reviews and essays ECONOMY

Inflated Prophets

Why the cult of the entrepreneur will not save India

By Akshat Khandelwal | 1 April 2017

TODAY, THE ENTREPRENEUR IS OMNIPRESENT in a way unprecedented in history. Her image is splashed across magazine covers, politicians are always concerned with “promoting entrepreneurship,” even left-wing talking heads, who decades ago were obsessed with class injustice, that nothing must be done to restrict the “dynamism” of the entrepreneur.

And why not? The entrepreneur is an inspiration, because she can, sometimes, escape from the baggage of caste and hierarchy that still grips much of India. She is comforting because, by virtue of her success, she restores a semblance of meritocracy to an otherwise unfair world. She convinces the intellectual establishment that its agenda of a state perpetually in retreat from economic life is a workable one.

The rise of the entrepreneur is, in many ways, directly related to the ascent of the market as the most important institution for organising human material life, both nationally and globally. In India, particularly, the entrepreneur’s prestige in the popular imagination has followed from the success of the 1991 liberalising reforms. Through privatisation, trade liberalisation and the dismantling of the “licence raj,” these reforms enabled a consistent boom in certain sectors of the Indian economy. Real estate, finance and the information-technology sector grew rapidly even as manufacturing faced relative stagnation. Authors and public intellectuals such as Gurcharan Das, Patrick French and Arvind Panagariya popularised the narrative that these reforms had ushered in economic prosperity. They celebrated the virtues of the market in books and opinion editorials, while noting the vibrancy of the entrepreneur, who formed the core of the liberalised economy.

Two business journalists, Hindol Sengupta and Suveen Sinha, celebrate the entrepreneurial drive borne of liberalisation in their recent books—respectively, Recasting India: How Entrepreneurship is Revolutionising the World’s Largest Democracy and The Tip of the Iceberg: The Unknown Truth Behind India’s Start-Ups. Both books are centred on the entrepreneurial journey: the impetuosity of a business idea until it becomes a concrete plan; the slog of building an organisation to execute the plan; the hits and misses in the pursuit of success. They also portray the entrepreneur’s ventures as ones with profound benefits for society. However, the authors, echoing the conventional wisdom in India’s financial press, overstate the socio-economic value of entrepreneurship in the context of the Indian economy. Notwithstanding the entrepreneurs’ dynamism, a successful modern economy is more a product of institutions achieving breakthroughs than Nietzschean superheroes accomplishing stupendous feats.

In The Tip of the Iceberg, Sinha’s focus is on the “tech” start-up scene that has blossomed in India over the past decade, with special attention to the biographies and peculiarities of individual tech entrepreneurs who led the boom. We read about Rahul Yadav, the brash, immature founder of the real-estate portal Housing.com, who met failure through a public falling-out with his investors, and Kunal Bahl, who built the online retail company Snapdeal despite constantly failing the engineering entrance exams that are a rite of passage for many middle-class adolescents in India. We learn how Vijay Shekhar Sharma, by sheer hard work, emerged from Harduaganj, a small town in Uttar Pradesh, to launch One97, which would eventually establish Paytm, the online wallet company that now has over 200 million users. Sinha also covers Bhavish Aggarwal, of the ride-sharing app Ola, and Shashank ND, of the health-appointment booking app Practo, among other internet entrepreneurs who currently dominate the technology pages of our financial newspapers. In the process, Sinha provides a compendium of the key Indian start-up leaders. The only conspicuous absentees are the founders of Flipkart, Sachin and Binny Bansal—and the reasons behind their absence is never noted.

