Transcript Productivity and Private Sector Development

Private Sector Development
Efficiency, Productivity and Growth1
Development Equity Associates Inc.
February-March, 2010
1.- Sources: World Bank 2003; Mckinsey Global Institute
Private Sector development
Efficiency, Productivity and Growth
Productivity Is Key to Growth Incomes
and Jobs
II. Private Sector Development Is Necessary
for Productivity but Not Sufficient
III. Institutional Environment and Capability
Are Also Key Factors
I.
Private Sector development
Efficiency, Productivity and Growth
I. Productivity is Key
 Key to Development Is Creating Productive
Jobs Where People Live
 In Statistics This Shows up As Growth
 Development Is Not Redistribution but
Productivity Gain
Private Sector development
Efficiency, Productivity and Growth
I. Productivity is Key – A Survey of perceptions
Private Sector development
Efficiency, Productivity and Growth
I. Productivity is Key – How to Increase it
 Finance, Investment, Natural Resources, Human
Capital Are Necessary But Not Sufficient
 New Technology, Better Methods and Innovation
– (Best Practices) Increase Productivity
 Private Firms Spread Best Practices to Where
People Live
 Private Firms Are More Productive Than State
Firms
Private Sector development
Efficiency, Productivity and Growth
II. PSD Necessary not Sufficient– All Firms are
not the Same
 Productivity of Firms Varies Within Sectors and
Across Sectors and Across Countries.
 Overall Productivity Can Increases If Less
Productive Firms Exit and More Productive Firms
Enter
 Productivity Can Also Increase As Good Firms
Grow and Branch Out
 More Productive Firms Get Larger
 Higher the Per Capita GDP Greater the the Share
of Large Firms in the Economy
Private Sector development
Efficiency, Productivity and Growth
II. PSD Necessary not Sufficient–How Productivity
Grows
Private Sector development
Efficiency, Productivity and Growth
II. PSD Necessary not Sufficient–Per Capita GDP &
Firm Size
Percentage of Total Employment
Distribution of employment by
firm size
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
100-500
500-1000
1000-2000 2000-5000
5000+
GNP per capita, US$
Micro (1-4)
Source: World Bank
Small (5-19)
Medium (20-99)
Large (100+)
Private Sector development
Efficiency, Productivity and Growth
II. PSD Necessary not Sufficient–Freedom to enter, exit
or grow
 Competition Selects Best Firms & Drives Spread
of Best Practice and Productivity
 Firms Must Be Allowed to Fail
– Assets, Ideas, People, Funds Can Be Reused in Better
Ways
– Incentive to Improve and Adjust When Facing Failure
 Competition Forces Average Practice to Move
Closer to Best Practice
– Key for Diffusion of Best Practice
– Enormous Value for Wealth Creation
Private Sector development
Efficiency, Productivity and Growth
III. Institutional Environment
 Institutional Capability and Environment
Counts More Than Factors of Production to
Drive Productivity Growth
 Openness of the Economy Is Important
 Human Capability Is Also Important
 Results of Industrial Policy Have Been
Mixed
Private Sector development
Efficiency, Productivity and Growth
III. Institutional Environment – More Important for
productivity
Private Sector development
Efficiency, Productivity and Growth
III. Institutional Environment – More Important for
productivity
Private Sector development
Efficiency, Productivity and Growth
III. Institutional Environment – Openness and Human
Capital
Private Sector development
Efficiency, Productivity and Growth
III. Institutional Environment – Social Safety Net
 Needs to Accompany PSD for Social and
Political Acceptability
 Should Not Undermine Markets or Best
Practice Capabilities of Firms
 In Addition to Equity and Fairness Is Also
Good for Efficiency and Growth
– Experiment & Failure Drive Productivity
Growth
– Social Safety Net Allows Risk Taking