,370 --> 00:38:56,570
And I could use the city's water
supply and pollute it.

690
00:38:56,570 --> 00:38:58,790
This doesn't mean that I'm
doing a good thing.

691
00:38:58,790 --> 00:39:01,390
But it means that it might
be easier for me to be an

692
00:39:01,390 --> 00:39:06,080
entrepreneur, the producing
and dyeing garments than

693
00:39:06,080 --> 00:39:09,470
somebody who's richer than me.

694
00:39:09,470 --> 00:39:11,870
So there's some potential
advantages.

695
00:39:11,870 --> 00:39:15,490
Still, I think my sense is that
everybody would think

696
00:39:15,490 --> 00:39:18,720
that, basically, it's easier
for the rich to be

697
00:39:18,720 --> 00:39:20,620
entrepreneurs than the poor.

698
00:39:20,620 --> 00:39:21,560
So that's on balance.

699
00:39:21,560 --> 00:39:23,390
And we'll look at this
a little bit, in

700
00:39:23,390 --> 00:39:27,200
the data, in a bit.

701
00:39:27,200 --> 00:39:29,450
So then why are the poor
entrepreneurs?

702
00:39:29,450 --> 00:39:31,220
That's the question
that comes back.

703
00:39:31,220 --> 00:39:34,860
If we say it's easier for the
rich to be entrepreneurs, but

704
00:39:34,860 --> 00:39:38,350
the rich are less likely to be
entrepreneurs than the poor,

705
00:39:38,350 --> 00:39:39,950
then we have a kind
of a puzzle.

706
00:39:39,950 --> 00:39:41,480
Why are the poor
entrepreneurs?

707
00:39:41,480 --> 00:39:44,350
What is it that?

708
00:39:44,350 --> 00:39:48,920
So one view of this is sort
of Muhammad Yunus's view.

709
00:39:48,920 --> 00:39:51,040
Muhammad Yunus is the guy who
started Grameen Bank.

710
00:39:51,040 --> 00:39:53,990
And he's on record saying that
the poor are natural born

711
00:39:53,990 --> 00:39:55,450
entrepreneurs.

712
00:39:55,450 --> 00:39:58,820
So there's one view, which is
to say that something about

713
00:39:58,820 --> 00:40:04,380
the poor, which, by being
poor, they learn to be

714
00:40:04,380 --> 00:40:05,500
entrepreneurial.

715
00:40:05,500 --> 00:40:09,250
They can't really survive on
anything else, so they become

716
00:40:09,250 --> 00:40:11,720
like these women we were talking
about. they become

717
00:40:11,720 --> 00:40:13,720
very clever at finding
opportunities.

718
00:40:13,720 --> 00:40:15,560
They are natural
entrepreneurs.

719
00:40:15,560 --> 00:40:18,910
That's one way to think about it
is that, when you are poor,

720
00:40:18,910 --> 00:40:21,920
you're just better at thinking
about opportunities.

721
00:40:21,920 --> 00:40:29,720
Now, one way we can kind of
address this is by looking at

722
00:40:29,720 --> 00:40:31,370
the businesses of the poor.

723
00:40:31,370 --> 00:40:32,830
What do you know about
these businesses?

724
00:40:40,430 --> 00:40:43,770
So these are people who
are under $1 a day.

725
00:40:43,770 --> 00:40:50,550
And if you take the business of
people, who live under $1 a

726
00:40:50,550 --> 00:40:56,650
day, I think the striking fact
is that, in most countries for

727
00:40:56,650 --> 00:41:06,010
which we have data, let's say,
10%, so the average number of

728
00:41:06,010 --> 00:41:11,750
employees in a business
is 0.15.

729
00:41:11,750 --> 00:41:14,150
It's one in seven businesses
have an

730
00:41:14,150 --> 00:41:18,180
employee, a paid employee.

731
00:41:18,180 --> 00:41:21,420
They took two countries where
it's different, but even in

732
00:41:21,420 --> 00:41:23,260
those countries, they don't
have one employee.

733
00:41:23,260 --> 00:41:26,260
They have 0.6 employees.

734
00:41:26,260 --> 00:41:29,120
So these are very small
businesses.

735
00:41:29,120 --> 00:41:32,310
The first thing to note is that
the businesses of the

736
00:41:32,310 --> 00:41:35,115
poor are kind of very, very
small businesses.

737
00:41:42,270 --> 00:41:50,020
This includes your unpaid
employees, which is like your

738
00:41:50,020 --> 00:41:53,040
son or your wife or
you, yourself.

739
00:41:53,040 --> 00:42:00,450
And that number is
just over one.

740
00:42:00,450 --> 00:42:05,500
So the average number of
employees is just over one,

741
00:42:05,500 --> 00:42:12,050
meaning that it's you plus
somebody who works, maybe,

742
00:42:12,050 --> 00:42:13,010
part of the time.

743
00:42:13,010 --> 00:42:20,840
Or alternatively, it's you and
no one or you plus one person,

744
00:42:20,840 --> 00:42:25,500
but not much more than that,
so very few employees.

745
00:42:25,500 --> 00:42:30,102
Second, what fraction of the
businesses own a vehicle?

746
00:42:33,830 --> 00:42:38,190
Just to measure some other
measure of the size of the

747
00:42:38,190 --> 00:42:40,710
business, it's only a vehicle.

748
00:42:40,710 --> 00:42:43,150
And Pakistan is the
one country where

749
00:42:43,150 --> 00:42:44,645
many people own cycles.

750
00:42:47,260 --> 00:42:50,780
They might be delivering stuff,
but then, all the other

751
00:42:50,780 --> 00:42:54,220
countries, it's really,
really small, like 5%.

752
00:42:56,820 --> 00:43:00,510
If you look at an even more
obvious question, what

753
00:43:00,510 --> 00:43:03,910
fraction own machines,
any machine?

754
00:43:08,420 --> 00:43:10,810
The answer is not
100% even there.

755
00:43:13,620 --> 00:43:18,100
60% in the Ivory Coast
own any machine.

756
00:43:18,100 --> 00:43:21,010
What's the average machine
that they own?

757
00:43:21,010 --> 00:43:35,996
They own a weighing scale or
sort of a piece of metal for

758
00:43:35,996 --> 00:43:38,980
digging something, but
no more than that.

759
00:43:38,980 --> 00:43:43,590
So it's really like these
businesses have no assets

760
00:43:43,590 --> 00:43:44,560
whatsoever.

761
00:43:44,560 --> 00:43:46,900
So the first point about the
businesses of the poor, they

762
00:43:46,900 --> 00:43:49,440
are very small, by all
of these measures.

763
00:43:49,440 --> 00:43:51,880
They have no employees, no
machines, no vehicles.

764
00:44:05,470 --> 00:44:10,630
The second, related point, I
wanted to make is that the

765
00:44:10,630 --> 00:44:13,270
fact that they don't have any
machines is telling you

766
00:44:13,270 --> 00:44:16,870
something quite important, which
is that these are not

767
00:44:16,870 --> 00:44:19,050
very sophisticated businesses.

768
00:44:19,050 --> 00:44:20,470
You're not surprised
to hear that.

769
00:44:20,470 --> 00:44:24,830
But it is very, very clear that
the average business has

770
00:44:24,830 --> 00:44:27,820
very little skill involved.

771
00:44:27,820 --> 00:44:34,330
And to be honest, there's
not a lot of diversity.