The fundamental weakness of Sinha’s work is that it does not explore the larger context of the tech boom. The growth of the internet and advances in semiconductors and computing power in the past few decades have vastly lowered barriers to building new businesses. In India, the expansion of internet coverage and access through mobile computing has finally provided a sizeable market to the tech sector. There is surprisingly little information in The Tip of the Iceberg about how such macro forces are powering the start-up phenomenon. Sinha does not examine how much international private-equity funding is currently flowing into India, or attempt an estimate of the overall size of the market for digital services and how it might grow. We read plenty of stories of entrepreneurs raising funds, but see no general deliberation over how difficult it is for any given entrepreneur to raise cash should she have a good idea. Nor do we see any serious attempt to link the start-up phenomenon with the dominant sectors that make up the economy in India, such as agriculture, manufacturing, mining or construction. The only contextualising Sinha engages in is to restate trite formulations about how the liberalising reforms of the early 1990s and the mobile computing revolution of the late 2000s unleashed the growth of a “consumerist” and “aspirational” society in which start-ups now flourish. The “unknown truth” that Sinha alludes to in the book’s subtitle resides in a handful of eerily similar (and all too well-known) stories of personal tribulations that most organisation-builders go through. As a result, The Tip of the Iceberg is considerably less useful as a guide to the Indian tech and start-up sector than it could have been.

Hindol Sengupta, however, ably attempts such contextual scrutiny. His focus in Recasting India is not limited to tales of young men and women building businesses against all odds. Sengupta also attempts to explore how these entrepreneurs are transforming the social and economic landscape of India. We read of the Dalit entrepreneur Kalpana Saroj escaping caste oppression through entrepreneurial ambition. Married off at an early age, Saroj, the daughter of a constable from a destitute village in , faced harassment and abuse by her in-laws. When her father brought her back home, the onslaught of insults by locals led Saroj to attempt suicide. She survived, and left for Mumbai to escape the abuse. In the city, wealth replaced caste as the chief marker of identity. For her, money was the great leveller. Soon, good fortune and sheer determination led her into real-estate development, and paved the way for her to eventually own a major company that manufactures industrial equipment. Through Saroj’s example and copious quotes from BR Ambedkar, Sengupta argues that the entrepreneurial route provided by the market has become more effective at wiping out the feudal strictures of caste for many Dalits than reservations for them in government colleges and public-sector jobs.

Sengupta also tells the story of Arunachalam Muruganantham, who developed a machine that manufactures inexpensive sanitary pads. His education in the appalling state of Indian women’s hygiene—less than 15 percent of menstruating women in the country use sanitary pads—came through his marriage, when his wife meekly admitted to using dirty rags during her periods. When he bought his wife a sanitary pad, he “was amazed at how light it was.” Realising that it was largely made of cotton and wool, and thus extremely cheap to make, he became obsessed with creating an affordable alternative for poor Indian women. To do his market research, Muruganantham, “a barely literate son of a handloom weaver” who lived in a village in Tamil Nadu, had to ask women very personal questions about their menstrual cycles in a highly conservative environment. The ensuing social boycotts meant that his entire family, including his wife, deserted him. But that did not stop Muruganantham, who eventually won back the trust of his family and his village through his success.

Similarly, in Kashmir, Sengupta posits that the winds of entrepreneurship are changing the temperament of the state. Mir, the son of a wealthy fruit and vegetable seller, came back from his studies in the United States to start a cold-storage-facilities company that has now become the chief storage solution for many of Kashmir’s farmers. Arifa Jan, the daughter of an illiterate government employee, has managed to reinvigorate the craft of numdah rug-making with the help of seed funding through a government scheme. For Sengupta, such stories, by showing new pathways towards prosperity, can act as catalysts for peace in Kashmir, especially among the valley’s disaffected youth.

Sengupta situates entrepreneurial vigour as a useful antidote to the failures of India’s society and state. In his view, the market, driven by its captains, can provide an escape for those who wish to bypass the country’s social and political conflicts, and fix its problems of nutrition, sanitation and health. It can also allow a gateway to prosperity for those not connected to the existing social and political elite. Thus, Recasting India eventually becomes a polemic for liberalisation, free markets and anti-statism.

