Issues, Ideas and Insights by Atul Singh

Global Entrepreneurship – peering into the future

Entrepreneurship in any part of the world needs two things. First, individuals who want to set sail on their own and create new businesses. Second, institutions which encourage, foster or, at least, allow these individuals to do so.

The history of the 20th century has been a story of American enterprise. With their pioneering spirit that enabled Americans to expand through an entire continent, the Americans have been natural entrepreneurs. Innumerable businesses have sprung up and vanished, and American companies have come to straddle the globe. However, things perhaps are starting to change.

Historically, immigrants have given America much of its entrepreneurial energy. The Eastern European Jews who fled the pogroms in Europe created companies like Levi Strauss and Goldman Sachs. More recently, internet giants like Yahoo and Hotmail were started by immigrants born in Taiwan and India. Immigrants often come to America to escape the chafing restrictions in their homelands. America has historically welcomed them and been a land of opportunity. Over the last few years, the Congress has limited the number of H-1B visas to a mere 65,000 per year. Despite protests of industry captains like Bill Gates about the ill-effects of this restriction on the US economy, this limitation seems set to stay.

Americans themselves have had a great entrepreneurial spirit. The entrepreneur is respected and even celebrated. She or he is seen to personify “the get up and go” attitude that enabled the formation of this country. Since the collapse of the dotcom bubble, three things seem to have changed which have weakened America’s entrepreneurial spirit. First, the American education system is not what it used to be. Schools have declined and, all too often, Americans do not have the necessary skills to go down the entrepreneurial route. It is true that Steve Jobs and Bill Gates did not finish college but what is important to note is that both of them are extremely curious people with a hunger for knowledge. Curiosity, creativity and a sense of adventure are essential for entrepreneurship. So is some basic level of mathematics which helps to calculate profit and loss. American schools not only do a bad job in teaching basic subjects like mathematics but they are increasingly grade conscious. When students and teachers care more about grades instead of learning that is a bad place to be. American schools are no longer fostering creativity, thereby weakening entrepreneurial spirit. Second, increasing prosperity has created an excessively consumerist culture in America. Far too many people like the good life far too much. Furthermore, the American work ethic is not what it used to be. This means Americans are deterred by the rocky paths of entrepreneurship which involve sacrifice and fair bit of work. Finally, there has been a diminution in aspiration and risk appetite in America. Increasingly, the best and the brightest in the country do not dream the great American dream like their parents or grandparents did. They are happy being comfortable instead of taking risks. They do not aim high enough and do not have the same sturdy independence of their forefathers. This means that entrepreneurship which was a hallmark of this great nation is not as healthy as it used to be.

Apart from Americans themselves, American institutions have changed as well. While it is still relatively easy to set up a company and go into business, regulations have increased enormously. Some states like California are groaning under the plethora of regulation. Any budding entrepreneur is short of time and cash. Regulation imposes both these costs on an entrepreneur, deterring people from taking the entrepreneurial route. Not only has there been a concentration of power in the hands of the state but there has also been a concentration of power in the hands of big business. In many sectors of the economy – the classic example being finance – not enough competition abounds. Things are a little too clubby and not quite competitive enough to foster a healthy atmosphere for entrepreneurship. Furthermore, the political culture of saving failing companies has interfered with the process of creative destruction which is essential for a free market economy. As the popular saying goes, capitalism without bankruptcy is like Christianity without God. Freedom in a free market has to include freedom to fail. That is what sweeps away the deadwood and frees up capital which is then used by the more innovative to create new companies. It is freedom that has given America its foundation for entrepreneurship and it is the threat to that freedom that is shaking its entrepreneurial roots.

America seems to be sliding backwards precisely when many parts of the world are waking up. After many centuries of decline and turmoil, China is rediscovering its entrepreneurial energy. Everywhere in China new companies are springing up. India, Indonesia, Vietnam and other Asian countries are increasingly emulating China. There is real hunger in much of Asia. Despite the poverty or perhaps partly because of it, Asia is churning up entrepreneurs by the millions. People have hunger; they want better lives for themselves and their children. Institutions in these countries are still weak, rule of law is often not the norm and they are held back by armies of bureaucrats. But the fundamental shift in culture has taken place. People have tasted the power of the markets and want more.

Asian companies used to compete on cost alone. Now they are starting to compete both on cost and quality. Chinese companies like Haier and Zhongxing Medical have gone head to head with Whirlpool and GE, and out-innovated these venerable corporate names. Haldiram, an Indian company with a rustic name, was able to act David to an American Goliath, Pepsi. Tata, another Indian company, spent time and money on cutting edge research to come up with a new type of car, the $2,000 Tata Nano. Entrepreneurs are on the march in Asia after centuries of slumber. Increasingly, new companies and new products shall arise in that continent. It is only a matter of time before Asian companies attain global footprints like Coke, Disney and Microsoft. Should Asia become less bureaucratic, develop better governance and improve its research universities, this trend shall be accelerated exponentially.

This has implications for the rest of the world, especially America and Europe. Europe has long been the wasteland for entrepreneurship. Europeans are, in general, too cynical and too lazy to take the entrepreneurial leap of faith. They have been crushed by regulation, mollycoddled by an excessively generous welfare state and crippled by a paranoiac fear of failure. America faces a choice to either reinvent itself and meet the rising challenge from the Asia or turn European and wallow in somnolent decline.