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This chapter argues that since 1989–when the rest of centrally planned economies started fundamental economic and political reforms–China went backward in one important aspect of reforms–financial liberalization. Financial liberalization is defined as easing credit constraints on private sector as well as lowering entry barriers toward private, informal financial intermediation. In the 1990s, as compared with the 1980s, credit constraints on private sector increased and in fact on the basis of cross-country survey data the private sector in China was among the most capital-constrained in the world. This chapter hypothesizes that this financial policy reversal contributed to the under-development of China's indigenous private sector.

The rapid rise of the entrepreneurial private sector in China is one of the key reasons for the success of its transition from a centrally planned economy toward becoming a market-oriented one since the late 1970s, which was explored in part in the last chapter. At the same time, China is a country known for its incomplete legal system, which includes the lack of an independent judiciary, and adjudication is not free from interference from the executive branch. In addition, there is evidence of financial repression whereby legal and institutional constraints impede the development of financial intermediaries, thereby retarding the development of the financial sector. In China, this is manifested insofar as the rules favour state-owned enterprises (SOEs) despite three decades of reform. SOEs still dominate credit allocation, such that the majority of private small- and medium-sized enterprises (SMEs) obtain no bank financing even in 2006 (Lin 2007). This chapter investigates the impact of lagging financial and legal systems on private sector development and complements the previous one.

Conflict and poverty are interrelated: conflict impoverishes communities, and poor communities are more vulnerable to conflict. Private enterprises are essential to break this cycle. As a source of jobs, livelihoods, taxes, and public goods and services, they support resilience and build the foundations of peaceful societies. This paper looks at the role that the private sector plays in fragile situations and studies the failures that prevent it from realizing its potential. To foster the private sector’s contribution to development in fragile situations, we argue that the development community needs to support the resilience of private enterprise on the one hand and promote growth on the other. A combination of institutional and regulatory reforms risk reducing instruments, and public investments are needed, with an emphasis on those that increase predictability, mitigate risk, and expand opportunities for market entry and growth in difficult contexts.

Chapter 10 explores the potential of multistakeholder initiatives to address three familiar challenges of private-sector development in settings where the background politics and institutions needed for standard policy prescriptions to work are absent. First is the challenge of providing a business environment which offers the credible commitment necessary to attract private investment—multistakeholder approaches work via innovative (but sometimes personalized) linkages between powerful economic and political actors to provide personalized property rights. Second is the challenge of providing proactive support to firms and farmers—Zambia’s cotton and South Africa’s garments sectors illustrate the potential and limits of collective efforts to strengthen industrial clusters and provide the requisite local public goods. Third is the challenge of aligning private and social benefits and costs when neither regulation nor fiscal policy are effective—here the focus is on issue-specific global initiatives organized around collectively agreed rulemaking, monitoring, and enforcement (for example the Extractive Industries Transparency Initiative, the Marine Stewardship Council, and the Chad-Cameroon pipeline project. These institutional alternatives can facilitate gains, but risk locking in rigidities.

This chapter argues that local economic actors are critical to the creation and sustainability of the peace, but that the current economic incentives approach fundamentally misunderstands their role and its causes. It begins by laying out the assumptions that underlie the current approach of international economic intervention. It then turns to the conditions under which local economic actors can be expected to be peace-promoting, in two ways—first in terms of the political settlement and second in terms of economic policies that business prefers. The chapter ends by questioning the puzzle of current policy and practice, the silence on, neglect of, and often even disincentives to domestic entrepreneurs and economic activity. This puzzling behavior is particularly surprising given that economic actors are so prominent in the literature of greatest influence on international policy as a cause of civil war and its prolongation, and also that the newest vogue in peace-building policy circles is “private sector development”.

This chapter provides an overview of thinking on the intersection of development and entrepreneurship. Given the relative neglect of entrepreneurship by development scholars, it deals with: (i) recent theoretical insights from the intersection of entrepreneurship and development studies; (ii) the empirical evidence on the relationship between entrepreneurship and development; and (iii) fresh insights for entrepreneurship policy for development that have emerged from recent advances in this area, including female entrepreneurship in developing countries.