Yet the narrow focus on the entrepreneur, which makes Recasting India an engaging read, is also the book’s chief weakness. The emphasis on entrepreneurship as a means to mitigate poverty, discrimination or violence is puzzling. While there are certainly Dalit entrepreneurs, Sengupta’s work fails to acknowledge that deeply rooted caste discrimination, powered by centuries-old prejudice, requires a more wholesale transformation of societal norms. Stories of entrepreneurial success in spite of constant curfews in Kashmir have not really ameliorated the acute conflict . Small-scale entrepreneurs in Tamil Nadu manufacturing cheap sanitary pads have not led to a sizeable jump in the menstrual hygiene of Indian women. In short, these isolated success stories have not revolutionised their own fields, let alone Indian democracy as a whole.

Sengupta’s portrayal also skips the questionable concessions and adjustments that most business leaders in India have to make to get ahead in the market. The ugly collusions between business heads and politicians, the compromises in product quality, or the blatant extrajudicial rigging of the market that form the inevitable face of entrepreneurship in the country are all missing. Sengupta could have borrowed from the novelist Mohsin Hamid’s depiction of the ethical dilemmas the protagonist in his How to Get Filthy Rich in Rising Asia encounters on his way to money and power. Hamid’s work is a far more accurate portrayal of the Third World entrepreneurial journey than Sengupta’s profiles, which are full of unfounded optimism.

SENGUPTA AND SINHA are not alone in deifying the entrepreneur. “Promoting entrepreneurship” by launching “start-up incubators” has become a standard policy for most governments in India today, across state and political lines. The central government has launched the “Start-up India, Stand-up India” scheme, with a Rs 10,000-crore fund to nurture start-ups. The prime minister has made promoting entrepreneurship a regular feature of his speeches to business associations, and of his regular radio address, Mann ki Baat. The chief minister of Bihar, Nitish Kumar, in a recent interview, proudly described what he has done to bolster entrepreneurship among youth in the state. Similar pronouncements have been made by the chief ministers of Himachal Pradesh and Chhattisgarh, among others. Letting a hundred start-ups bloom, the logic goes, shall boost growth, productivity, employment and innovation.

However, promoting entrepreneurship as the central pillar of economic policy gets the modern economy wrong on two counts. For one, the digital revolution, driven by the internet, apps and smartphones—which have largely powered popular perceptions of the success of entrepreneurship today—has been much less revolutionary in its effect on living standards than is conventionally assumed. Second, in the modern world, economic and technological growth are more products of large organisations working at a massive scale than the scattered efforts of individual heroes.

The economic historian Robert Gordon, in his recently released magnum opus The Rise and Fall of American Growth: The US Standard of Living Since the Civil War, notes that of all the bursts of innovation that have gripped the United States since the 1770s, the latest—that of the internet and computing—has been the least effective in raising living standards and economic productivity. Between 1870 and 1940, American industry perfected the production of the car and the airplane; indoor toilets, electricity, centralised heating and running water were introduced to most households; and advancements such as washing machines and refrigerators drastically reduced the drudgery of domestic work for many women. These innovations, Gordon argues, revolutionised material life far more than the advances in computing and communication of the past few decades have. elative to the second industrial revolution, innovation in our era has stagnated. Science-fiction writers of the twentieth century predicted that humanity would soon avail of nuclear-powered cars and interstellar travel. But as the contrarian billionaire investor Peter Thiel has famously quipped, “We wanted flying cars, instead we got 140 characters.” Thiel’s venture-capital firm, Founders Fund, published a manifesto on this theme, titled “What happened to the future?” Its author, Bruce Gibney, writes:“Not all technology is created equal: there is a difference between Pong and the Concorde or, less glibly, between Intel and Pets.com. Microprocessing represents real technological development, peddling pet food on-line, less so.”

