Sunday, November 18, 2007

The perception of Entrepreneurs

The choice of political and legal systems affects the way individuals perceive entrepreneurs. For example in Socialist countries economic activity is either by the government or through monopoly privileges granted by the government. Thus entrepreneurs in these countries do get rich without having to be tested in the market. This creates resentment among people in the market against the haves who seem to have stuff by depriving the have-nots. The truth is it is the government that is depriving them of opportunities to a better standard of living. However, the rhetoric is that of a benevolent government (wonder why that hasn't changed at all even after all these years of public choice), thus all the miseries of the economy are the fault of the entrepreneur.

Reliance is a big conglomerate in India. It is known to have snagged plum deals through dubious and illegal methods during the period of heavy industrial licensing in the 80s in India. In fact as a good entrepreneur all Dirubhai Ambani was doing was respond to incentives set by the prevailing policies. This is a great public choice story. He found a way to bribe and do favours for politicians in return for monopoly rights to produce several products. Since this was done at the expense of other entrepreneurs who were not entrepreneurial enough to snag the monopoly contracts, Ambani was hated by many people. Once liberalization kicked in, the Reliance group was in a great position to take advantage of new opportunities and diversify even further. Reliance is growing bigger, there is a family feud, the company has been split, but it is still creating jobs for a million people or more in their different organizations across India. People take their money and complain that they are depriving the poor of India. What they do not see is the number and variety of products that are available in the market due to them.

I am not endorsing the illegal practices of Reliance. However, as a good economist I can see that all they did was act on an available opportunity. The perception of entrepreneurs in a Socialist country is affected by the legacy of the government. Being entrepreneurial is coveted in a country like the US, while in India (at least until the software boom hit) the most coveted job is to work for the government. Even today, millions of people are willing to bribe government officials just to get that job with the government where there is no accountability, there is job security come what may, and they can earn money under the table with promising and motivated entrepreneurs.

No comments: