Credit: © John and Lisa Merrill/Corbis
e actually are the ones being trained by the successful individuals who are out there —we learn from them, from what they do, and how they overcome obstacles.” That is the modest 
analysis offered by Professor Robert Townsend of the ambitious program over which he is presiding, funded by a $3.3 million Templeton grant, “Discovering the Power of Free Enterprise to Create Wealth and Alleviate Poverty Through a New Applied General Equilibrium Enterprise.
The shorthand name for the project is “The Enterprise Initiative” and it is a collaborative effort between senior researchers at three major institutions: the University of Chicago, the Poverty Action Lab at the Massachusetts Institute of Technology, and the Economic Growth Center at Yale University.
Robert Townsend, the principal investigator, is the Charles E. Merriam Distinguished Service Professor of Economics at the University of Chicago. His research on risk and insurance in village India won the Frisch Medal in 1998 and for the past ten years he has conducted extensive field research on enterprise in Thailand. He has played important roles in the Federal Reserve Banks and Board, World Bank, InterAmerican Development Bank, Millennium Challenge Corporation and the International Monetary Fund and has been a frequent collaborator with colleagues at MIT and Yale, so that he is well-qualified to act as a bridge builder for this complex project.
The senior research team includes four Nobel laureates from the University of Chicago: Gary Becker, James J. Heckman, Robert E. Lucas, Jr., and Roger Myerson who was awarded the Nobel Prize after the program had been launched. Townsend describes his team as “a loose network of scholars who are working to incorporate general themes and approaches into each of their specific areas of expertise. At the University of Chicago, he has been working with Fernando Alvarez on financial decisions, Gary Becker and Kevin Murphy on issues of inequality, Lars Hansen on modeling uncertainty, Jim Heckman on skills and returns, and Bob Lucas on growth and geography, among others.
The two collaborator institutions have also been carefully integrated into the overall program, contributing their specialist expertise. “At Yale, I have been working with Chris Udry and Mark Rosenzweig to design surveys that will allow us to look at a broader range of issues in Ghana and Tamil Nadu and understand more fully how enterprise in these countries affects overall economic growth and inequality. At MIT, Abhijit Banerjee and I have initiated a project on the size distribution of firms and how to test for credit constraints that may limit firm growth.”
The project also incorporates an anthropological element to the economic inquiry. “It’s a natural marriage because you’re on the ground, in the village, asking questions of households. Then it comes down to how best to try to get the information you want. The researcher has to win the respondents’ confidence by changing the topic when necessary, probing elliptically.” Townsend’s primary collaborator in Thailand, Khun Sombat Sakunthasathien is a seasoned practitioner of this art, merging it with the more formal and comprehensive survey instruments.
How does Townsend define Applied General Equilibrium Enterprise Economics (AGE3)? “It’s basically to set the decisions of individuals, whether they be firms or households, in the context of the larger economy,” he says. “It’s a method more than an application. Once you think about a small cluster of individuals in a village as an economy and try to understand the village economy, which I have done in some earlier work in India and, historically, in England, the method would be to think about how the interaction of all the individuals in the village works to produce the overall equilibrium.”
This approach is counter-cultural among most economists, who would instead take a sub-field such as price theory and then ask how consumer purchases respond to prices. AGE3 researchers, in contrast, would want to examine not only how prices in one market influence those in another, but also more generally how to allow for all possible feedbacks in the system. The program is developing a comprehensive, interactive database archive with Geographic Information System capability that allows researchers and policy makers to see the impact of individuals’ decisions and policy alternatives in action accoxrding to rigorous, econometric models.
The program has impressive technical support, including the computational expertise of Argonne National Laboratory and the University of Chicago’s Computation Institute. It is also drawing upon the intellectual capital of some 40 additional scholars through topic-specific Enterprise Working Groups. It will also utilize the exceptional data on the Thai economy that Townsend himself has accumulated over the past decade, both from his own surveys and that of government ministries.
The program is still in its early stages, the grant having begun in August 2007, and will run until 2010. Already, however, the research is progressing significantly. The first stage was one-on-one conversations between researchers to determine the pattern of collaboration. These individual collaborations, it is intended, will eventually fuse into multi-authored research on enterprise, wealth, and poverty reduction, involving mini-conferences and working groups.
Survey designs have already been revised to allow comparisons across populations, while additional questions have been developed and added to the Yale pre-test of surveys in Ghana and Tamil Nadu, enabling a benchmark for future surveys in those countries. It has been decided to add a new survey initiative in Cambodia, and Townsend is also pursuing survey research in Chile on both the household and firm aspects of the economy. He and Banerjee are also considering sampling frames for collecting new data on the birth and evolution of enterprise in India and Thailand.
By any standards this is a major initiative. With the research impetus well underway, the team has to prepare for stage two, the objective of which is to influence opinion leaders by disseminating insights gained and profferring practical advice through an extensive network of relationships with government agencies, international development organizations, and financial institutions worldwide.
Prospects for dissemination and outreach are good. The first resource is a comprehensive website for the program, which went online in the first part of 2008, facilitating research exchanges between current and potential researchers, and will include a wiki and a discussion area to encourage collaboration online. Postdoctoral, graduate students and faculty at Chicago, Yale, and MIT are now involved in an enterprise economics exchange. Robert Jordan, in collaboration with Khun Sombat Sakunthasathien and Townsend, is writing a preliminary book on the Townsend Thai Data’s survey design and implementation which will be the launch pad for a public discussion of enterprise economics survey methodologies.
What is at stake in this initiative is not just new insights into wealth creation and poverty alleviation, but the challenge of potentially reconfiguring the orthodoxy of enterprise economics analysis. For AGE 3 is revolutionary in its concept. Townsend is well aware that the Department of Economics at the University of Chicago was the intellectual home of Friedrich von Hayek and Milton Friedman and so the cradle of modern free market economics. He sees the potential for AGE 3 to trigger a further revolutionary insight into the anatomy of economies.
“Overall, the Enterprise Initiative is an ambitious project,” he says. “One of our ultimate goals that underlies nearly all of the project’s objectives is to provide clear and sound information based on research to policy makers, government officials, and NGOs so that they can better evaluate policy options and make decisions with regard to poverty alleviation.”
He emphasizes, however, that it is not part of his project’s remit to undertake education of potential entrepreneurs: there are plenty of training programs available around the world. Indeed he contends, as quoted above, that it is his team that is being educated by the examples of entrepreneurs in developing countries, as it gains insight into their motivations and how they surmount difficulties.
So, what is the really big question in relation to Applied General Equilibrium economics and poverty alleviation? “What creates an entrepreneur? That is the big question,” says Townsend. As regards an answer, he and his team are still working on that. “It does seem that education plays a role, that is to say formal education, the number of years of schooling of household members, but it’s not a uniform effect. It depends on the occupation, the region of the country, and it doesn’t explain a lot of the variation in the success rate.”
One supposition his research has already enabled him definitely to discount after studying case histories over eight years, “It’s not just luck. It can’t be they just happened to get lucky year after year.” What does he hope will be the eventual outcome, when the study is complete? “Really to understand how economies are put together.”
But Townsend has a larger ambition than that, one which, as this extensive project takes shape, he is increasingly confident of fulfilling. It is for AGE 3 to become the accepted system for understanding the structure of economies. His prediction is bullish. “It will become the new standard. We may not be there yet, but I’m pretty confident. That’s our goal.”
