The University of Chicago Magazine

Economics professor Robert Townsend examines Thai entrepreneurship.

Along a narrow gravel road in central Thailand’s Lopburi province stands
a two-story house with a corrugated-steel roof. On a hot day last August a family of three sat cross-legged on the cobalt-tiled floor and talked about their life and work with interviewers from the Thai Family Research Project, a ten-year longitudinal study begun in 1997 by Robert Townsend, Chicago’s Charles E. Merriam professor in economics.

Thai Family Research Project investigators interview 2,280 households annually to track their borrowing, income, and family-structure changes.

With a group of Thai collaborators, Townsend has compiled a comprehensive database, documenting how rural people in the rapidly developing country are, for example, borrowing money to invest in new farm equipment or purchasing vehicles to begin trucking businesses. The aim—as the title of his forthcoming book, Financial Systems in Developing Economies; Growth, Inequality, and Policy Evaluation in Thailand (Oxford University Press), makes clear—is to help researchers and policy-makers guide emerging nations into the global economy.

The Thai Family Research Project has been a massive undertaking: local director Khun Sombat Sakuntasathhien oversees the small army of researchers—more than 60 surveyors and data-entry staff annually check in on 2,280 households to gather information about their borrowing, income, and changes in family structure. The farmers and villagers are dispersed among four different provinces that reflect the diversity of Thailand’s agricultural economy. Based on rice in some areas, and corn production and dairy cattle in others, both are now mixed with wage labor and industrialization.

As expanding access to credit has boosted both Thailand’s entrepreneurial activity and wealth, the country buzzes with activity, and the survey families, says Townsend, are at the leading edge of that prosperity, a fact with broad economic implications: “When properly unleashed, the entrepreneurial spirit has proven to be the greatest force for generating wealth that the world has ever known.”

This summer, with the help of a three-year, $3.3 million grant from the John Templeton Foundation, Townsend and his colleagues launched a project that they hope will provide a model for how developing countries can encourage entrepreneurship to overcome poverty. “Discovering the Power of Free Enterprise” brings together researchers from Chicago, MIT’s Poverty Action Lab, and Yale’s Economic Growth Center who share an interest in applying general equilibrium models to a relatively new field known as enterprise economics.

Townsend has been influential in enterprise economics: his 1993 book, The Medieval Village Economy: A Study of the Pareto Mapping in General Equilibrium Models (Princeton University Press), set up economic models to study rental contracts, sharecropping, and land fragmentation in medieval England. His 1994 Econometrica paper, “Risk and Insurance in Village India,” applied similar equilibrium models to study how farmers in an area with inconsistent rainfall buffer the risks brought on by such bad years and how well households in the community, some of which may get hit harder than others, manage to pool these risks. Townsend’s Thai study stemmed from a desire to test whether the model worked in other villages and other countries.

Now the Free Enterprise project is taking the next step, studying poor and middle-income countries such as Cambodia, Ghana, and Mexico, as well as more advanced countries such as Spain, which underwent dramatic economic development as it entered the European Union. Four Chicago Nobelists who share Townsend’s interest in the free market and its role in developing countries—Gary Becker, AM’53, PhD’55; James Heckman; Robert Lucas, AB’59, PhD’64; and Roger Myerson—will take part, building on their own work and comparing and contrasting it to Townsend’s research.

Coupled with secondary data, including government reports on employment and income, the project’s aim is to chart the causes and effects of entrepreneurialism. Townsend’s work in Thailand, for example, has found a decided taste for entrepreneurial activity: since 1997 the number of Thais in business for themselves nearly doubled to 40 percent.

Those statistics get a human face in the interviews. In the survey’s early days Townsend spent much of his time in the field; now he returns several times throughout the year, cross-checking trends in the data with the participants’individual experiences.

Thai farmers gather rice plants that they will plant in paddies, one element of Thailand’s rural economy that Chicago economist Robert Townsend’s research examines.

On his August visit to the family in Lopburi, he talks with the family about how their life has changed throughout the past decade. Nearby fields of sugar cane and corn have increased their yields as the farmer and his neighbors have adopted modern farming methods. Tractors, pesticides, and other items are purchased with loans, like those available from the Bank for Agriculture and Agricultural Cooperatives in Thailand or through village cooperatives, such as the one for which the farmer is vice president. “We make small loans, mostly 7,000 to 15,000 baht [about $230 to $500],” he says. The banks and cooperatives help: “They reduce our dependence on borrowing from money lenders and also help us hire labor.”

For this farmer, the benefits of credit and improved information about farming techniques can be seen in the computer and television that rest on the long desk in his house’s main room. And although his parents, like most of their generation, had only a basic education, his teenage daughter takes a bus to a secondary school. Such progress is not without problems: “We have allergies to the chemicals” used in the fields, the farmer’s wife says.

Yet the family’s experience seems to underscore Townsend’s entrepreneurial thesis. “We have learned ways to make our fields more profitable,” the father says, and we are happy that has helped us send our daughter to high school and maybe in the future on to more education.”