How the Age Structure impairs “Inclusive Growth” in Rural Georgia

How the Age Structure impairs “Inclusive Growth” in Rural Georgia

The FINANCIAL -- Currently, farming in Georgia is a “by default activity” – the vast majority of Georgian “farmers” are not really farmers in a professional sense but rather people who try to survive by growing agricultural products. When traveling through Georgia’s countryside, one sees immediately that it is mainly the older generation which has to resort to this default activity. Those who have more profitable opportunities leave for the cities, and these are almost exclusively young people. 

How much flexibility and motivation can we expect from those elderly who remain in the villages? Can they make another turn and adopt new methods and technologies to run their farms according to modern standards? Essentially, this is the question whether in the decade to come these Georgians can grow out of subsistence farming or whether they will be just supplicants who depend on young, professional entrepreneurs, coming from the cities or abroad and driving the agricultural transition of Georgia.

WHAT IT TAKES TO BE AN ENTREPRENEUR

In line with Schumpeter, entrepreneurship can be understood as the process of discovering and exploiting (and finally destroying) profitable opportunities. Paul H. Dembinski of the University of Fribourg offers a detailed theory of what comprises entrepreneurship (“Multi-modal Causation Grid for the Study of Entrepeneurship: An Aristoteliian Perspective”, University of Fribourg, Global Value Chain Research Group, 2006). 

Naturally, entrepreneurship can only evolve if there are resources and opportunities that can be discovered and exploited. When thinking about such opportunities, it make sense to distinguish between the material mode, i.e. the existence of market demand that could be satisfied by an entrepreneur, and the institutional mode, namely the legal and social restrictions which set the boundaries in which entrepreneurial activities can take place. Under Shevardnadze, Georgia did not lack opportunities in the material mode – commercial economic activity was almost non-existent, and there was a huge demand for products and services that could be supplied by entrepreneurs. Yet if somebody started a successful business, it was soon expropriated by corrupt government officials and the notorious “thieves in law” (the specifically Georgian form of mafia). Therefore, under Shevardnadze the institutional mode did hardly allow for any successful entrepreneurship. Dembinski’s theory can also be applied to Georgia’s current situation: while the institutional mode has drastically improved, Georgia is now struggling to come up with products and services it can deliver to the world. Therefore, today the binding constraint for successful entrepreneurship may be found in the material mode rather than in the institutional mode.

However, according to Dembinski, entrepreneurship is not just about the conditions under which economic agents operate, but also about the character traits and attitudes of these agents. Even if there are plenty of business opportunities and the institutional setting is right, it needs economic actors who have ideas and are willing to take risks. For becoming entrepreneurs, they must have visions (the ideal mode of entrepreneurship) and specific, achievable goals how to set up their businesses (the teleological mode).

Applying this theory to Georgian agriculture, most economists would agree that there are plenty of opportunities to be exploited, and also the institutional framework is no big obstacle. Hence, both the material mode and the institutional mode are conducive to entrepreneurial activities. The question is, however, whether older inhabitants of rural areas have visions how to develop their small farms, and whether they are willing to take the concrete steps that have to be undertaken to foster those visions.

ELDERLY WITHOUT ENERGY

The research project “Emergence and Evolution of Entrepreneurship”, led by abovementioned Paul H. Dembinski, was carried out within the scope of the Academic Swiss Caucasus Net (an initiative of the Gebert Rüf Stiftung in cooperation with the University of Fribourg). The overarching goal was to examine entrepreneurial dynamics in Georgia through a longitudinal study following both potential and existing entrepreneurs. More specifically, the project aimed to identify how entrepreneurs move from the so-called ‘unobserved’ to the ‘observed’ economy and how enterprises, including micro enterprises, develop and grow. However, the data collected in the research project also elicit the entrepreneurial potential and motivation of (elderly) Georgian farmers, the topic of this article. More information on the research project can be found at ww.ascn.ch/en/research/Entrepreneurship.html.

The dataset produced within the scope of the project was created through interviews which were conducted every 6 months since 2013, covering 350 self-employed as well as 250 micro enterprises and small enterprises in Georgia.

60 percent of the self-employed interviewed were living from agricultural activities. The rest got their incomes from services such as transport, private household employment, and trading. The sample of the self-employed interviewed was made up of about one-third of people above 60 years old, while 24 percent of them were less than 39 years old and 44 percent were between 40 and 59 years old.

As it turns out, the age variable in this study is independent from economic activity. One finds self-employed engaged in non-agricultural activities both below 39 and above 60 years old. Age is also independent from “formality variables” such as having a bank account, keeping accounting, and dealing with written contracts. And while the majority of self-employed are “necessity driven entrepreneurs” at all ages, the oldest segment of this study clearly differentiates itself from the youngest when it comes to motivation, confidence, and attitude towards risks. There is a higher percentage of younger self-employed who plan to “sell more” within the next 6 months to 2 years. By the same token, 74% of the self-employed below 39 would be ready to follow training courses to improve their businesses, while only 20% of those above 60 would agree to do so. Similarly, 57% of those below 39 would be willing to take more financial risk in exchange for the opportunity to produce more, while this number for those above 60 stands at 14%. Half of the self-employed below 39 feel confident to start another activity with the skills they have, compared to only 32% of those above 60. Finally, “fear of failure” would prevent 39% of the young self-employed to start another activity, while the number is 60% for the old ones. The results are summarized in the table.

By and large, these results confirm what one may have expected, namely that the “entrepreneurial drive” decreases when people grow older. 

KEEP THE YOUNG IN THE VILLAGES

As Salome Gelashvili writes: “Many ideas were tried out [in Georgian agriculture], like providing machinery to Georgian farmers or incentivizing them to form cooperatives, but did not lead to substantial productivity improvements. A lack of verve among Georgian farmers would explain the often ambivalent outcomes of such initiatives.” (“Farmers without Verve”, to be found on the ISET Economist Blog, January 20th, 2015)

A “lack of verve” could be caused primarily by the usually advanced age of those who remain in the rural areas of Georgia. Yet unlike other factors discussed in Gelashvili’s article, which may be responsible for the low motivation of Georgian farmers, one cannot do anything about peoples’ ages. This is bad news, as raising productivity in Georgian agriculture is crucial, for example for taking advantage from the DCFTA. 

If, on the other hand, those who develop Georgian agriculture do not originate in the villages but are young, highly-skilled and motivated agricultural entrepreneurs, coming from the cities (or even from abroad), it will be difficult to achieve inclusive growth, i.e. letting everybody benefit from economic development. 

The only way to solve this conflict is to convince more young people to stay in their villages. As part of multi-generational families, they may contribute the entrepreneurial drive members of the elder generations are lacking. If entrepreneurial spirit of the younger generation drives the development of farms from within, the older people who live in the villages will participate in this development, even if they lack the energy to become entrepreneurs themselves.

Whether (and how) this can be achieved, however, is highly uncertain.