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The Ecosystem of Economies

This article is written by Munira Hussein, a Contributor Author at Startup Istanbul.

According to the economic history, it is a world rich and poor countries. There are two graphs that are watermarked of the difference between rich and poor countries. One represents SMEs contribution to GDP and the other to employment. In rich countries, a large percentage of the GDP and employment is constituted by SMEs which is going to include rapidly growing firms. In poor countries however, large shares of GDP and employment are owned by large businesses and informal businesses that are not at the starting point to grow.

The notion of the missing middle is supposed to be addressed by policies. The policies should address more overall growing startup firms and most importantly, these firms growing to transform the economy.

There is a lot that is said about sectors and economy. There are health sectors, education sectors among many others but there is only one sector in the economy and that is the forest sector. In this sector, the analogy is that when you look down from the sky at the economy, you will see GE or Google. When you look down at the forest, which in this case is our analogy for the economy, the big trees are all that you see and it is easy for the policy makers to believe that the economy comprises of only these visible sectors and that that is the entire economy.

In reality, if you have been to a forest, you know that the canopy is dominant but when you walk under the canopy, there are a lot of shrubs that also have a lot of biomass. 47% of the economy in the US comprises small firms and businesses with under 250 employees. These including people producing services, SMEs and startups among other small markets. This is the missing middle is right there. It is the growth sector. It is the small that becomes big.

The old businesses can fall but you have to see new value created out of the old, that rewards us in some way. That is what value means to human beings, just like the forest ecosystem where the death of old trees nourishes the small plants.

When we talk about the economies that are stuck or poor, it is overwhelmingly the inability and the incapacity to convert nutrients from old businesses into the higher value users for new businesses. This is often not because the people do not have the capacity to do it but because institutionally, those large trees are not allowed to fall over. This is because in the past, many countries have been about large state-owned enterprises that are heavily subsidized and hence fundamentally inefficient.

When these companies are not allowed to fall over and release the resources that could be available to entrepreneurs whether it is in terms of contracts, employees and mentorship, part of it is the implications of these failures. The entrepreneurial ecosystem is about failure and fall and also regrowth and new ideas.

21 September 2019

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