Market/Non-Market Partnership (formerly known as Public-Private Partnerships)

Economies develop through the creativity and hard work of entrepreneurs who have leveraged Market and Non-Market principles and partnerships. Consider the U.S. economy at its early stages of development. It wasn’t built simply upon government largess nor did it develop only because of the creativity inspired by market dynamics. Rockefeller’s monopolistic Standard Oil, by definition, grew out of what economists consider a “market failure,” but it did presage the development of huge swaths of the U.S. economy. The men who supposedly “risked everything” to build the transcontinental railroad system were able to mitigate their risk due to factors put in place by the federal government.

Let’s define the players in a Market/Non-Market Partnership. Historically, the Market category consists of private companies and public companies that have a purpose to generate financial returns for equity share owners. The Non-Market category consists of government institutions, churches, foundations and any others who do not return any of their profits to equity share owners. In fact, the differentiating factor between the two is that these Non-Market (commonly referred to as Non-Profit) entities do not have equity share owners.

Market/Non-Market Partnerships take some commonly recognized forms but they are a pervasive part of almost any economy. Consider some examples relevant to economic development in East Africa. Churches partner with banking institutions to develop systems whereby poor community members are able to save and invest. A national government builds a hotel with government funds and then sells the hotel to a hotel developer and operator. A railroad builder raises money for his venture through the sale of government-secured debt. Market/Non-Market Partnerships are integral to enterprises from education to transportation to health care; from airplane building to designer clothing merchandising. Increasingly, it’s a fallacy to think we can draw a clear line between Market and Non-Market enterprises.

These partnerships work best when the Market by itself is not able to efficiently provide the products or services, or when there are broader societal benefits that will accrue from said partnerships. The practical micro-economic implication in these scenarios is that a Market-oriented entrepreneur needs Non-Market based incentives to help improve his risk-return ratio to a level sufficient to move forward with certain ventures.

To be blunt, as it relates to East Africa, the strictly Market-driven risk-return ratios don’t justify development of a transcontinental railroad. They don’t justify investing in Small and Medium-sized Enterprises (SME's) in many developing countries. The only way to realign these risk-return ratios is for there to be Market/Non-Market partnerships. It is institutions who agree that “Aid is Dead,” but who are also willing to accept less-than-market returns on their investments who seem to be driving a great deal of economic growth in East Africa. These influential institutions can be led by domestic or foreign governments who have the ability to manipulate markets and therefore endure extended below-market returns. They can be led by “donors” who are willing to relinquish control through true Market/Non-Market Partnerships. Or the institution can be literally a single local entrepreneur who may well have a plan that includes a Market/Non-Market Partnership that will both align the entrepreneur’s risk-return ratio and directly or indirectly benefit the greater public good.

This type of Market/Non-Market Partnership with individual entrepreneurs seems to me the purest and most hopeful way forward for developing country economies.

Dano Jukanovich