THE ENTERPRISE COMMUNITY PROSPERITY MODEL:
A BASIS FOR SUSTAINED, EFFECTIVE ACTION

Version 2.2

By Dr. Jim M. Namaste
Director of R&D and Business Development
Enterprise Holdings System Corp.

    In the world today there truly are no inherent economic reasons that poverty continues to exist. Advances in agricultural technology have made it possible to produce more than enough food for the entire world population for some time to come. Dramatic improvements in transportation, manufacturing, information and communications technologies have resulted in productivity increases that put real prosperity within the reach of each person alive on this planet.

    On the basis of the research we have done, we estimate that even the poorest community or country can create considerable prosperity within twenty or less years. To accomplish this it will take sustained leadership, competence and honesty, action, coordination and super-organization, based on the currently available knowledge and a model of economic and social behavior that produces practical results.

    The Enterprise Community Prosperity Model (ECPM) is the outcome of many years of experience and incorporates the most recent economic, social and psychological knowledge that can provide a basis for programmatic action to create community prosperity. This document summarizes the main components of this model.

    The Enterprise Community Prosperity Model has been developed over a period of twelve years. It is based on: (1) many years of research on the relationship between micro enterprise and community prosperity, (2) the relevant application of human psychology, motivation and behavior, (3) consulting that has been done with numerous micro entrepreneurs, and (4) the practical experiences we have had implementing several experimental micro enterprise training programs.

Background

    Micro Business Growth Inc. (MBGI) grew out of several venture development activities undertaken in the mid-1980's by its founder, Dr. Jim M. Namaste and his partners, when they first started working with micro enterprises. The mission of the business was to work with micro enterprises to expand and grow them rapidly. As a result of the company's experiences in working with micro entrepreneurs it established a community development-based entrepreneurial training program which eventually became the Enterprise Community Prosperity Model.

    There are seven key elements or activities that MBGI identified as being critical to assuring entrepreneurial success. These are:

1. A specialized, tested, intensive entrepreneurial training program

2. Long-term business management assistance program

3. A facilitated, continuing peer support process

4. A business incubation facility

5. A phased, incentive- and performance accountability-based financing system

6. An as-needed "life management" training and support program

7. Coordination of family and community support activities

The seven components should be implemented as part of a coordinated, comprehensive, "super-organized" strategy to generate the greatest level of community prosperity. Historically, all of these activities have been tried at one time or another. The problem has been that they have not been tried together as part of one system (or culture) that targeted a specific population with consistent messaging and reinforced behaviors.

The Significance of Micro Enterprise

    A community becomes prosperous and builds wealth as a result of enterprise. In fact, enterprise is best defined as the conversion of resources and human effort into value and wealth. At the roots of the economic system are micro enterprises. These are the companies being operated by single individuals or small groups, usually less than five persons. There is much economic research showing that micro enterprise is at the roots of most of the wealth formation in an economy (see David Birch's research on business formation and growth).

    But micro enterprise is actually even more important. Since the 1970's it has been known that micro enterprises and small businesses create nearly all the new jobs in the economy! Specifically, it is the small, growing businesses that generate most of the jobs. Such small growing companies multiply in a dynamic, entrepreneurial environment. Think of micro enterprises as a thriving little league system that is the training ground and provides the preparation which make it possible for the star companies to learn their skills. Furthermore, the promotion of enterprise formation, including training, can create a positive cultural circle of activity that generates not only economic prosperity but also cultural vitality.

    To our knowledge, no Regional or Municipal authority has to date developed their local economic development strategy using a truly systemic, comprehensive enterprise development program. This is despite the awareness that micro enterprise and small businesses are the engine behind most job creation.

Individual Behavior and Community Support and Involvement

    Successful entrepreneurs are not just born, their personalities and behaviors are shaped by their families and their cultures through the community interactions that occur on a daily basis. To foster "enterprise communities", we must promote communication that encourages specific behaviors, relations and ethics. Where there is distrust, incompetence or corruption, enterprise will be stifled and poverty will most certainly exist.

