Haiti Needs Business, Not Bureaucracy

Since 1994 the United States alone has contributed at least $3 billion to Haiti's development, and the world donor community has pumped in a similar amount--with little to show for it. In the wake of last month's devastating earthquake, commentators are questioning whether it is the public sector or the private sector that can do the best job in rebuilding Haiti.

Governments must take the lead in the coming months to mobilize massive relief efforts, but they must take precautions to avoid the rampant corruption that has plagued Haiti's past. Moreover helping Haiti "build back better" (as former President Bill Clinton has prescribed) will require a dramatic shift in our approach. Rather than continuing to treat Haiti as a mendicant nation, all Haitians should be empowered to claim their fair share of economic opportunity and liberate themselves from the feudal, exploitive system under which they have suffered for much of the last century. Revolution? You bet.

Priming the pump of private capital and promoting free market mechanisms so Haitians can create sustainable jobs for one another will help ensure a quick and sustainable recovery. Haiti needs property and business, not programs and bureaucracy. Haitians need to see they have a stake in their own future, not merely a place in line for hand-outs.

Priming the pump of private capital and promoting free market mechanisms so Haitians can create sustainable jobs for one another will help ensure a quick and sustainable recovery.

This very approach helped Central and Eastern Europe rise above the bankruptcy of communism to produce thriving societies with free markets and political pluralism. The challenges there, after 45 to 70 years of operating under Soviet Marxism, were daunting. And while opportunity in the CEE was unparalleled, there were no roadmaps. But there was innovative thinking, which could be replicated in Haiti today.

U.S. policymakers in 1989 recognized that something more creative than traditional development assistance was needed in Poland and Hungary, where the U.S. first focused its aid as the Communist regimes collapsed. Astute officials knew that these countries had to "jump-start" their private sectors quickly in order to provide local citizens with the goods, services and sustainable jobs needed to make an unprecedented transformation. They knew that capital is the fuel that drives business development. But most important, they understood that such capital had to be deployed by savvy entrepreneurs on a "business-to-business" basis--not handed-out in government-to-government grant programs.

Thus the George H. W. Bush administration and Congress conceived of "enterprise funds" for Poland and Hungary, capitalized, respectively, with $240 million and $60 million. These funds were managed privately by bipartisan boards of seasoned investment and other professionals appointed by the president, and their mission was to promote the local private sector by providing equity and debt financing to viable businesses.

Later additional enterprise funds were established for other CEE countries, and the model proved an astounding success in achieving quick results in their immediate developmental objectives as well as building longer-term viable private businesses and promoting the larger policy and institutional framework needed to support local private-sector growth.

Indeed most of these enterprise funds have by now raised additional capital from private institutional investors and have proceeded to return their U.S. government grants to the U.S. Treasury. In doing so, the enterprise funds in the CEE are also leaving behind "legacy" foundations funded with their investment proceeds to continue contributing to local private-sector development.

The Polish-American Enterprise Fund (PAEF), for example, was responsible for financing tens of thousands of businesses, which in turn created many times that number of permanent jobs. Through its hands-on, commercially disciplined approach, the fund encouraged locals to build, from the bottom up, the institutional infrastructure that supports private enterprise development. It also encouraged indigenous investment and strengthened local management capacity.

After its initial 10 years of operations, the PAEF had returned its public-sourced capital to the U.S. Treasury and set up a legacy foundation with more than $200 million from investment proceeds. Its investment team has raised more than $1.8 billion from private institutional investors. In the course of these efforts the PAEF demonstrated to the global investment community the true risks and the real opportunities of investing in Poland and brought in billions of dollars more in competing private equity funds. The much smaller Bulgarian-American Enterprise Fund, capitalized by Congress with only $55 million, is leaving behind a legacy foundation in Bulgaria of approximately $400 million.

Haitians--as demonstrated in their ability to survive the worst of conditions and prosper when given the opportunity--are a clever, capable and hard-working people. Among the highest hurdles Haitian society faces is the creation of economic opportunity at the grassroots level to build diverse, viable private sector firms, which in turn can produce sustainable jobs in spite of the corruption and inefficiency that has stifled economic progress to date.

Appropriate laws and institutions are crucial in the long term, but effective systemic change can take considerable time to implement. Jump-starting business creation and empowering an entrepreneurial class now would immediately enable Haitians to support themselves, create lasting jobs and push for sound policies under which they can prosper.

If the experience in the transformation of Central and Eastern Europe is any guide, the earthquake in Haiti, like the seismic collapse of the Soviet regimes, presents a unique opportunity to set the country on the right track. This can be achieved by channeling a small portion of the billions in Haiti's assistance money into a "Haitian Enterprise Development Fund." Through a well-conceived and implemented vehicle, the immediate impact of U.S. assistance will be enhanced substantially, the Haitian private sector will be enabled to play a more meaningful role in Haitian reconstruction and donor assistance can achieve a more significant "multiplier effect" on future economic growth and stability.

Aid agencies are intensely preoccupied with providing essential humanitarian assistance in Haiti. Haitians, however, cannot wait for traditional development assistance experts to conceive and implement public and private-sector capacity-building, policy reform, educational initiatives and other long-term programs. Basic everyday commerce will rebound quickly in Haiti, and this legitimate business activity must be supported and channeled to rebuild the economy from the bottom up by Haitian entrepreneurs who have a meaningful stake in a healthy society. They will need access to professionally deployed capital to do so.

If the United States is committed to doing something quickly and truly sustainable to relieve conditions and rebuild Haiti, a starting point for Haiti's reconstruction must be in the form of the "enterprise fund" model of a publicly capitalized, privately managed investment fund designed to accelerate private-sector growth. Such an innovative initiative will provide immediate hope to the Haitian people in the face of their recent tragedy, build a base for sustainable SME businesses to create real jobs and the fundamental underpinnings of a viable democracy and demonstrate the actual risks and opportunities in Haiti to attract private commercial investment essential to building the Haitian economy of the future.

A Haitian Enterprise Development Fund, based on the enterprise funds' proven model but tailored to Haiti's needs and conditions, would serve to jump-start local, private businesses in support of long-term market-based economic and social development. This approach employed in Haiti by a seasoned professional board appointed by President Obama and capitalized by the U.S. Congress could have profound impact by providing a new catalyst for development and growth for the Haitian economy.

The enterprise fund approach contributed to astounding successes in Poland and elsewhere in the CEE region and can achieve similar results in Haiti. By Congress and the president allocating a pool of capital in the range of $200 million to $300 million to the proposed Haitian Enterprise Development Fund, the U.S. would provide a flexible, commercially oriented development vehicle to funnel capital into the hands of local businesspeople more quickly than any traditional government-to-government aid program, with all its bureaucratic constraints, ever could. Such a fund could begin to address a range of economic development needs in Haiti, as the PAEF was able to do so effectively in Poland.

Roger F. Noriega, a senior State Department official from 2001 to 2005, is a visiting fellow at AEI and managing director of Vision Americas, LLC, which represents foreign and domestic clients. Francis Skrobiszewski was an officer of enterprise funds that helped create flourishing private sectors in Poland and Hungary.

Photo Credit: Peter Gerdes/Flickr/Creative Commons

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