problem that is compounded by falling incentives for global drug companies to develop more resistant antibiotics especially for diseases affecting the poorest.<sup>41</sup>

# **_III.2b. Impact on people as income earners_**

One of the most important ways that the enterprise sector helps people manage risk is through the steadier and rising incomes provided by the employment of their human capital and other assets, which in turn allows them to consume a range of better risk management products. Reallocation and innovation can deepen and widen product and factor markets, creating more resilient and productive development outcomes. Productivity levels have important implications for the ability of enterprises to manage risk and offer stable and steadily increasing employment. Bartelsman, Haltiwanger and Scarpetta (2013) show, in their empirically-calibrated model with productivity and distortion shocks, that the enterprise sector in countries with fewer distortions and higher productivity also employs more workers, and uses more capital.

Efficient reallocation and innovation can benefit people as stakeholders in enterprises (investors, entrepreneurs, workers), with different types of enterprises playing different roles in creating jobs and other asset employment opportunities depending on the prevailing business environment. Acemoglu et al. (2013) show, in their empirical examination of the forces jointly determining resource allocation, innovation and productivity in the relatively low-distortion US business environment, that young firms are both more R&D intensive, grow more and create more jobs.<sup>42</sup> These growth rate differences across enterprise size types, and in particular the higher growth rates for young start-up enterprises conditional on survival, conform to more general patterns for economies with low distortions (Haltiwanger et al. 2013).<sup>43</sup> However, these patterns do not appear to persist in countries with significant market and policy distortions, and with a significant number of informal enterprises. Hsieh and Klenow (2013), based on time series data that capture the large informal sector (as well as the formal plants) in Mexico and India as well as in the US, show that while the average young plant that enters in the US increases employment more or less smoothly over time to a ten-fold increase by age 35, in Mexico employment only witnesses a 41 See “The Dangers of Hubris on Human Health” in World Economic Forum (2013), where one cited study found that 98% of children with the common cold at a Beijing hospital were given antibiotics (useless for treating viral infections), since drug prescriptions is their main income generator (Yezli and Li, 2012), with strong antibiotics sold over-the-counter in pharmacies or in local marketplaces in India without a prescription, leading to significant inappropriate self-medication – while strong antibiotics should be a last line of defense, pharmacy sales in India increased nearly six-fold in India from 2005 to 2010 (Westly, 2012). The slowdown in the development of new antibiotics is linked, among others, to the greater potential return on drugs to treat chronic illnesses such as diabetes and hypertension, diversion of attention to new life science technologies such as nano-scale engineering and synthetic biology, and the high cost of regulatory burdens for clinical trials.

42 This matches the empirical findings from a large literature on firm age and innovation, where younger and smaller enterprises tend to produce more innovations per unit of research resources (Akcigit 2010).

43 The main finding of Haltiwanger et al. (2013), based on comprehensive data tracking all enterprises and plants in the US non-farm business sector for the period 1976 to 2005, is that there is no systematic relationship between enterprise size and growth, once enterprise age is controlled for. They document an “up or out” dynamic for young enterprises in the US. Young firms are more volatile and exhibit higher rates of both gross job creation from entry and expansion and gross job destruction from exit. But conditional on survival, young firms grow more rapidly than their mature counterparts. Their findings show that small, mature businesses have negative net job creation.

19