Why entrepreneurship alone can’t alleviate poverty

The UK has been named the top performer in Europe when it comes to entrepreneurs and fourth in the world, behind the US, Canada and Australia. Indeed, the top ten best performers are dominated by high-income countries. But what about poorer countries? With the world, at only 52% of its “entrepreneurial capacity”, does starting a business offer a viable route out of poverty for the 73.4m young people worldwide who find themselves out of work today?

Entrepreneurship is often given as a simple solution to alleviating poverty, but research shows that it doesn’t offer answers to mass youth unemployment and we must exercise caution in promoting it as a way to do so.

The youth unemployment challenge is undoubtedly one of the globe’s most pressing priorities. Unemployment is persistent and increasing and poor quality, informal and subsistence jobs are proliferating. Future forecasts for youth unemployment across all regions look bleak.

Young people constitute nearly one-third of the world’s population and their prospects are crucial to their country’s ability to meet their development goals.

False confidence

At first glance, entrepreneurship is an obvious solution to promote employment in tight labour markets. High levels of poverty mean that finding an income is among young people’s top priorities. It is also attractive to governments or NGOs as a quick-fix solution that lends itself to tangible and measurable interventions, whether this be the number of youth trained, loans given or small businesses started.

For many years the microfinance industry cultivated a false confidence and policy rhetoric that “one loan equals one thriving business”. And there is a similar danger in current emphases on youth entrepreneurship. The link between numbers of entrepreneurs and successful businesses is not so clear in reality.

There needs to be more focus on training up young people in the skills and qualifications needed for their specific local labour markets. There also needs to be an awareness of oversaturated markets and limited client bases.

We cannot fix the youth unemployment problem by turning the 73.4m young people who were out of work in 2013 into entrepreneurs. Long-term solutions will depend upon creating and expanding decent jobs for young people. But as the big push to entrepreneurship has gained popularity, this has shaped government priorities. My concern is that this removes responsibility from governments and private sectors in their roles for creating and expanding access to decent jobs for young people.

Beyond a narrow focus

My concern is also in some of the organisations driving the agenda. Partnering with the Guardian in their “Tackling Youth Employment Hub”, for example, is Barclay’s Bank. Unsurprising, therefore, that among the key messages from many of their inspirational stories is that beginning to teach entrepreneurship in schools will help young people transform their own futures, and that by giving out loans for small enterprise we can accelerate this process. Have we not learnt from the pitfalls of microfinance?

A narrow focus like this overlooks many social and economic problems young people are facing. My research in Uganda and Tanzania highlights that these are rooted in systemic issues such as household poverty, high levels of physical, emotional and sexual violence, negative stereotypes of young people as lazy or criminal and a lack of inspirational role models. There is also the fact that young people have been and continue to be overlooked by national policies, donors, NGOs and the development community in general. The idea of entrepreneurship as a solution to these problems often involves an over-simplification of these problems by the very people who have been slow to respond to the challenge.

The most inspirational programmes for young people’s development I have seen go beyond a focus on employment. Yes, they seek to help young people into income-generating activities, but success in employment is seen as secondary to the creation of a safer, more supportive environment.

Programmes such as development organisation BRAC’s Empowerment and Livelihoods for Adolescent’s Programme, for example, have improved economic as well as sexual and reproductive health knowledge and outcomes for club members. This is only possible because it does not just focus narrowly on youth unemployment, but is designed to meet the other social and economic vulnerabilities young women face in Uganda. Other inspirational programmes such as Ashoka or Educate! focus on social entrepreneurship, helping young people to put people before profits through harnessing the non-financial resources that they have.

So while I share global concerns about the need to tackle youth unemployment, there is a need to shift away from the way that this is narrowly addressed at present. There needs to be more focus on youth engagement and inclusion. This means employment is but one outcome as young people create a critical mass and place themselves at the core of transforming their societies, supported by more supportive social, political and economic environments at home, in their communities, and at the national and international levels. In this, I join the State of the World’s Population’s call to harness the power of 1.8 billion young people in transforming not only their own lives but also our global future.

Published in collaboration with The Conversation

Author: Nicola Banks is the ESRC Future Research Leader at the Institute for Development Policy and Management at University of Manchester.

Image: A vendor hands change back to a customer at her market stall with price tags marked in Cuban pesos in Havana October 23, 2013. REUTERS/Desmond Boylan.