    In the last few years some economists have started to recognize the impact of positive social relations on economic prosperity. When people interact positively and form more social bonds, there is an increase in economic prosperity. Economists refer to these relationships and bonds as social capital.

    Programmatically, we can stimulate and encourage specific messages and communications that promote enterprise, social and economic relationships, and organized activities. The more we do this the better the results, as long as we make sure that people obtain clear and immediate benefits from their participation. For example, in measurable terms, every person in a community should interact within an organized setting at least twice each week. This is what happens in naturally healthy communities and cultures. If such interactions do not exist, a deliberate effort must be made to establish them, involving a strong, coordinated organizing effort. At BGP we call this "super-organization". It is this "super organization" which occurred in the mid-1950's and early 1960's in Singapore as part of the infrastructure that community built to develop one of the fastest growing prosperous regional economies in the world.

The Logic of the Enterprise Community Prosperity Model

    Why does the ECPM offer the best chance for developing and sustaining a prosperous community? How do the seven elements interact to produce the desired outcomes? This section and chart 1 on the next page outline the logic of the model. It shows the various elements that are necessary and how they interact. It also demonstrates why a cohesive approach is a requirement and why partial or segmented methods are unlikely to work.

    The BGP model is based on the commonsensical assumption that prosperity must be based on both enterprise and community, which in turn must trace to certain individual behaviors. In other words, individual behaviors are ultimately what matters, and if people engage in unproductive behaviors, the community will get unproductive results. To get the desired results the model has to be translated into action; and furthermore, if the model is not made "real" there will be less prosperity or even significant community distress.

    The best way to follow the logical structure of the ECPM is to state the ten propositions that form the underlying argument for its validity. These are summarized as follows:

The implementation of programs that truly follow the logic of these propositions requires committed leadership and strong, coordinated organization of supporting community activities. At Micro Business Growth, Inc. we have developed principles, program plans and procedures that can be used to mobilize communities around the goal of achieving economic and social prosperity.

The Theoretical and Factual Basis of the Enterprise Community Prosperity Model

    Each proposition outlined in the previous section can be tied to a body of theory and facts combining research on human nature, economic and civil behavior, business development success, and job formation. The idea of PROSPERITY, broadly conceived in both a social and economic sense ties all of the separate strands together. But available research and our understanding about prosperity goes down deeper and back further than most anyone realizes.

The Relationships Among Individual and Community Interest and Prosperity

    Most fundamentally, at the very root of prosperity lies the relationship between individual and community interest. In the economic realm this relationship is expressed through individual enterprise and business activity. In the social realm the relationship is demonstrated through community involvement and civil interactions. When we combine the two in positive ways we get prosperity and "good" cultures.

    The research that backs up the above statements starts with work that was done by Ruth Benedict in the 1930's. This work and its significance was almost lost, but thanks to Abraham Maslow and John Honigmann, a student of Benedict's, notes about the research were published in American Anthropologist in 1970. Benedict used the concept of "synergy" to identify those cultures where individual and community interests matched. Such synergy had all kinds of positive consequences, independent of the different circumstances that otherwise characterized communities. For example, Benedict found that high synergy cultures exhibited high levels of trust. Benedict's findings have very important implications for social and economic policies.

    Most recently a different strand of work has resulted in research on the importance of "social capital" to economic activity. This work, done about sixty years later, represents in a way the next level up from that of Benedict's. Specifically, research done by Robert Putnam in Italy showed that patterns of strong social relationships and associations can be tied to economic prosperity. For example, in the small city of Lumezzane, with a population of 24,000, more than 2000 companies turned the local economy into a world leader producing silverware, faucet and valve production with the highest per capita income in Italy.

