'In praise of small business', The Hindu, 28 February, 2003.
A wanton neglect of the private investor by the political establishment, it now appears, will be a thing of the past in Kerala. In late January the people of the state were witness to the grandly orchestrated Global Investor's Meet (GIM) at
There is some scepticism as to the amount of funds the GIM is likely to bring in. The memoranda of association must, after all, translate into actual expenditure. However, a more valuable approach to the government's celebration of its efforts is not necessarily to sneer at its counting its chickens before they are hatched, but to query GIM's role in the "restoration and rebuilding" of the state's economy, which process the government was the Governor told his legislators. It bears some emphasis that if development is to mean anything at all it is about building something, whether human capabilities or public goods. Altogether, building has gone a little unattended to in the political discourse surrounding the evaluation of development in Kerala. So the real issue with regard to the GIM is the vision of development it embodies.
The overwhelming majority of the projects announced at the GIM are in the areas of infrastructure, tourism and entertainment, and telecommunications. By their very nature, these tend to be mega projects. Interestingly, this is their very cachet to career politicians. Big business, the media and politicians relentlessly push the line that notching up mega projects defines a sound economic strategy. Is this so, though? While the colour of the capitalist - as with Deng Xiao Peng's allegorical cat - need not detain us, the composition and size distribution of investment does merits our attention. Compare, for instance, the consequence of ten units investing Rs. 10, 000 crores with that when one thousand do so.While the volume of investment is the same in both the cases, the number of investors is one hundred times larger in the second one. There is some reason to believe that the aggregate benefit for society would be greater now. Externalities, or the positive effects on society of a firm's activity are notoriously difficult to measure. However, it is worth speculating that they would amount to more when the number of firms investing is larger. Another consequence is political but no less important for that. In the latter case, the number of stake-holders in the economy would have been increased a hundred fold. Stake holders are among the most important assets of any society.
A widely spread investor-base must entail smaller entrepreneurs. It is also likely that they would be local. This is not dogma. It is based on recognisable patterns of world history. Over three decades ago, C.T. Kurien had proposed the concept of 'the core of the Indian economy'. While Kurien's counterpoint to the dominant Anglo-American tradition in economics may not have prevailed, he had nevertheless drawn attention to a central feature of the Indian economic terrain. These production units that finance their own investment were not seen as merely symbolic of Indian exceptionalism. It had been suggested that such units constituted in large part the reality of the economy. To hazard a guess, while these must account for a relatively small share of output they must constitute the greater share of all economic units. For over three decades the core of the economy has remained outside the ken of the nationalised banking sector. Since 1991 the central government has ignored them for foreign direct investment and the states have ignored their potential for such wooable national capital as there is, Kerala's GIM being an instance of this. But if we are at all serious about 'restoring and rebuilding' the economy we may actually need them a little more than they need us. After all, that they have survived for five decades without any assistance whatsoever from the Indian state. It is hardly my case that some narrowly defined core should absorb all our attention now. However, recognising their existence alerts us that chasing exclusively mega projects could leave a government missing the woods for the trees. The core of the Indian economy is not represented by trade organisations or chambers of commerce; they are not likely to be on the mailing list of confederations of industry. They are dispersed, and hence powerless to lobby or berate. But they are not necessarily the wretched of the earth. Among them may be found desk-top publishers and web designers, artisans and bakers.
To even begin to understand the constraints on the growth of an economy one needs to appreciate the terrain over which economic activity occurs. This is partly institutional, as described by the laws governing the activity. But it is also partly dependent upon certain physical inputs provided the world over by municipalities. Kerala's institutional terrain is but a microcosm of the national one where much has been invested in the regulatory function. Some of these interventions are necessary in any civilised society and range over protection of the worker to protection of the environment. But surely we also need interventions that are promotional in that they are geared to assist the entrepreneur. The singular test of whether government are enabling of economic activity is whether a small entrepreneur can command their advisory assistance.
Until we have an enabling rather than a purely regulatory regime we can expect little by way of a vibrant economy. The nature of the government machinery today is not hard to divine. Almost all of it has its origins in the colonial
Thankfully, though, we are not without a remedy. The bureaucracy can be made to pay for its upkeep by being compensated in terms of how many activities it has helped start up or at least to expand. Overnight the daunting stream of windows for clearance can be turned into windows of assistance for the smallest business. We would finally have government fit for a democracy. As of now for Kerala, the GIM with its promise of a single window for the megacorp is limited in its vision and discriminatory in its likely impact. It leaves a myriad Malayali entrepreneurs stranded without a role in an entirely laudable governmental project of restoring and rebuilding the state's economy. Kerala's political establishment, beyond the fig leaf of party affiliation, has its task cut out! But does it have what it takes?
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