772
00:44:34,330 --> 00:44:39,820
If we look at the top five
businesses, they are things

773
00:44:39,820 --> 00:44:47,140
like tailoring, a small corner
store, selling snacks on the

774
00:44:47,140 --> 00:45:01,570
street, embroidering or
stitching clothes and selling

775
00:45:01,570 --> 00:45:07,500
them as a retail sale, not a
tailor, but someone who retail

776
00:45:07,500 --> 00:45:09,410
sells garments.

777
00:45:09,410 --> 00:45:12,375
And I think the last one is--

778
00:45:15,170 --> 00:45:17,230
I forget-- carpentry, I think.

779
00:45:17,230 --> 00:45:19,980
It's like none of these
businesses, except, I think,

780
00:45:19,980 --> 00:45:23,790
carpentry, possibly, require
huge amounts of skill.

781
00:45:23,790 --> 00:45:28,040
So they tend to be very low
skilled businesses.

782
00:45:28,040 --> 00:45:30,220
And this is most businesses.

783
00:45:30,220 --> 00:45:33,730
So these are not people
who are creating

784
00:45:33,730 --> 00:45:35,760
very original ideas.

785
00:45:35,760 --> 00:45:40,520
Indeed, the usual problem that
people write about is most

786
00:45:40,520 --> 00:45:42,710
people, in the same
neighborhood,

787
00:45:42,710 --> 00:45:44,550
have the same business.

788
00:45:44,550 --> 00:45:46,870
They're also selling snacks.

789
00:45:46,870 --> 00:45:49,640
They're all delivering loads.

790
00:45:49,640 --> 00:45:54,430
They're all tailors, rather
than a lot of innovation.

791
00:45:54,430 --> 00:45:57,650
There's no evidence that they're
very creative in what

792
00:45:57,650 --> 00:45:58,900
business they go into.

793
00:46:01,340 --> 00:46:06,020
On the other hand, many, many
people own multiple

794
00:46:06,020 --> 00:46:07,270
businesses.

795
00:46:14,720 --> 00:46:17,470
That's the other very,
very common fact.

796
00:46:17,470 --> 00:46:21,950
This is the fraction of
people who get incomes

797
00:46:21,950 --> 00:46:24,710
from multiple sectors.

798
00:46:24,710 --> 00:46:29,080
So that's like somebody who was
has farming business but

799
00:46:29,080 --> 00:46:35,840
also has income from, let's say,
he does some bricklaying

800
00:46:35,840 --> 00:46:37,150
on the side.

801
00:46:37,150 --> 00:46:41,320
That's somebody who has
multiple sources.

802
00:46:41,320 --> 00:46:46,020
And the striking fact
is how common it is.

803
00:46:46,020 --> 00:46:51,150
In most countries, it's close to
50% of the population have

804
00:46:51,150 --> 00:46:52,770
income from multiple sources.

805
00:46:52,770 --> 00:46:58,190
So in other words, they're not
putting all their time,

806
00:46:58,190 --> 00:47:00,105
available time, into
their own business.

807
00:47:03,900 --> 00:47:07,220
Why would they not do that?

808
00:47:07,220 --> 00:47:10,600
If you have a business, in
your family, why aren't

809
00:47:10,600 --> 00:47:12,250
putting all of your
effort into it?

810
00:47:17,580 --> 00:47:21,060
Why would we observe this fact,
that most people, many

811
00:47:21,060 --> 00:47:24,730
people, have multiple business
or multiple occupations?

812
00:47:24,730 --> 00:47:27,055
AUDIENCE: It might be
comparable, then, to

813
00:47:27,055 --> 00:47:28,305
[INAUDIBLE].

814
00:47:30,775 --> 00:47:31,240
PROFESSOR: Right.

815
00:47:31,240 --> 00:47:33,810
So, for example, you might
be only able to

816
00:47:33,810 --> 00:47:36,480
sell one kind of snack.

817
00:47:36,480 --> 00:47:43,540
And people might want snacks
only, maybe, in

818
00:47:43,540 --> 00:47:45,060
the evening or something.

819
00:47:45,060 --> 00:47:46,770
In the morning, you
go to work.

820
00:47:46,770 --> 00:47:48,250
There's no demand for snacks.

821
00:47:48,250 --> 00:47:54,090
Or you might sell breakfast,
and you can only sell

822
00:47:54,090 --> 00:47:56,820
breakfast till 10:00 AM.

823
00:47:56,820 --> 00:47:58,780
After that, breakfast is over.

824
00:47:58,780 --> 00:48:00,310
And so you have to find
something to do.

825
00:48:00,310 --> 00:48:03,060
So one thing could be there's a
natural capacity constraint.

826
00:48:03,060 --> 00:48:05,480
There's not much demand
for the product.

827
00:48:05,480 --> 00:48:08,300
And so you can do it for two
hours a day but not for eight

828
00:48:08,300 --> 00:48:10,163
hours a day.

829
00:48:10,163 --> 00:48:10,604
Yeah?

830
00:48:10,604 --> 00:48:12,060
AUDIENCE: There might be
seasonal variations.

831
00:48:12,060 --> 00:48:14,590
You might be able to a certain
type of business only during

832
00:48:14,590 --> 00:48:17,130
certain times of the
year, [INAUDIBLE].

833
00:48:17,130 --> 00:48:17,850
PROFESSOR: Absolutely.

834
00:48:17,850 --> 00:48:20,990
So agriculture is one classic
business, where you can work a

835
00:48:20,990 --> 00:48:23,430
few months of the year, but the
then the rest of the time,

836
00:48:23,430 --> 00:48:24,100
you don't have irrigation.

837
00:48:24,100 --> 00:48:25,490
There's nothing to do.

838
00:48:25,490 --> 00:48:26,740
So you work on something else.

839
00:48:36,460 --> 00:48:36,880
Yeah?

840
00:48:36,880 --> 00:48:39,310
AUDIENCE: You might diversify
your portfolio as part of

841
00:48:39,310 --> 00:48:40,770
[INAUDIBLE].

842
00:48:40,770 --> 00:48:41,130
PROFESSOR: Right.

843
00:48:41,130 --> 00:48:45,110
So you may bear less risk by
having multiple businesses.

844
00:48:45,110 --> 00:48:46,066
Yeah?

845
00:48:46,066 --> 00:48:48,934
AUDIENCE: It might be the return
for business is so low,

846
00:48:48,934 --> 00:48:52,997
that even if you invested more
time and energy into it, it

847
00:48:52,997 --> 00:48:54,210
wouldn't be worth it.

848
00:48:54,210 --> 00:48:55,470
PROFESSOR: But why don't you
take the one which is the

849
00:48:55,470 --> 00:48:58,876
highest return and put all
your time into it?

850
00:48:58,876 --> 00:49:00,810
AUDIENCE: Maybe I don't
want to [INAUDIBLE].

851
00:49:00,810 --> 00:49:01,400
PROFESSOR: Why?

852
00:49:01,400 --> 00:49:03,694
AUDIENCE: Because even if that
was the highest return,

853
00:49:03,694 --> 00:49:06,580
[INAUDIBLE].

854
00:49:06,580 --> 00:49:09,560
PROFESSOR: But why would you
ever start a second, even

855
00:49:09,560 --> 00:49:10,770
lower return business?

856
00:49:10,770 --> 00:49:13,390
If there's one business that
has the highest return, why

857
00:49:13,390 --> 00:49:16,025
won't you put all your eggs
into that basket?

858
00:49:16,025 --> 00:49:17,300
AUDIENCE: Diversity.

