More Small Business Is Not the Answer for Peru

By Dana, Leo Paul | Journal of Small Business Management, July 1988 | Go to article overview

More Small Business Is Not the Answer for Peru


Dana, Leo Paul, Journal of Small Business Management


Governments in Canada, Australia, the U.S., Singapore, and elsewhere have viewed the formation of small businesses and the encouragement of entrepreneurship as a solution to national economic stagnation, but the link between small business and the economic prosperity of a nation does not always hold true. Perhaps the best illustration to exemplify this is the case of Peru.

Many readers may associate Peru primarily with its history and architectural treasures such as the ancient city of Cuzco, capital of the Incan Empire for centuries. When the Europeans conquered Cuzco in 1533, it was one of the largest cities in the world, and one of the most important business centers in the Western Hemisphere. Half of Peru's population are descendants of the Incas, and research on Incan business practices reveals what may be the root of the socioeconomic problems that plague Peru today. History

For millenia, small business has existed among most civilizations around the world. In our culture, the Bible describes early business transactions and trade between individuals. These were small in scale, but eventually led to the birth of large business in Europe. Ultimately small businesses gave rise to large firms, which in turn grew to become the multinational enterprises of today.

Small business, however, is a relatively new concept in South America. The Incas apparently had no small business within each community. Rather than trade as individuals, they traded as groups between communities. Within each settlement, inhabitants shared what they had. The excess was collectively traded in exchange for other goods elsewhere.

Only with the arrival of the Europeans did the Incas learn about noncollective, one-to-one small business. The urbanized descendants of the Incas became increasingly intrigued with entrepreneurial values, and rejected the traditional communal approach. Among non-rural inhabitants, the novelty of small business and working for oneself, replaced the traditional style of communal business trading of the Incas. Since its independence in 1821, Peru has experienced an exponential increase in small business among the urban population. As a result, Peru now suffers from a number of small businesses well beyond the optimal as well as from a lack of sufficientnumbers of large businesses and associated economies of scale.

These problems were aggravated by increasing urbanization. In April l968, the Agrarian Land Reform expropriated large farms belonging to the few families which controlled the economy in an effort to redistribute wealth. Thriving plantations which had employed thousands of peasants were subdivided into many small lots for distribution to the masses. Yet many of the individuals working the land preferred working for wages than as subsistence farmers working for them selves. They were given fertile farm for free, but they had no educationobligatory education was introduced only in 1974-nor start-up capital. Nor were economies of scale possible any longer. Field size could not justify the acquisition of machinery. Many rural workers left their fields to the weeds and moved to the cities, looking for jobs.

By 1970, one-third of the population had abandoned the land. Sugar, which was a major export until 1975, is now imported; the farms are feeding fewer people, and consumers are turning more to fish as an inexpensive food source. (Previously, tuna and mackerel were caught mostly for export, but are now in demand in the local market. Tuna and mackerel sell for 65 cents a kilo, whereas sea bass, flounder and beef all sell for around $4 per kilo.)

Until 1965, the major export of Peru was guano from birds that nested along the shoreline which entrepreneurs sold as fertilizer. Now that fish are less plentiful due to increased local consumption, few birds remain along the Peruvian coast to feed on the depleted fish stock. The result is that there is no more bird dung for export. …

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