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Reluctant
EntrepreneursChapter 9
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Main Arguments
1. Poor entrepreneurs are not productivebecause they are poor.
1. Entrepreneurship is too hard.
1. Aside from providing microcredits asassistance, secure jobs should also beprovided.
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Poor entrepreneurs arenot productive because
they are poor.Argument 1
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Key Points of Poor
Capital
Knowledge
Patience
Dependence
Conservative
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Capital
There is no such thing as 100%
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Knowledge
There is no such thing as 100%
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Patience
There is no such thing as 100%
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Dependence
There is no such thing as 100%
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Conservative
There is no such thing as 100%
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There is no such thingas 100%
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TRICKLE-DOWN EFFECT
Capital
DependencePatienceKnowledge
Conservative
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Entrepreneurship is too
hard.Argument 2
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Businesses of the Poor
The poor operate
business but its too
small.
Their businesses
are unprofitable.
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Figure 1: Marginal and Averagereturn
Increasing the
amount invested
increases returns the
most when the initial
investment is small,and this increase
eventually tapers off.
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Figure 2: Two technologies
OP - easy for a very
small firm to grow, butthe growth potential
tapers off quite fast
OZ - The growth of the
firm is slow but there ismuch more scope for
growing the business.
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S-shaped dilemma
Invest little, make little
money, and remain toopoor to invest much
more, or invest enough
to cross the hump and
then become rich andinvest even more and
get even richer.
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Small businesses remains small.
They dont have
enough money to
invest.
Growing their
business wouldrequire higher cost.
It is not worth it.
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Aside from providing
microcredits as assistance,
secure jobs should also be
provided.Argument 3
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The availability of secure jobs canhave a transformational effect.
Start a virtuous circle of human capital
investment, and the progression up the
employment ladder.
A stable job can, by itself, change peoples
outlook on life in decisive ways.
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The poor dont see becoming an
entrepreneur as something toaspire to.
Aspiration of Parents for their
Children
GovernmentTeacher
Non-TeachingGovernment Job
Employee in aPrivate Firm
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A steady and predictable income
makes it possible to commit tofuture expenditure.
If a member of a family has a steady job:
schools will accept their children more readily
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A steady and predictable income
makes it possible to commit tofuture expenditure.
hospitals will give more expensive treatments
knowing they will be paid
other members of the family may be able to
make the investments in their own businesses
that are necessary to allow them to grow.
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