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The fits in the starts

Start-up entrepreneurship needs several forms of encouragement, beginning with an insolvency law.

Written by Bibek Debroy | Published: October 15, 2015 12:53:23 am

make in india, start up, start ups in india, india news, business news, latest news, top news, narendra modi

The prime minister mentioned start-ups more than once, and in greater detail, in Silicon Valley than earlier from the ramparts of the Red Fort. Several people have sought to define start-ups and definitions don’t necessarily agree, because each person has a different angle on a start-up. There is a children’s riddle: “I come in different shapes and sizes. Parts of me are curved, others are straight. You can put me anywhere you like. But to do my job, I have only one right place. What am I?”

Like many such riddles, the answer isn’t always obvious, especially because the classic form of the object in question is disappearing. In this case, it is a “key”. The key to start-ups, which also come in different shapes and sizes, is partly disruption, a splicing of Shakespeare with Schumpeter. Shakespeare has to be mentioned. To the best of my knowledge, this is the first known instance of the word “start-up” being used, in Much Ado About Nothing: “That young start-up hath all the glory of my overthrow”. Shakespeare used the word in the sense of upstart and, indeed, there is a parvenu kind of angle to all start-ups. They overthrow and disrupt the status quo, a bit like Joseph Schumpeter’s creative destruction.

Every start-up is an upstart, but every upstart is not a start-up. The business angle to start-ups is circa 1970. In Silicon Valley, the PM used the terms imagination, inspiration, invention and innovation. An individual uses imagination to think of a new product, process or service. This is the innovation bit, which may fall short of the strict legal requirements of invention. However, for an upstart to be a start-up, there has to be a present, or potential, commercial application. Most importantly, there has to be an entrepreneur and an act of entrepreneurship.

Who is an entrepreneur, and what is entrepreneurship? The trouble with borrowing words from French and not reading classical economists like Richard Cantillon or Adam Smith is that we sometimes miss the most critical element of entrepreneurship. That happens to be risk-taking. This isn’t a common human trait. Perhaps that’s understandable, since risk-taking can entail failure, as well as success. After all, if a human ancestor stepped out of a cave in search of better food, there was the off-chance of being gobbled up by a sabre-toothed tiger. Did you know that some human genome research shows risk-taking attributes to be partly genetic? Roughly one-third of test subjects possess this risk-taking gene. (The MAOA-L gene variant, also called the warrior gene, is inherited from the mother, not the father.)

How many risk-taking endeavours succeed? That depends on the context, but the number is rarely above 5 per cent. There is no guarantee about success in risk-taking. That’s the reason success in entrepreneurship cannot be encouraged without encouraging failure. The ecosystem encouraging or inhibiting start-ups isn’t only about credit, or financial products, or equity. Thus, some definitions of start-up get fixated on financing, such as venture capital. Alternatively, they are fixated on information technology. Hence the use of expressions like scalable and replicable — the implicit assumption being that these start-ups graduate upwards and become large companies. That’s a laudable objective and several high-profile and successful start-ups have done that. But there are others that fail and several that aren’t scalable. That doesn’t mean such a start-up is born to blush unseen, or waste its sweetness in a hostile environment. That paraphrasing from an elegy occurred in the subconscious, but there is a wasting in the ecosystem. While there are data problems and time-lags in data, some 30 million of India’s employment is in the organised sector, roughly 18 million public and 12 million private.

Here, private means the private corporate sector. Without distinguishing between the labour force and the workforce, there are almost 500 million who work. There are  issues in measuring how many are in agriculture, as opposed to those whose primary pursuits are in agriculture. Let’s say 250 million are in non-agricultural pursuits.

Consider the mindspace occupied by the public sector (18 million) and private corporate capital (12 million). That 500 million is also private capital, and if the PM’s mention of start-ups shifts our attention to the 500 million, that’s a desirable fallout. Notice that, in risk-taking appetite, this 500 million is far less risk-averse. For the 12 million under private corporate capital, risk-taking is a matter of choice.

For the 500 million, it is a matter of survival. You will say that I am stretching the mindspace argument too much. Are we not concerned about agriculture? Yes, we are, but let’s take an example. Subject to data and definitional problems again, 1,31,666 people committed suicide in 2014. Of these, 25,904 were self-employed. You have heard about the 12,360 in agriculture (farmers and labourers). Have you heard about the others, that “others” category including vendors
and tradesmen?

There was a news item about the Chinese government pushing for 10,000 start-ups a day. Yes, India’s younger generation is probably more risk-loving and entrepreneurial, especially if you arrive at that conclusion on the basis of the IT or financial sector or looking at the graduates of the top management schools. Yes, entrepreneurship is desirable because it is better to create employment for others too. But outside that visible sector, you would be mad to be an entrepreneur. Did you know that we still don’t have an insolvency law, as against a personal bankruptcy law? The assets/ liabilities of such an enterprise are inseparable from those of the owner. If the enterprise fails, so does the owner. That’s just one instance of how we punish entrepreneurship and start-ups.

The writer is member, Niti Aayog.

(Views are personal)

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