Arab Society in Revolt: The West's Mediterranean Challenge

5. Modern Commercial and Social Entrepreneurship as a Factor of Change

Classical modernization and political economy approaches both consider a wide array of economic agents as potential drivers for change. These actors include international agents such as foreign companies (not only transnational corporations but also smaller companies), international organizations , and nongovernmental organizations (NGOs), and local agents such as national public companies, entrepreneurs, bureaucrats, and segments of civil societies involved in economic or social activities (professional associations , trade unions, and local NGOs). Several authors have highlighted the linkages between entrepreneurs and Mediterranean political systems, but their analyses have tended to focus on the role of large entrepreneurs.1 In fact, nobody could have anticipated that the self-immolation of a humiliated and frustrated street fruit vendor, Mohamed Bouazizi—who exemplified the overtrained, informal microentrepreneur—would catalyze the most profound upheaval seen in the Arab world since its independence. This chapter tries to fill this gap in the literature by analyzing entrepreneurship as a driver for social transformation, focusing on the role of small and medium enterprises (SMEs). While mainly dealing with the southern Mediterranean region, this discussion also includes some contextual references to the wider Middle East.2 The first section briefly presents the current situation of SMEs and entrepreneurship in North Africa. In the second section, we try to conceptually address the role of entrepreneurship as a driver for social change in North African countries. This is followed by an exploration of how SMEs and entrepreneurship are linked with other factors for change covered in this volume. 96 5 Modern Commercial and Social Entrepreneurship as a Factor of Change gonzalo escribano and alejandro lorca The final section concludes with some implications and suggestions for U.S. and EU relationships with the region, as well as for transatlantic relations. SMEs and Entrepreneurship in North Africa The nature of the North African productive fabric has largely been shaped by the historical evolution of its economic strategies, which in turn have resulted from continuous bargaining between the state and the economic actors that emerged out of those strategies. This process has been well documented in the region’s political economy literature.3 After independence, state-led growth and import-substituting industries generated a class of public company managers and rent-seeking entrepreneurs. The collapse of this model in the 1980s led to liberalization policies that resulted in the economic elites obtaining most of the privatized assets thanks to their political connections; the upshot was a more sophisticated model of rent seeking. In fact, corporatist capitalism, through privilege and cronyism, is the main entry barrier to new entrepreneurs and the development of entrepreneurship.4 However, recent efforts directed toward diversification and export orientation have created a new class of micro, small, and medium-size entrepreneurs integrated into transnational industrial networks, which coexist with a more traditional class of small and very small merchants and traditional services providers. Today, SMEs, including micro- and often informal or semi-formal entrepreneurs,are the more dynamic economic actors in the southern Mediterranean region: they grow faster, are more flexible and are more innovative than big companies, and are far more labor intensive.5 According to the Middle East and North Africa (MENA)–OECD Investment Program, SMEs contribute to more than two-thirds of total formal employment in the region and a very significant share of value added. To this figure the whole informal sector, mostly microentrepreneurs, should be added. For instance, according to the Direction de la Statistique in Morocco, 97.4 percent of companies have fewer than ten employees, and very small enterprises, including semi-formal ones that pay the professional tax, account for more than 80 percent of companies. While there are no rigorous and homogeneous statistics for North African countries, it is estimated that SMEs account for 70 percent of GDP, while the contribution of the informal sector ranges between 20 to 30 percent of GDP.6 Today,Mediterranean (and Middle Eastern) non-oil economies are no longer driven by the public sector.Even resource-rich economies such as Algeria,Syria, and Libya (or Iran in the Middle East) with significant state ownership are now Modern Commercial and Social Entrepreneurship 97 dominated by the private sector, which averages 80 percent of GDP across the MENA region, a share similar to that of Eastern Europe or Asia. However, in spite of producing most of the region’s value added,the share of the private sector in total investment for the MENA region is the lowest...