The invention of the joint stock company with limited liability was the single most important invention to unleash entrepreneurship. This allowed entrepreneurs to take business risks without the risk to life and liberty and led to an explosion of business building.
India is a land of entrepreneurs(Including the small farmers and unorganised vendors) surrounded by an army of bureaucrats who in general have a deep rooted suspicion of entrepreneurs.Every bureaucratic intervention is designed with the mindset of “guilty unless proven innocent”. This mindset was formed during the command and control raj of the British overlordship and further buttressed during the socialist / license raj days where guanxi (“ connections with the right people”) and the ability to find loopholes in the impossibly complex and detailed rule books was the determinant of success and not ideas or execution. This mindset needs to be changed and entrepreneurs have to be seen as partners in the development of the nation and the bureaucratic incentives have to be aligned to that. This vicious cycle can be broken by simple and stable rules with little leeway for discretion or exceptions.
Genuine entrepreneurs are different from rent seekers. Rent seekers thrive in complex environments where rules are ever changing and riddled with exceptions and guanxi is the determinant of success. Genuine entrepreneurs on the other hand want a stable , fair , rule of law driven system where opportunities and risk taking is rewarded fairly. Very simple and small set of rules is what is required. Small entrepreneurs (farmers) should be able to get the benefits of their fruits and not have to sell their wares in monopolistic “mandis” where they don’t get fair prices because the buyers have created a local cartel. Taxation needs to low and well enforced and not riddled with exceptions.
There is a huge opportunity staring India in the face. The China , US rivalry is now structural and long term and global supply chains are looking for a new home. If only India can unleash its entrepreneurial energy on this opportunity and not treat entrepreneurs suspiciously, we could lift millions out of poverty because we have the labour pool, educated engineers and managerial and entrepreneurial talent.
To be continued….Next article: what to do about land reforms link to next article