The public value of private enterprise

In this first quarter of a century, public discussion has focused on the role of the State, its virtues and defects. The ongoing controversy on this subject has led to the contribution of private initiative being set aside or underestimated.
Their contribution to productive activity is a crucial aspect. Private companies drive the country’s economic growth, contributing significantly to the Gross Domestic Product (GDP).
Although there are no official statistics on the private sector’s contribution to economic activity, it is possible to deduce it by adding consumption, investment and net exports of the private sector.
Using this method, it can be deduced that private GDP would have been around US$32 billion in 2023, while public GDP would have been around US$13 billion. That is, more than 70% of Bolivian production comes from the private sector.
Another of the most significant aspects is job creation. Private companies of all sizes and conditions are one of the main sources of employment in Bolivia, providing job opportunities to more than six million citizens. In fact, 9 out of 10 jobs were created by the private sector in the last quarter of 2023.
However, one of the problems is that inadequate and outdated labor regulations mean that only 550,000 jobs are generated in formal private companies, 990,000 in family businesses, and the rest, more than 5 million, are entrepreneurs and self-employed workers. The challenge is to have legislation that, while promoting formal employment, can protect workers with adequate mechanisms.
In terms of external resources, which the country so badly needs in this balance of payments crisis, the private sector contributed USD8.3 billion in 2023 through shipments of goods, well above the USD2.6 billion of the public sector.
It is worth noting that the foreign currency provided by the private sector could increase by up to USD5 billion more in net terms per year by promoting the sectors with the fastest reaction, such as agroindustry, forestry, meat, tourism and digital services, as presented in the CAINCO proposal at the 2023 Economic Forum “The Bolivia we want”.
For a greater contribution of the private sector to GDP, employment and exports, a better business climate is required, which is achieved with pragmatic measures that, above ideology, provide an environment suitable for investment.
A study sponsored by the German Friedrich Ebert Foundation in 2018 on this subject with the participation of 18 experts concluded that private investment could increase if state institutions were improved, labour reform was carried out and external imbalances were reduced. This last factor has proven to be decisive in the current situation.
Despite the poor environment, the effectiveness of private investment should be highlighted. Between 2000 and 2023, the private sector invested USD42 billion, below the USD66 billion of the public sector. However, net public investment output was only USD142 billion compared to USD348 billion of the private sector. In simple terms, for every dollar of private investment, 8 additional dollars of economic activity are generated, while in the case of the public sector it is 2 additional dollars per dollar invested.
The low effectiveness is related to the state’s inability to manage public companies. Between 2012 and the third quarter of 2023, public companies accumulated losses of almost USD6 billion. Studies by economist Julio Linares document in detail the poor situation of public companies.
On the contrary, private enterprise in Bolivia plays a fundamental role in the economic and social development of the country, without risking the assets of everyone, but at the expense and risk of each entrepreneur. Are these not enough arguments to promote private initiative, today more than ever?

*Pablo Mendieta is Director of Economic Affairs at CAINCO