It is precisely this ability to see the tech revolution in a larger perspective that is missing among those hailing the start-up phenomenon as one that will deliver India from its traditional woes of joblessness and poverty. A digital e-commerce service such as Flipkart or an aggregator such as Ola connects customers to sellers or service providers in more creative and efficient ways. This means it tends to disrupt existing networks of distribution, as when Flipkart disrupts brick-and-mortar retail, or when Ola disrupts local taxi associations. These disruptions decrease prices, but they do not replicate the leaps of productivity that, for instance, have been caused by the division of labour, the assembly line, advancements in machinery or robotics, or the exponential increase in the power of the semiconductor chip.

Thus, while slum dwellers in Mumbai may be using WhatsApp, the fact remains that they still may not have running water, reliable electricity, health insurance or refrigeration facilities. More importantly, they also rarely have jobs in the high-productivity industries that can buy them access to those things. The majority of the world’s rich nations were able to provide their citizens with such conveniences many decades ago. India’s deficiencies in the twenty-first century remain fundamentally similar to those it faced at the time of Independence. Surely, India needs the basic revolution of improved infrastructure, schools, health care and housing more than it needs a revolution of apps and smartphones.

Those who overestimate the relative benefits of the digital revolution also tend to indulge in the fallacy that innovation and economic dynamism are driven by the presence of a number of small companies led by brash entrepreneurs with missionary zeal. But can such entrepreneurs put India on the path of sustainable economic modernisation? Today, our cheap smartphones are produced by massive factories employing thousands of labourers. The certainty of these goods being transported and delivered on time depends on transnational shipping companies backed by global insurance firms. Health agencies are able to procure medicines on a huge scale because they are run by giant bureaucracies and buy from equally gigantic corporations. Bureaucratic organisations—whether public or private, capitalist or socialist—are the cornerstones of the modern economy. The world would be very different, and certainly a lot less efficient, if it were run by the small teams of loosely networked professionals who are in vogue in business journalism today.

The greatest innovations of even the internet age are fundamentally products of such institutional behemoths. The internet itself was a by-product of the US government’s heavy investment in military research, particularly through the Defense Advanced Research Projects Agency, or DARPA. Computer microchips are developed by highly specialised teams working together in large corporations such as Intel. The ability of a hundred start-ups to bloom thanks to low entry barriers due to the internet and cheap computing has camouflaged the real institutional effort that goes into meaningful, transformational innovation.

The Harvard economist John Kenneth Galbraith noted in his definitive book The New Industrial State that Western economies rarely work according to the theories of the free market. Instead of thousands of small firms engaged in open competition, the twentieth century was characterised by a relatively small number of giant companies engaged in oligopolistic competition, where prices remained stable and rivals looked to outdo each other in branding and quality. Production decisions were taken in highly concentrated planning centres located in the bureaucracies of two types of modern institutions: the corporation and the government. For Galbraith, “The need for planning … arises from the long period of time that elapses during the production process, the large investment that is involved and the inflexible commitment of that investment to the particular task.” So while entrepreneurs such as Muruganantham may devise, say, a way to make affordable sanitary pads, the fact remains that menstrual hygiene shall continue to be shoddy in India till such innovations are scaled up through a nationwide system, which only a large corporation or government body can set up.

This is not to underestimate the effectiveness of entrepreneurship, or downplay the importance of the entrepreneur in refining a product or bringing efficiency to the management of a business. It was Henry Ford’s doggedness that drove the Ford Motor Company’s Willow Run factory in Detroit to produce B-24 bombers at a record rate of one per hour during the Second World War, just as it was Steve Jobs’ compulsive dedication to aesthetics which led to the slick design of Apple’s iPhone. However, transformational innovation is usually a product of stable agencies with massive budgets, whether these are DARPA or Intel. The idea of the entrepreneur as the sole driver of economic transformation should be seen as a passing fad.

Akshat Khandelwal is a writer and entrepreneur based in Delhi, who has contributed to Scroll.in, DNA, the Indian Express and the Financial Express. He tweets as @akshat_khan.

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