The government needs to boost entrepreneurship
Manish Sabharwal says that it is delusional to believe that a vibrant ecosystem for entrepreneurship needs zero government
February 04, 2013 / 20:43 IST
By Manish Sabharwal
At a recent panel discussion I attended on what the government could do to encourage entrepreneurship in India, a successful entrepreneur said that all the government needs to do is “vanish and stay invisible”. His statement reflects a superstition common amongst justifiably frustrated entrepreneurs; if the government went away, India would have a lot more successful entrepreneurs. But there are two problems with this superstition. First of all, India does not need more entrepreneurs; 50 percent of India’s labor force, i.e. 220 million people, is self-employed. But not all entrepreneurs are equal; some create companies that are babies (are small but will grow) and some create dwarfs (are small and will stay small). While both are useful, society values babies more than dwarfs because they create more jobs and pay more taxes. Secondly, a non-existent state is hardly an ingredient for a vibrant entrepreneurial ecosystem; Waziristan in Pakistan and Pashtun Valley in Afghanistan have no government but are hardly hotbeds of entrepreneurship.The drivers of prosperity
A debate about entrepreneurship is not about big or small government but effective government. I found the Legatum Prosperity Index (www.prosperity.com) particularly interesting because it identifies eight “foundations” for national success that include effective and accountable government, personal freedom, national security and personal safety. I believe these are the same variables that will accelerate new business creation. In its 2012 rankings, the rise of China speaks for itself, but the index shows that Vietnam, Thailand and Indonesia are on the move. In fact, Indonesia has experienced the largest increase in prosperity globally since 2009. As the authors wrote: “The path to prosperity is not a mathematical formula or an engineering problem. A country’s size, history and culture all matter. Nevertheless, the Index confirms what experience tells us. Decent, accountable government, rule of law, competition, opportunity and a regulatory environment and culture that promote liberty, responsibility and entrepreneurship are drivers of prosperity everywhere”Despite high self-employment, most Indian companies are dwarfs. I’d like to make the case that the under-representation of babies (companies that scale) is not due to a lack of ambition or talent but reflects a flailing Indian state. Reform since 1991 has focused on the sins of commission (what the government did wrong) rather than sins of omission (what the government does not do). After 20 years of reform, most of the remaining sins of commission are thorns in the flesh rather than daggers in the heart. But the sins of omission are vast; entrepreneurs have to produce their own power, provide their own transport, and skill their own employees.Making India a more fertile habit requires the state to focus on hard infrastructure (roads, power, ports), soft infrastructure (school and vocational learning outcomes and hospitals), and regulations (GST and labor laws).We need less poetry (strategy) and more plumbing (execution). But what we don’t need is an absconding state.© Entrepreneur India December 2012
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