    In the 1995 bestseller, Trust, Francis Fukuyama analyzed a number of cultures and economies. He persuasively demonstrates how patterns of family and community relationships (social capital) in different cultures foster or inhibit trust, which in turn impacts positively or negatively on certain types of business development. Trust is important because it strongly affects the cost of business transactions and thereby influences business growth and economic development! Daily constant "word of mouth" communication in trusting relationships also facilitates the transfer of ideas and innovations required for the development of communities and businesses.

    In other related work, Lant Pritchett and Deepak Narayan, researchers at the World Bank, studied social relationships and income levels in Tanzania. Families that were active in more groups such as farmers' organizations, churches, credit and burial societies were better off than non-joiners. Furthermore, villages as a whole were better off if there were larger numbers of associations. Pritchett and Narayan estimated that "if just one person in every two households joined one more group, average incomes in the entire village would rise 20% to 50%"!

    The lesson that can be inferred from this work and related research is quite clear:

In line with this lesson, a fundamental aim of the Enterprise and Community Prosperity Model is to use micro enterprise ownership and training as the most effective stimulus or lever which will initiate individual commitment and community involvement. Our experience indicates that enterprise ownership is a very powerful motivator that combines such important psychological factors as feelings of control, self-esteem and hope.

The Power of Micro Enterprise Formation and Growth

    Micro enterprise formation is a most effective economic development tool because it takes advantage of natural processes that align well with both human motivation and the dynamics of economic markets, especially in modern society. Because enterprise activity is a natural process it can also minimize government inputs. Furthermore, increased micro enterprise formation creates an environment for small business growth, which is the most efficient engine for economic growth and prosperity.

    The power of micro enterprise formation and growth is demonstrated by the work of David Birch, who in the late 1970's started an area of research that related business formation, size and growth to job generation. Birch's research led to a general recognition that small growing companies generate most of the net new jobs in the U.S. economy. His work also proved that the formation, growth and decline of businesses is a very dynamic process where companies of all sizes increase and decrease, some of them very rapidly.

    The available statistics on business formation and growth suggest strongly that just supporting the start-up of larger numbers of small businesses will increase the likelihood for prosperity. Simply stated, start more small businesses and more small businesses will grow rapidly and generate more jobs.

    The rate and type of rapid business growth that is possible is quite phenomenal. A few years after Birch started his research, Inc. Magazine began compiling an annual list of small privately held companies that grew the fastest in the previous five years, as measured by sales income and validated by IRS tax returns. Table I below is a list of the fastest growing, privately-held companies from 1987 through 1996.

Table I. The #1 Inc. 500 Growth Companies from 1987 through 2002

     Many of these Inc. 500 companies were employing a few employees at the start of their growth and generated an average employment of more than 100 employees five years later. Some of the companies employed hundreds of individuals.

    The average sales growth for these companies is 10,823%. Over the years I have informally surveyed professionals, including those in the economic development field, and asked them what they thought an outstanding annual rate of growth might be for a business. Most answers were in the range of 20 to 100% per year. I met no one who could even imagine that a company might grow more than a 1000%, but the fact is that each year a number of companies grow by more than that.

    These numbers are truly astounding. What is perhaps most significant here is the fact that for this group of companies the average annual sales was $258,000 at the start of the their growth period. Six of the eleven companies had sales of less than $150,000. This means, in a very real practical sense, that it is possible for just about any small business to actually have the kind of growth rates achieved by the top Inc. 500 companies. Imagine if each year just one percent of the fifteen million businesses in the United States actually grew at a rate of 1000% or more. Prosperity would result very quickly indeed.

    The relevant conclusions with respect to prosperity and economic development that can be inferred from this list are:

1. High business growth rates are feasible and not accidental.
2. Small companies with sales of less than $300,000 can grow into business giants very quickly.
3. There likely is some pattern for rapid business growth that can be replicated.