859
00:49:17,300 --> 00:49:19,140
PROFESSOR: Yeah, so that's what
she said, which is that

860
00:49:19,140 --> 00:49:21,130
want to diversify risk.

861
00:49:21,130 --> 00:49:23,195
What other reason could
you imagine?

862
00:49:26,040 --> 00:49:27,317
AUDIENCE: It could also be
that you might have one

863
00:49:27,317 --> 00:49:29,568
business that's really
profitable, let's say, you're

864
00:49:29,568 --> 00:49:32,120
selling something in the morning
for breakfast, but it

865
00:49:32,120 --> 00:49:33,984
might be the time--

866
00:49:33,984 --> 00:49:35,870
PROFESSOR: Right, that's,
I think, also

867
00:49:35,870 --> 00:49:37,120
someone brought up.

868
00:49:47,582 --> 00:49:49,534
AUDIENCE: I think there are like
some businesses which are

869
00:49:49,534 --> 00:49:53,390
like needlepoint, which
physically hurt you if you do

870
00:49:53,390 --> 00:49:53,950
it too much.

871
00:49:53,950 --> 00:49:55,860
People like become blind.

872
00:49:55,860 --> 00:49:59,652
PROFESSOR: Right, so maybe, just
you don't want to do it

873
00:49:59,652 --> 00:50:01,480
for too long?

874
00:50:01,480 --> 00:50:04,858
Another obvious reason.

875
00:50:04,858 --> 00:50:07,058
AUDIENCE: Didn't they say in the
book that a lot of people

876
00:50:07,058 --> 00:50:09,196
don't like running their own
businesses, and so they don't

877
00:50:09,196 --> 00:50:12,580
want to put time into it.

878
00:50:12,580 --> 00:50:15,142
PROFESSOR: But why would you
do three different ones?

879
00:50:15,142 --> 00:50:18,090
I'm Asking a simpler question
than the one you're answering,

880
00:50:18,090 --> 00:50:21,290
which is people seem to do
two or three different

881
00:50:21,290 --> 00:50:22,030
occupations.

882
00:50:22,030 --> 00:50:25,110
Why would do two or
three rather than?

883
00:50:25,110 --> 00:50:27,180
Say I want to work
eight hours.

884
00:50:27,180 --> 00:50:29,810
Why wouldn't I put all
eight hours into one?

885
00:50:29,810 --> 00:50:32,463
We've gone through a bunch
of reasons for that.

886
00:50:32,463 --> 00:50:38,235
AUDIENCE: Is that the marginal
returns decline, especially

887
00:50:38,235 --> 00:50:40,650
for this type of a business?

888
00:50:40,650 --> 00:50:43,810
PROFESSOR: So it could be that
the marginal returns on the

889
00:50:43,810 --> 00:50:46,360
extra piece of effort is low.

890
00:50:46,360 --> 00:50:50,650
Another possibility that
I think is even more

891
00:50:50,650 --> 00:50:51,610
straightforward.

892
00:50:51,610 --> 00:50:54,160
Maybe some businesses
require capital

893
00:50:54,160 --> 00:50:57,420
and others less capital.

894
00:50:57,420 --> 00:50:59,180
So you have a certain
amount of capital.

895
00:50:59,180 --> 00:51:01,290
You put into the capital
intensive business.

896
00:51:01,290 --> 00:51:04,120
And then use still don't
have some time left.

897
00:51:04,120 --> 00:51:06,160
So you work in the other one.

898
00:51:06,160 --> 00:51:07,970
For example, to do needlepoint,
you'll have to

899
00:51:07,970 --> 00:51:10,010
buy fabric first.

900
00:51:10,010 --> 00:51:14,120
And you can only afford fabric
that covers half your day.

901
00:51:14,120 --> 00:51:15,990
And you buy fabric for
half your day.

902
00:51:15,990 --> 00:51:17,540
You work half your day
on needlepoint.

903
00:51:17,540 --> 00:51:20,040
The rest of the half of your
day, you have to find

904
00:51:20,040 --> 00:51:21,580
something else to do.

905
00:51:21,580 --> 00:51:24,830
So it may just be that you don't
have enough capital to

906
00:51:24,830 --> 00:51:29,324
make it possible to spend your
whole day working on it.

907
00:51:32,160 --> 00:51:38,000
So in any case, we do see this
evidence that people don't

908
00:51:38,000 --> 00:51:40,090
seem to be excessively
committed

909
00:51:40,090 --> 00:51:42,330
to any single business.

910
00:51:42,330 --> 00:51:48,380
That has the cost, obviously,
that they're not getting a lot

911
00:51:48,380 --> 00:51:50,513
of benefits from
specialization.

912
00:51:53,210 --> 00:51:55,900
They're not learning or
improving very fast, because

913
00:51:55,900 --> 00:51:57,310
they're doing many, many
things at the same.

914
00:52:09,190 --> 00:52:14,430
What is striking about this
picture is says, in even rural

915
00:52:14,430 --> 00:52:18,790
households, a lot of them have
a non-agricultural business.

916
00:52:18,790 --> 00:52:22,270
So they'll actually, if you look
at how many people have a

917
00:52:22,270 --> 00:52:27,960
non-agricultural business, like
about a third of them

918
00:52:27,960 --> 00:52:29,710
have a non-agricultural
business,

919
00:52:29,710 --> 00:52:30,970
even if they're rural.

920
00:52:30,970 --> 00:52:35,810
So these are people who
live in rural areas.

921
00:52:35,810 --> 00:52:38,610
They do farming as one of their
businesses, probably.

922
00:52:38,610 --> 00:52:40,730
But they also have a second
business, which is

923
00:52:40,730 --> 00:52:42,090
non-agricultural.

924
00:52:42,090 --> 00:52:43,750
And that's sort of striking.

925
00:52:43,750 --> 00:52:47,750
We think of, often, rural areas
in developing countries

926
00:52:47,750 --> 00:52:51,960
as farmers kind of living
in isolation.

927
00:52:51,960 --> 00:52:54,590
In fact, most of these
people are in a

928
00:52:54,590 --> 00:52:56,010
second business as well.

929
00:53:00,300 --> 00:53:05,020
So the next fact about
businesses of the poor is that

930
00:53:05,020 --> 00:53:06,390
these businesses are
very fragile.

931
00:53:09,480 --> 00:53:16,010
So if you look at Mexico, in
85% of the people, the poor

932
00:53:16,010 --> 00:53:19,190
didn't have a business
in 2002.

933
00:53:19,190 --> 00:53:21,870
15% had a business.

934
00:53:21,870 --> 00:53:28,680
By 2005, out of those 15%, only
6% still had a business.

935
00:53:28,680 --> 00:53:32,880
So 60% of all businesses
just closed.

936
00:53:32,880 --> 00:53:34,730
So the they're also going
in and out of

937
00:53:34,730 --> 00:53:36,570
business all the time.

938
00:53:36,570 --> 00:53:42,080
On the other hand, many other
people started new businesses.

939
00:53:42,080 --> 00:53:45,580
And you look at the fraction
of the people who retained

940
00:53:45,580 --> 00:53:47,230
their existing labor force.

941
00:53:47,230 --> 00:53:49,560
They're just 1.8%.

942
00:53:49,560 --> 00:53:54,290
So most people either grow their
business or shrink it or

943
00:53:54,290 --> 00:53:55,280
shut it down.

944
00:53:55,280 --> 00:53:59,260
So businesses are very,
very fragile.

