Friday, October 04, 2013

The For Profit Sector

Mother Teresa of Calcutta (26.8.1919-5.9.1997)...
Mother Teresa of Calcutta (26.8.1919-5.9.1997); at a pro-life meeting in 1986 in Bonn, Germany (Photo credit: Wikipedia)
(published in Vishwa Sandesh)

The For Profit Sector
By Paramendra Bhagat (

More than 80% of the people in America work for private companies. That is how they put food on the table. Another 15% or so work for the government. This economy requires 5% of the people to stay unemployed if it is to have a robust labor market. As in, a 100% employment rate is highly undesirable. That is why governments deem it worth it to issue out unemployment benefits: keeps the labor market fluid. The non profit sector steps in for those who don’t receive unemployment benefits or welfare checks. And then there are the uncared for untouched by the private, public and non profit sectors. Those seek Mother Teresa. Sadly, that still leaves a segment of the population that is truly uncared for, especially so in the global context.

In poor countries the private sector might be weak, the public sector might be relatively too dominant and getting in the way, the non profit sector might be overly strained or barely existent. But even there most people work private sector jobs to put food on the table for their families. That includes the informal sector in countries like India. The informal sector of the Indian economy comprised of businesses that don’t hold licenses and don’t pay taxes is rather large. And then there is the mafia that also largely revolves around money making. In some countries of Latin America the drug mafia is so large it functions as a parallel government. The Mumbai origin Dawood Ibrahim is listed as one of the 40 richest people in the world.

In the scheme of things I think the royal throne goes to the entrepreneurs in their multitudes. Entrepreneurs are not rich, greedy people lording over the hapless. They are people who create wealth and jobs. They pay taxes with which governments invest in people’s education, health and infrastructure. Entrepreneurs literally create wealth out of thin air. Bill Gates’ 50 billion dollars is not money he stole from someone. Those 50 billion dollars simply did not exist before he came along. And good thing he is putting that money to good use through his foundation. He has been fighting poverty like he were some kind of a Maoist.

The corporation is one of the greatest inventions ever. And entrepreneurship makes sense for people in all income brackets. I am a huge fan of micro lending. Everyone deserves access to not only education and health but also credit.

Abraham Lincoln did what no entrepreneur could have: he ended slavery. And someone like Gandhi is both Lincoln and Mother Teresa. Muhammad Yunus of Bangladesh ran his enterprise like a non profit. There is no denying the role of the leaders of various sectors. But as a country like Nepal moves towards a decided economic focus, I think appreciation for entrepreneurship will have to take deep root in the culture.

A country like Nepal that has numerous communist parties and it looks like most of the major non communist parties also call themselves socialist, I think interesting concoctions can be imagined. You can have companies that are partly owned by the government, you can have companies that are majority owned by the government. But for the most part it is best if the government stays out.

A left leaning country runs the danger of wanting to kill the hen that lays the golden egg. Nehru was key to India’s independence, but he also gave the country his gift of socialism, which was well meaning, and perhaps made Cold War sense to him, but that has also meant the legacy of too much red tape and misallocated resources with India ending up with the much derided “Hindu rate of growth” for decades.

Unleashing the entrepreneurship potential of the new generation in Nepal is partly a policy challenge. Some warning signs are the mindless, xenophobic rhetoric against Foreign Direct Investment (FDI) that seems to have a permanent place among a segment of the Nepali political spectrum. The choice is clear. You can bring in foreign capital, or you can send away your workers to Dubai and Malaysia to labor in uncertain circumstances. After Baburam Bhattarai signed BIPPA, a pro FDI agreement, his own Deputy Prime Minister stood up against it to score cheap, misguided political points. I was perplexed. Hostility to FDI is a sure recipe to a perpetuation of poverty in Nepal. Is poverty what Nepali nationalism all about? As in, to lose poverty is to lose the essence of what Nepal is all about? Beats me.

China never tires of pointing out how much more FDI it attracts year after year as compared to India. FDI is not only a good thing, it is something any sensible country competes for. That includes the rich economies.

I would hope that the Maoists would learn to respect entrepreneurs the way they have worked hard to accept other political parties. Their pro poor origins would be best reflected in the resources they should be able to marshal for education, health and infrastructure. Get the literacy rate up dramatically, up the vaccination rates. Train tens of thousands of health care workers and send them out to the villages, Mao style. But do not kill the hen that lays the golden egg. Let entrepreneurs run full speed.
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