    So why are not more small companies growing rapidly? For one, many small businesses do not orient themselves towards rapid growth. In addition, Economic development policy has traditionally focused on high profile, "support and attract big business" activity. Unfortunately, research has shown that this approach cannot work well. At the same time, Birch's and other research indicates that rapid small business growth can in fact be fostered and made to happen.

    Business growth and success can be said to have actually been bottled and packaged by Jack Stack, the highly successful CEO of Springfield Remanufacturing Corporation, a company that grew rapidly from bankruptcy to several hundred million in sales. His system, currently referred to as "Open Book Management" is now being adopted by a number of companies.

    Putting all of the facts about micro enterprise and small business growth together, the second lesson we can infer is:

    The speed with which prosperity can be achieved is also quite amazing when we look at the facts. The best example we have found in our research is the case of Singapore, which serves as the singular example of the 20^th Century of what is possible in community and economic development.

    In 1965 Singapore's per capita income was $590 as compared with the United States, which was $3,650. By 1990 the respective per capita income figures were $12,400 and $21,970. By 2003 Singapore's per capita income will probably surpass that of the United States. Singapore achieved its economic prosperity despite few resources, racial divisions, and pervasive conditions of poverty. It did so because of strong, competent and honest, if autocratic, political and government leadership.

Enterprise and Welfare Reform: Dealing with Poverty as the Flip Side of Prosperity

    Two underlying claims of the Enterprise and Community Prosperity Model are that prosperity can most effectively eliminate poverty and that direct government intervention is much more effective when in support of methods that are more aligned with psychological and social forces. In almost all areas of human activity the best role for government, especially in a democracy, is facilitation, maintenance of an overall structure (for instance business law) and temporary intervention.

    In a democracy, more direct involvement by government tends to stimulate interest group formation resulting in dependency for rich and poor alike. For example, the work of Piven and Cloward is quite persuasive in showing that the War on Poverty and associated politics was a key factor in greatly increasing the welfare rolls in the 1960's. Ironically, we can therefore make a strong case that the War on Poverty was partly responsible for the current cycle of poverty associated with the increase in the welfare population.

    On the other hand, a process that emphasizes the attainment of prosperity by supporting individual association and enterprise can help eliminate poverty because it focuses is on individual interest, labor and wealth creation. The ECPM contends that wealth actually tends to "trickle up" rather than down, and that communities in fact need to be more concerned with how that happens than the reverse.

    In our experience working with the neediest individuals among welfare recipients, we have found that self-sufficiency motivation and support may well be more practical than job training. We have found that a large percentage of the welfare population will respond better to a self-sufficiency, entrepreneurial training and cultural support approach than alternative methods. The reason for this is that a self-sufficiency strategy can be more effective in fostering individual responsibility, self-esteem and discipline, which are a prerequisite for minimal economic success, including holding down a job.

    Many people have a much better appreciation of job requirements once they have been responsible for operating a business. Therefore, an entrepreneurial training program can have a double impact because it prepares a person to be a business owner and provides a basis for a better understanding of job requirements. Ironically, training people to run their own business is turning out to be one of the more effective ways of preparing those people to becoming good employees (business is dynamic so many entrepreneurs will quit the business they started, start other businesses or seek opportunities in the labor force again).

The Role of Government

    In practical terms, effective community prosperity strategy and action must deal with attitudes and motivations. It must deal with behaviors, and it must address skills and resources. Such a strategy must deal with all of these at once and on a continuing basis--this is where almost all public social and economic programs have been inadequate. Poor results have occurred in part because public programs have been too oriented to direct intervention and control, thereby taking away individual responsibility and cooperation.

    One of the basic dilemmas of democratic government is that the cost of communication, representation and coordination is very high. One way to deal with these costs is to develop and implement sophisticated communications technology, which is now being done, but this takes time. The other way is to exert strong, sustained leadership to organize human interaction and activities more efficiently and effectively, which is what happened in Singapore.