945
00:53:59,260 --> 00:54:04,290
It's not that you set up a
business and it lasts forever.

946
00:54:04,290 --> 00:54:08,590
It's quite a high
risk outcome.

947
00:54:12,330 --> 00:54:15,360
And this is sort of the answer
to the question, do the poor

948
00:54:15,360 --> 00:54:17,496
feel entrepreneurial?

949
00:54:20,160 --> 00:54:22,590
And this is a survey we've done
in many countries, now.

950
00:54:22,590 --> 00:54:24,390
We always find the say answer.

951
00:54:24,390 --> 00:54:31,660
You ask people, you have a
child, what occupation do you

952
00:54:31,660 --> 00:54:33,950
hope for your child to be?

953
00:54:33,950 --> 00:54:35,270
And we ask it two ways.

954
00:54:40,500 --> 00:54:43,500
One, we ask them, what
occupation do you hope for

955
00:54:43,500 --> 00:54:45,060
your child?

956
00:54:45,060 --> 00:54:47,140
Then you might worry if
you ask that question.

957
00:54:47,140 --> 00:54:49,270
They might be conditioning
on their condition.

958
00:54:49,270 --> 00:54:51,980
And so they'd look, you know,
my child he'll never be able

959
00:54:51,980 --> 00:54:55,040
to do the right kind of
business, because he doesn't

960
00:54:55,040 --> 00:54:57,070
have enough money
or something.

961
00:54:57,070 --> 00:55:01,440
So we asked them, if you won a
lottery and you would invest

962
00:55:01,440 --> 00:55:04,950
in something, what occupation
would your

963
00:55:04,950 --> 00:55:08,030
child want to be in?

964
00:55:08,030 --> 00:55:09,490
It doesn't make a difference.

965
00:55:09,490 --> 00:55:12,200
They always give you the same
answer, which is that they

966
00:55:12,200 --> 00:55:14,880
don't want to be in business.

967
00:55:14,880 --> 00:55:16,530
The answer is very,
very clear.

968
00:55:16,530 --> 00:55:21,160
18% want them to be a private
firm employee, 41% to be a

969
00:55:21,160 --> 00:55:24,220
non-teaching government
job, and 34% to be

970
00:55:24,220 --> 00:55:25,650
a government teacher.

971
00:55:25,650 --> 00:55:31,140
So that's 93% don't want them
to be an entrepreneur.

972
00:55:31,140 --> 00:55:35,460
So basically, the poor don't
like the idea, at least, of

973
00:55:35,460 --> 00:55:36,850
their children being
entrepreneurs.

974
00:55:42,980 --> 00:55:47,200
And it's consistent with
everything else we see, which

975
00:55:47,200 --> 00:55:50,160
is that they don't seem to
invest all their time in a

976
00:55:50,160 --> 00:55:51,000
single business.

977
00:55:51,000 --> 00:55:54,300
Even if they have a business,
they'll put only a part of

978
00:55:54,300 --> 00:55:55,550
their time into it.

979
00:55:58,100 --> 00:56:02,100
We saw, earlier, that they don't
try very hard to save

980
00:56:02,100 --> 00:56:04,420
their way out of debt.

981
00:56:04,420 --> 00:56:08,405
We saw that when we looked at
the fruit vendors, that they

982
00:56:08,405 --> 00:56:11,540
were not saving a lot and tried
to get out of debt.

983
00:56:11,540 --> 00:56:16,780
So it seems like they don't seem
to be hugely committed to

984
00:56:16,780 --> 00:56:18,020
growing their business.

985
00:56:18,020 --> 00:56:19,530
There's no evidence.

986
00:56:19,530 --> 00:56:21,650
And we see the businesses
don't grow.

987
00:56:21,650 --> 00:56:24,220
Many of them shrink
or shut down.

988
00:56:24,220 --> 00:56:29,060
Very few of them actually
add an employee.

989
00:56:29,060 --> 00:56:31,850
At best, these business
are always small.

990
00:56:31,850 --> 00:56:33,760
They stay small or
they shutdown.

991
00:56:33,760 --> 00:56:35,290
They rarely grow.

992
00:56:35,290 --> 00:56:41,660
So there is no evidence that the
poor are actually dynamic

993
00:56:41,660 --> 00:56:45,230
entrepreneurs, in the sense
that they are looking for

994
00:56:45,230 --> 00:56:47,850
opportunities to grow their
business all the time.

995
00:56:47,850 --> 00:56:50,860
Now, that doesn't mean that
there are not a million

996
00:56:50,860 --> 00:56:53,120
dynamic entrepreneurs
among the poor.

997
00:56:53,120 --> 00:56:55,910
One should not confuse the
statement that the average

998
00:56:55,910 --> 00:56:59,100
poor person is not a dynamic
entrepreneur with the

999
00:56:59,100 --> 00:57:02,310
statement that there
are no dynamic

1000
00:57:02,310 --> 00:57:03,400
entrepreneurs among the poor.

1001
00:57:03,400 --> 00:57:06,080
There may be exactly the same
fraction of dynamic

1002
00:57:06,080 --> 00:57:08,560
entrepreneurs among the poor
as there are among MIT

1003
00:57:08,560 --> 00:57:10,020
students, for all I know.

1004
00:57:10,020 --> 00:57:12,880
It's just most people are
not cut out to dynamic

1005
00:57:12,880 --> 00:57:14,130
entrepreneurs.

1006
00:57:17,400 --> 00:57:20,090
And the poor, maybe, just
like everybody else,

1007
00:57:20,090 --> 00:57:21,040
they don't like risk.

1008
00:57:21,040 --> 00:57:24,570
They don't like the idea of
worrying about all of the

1009
00:57:24,570 --> 00:57:27,270
problems that running
business has.

1010
00:57:27,270 --> 00:57:29,450
They like a steady job.

1011
00:57:29,450 --> 00:57:32,640
And then a few people really
like being an entrepreneur.

1012
00:57:32,640 --> 00:57:35,040
I don't know that this makes
them any different from

1013
00:57:35,040 --> 00:57:35,800
anybody else.

1014
00:57:35,800 --> 00:57:38,780
It just says that they're not.

1015
00:57:38,780 --> 00:57:42,600
You see a huge
over-representation of the

1016
00:57:42,600 --> 00:57:46,230
poor among entrepreneurs.

1017
00:57:46,230 --> 00:57:49,430
That doesn't mean that this is
what the poor want to be.

1018
00:57:52,120 --> 00:57:54,200
It's not that they're
entrepreneurial in some

1019
00:57:54,200 --> 00:57:55,340
natural sense.

1020
00:57:55,340 --> 00:57:57,970
They're not that they want
to be an entrepreneur.

1021
00:57:57,970 --> 00:58:01,126
They're an entrepreneur for some
other reason we'll come

1022
00:58:01,126 --> 00:58:02,376
to in a minute.

1023
00:58:05,910 --> 00:58:08,810
None of this evidence seems to
suggest that they're dying to

1024
00:58:08,810 --> 00:58:13,500
be entrepreneurs and to
grow their businesses.

1025
00:58:13,500 --> 00:58:15,860
That doesn't mean that there
aren't some who are.

1026
00:58:18,982 --> 00:58:24,400
There's this story that you saw
in the microfinance movie

1027
00:58:24,400 --> 00:58:29,350
of some woman who started
as hair collector.

1028
00:58:29,350 --> 00:58:31,230
Remember this person?

1029
00:58:31,230 --> 00:58:33,400
And she's now a hair tycoon.

1030
00:58:33,400 --> 00:58:39,360
And they exist, people like
that, everywhere in the world.

1031
00:58:39,360 --> 00:58:44,540
I'm even willing to believe
that there are as many

1032
00:58:44,540 --> 00:58:48,320
genuinely entrepreneurial people
among the poor as there

1033
00:58:48,320 --> 00:58:50,150
are among anybody else.

1034
00:58:50,150 --> 00:58:55,400
But that's a very different
sentence from saying that most

1035
00:58:55,400 --> 00:58:58,750
poor people have businesses
because they're

1036
00:58:58,750 --> 00:59:00,540
entrepreneurial.

1037
00:59:00,540 --> 00:59:02,990
Because they're so massively
overrepresented.

1038
00:59:07,010 --> 00:59:12,450
They're really unlikely people
to be entrepreneurs.

1039
00:59:12,450 --> 00:59:14,730
So if they are entrepreneurs,
it's not because

1040
00:59:14,730 --> 00:59:17,830
they want to be.

1041
00:59:17,830 --> 00:59:22,270
This is all consistent with the
fact that, if you look at

1042
00:59:22,270 --> 00:59:25,010
these businesses, they're
not really attractive

1043
00:59:25,010 --> 00:59:26,390
economically.

1044
00:59:26,390 --> 00:59:30,800
So one place where we have
detailed data, we could

1045
00:59:30,800 --> 00:59:34,420
actually calculate how much
revenues these businesses were

1046
00:59:34,420 --> 00:59:37,910
making, calculate profits.

1047
00:59:37,910 --> 00:59:40,120
Now a key part of the
profit calculation--

1048
00:59:40,120 --> 00:59:44,790
remember, almost none of these
firms have employees.

1049
00:59:44,790 --> 00:59:50,330
So you have to evaluate the
time spent by the owner in

1050
00:59:50,330 --> 00:59:51,500
running the business.

1051
00:59:51,500 --> 00:59:54,130
Somehow, how do you
price that?

1052
00:59:54,130 --> 00:59:56,480
So you price that
at minimum wage.

1053
00:59:56,480 --> 01:00:00,000
These businesses lose money.

1054
01:00:00,000 --> 01:00:04,480
So if I went out and worked at
minimum wage, I would make

1055
01:00:04,480 --> 01:00:12,610
more money than if I did this
business and spent all the

1056
01:00:12,610 --> 01:00:14,060
time I'm spending
in the business.

1057
01:00:14,060 --> 01:00:16,540
Now, I'm not necessarily
working as hard in the

1058
01:00:16,540 --> 01:00:18,600
business as I would be working
in other things.

1059
01:00:18,600 --> 01:00:22,770
But it isn't the case that
I'm making lots of money.

1060
01:00:22,770 --> 01:00:26,500
I think this is a pattern that
people have noticed.

1061
01:00:26,500 --> 01:00:30,830
Now, here's a puzzle.

1062
01:00:30,830 --> 01:00:32,710
I just said they don't
make a lot of money.

1063
01:00:32,710 --> 01:00:35,180
They're not very profitable,
these business.

1064
01:00:35,180 --> 01:00:38,640
Before, I've also told
you that they

1065
01:00:38,640 --> 01:00:40,370
pay very high interest.

1066
01:00:40,370 --> 01:00:43,290
So they must be generating
an extra $1.

1067
01:00:43,290 --> 01:00:45,860
They must be generating
at least that much.

1068
01:00:45,860 --> 01:00:49,630
So if I'm paying 60% interest,
$1 must be generating more

1069
01:00:49,630 --> 01:00:51,030
than $0.60.

1070
01:00:51,030 --> 01:00:54,980
If I'm investing $1 and then
paying 60% interest, that $1

1071
01:00:54,980 --> 01:00:57,810
must be generating
more than $0.60.

1072
01:00:57,810 --> 01:01:02,120
How do those two facts
fit with each other?

1073
01:01:02,120 --> 01:01:05,230
I said, A, they're not
very profitable.

1074
01:01:05,230 --> 01:01:16,280
B, the marginal $1 must be
making a high return, because

1075
01:01:16,280 --> 01:01:19,760
otherwise they wouldn't be
investing their marginal $1.

1076
01:01:19,760 --> 01:01:25,440
You won't borrow money at 60%
unless you can cover 60%.

1077
01:01:25,440 --> 01:01:28,181
So we know that they're
making lots of money.

1078
01:01:28,181 --> 01:01:28,642
Yeah?

1079
01:01:28,642 --> 01:01:30,810
AUDIENCE: This talked a
lot about in the book.

1080
01:01:30,810 --> 01:01:33,368
But basically, there's two
different types of return.

1081
01:01:33,368 --> 01:01:35,480
One is marginal returns,
[INAUDIBLE]

1082
01:01:35,480 --> 01:01:37,536
where an extra $1 spent,
what's their return.

1083
01:01:37,536 --> 01:01:39,570
The other's the total return.

1084
01:01:39,570 --> 01:01:43,558
For a lot of these businesses,
there is a point, early on,

1085
01:01:43,558 --> 01:01:46,246
with this very high, marginal
return, and then it really

1086
01:01:46,246 --> 01:01:46,694
levels off.

1087
01:01:46,694 --> 01:01:50,415
So that's what you run into,
where it's possible that, if

1088
01:01:50,415 --> 01:01:52,234
you have a very small
business, like the

1089
01:01:52,234 --> 01:01:53,226
example in the book.

1090
01:01:53,226 --> 01:01:55,375
Let's say you have a shop, but
you really can't put anything

1091
01:01:55,375 --> 01:01:56,202
on the shelves.

1092
01:01:56,202 --> 01:01:59,674
If you spend an extra $20, you
can actually have some candy

1093
01:01:59,674 --> 01:02:01,162
on the shelves, then that
will produce very

1094
01:02:01,162 --> 01:02:02,660
high marginal returns.

1095
01:02:02,660 --> 01:02:05,810
But if you spend $300 and have
a lot of inventory, you might

1096
01:02:05,810 --> 01:02:06,690
have to hire another employee.

1097
01:02:06,690 --> 01:02:07,898
There's risk of stuff spoiling,

1098
01:02:07,898 --> 01:02:09,890
et cetera, et cetera.

1099
01:02:09,890 --> 01:02:11,890
PROFESSOR: So I think that's
absolutely right.

1100
01:02:11,890 --> 01:02:15,260
But I was making an even simpler
point, here, which is

1101
01:02:15,260 --> 01:02:17,410
that think of that business.

1102
01:02:17,410 --> 01:02:19,690
The person who set up a shop.

1103
01:02:24,690 --> 01:02:29,030
You invest your time
into the shop.

1104
01:02:29,030 --> 01:02:31,430
And you invest the space.

1105
01:02:31,430 --> 01:02:33,560
You invest the shelves.

1106
01:02:33,560 --> 01:02:37,200
You invest the inventory.

1107
01:02:37,200 --> 01:02:38,950
Then you start selling.

1108
01:02:38,950 --> 01:02:42,340
So in particular, your time
is a fixed investment.

1109
01:02:42,340 --> 01:02:44,860
Because you have now decided
that instead of working

1110
01:02:44,860 --> 01:02:48,870
outside, I'm going to
stay in the shop.

1111
01:02:48,870 --> 01:02:51,040
So you need to cover.

1112
01:02:51,040 --> 01:02:56,210
To become profitable, you need
to cover your own daily wage.

1113
01:02:56,210 --> 01:02:59,410
Let's say you make $2 a day.

1114
01:02:59,410 --> 01:03:05,090
Then even if you made a total
of $2 a day by selling, you

1115
01:03:05,090 --> 01:03:07,230
would have just covered
your wage.

1116
01:03:07,230 --> 01:03:09,050
Then you recover your
inventory, your

1117
01:03:09,050 --> 01:03:11,060
capital cost, et cetera.

1118
01:03:11,060 --> 01:03:17,550
So unless you operate at a high
enough scale, you're not

1119
01:03:17,550 --> 01:03:21,360
going to cover your time.

1120
01:03:21,360 --> 01:03:24,240
And so one of the problems
is these people are often

1121
01:03:24,240 --> 01:03:26,250
operating at a very
small scale.

1122
01:03:26,250 --> 01:03:29,140
So they rarely manage
to cover their cost.

1123
01:03:37,120 --> 01:03:41,440
But then why don't these
people just grow their

1124
01:03:41,440 --> 01:03:42,130
businesses?

1125
01:03:42,130 --> 01:03:45,360
Maybe if they're not making a
lot of money, because they

1126
01:03:45,360 --> 01:03:50,840
have to cover their fixed cost,
then why not just keep

1127
01:03:50,840 --> 01:03:54,650
investing till you make
a lot of money.

1128
01:03:54,650 --> 01:03:58,330
Your marginal returns are high,
so you could invest more

1129
01:03:58,330 --> 01:03:59,890
and make more money.

1130
01:03:59,890 --> 01:04:03,280
And then the answer is, your
marginal are high, but not

1131
01:04:03,280 --> 01:04:05,820
high for a very wide range.

1132
01:04:05,820 --> 01:04:09,090
So they start falling
fast as well.

1133
01:04:09,090 --> 01:04:11,730
So this is the picture
that is in the book.

1134
01:04:11,730 --> 01:04:16,610
And it's worth, probably,
understanding that picture.

1135
01:04:21,970 --> 01:04:26,390
So that picture, it tells a
story of two technologies.

1136
01:04:26,390 --> 01:04:30,540
There's one technology which is
gives you a high return but

1137
01:04:30,540 --> 01:04:33,900
quickly flattens off.

1138
01:04:33,900 --> 01:04:36,360
And if that was the only
technology in the world, then

1139
01:04:36,360 --> 01:04:38,630
we would not observe
any large funds.

1140
01:04:38,630 --> 01:04:41,170
Because that's a technology
which stops becoming

1141
01:04:41,170 --> 01:04:43,700
profitable after a point,
very quickly.

1142
01:04:43,700 --> 01:04:47,680
But there's another technology,
which starts way

1143
01:04:47,680 --> 01:04:49,330
to the right of that.

1144
01:04:49,330 --> 01:04:53,880
And that technology is only
profitable if you invest.

1145
01:04:53,880 --> 01:04:56,320
So what that curve says
is that there is two

1146
01:04:56,320 --> 01:04:57,570
technologies.

1147
01:04:59,450 --> 01:05:03,700
Production from technology two
is lower than production for

1148
01:05:03,700 --> 01:05:08,892
technology one until you cross
a particular point.

1149
01:05:08,892 --> 01:05:11,960
So you need to make enough
investment to make that

1150
01:05:11,960 --> 01:05:12,590
profitable.

1151
01:05:12,590 --> 01:05:16,640
So you're going to buy a machine
which produces a lot

1152
01:05:16,640 --> 01:05:17,760
of garments.

1153
01:05:17,760 --> 01:05:21,630
But if you can't buy the cloth
that goes with the machine,

1154
01:05:21,630 --> 01:05:23,250
there's no point in buying
the machine.

1155
01:05:23,250 --> 01:05:26,550
You're going to lose money for
sure, because you have nothing

1156
01:05:26,550 --> 01:05:28,020
to use the machine with.

1157
01:05:28,020 --> 01:05:31,130
Garments need a machine
and they need cloth.

1158
01:05:31,130 --> 01:05:34,660
And you have only money for the
machine, then you should

1159
01:05:34,660 --> 01:05:35,960
not buy the machine.

1160
01:05:35,960 --> 01:05:37,540
You should buy the machine
only if you can buy the

1161
01:05:37,540 --> 01:05:39,330
machine and buy the cloth.

1162
01:05:39,330 --> 01:05:43,070
So there that are more
profitable technologies and

1163
01:05:43,070 --> 01:05:44,850
less profitable technologies.

1164
01:05:44,850 --> 01:05:48,660
But the disadvantage of the
more profitable technology

1165
01:05:48,660 --> 01:05:54,390
turns out to be that you need
to invest enough in them to

1166
01:05:54,390 --> 01:05:55,790
make money.

1167
01:05:55,790 --> 01:05:58,800
So the problem is that the poor
are caught between a kind

1168
01:05:58,800 --> 01:06:02,240
of a rock and a hard place,
which is that they can't

1169
01:06:02,240 --> 01:06:05,980
really get up to the
level at which they

1170
01:06:05,980 --> 01:06:07,470
would make real money.

1171
01:06:07,470 --> 01:06:09,940
Because that technology is just
too expensive for them.

1172
01:06:09,940 --> 01:06:12,200
They don't have that
much money.

1173
01:06:12,200 --> 01:06:15,940
The technology that they can
access has very fast

1174
01:06:15,940 --> 01:06:17,540
diminishing returns.

1175
01:06:17,540 --> 01:06:20,350
So that one also is not
worth growing a lot.

1176
01:06:20,350 --> 01:06:24,480
So that's the sense in which
they're between a rock and a

1177
01:06:24,480 --> 01:06:25,130
hard place.

1178
01:06:25,130 --> 01:06:28,380
They can't grow the technology
fast enough.

1179
01:06:28,380 --> 01:06:30,540
The one that they have,
they can't grow.

1180
01:06:30,540 --> 01:06:33,172
And the one that can grow,
they can't have.

1181
01:06:33,172 --> 01:06:36,610
And that's what this
picture is about.

1182
01:06:36,610 --> 01:06:39,850
If this is what the world looks
like, then the poor are

1183
01:06:39,850 --> 01:06:42,960
stuck at a point, like M, and
the rich are stuck at point

1184
01:06:42,960 --> 01:06:48,730
like that second
ball up there.

1185
01:06:48,730 --> 01:06:53,940
So the poor are stuck, because
the technology that has growth

1186
01:06:53,940 --> 01:06:55,370
is not available to them.

1187
01:06:55,370 --> 01:06:57,080
And the one that's available
to them does not

1188
01:06:57,080 --> 01:06:58,940
have growth in it.

1189
01:06:58,940 --> 01:07:02,080
So there's no point in their
putting a lot of effort into

1190
01:07:02,080 --> 01:07:04,470
growing their technology,
because they're really not

1191
01:07:04,470 --> 01:07:06,440
going to make a lot of
money either way.

1192
01:07:11,170 --> 01:07:13,950
That would explain why they
don't really want to be

1193
01:07:13,950 --> 01:07:18,320
entrepreneurs, because they know
that they're never going

1194
01:07:18,320 --> 01:07:20,770
to get very far in
this process.

1195
01:07:20,770 --> 01:07:25,770
So then that leaves us with
the last slide, well,

1196
01:07:25,770 --> 01:07:28,690
actually, one slide
that suggests that

1197
01:07:28,690 --> 01:07:31,880
this picture is right.

1198
01:07:31,880 --> 01:07:36,020
There was this experiment in Sri
Lanka, where people were

1199
01:07:36,020 --> 01:07:42,820
given, randomly, either $250
or $500 for investing.

1200
01:07:42,820 --> 01:07:44,570
And this was just a gift.

1201
01:07:44,570 --> 01:07:47,470
The World Bank, basically, did
this experiment, where it went

1202
01:07:47,470 --> 01:07:51,060
to people and said,
here's $250.

1203
01:07:51,060 --> 01:07:53,020
These were all small
businessmen.

1204
01:07:53,020 --> 01:07:57,050
Use it in your business or
do something with it.

1205
01:07:57,050 --> 01:08:00,570
And some people, they
offered $500.

1206
01:08:00,570 --> 01:08:03,140
It's kind of nice experiment
to do, because you can find

1207
01:08:03,140 --> 01:08:06,580
out what's the effect on getting
money on people's

1208
01:08:06,580 --> 01:08:08,040
investment.

1209
01:08:08,040 --> 01:08:11,880
And strikingly, if you
give $250, you get

1210
01:08:11,880 --> 01:08:12,900
high marginal returns.

1211
01:08:12,900 --> 01:08:17,470
So these people who get $250,
they invest $250, and they

1212
01:08:17,470 --> 01:08:21,550
make about 60% a year on that.

1213
01:08:21,550 --> 01:08:24,310
So that's pretty good returns.

1214
01:08:24,310 --> 01:08:29,990
On the other hand, if you give
them $500, they don't invest

1215
01:08:29,990 --> 01:08:31,840
the second $250.

1216
01:08:31,840 --> 01:08:34,960
They just use it for repairing
their home.

1217
01:08:34,960 --> 01:08:38,490
So they don't believe that the
second $500 are going to grow

1218
01:08:38,490 --> 01:08:40,189
their business that much more.

1219
01:08:40,189 --> 01:08:42,550
They believe that there's
diminishing returns.

1220
01:08:42,550 --> 01:08:44,729
That's why they don't
invest it.

1221
01:08:44,729 --> 01:08:49,380
So basically, the poor seem to
be acting as if they also

1222
01:08:49,380 --> 01:08:52,939
believe exactly that picture,
that they have high returns on

1223
01:08:52,939 --> 01:08:56,130
the first $250 but not
on the second $250.

1224
01:08:56,130 --> 01:08:57,092
Yeah?

1225
01:08:57,092 --> 01:08:58,342
AUDIENCE: So [INAUDIBLE]

1226
01:09:05,319 --> 01:09:09,344
they just save up enough money
or take a loan out so that you

1227
01:09:09,344 --> 01:09:10,989
can achieve or you can jump
the curve and buy the

1228
01:09:10,989 --> 01:09:11,460
technology.

1229
01:09:11,460 --> 01:09:12,740
PROFESSOR: Absolutely.

1230
01:09:12,740 --> 01:09:15,394
AUDIENCE: So it's like,
technically, giving loans to

1231
01:09:15,394 --> 01:09:19,160
small businesses should work.

1232
01:09:19,160 --> 01:09:21,470
PROFESSOR: Well, it depends
on how big the loan is.

1233
01:09:21,470 --> 01:09:26,260
I think the problem is that
the jump is not at $500.

1234
01:09:26,260 --> 01:09:29,880
The jump is at $10,000.

1235
01:09:29,880 --> 01:09:32,439
So none of the loans they are
being offered allow them to

1236
01:09:32,439 --> 01:09:34,140
make that jump.

1237
01:09:34,140 --> 01:09:36,090
That's the problem.

1238
01:09:36,090 --> 01:09:37,623
AUDIENCE: And they're
still too small to

1239
01:09:37,623 --> 01:09:38,720
go to a normal bank?

1240
01:09:38,720 --> 01:09:39,970
PROFESSOR: Yeah.

1241
01:09:45,319 --> 01:09:48,750
that then brings us to the final
question, which is, if

1242
01:09:48,750 --> 01:09:50,490
this is all not such
a great deal,

1243
01:09:50,490 --> 01:09:51,740
why are they in business?

1244
01:09:54,220 --> 01:09:55,160
Yeah, go ahead.

1245
01:09:55,160 --> 01:09:55,935
AUDIENCE: Because
they have to be.

1246
01:09:55,935 --> 01:09:56,310
PROFESSOR: Yeah.

1247
01:09:56,310 --> 01:09:57,560
One is that they have to be.

1248
01:10:00,190 --> 01:10:02,520
There's a vicious cycle, here.

1249
01:10:02,520 --> 01:10:07,460
Suppose no one can create a
business that's big enough to

1250
01:10:07,460 --> 01:10:08,895
hire employees.

1251
01:10:12,120 --> 01:10:14,390
Then I can never be
an employee in

1252
01:10:14,390 --> 01:10:15,660
somebody else's firm.

1253
01:10:15,660 --> 01:10:16,620
What else can I do?

1254
01:10:16,620 --> 01:10:20,170
I can start my own business,
which can't hire anybody.

1255
01:10:20,170 --> 01:10:24,470
So if nobody is creating
businesses which have

1256
01:10:24,470 --> 01:10:29,320
employees, then, in a
sense, I'm stuck.

1257
01:10:29,320 --> 01:10:31,140
I can't get a job, because
nobody else is

1258
01:10:31,140 --> 01:10:32,540
creating those jobs.

1259
01:10:32,540 --> 01:10:36,220
But if nobody else is creating
those jobs, then I can't

1260
01:10:36,220 --> 01:10:38,400
really work for anybody else.

1261
01:10:38,400 --> 01:10:41,150
But I still have to earn a
living, so I go and find my

1262
01:10:41,150 --> 01:10:45,370
own thing to do.

1263
01:10:45,370 --> 01:10:49,410
So I think the primary reason
why you have a lot of

1264
01:10:49,410 --> 01:10:52,470
entrepreneurs is because no
entrepreneur is big enough to

1265
01:10:52,470 --> 01:10:53,710
hire the others.

1266
01:10:53,710 --> 01:10:55,350
So everybody's an
entrepreneur, a

1267
01:10:55,350 --> 01:10:56,640
mini-entrepreneur.

1268
01:10:56,640 --> 01:11:00,110
Nobody gets to the scale where
they can hire others.

1269
01:11:00,110 --> 01:11:02,600
And therefore, everybody's
kind of stuck.

1270
01:11:02,600 --> 01:11:09,310
So if I start a business that
hires 10 people, then that

1271
01:11:09,310 --> 01:11:13,130
stops 9 other people from
being an entrepreneur.

1272
01:11:13,130 --> 01:11:14,390
That's one reason.

1273
01:11:14,390 --> 01:11:17,650
A second reason has to
do with flexibility.

1274
01:11:17,650 --> 01:11:20,430
I think a lot of poor
people don't have

1275
01:11:20,430 --> 01:11:22,470
access to social services.

1276
01:11:22,470 --> 01:11:30,850
So if I have to have childcare,
pay for childcare,

1277
01:11:30,850 --> 01:11:33,790
I'm never going to able to
afford my business, because

1278
01:11:33,790 --> 01:11:35,040
childcare is too expensive.

1279
01:11:39,910 --> 01:11:43,820
So if I have to go out and get
a job, which is 9-to-5, and I

1280
01:11:43,820 --> 01:11:45,990
have to work all
the time, who's

1281
01:11:45,990 --> 01:11:48,580
going to provide childcare?

