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We Need A Change In Arab Attitudes Toward Entrepreneurs That Fail Without tolerating a large number of failures, it is impossible for Arab economies to achieve true innovation.

By Fadi Haddadin

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There are many definitions of an entrepreneur. According to Professor Russell S. Sobel from the Military College of South Carolina, the word "entrepreneur" originates from a 13th century French verb, "entreprendre," meaning "to do something" or "to undertake." By the 16th century, the noun form of the word, entrepreneur, was used to refer to someone who undertakes a business venture.

Sobel states that the first academic use of the word by an economist was likely in 1730 by Richard Cantillon, who identified the willingness to bear the personal financial risk of a business venture as the defining characteristic of an entrepreneur. In the early 1800s, economists Jean-Baptiste Say and John Stuart Mill further popularized the academic usage of the word "entrepreneur." Mill used the term in his popular 1848 book, Principles of Political Economy, to refer to a person who assumes both the risk and the management of a business.

Two notable 20th century economists, Joseph Schumpeter and Israel Kirzner, further refined the academic understanding of entrepreneurship. Schumpeter stressed the role of the entrepreneur as an innovator who implements change in an economy by introducing new goods or new methods of production. The Schumpeterian view emphasized the beneficial process of "creative destruction" in which the introduction of new products results in the obsolescence or failure of others.

In contrast to Schumpeter's view, Kirzner focused on entrepreneurship as a "process of discovery." Kirzner's entrepreneur is a person who discovers previously unnoticed profit opportunities. The entrepreneur's discovery initiates a process in which these newly discovered profit opportunities are then acted on in the marketplace until market competition eliminates the profit opportunity. Thus, unlike Schumpeter's disruptive force, Kirzner's entrepreneur is an equilibrating force.

Two years ago, when I wrote an article about the cultural, psychological and cognitive barriers facing failed entrepreneurs in the MENA region, I got a number of striking replies: most of the Arabic audience seemed to have faced such dilemmas, which led them to be hesitant toward trying any other new venture(s) after the first "failure,' as their society looked at them in a shameful manner. I emphasized that Arab culture (and the existing regulatory regimes) shows a unique attitude to failure: it's one that prevents "failed entrepreneurs" from coming back into the marketplace and to constructively use their experience to try again, leaving them permanently stigmatized and marginalized.

In the Arab world, there is no appreciation of the fact that errors in judgment by the part of entrepreneurs are part of the learning or discovery process vital to the efficient operation of markets. A vibrant, growing economy depends on the efficiency of the process by which new ideas are quickly discovered, acted on, and labeled as successes or failures. Just as important as identifying successes is making sure that failures are quickly extinguished, freeing poorly used resources to go elsewhere. This is the positive side of business failure.

Keeping this in mind, we need to start serious empirical research on failed entrepreneurship in the Middle East, analyzing the barriers that inhibit further trials by the part of failed entrepreneurs. Such studies should explore the effect of cognitive, psychological, demographic, socioeconomic, and institutional factors on the likelihood of a failed entrepreneur choosing another trial.

Lastly, there should also be a serious focus by the part of the public sector, private sector and civil societies on the possible measures that can bring on board institutional mechanisms to fostering a culture of tolerance toward failed entrepreneurs. Think tanks, research centers and training institutions in the region and worldwide should thus start thinking of applied courses and design materials that target our so-called failed entrepreneurs.

Let us face the reality: without tolerating a large number of failures, it is impossible for Arab economies to achieve true innovation.

Fadi Haddadin

Economist and Policy Analyst

Fadi A. Haddadin is an economist by training and education.

He has worked at the Prime Ministry of Jordan to help in setting up its Mega Projects Administration, the Cato Institute in Washington D.C., the World Bank in Washington D.C., and the Aqaba Special Economic Zone Authority in Aqaba, Jordan.  Haddadin was selected by the Heritage Foundation as a leading Public Policy Expert in Washington D.C.

He was a regular commentator for BBC Arabic, Al Jazeera, CNBC Arabic, Al Hurra, and Jordan TV. His op-eds, covering economic and policy topics, frequently appeared on the Financial Times, affluentinvestor.com, alarabiya.net, Al Rai and Al Ghad of Jordan, Al Eqtisadiah of Saudi Arabia, Al Arab of Qatar, Al Wasatnews of Bahrain, Al Ittihad of UAE, Al Watan of Oman, and Al Rai Al Aam of Kuwait.

In addition to his work in the public sector, international organizations, and think tanks, he founded and managed his own private enterprises in the food and beverage sector (Bifröst Co.).  

Haddadin got his degrees from the University of Chicago (MPP), the London School of Economics (MSc), and the American University of Beirut (BA), in addition to completing two executive degrees from Harvard University and Princeton University. Haddadin is a Charles G. Koch Fellow (2005).

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