    The Enterprise Community Prosperity Model emphasizes the leveraging of natural psychological, social and economic processes that are in accord with human nature. Whenever governments have establish programs, no matter how well intended, that run counter to human nature, disastrous consequences have resulted. This is a fundamental problem: to be effective government intervention must be consistent with human nature!

    The analysis by Eggers and O'Leary in Revolution at the Roots: Making Our Government Smaller, Better and Closer to Home, shows the gains that can be made when governments institute programs that balance individual and community interests. In many examples, governments achieved unbelievable savings and improved services by using less intervention.

    Human beings prosper most when they are independent, exert self-control and have maximum freedom, while at the same time acting cooperatively. It is this paradox that all enlightened governments can resolve by fostering both community and enterprise with minimal intervention as suggested by the ECPM.

Concluding Comments

    One of the major difficulties with the use of the proposed model is that community leaders and policy makers to date have been unable or unwilling to implement all elements of the model simultaneously and comprehensively. In fact, in this document we have made a strong case that presently all the information and knowledge that is needed to solve basic social and economic problems exist. Today, creating prosperity is primarily a matter of leadership and the will to do so.

    We cannot emphasize strongly enough that all elements of the model need to be implemented systemically in order to achieve maximum impact. If one element is left out or weakened the success rate of micro entrepreneurs, and community prosperity, can be drastically affected! Although most people seem to understand this point, they seem to have great difficulty actually evaluating it or acting on it.

    To make an analogy based on the human body, no one would expect or insist that a person with a bad heart or lungs enter a demanding foot race. As a matter of fact if that happened there would be an outcry and likely legal action. However, literally trillions of dollars have been spent on social and educational programs that were implemented with less than 25% of the critical elements that should have been present. It is therefore no surprise that so many people are living in conditions of poverty in the wealthiest country in the world.

    Finally, the Enterprise and Community Prosperity Model is presented as an approach that can be carried out deliberately as part of an overall development plan. The ECPM is not the only way to achieve prosperity. Historically communities and societies have achieved various levels of prosperity without incubation centers, community organization and specialized loan programs, but not without enterprise and strong, integrated communities and cultures, and then only in very few regions once or twice per century. Presumably ought to be able change those rates.

REFERENCES

Birch, David, Job Creation in America: How Our Smallest Companies Put the Most People to Work. New York, Free Press, 1987.

Eggers, William D. and John O'Leary, Revolution at the Roots: Making Our Government Smaller, Better and Closer to Home. New York, Free Press, 1995.

Fukuyama, Francis, Trust. New York, Free Press, 1995.

Maslow, Abraham H. and John J.Honigmann, "Synergy: Some Notes of Ruth Benedict", American Anthropologist. 1970.

Pennar, Karen, The Ties That Lead To Prosperity", Business Week. Dec. 15, 1997.

Piven, Frances Fox and Richard A. Cloward, Regulating the Poor: The Functions of Public Welfare. Updated Edition. New York, Vintage Books, 1993.

Putnam, Robert, Making Democracy Work: Civic Traditions in Modern Italy. Princeton, Princeton University Press, 1993.

Stack, Jack, The Great Game of Business: The Only Sensible Way to Run a Company. New York, Doubleday, 1992

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About the Author

    Jim Mulder Namaste received his Ph.D. degree in Political Science from the Maxwell School at Syracuse University and a Masters in Public Administration from the University of Washington. He also completed doctoral course requirements in Clinical Psychology at the State University of New York, Buffalo.
    Dr. Namaste has taught undergraduate and graduate level courses in political philosophy, methodology, social policy, public finance and urban planning. His research work has included such areas as policy formation and implementation, effectiveness of planning groups, urban problems, and personality assessment.
    Dr. Namaste has served as program manager at the US National Science Foundation and has consulted with many government and business organizations. In 1981 he founded a micro enterprise that grew at a rate comparable to an Inc. 500 company. In 1985 he started working on micro enterprise development which eventually resulted in the founding of Micro Business Growth and, later, VRCities, Inc.