1282
01:11:48,580 --> 01:11:52,420
So often, they choose businesses
which are designed

1283
01:11:52,420 --> 01:11:53,990
to work well with childcare.

1284
01:11:53,990 --> 01:11:57,990
Like I took a snack
making business.

1285
01:11:57,990 --> 01:11:58,390
Why?

1286
01:11:58,390 --> 01:11:59,640
Because I can do it at home.

1287
01:11:59,640 --> 01:12:01,160
I make the snacks at home.

1288
01:12:01,160 --> 01:12:03,230
And then I go out to
sell for two hours.

1289
01:12:03,230 --> 01:12:05,290
At that time, I take
my child with me.

1290
01:12:05,290 --> 01:12:07,290
And then I bring
the child back.

1291
01:12:07,290 --> 01:12:10,040
And that way, I don't ever
have to deal with the

1292
01:12:10,040 --> 01:12:11,140
childcare issue.

1293
01:12:11,140 --> 01:12:13,630
So flexibility is
a second one.

1294
01:12:13,630 --> 01:12:16,840
The third and most
worrying one--

1295
01:12:16,840 --> 01:12:20,150
and microcredit makes me
worry about this most--

1296
01:12:20,150 --> 01:12:27,180
is whether or not a lot of men
are very enthusiastic for the

1297
01:12:27,180 --> 01:12:28,840
wives to work even harder.

1298
01:12:28,840 --> 01:12:32,770
So they feel that, you know,
I'm working at a job.

1299
01:12:32,770 --> 01:12:35,530
I would like my wife
to work harder.

1300
01:12:35,530 --> 01:12:37,920
And the way they get their wives
to work harder is by

1301
01:12:37,920 --> 01:12:39,330
making them start a business.

1302
01:12:39,330 --> 01:12:43,170
So I don't know whether
microcredit is necessarily

1303
01:12:43,170 --> 01:12:44,980
wonderful for all
of these women.

1304
01:12:48,550 --> 01:12:51,690
I think that, historically, men
have found it difficult to

1305
01:12:51,690 --> 01:12:54,545
understand that women, even
though they don't go out to

1306
01:12:54,545 --> 01:12:55,870
work, actually have to work.

1307
01:12:55,870 --> 01:12:57,340
They have like cooking
and cleaning

1308
01:12:57,340 --> 01:12:59,510
dishes and washing up.

1309
01:12:59,510 --> 01:13:01,010
They're all hard work.

1310
01:13:01,010 --> 01:13:06,320
And if you think that that's a
problem in the US, now, then

1311
01:13:06,320 --> 01:13:08,600
you can imagine in a lot of
developing countries, it's

1312
01:13:08,600 --> 01:13:10,070
even more of a problem.

1313
01:13:10,070 --> 01:13:14,110
So it may well be that a lot of
men are under the illusion

1314
01:13:14,110 --> 01:13:16,150
that their wives are idle.

1315
01:13:16,150 --> 01:13:18,470
And that they are very willing,
therefore, to start a

1316
01:13:18,470 --> 01:13:21,930
business for them, so they can
work a little harder and add

1317
01:13:21,930 --> 01:13:23,420
to the family pie.

1318
01:13:23,420 --> 01:13:26,880
So I don't know how much of
these businesses are a result

1319
01:13:26,880 --> 01:13:30,240
of that, rather than any desire
to start a business.

1320
01:13:35,931 --> 01:13:37,181
Comments, questions?

1321
01:13:48,210 --> 01:13:52,120
So just to close this whole
thing, I think the key policy

1322
01:13:52,120 --> 01:13:58,120
question, that we don't know the
answer to, is how to not

1323
01:13:58,120 --> 01:14:01,400
get more businesses,
but more businesses

1324
01:14:01,400 --> 01:14:02,940
that hire other people.

1325
01:14:02,940 --> 01:14:05,150
That's the key policy
question we haven't

1326
01:14:05,150 --> 01:14:06,730
managed to solve yet.

1327
01:14:06,730 --> 01:14:10,060
And it's an absolutely central
policy question for most

1328
01:14:10,060 --> 01:14:16,670
developing countries to figure
out how to get not

1329
01:14:16,670 --> 01:14:20,415
micro-businesses but
small businesses.

1330
01:14:23,310 --> 01:14:27,320
And this is often called the
missing middle problem.

1331
01:14:27,320 --> 01:14:29,900
In many countries, in poor
countries, you'll find that

1332
01:14:29,900 --> 01:14:31,650
there are many micro-businesses
and some

1333
01:14:31,650 --> 01:14:35,110
large businesses, but not
enough middle-sized

1334
01:14:35,110 --> 01:14:36,130
businesses.

1335
01:14:36,130 --> 01:14:39,370
So that's the policy problem
that many, many countries are

1336
01:14:39,370 --> 01:14:40,370
wrestling with.

1337
01:14:40,370 --> 01:14:44,255
And it's one that, I think,
we haven't yet got a

1338
01:14:44,255 --> 01:14:46,170
very good handle on.

1339
01:14:46,170 --> 01:14:48,560
But it's something to think
about is how to

1340
01:14:48,560 --> 01:14:49,950
generate those jobs.

1341
01:14:49,950 --> 01:14:50,448
Yeah?

1342
01:14:50,448 --> 01:14:53,934
AUDIENCE: So specifically in
developed countries, then,

1343
01:14:53,934 --> 01:14:56,430
what provides the capital for
the middle businesses?

1344
01:14:56,430 --> 01:14:58,820
PROFESSOR: So for one,
the state does a lot.

1345
01:14:58,820 --> 01:15:01,250
Like in the US, for example,
there's a Community

1346
01:15:01,250 --> 01:15:08,240
Reinvestment Act, which means
that banks are required to

1347
01:15:08,240 --> 01:15:11,190
provide a certain fraction of
their loans to the community

1348
01:15:11,190 --> 01:15:14,440
where they are raising
the savings.

1349
01:15:14,440 --> 01:15:19,560
So the CRA forces them, then,
to finance local businesses.

1350
01:15:19,560 --> 01:15:22,790
And so there is a lot of
intervention, even in a

1351
01:15:22,790 --> 01:15:28,000
country as uninterventionist
as the US, to help small

1352
01:15:28,000 --> 01:15:29,040
businesses set up.

1353
01:15:29,040 --> 01:15:31,730
This CRA is a very
good example.

1354
01:15:31,730 --> 01:15:34,580
The Small Business
Administration is huge in the

1355
01:15:34,580 --> 01:15:35,340
US, by the way.

1356
01:15:35,340 --> 01:15:39,000
And they provide all kinds of
help to small businesses,

1357
01:15:39,000 --> 01:15:41,690
including capital, including
guarantees.

1358
01:15:41,690 --> 01:15:42,970
They give a lot of
loan guarantees.

1359
01:15:45,780 --> 01:15:48,140
Even the US, which is one
of the world's least

1360
01:15:48,140 --> 01:15:50,580
interventionist countries,
tends to be very

1361
01:15:50,580 --> 01:15:53,265
interventionist when it comes to
promoting small businesses.

1362
01:15:56,960 --> 01:16:00,510
That's probably the direction
that policy needs to go in

1363
01:16:00,510 --> 01:16:01,290
developing countries.

1364
01:16:01,290 --> 01:16:03,587
But it's something we
know less about.

1365
01:16:06,570 --> 01:16:07,120
OK.

1366
01:16:07,120 --> 01:16:08,370
Thank you.