Success despite govt, courtesy jugaad

No less than 93% of Chinese businessmen say the main reason for their spectacular success is network connections (guangxi), especially with government officials. Indian businessmen, however, have succeeded despite the government: 81% say the main reason for their success is jugaad, the ability to find innovative way round prohibitive rules and institutions.

This is the key finding of a survey of 4,000 businessmen in the two countries by YouGov, a top online survey organisation, and the Legatum Institute, an independent think tank. The survey represents the subjective view of Indian and Chinese entrepreneurs, but has a ring of truth.

China is in many ways a government-led success. Chinese businessmen add that the government\’s regulations remain major hurdles, but see a much more positive side to officialdom than in India. Only 11% of Indians view the government as \’very good\’ against 30% in China.

Most Indian business owners view the government as corrupt, wasteful and ineffective. They acknowledge major gains from liberalisation but see corruption as a terrible problem that merits top priority in the future.

India\’s main successes are in the private sector, while its main failures are in the government sector. That is surely a major reason why India has lagged behind China for three decades. It may yet overtake China in the next decade because of its demographic dividend. In 2011-20, India\’s workforce will increase by 110 million, but China\’s by less than 20 million, according to a Goldman Sachs study. This advantage may translate into faster GDP growth.

But even India\’s workforce surge is surely a private sector success. You could call it private initiative in the bedroom. Cynics will disagree: they will say our demographic dividend is due to the utter failure of the state in family planning in Uttar Pradesh, Bihar and Rajasthan! These states have by far the highest fertility rate: four children per woman. The fertility rate is half that in progressive states.

The YouGov-Legatum survey provides many other fascinating insights. It says 62% of entrepreneurs in China and 48 % in India think their own country will be the biggest global economic power in 20 years.

One-fifth in India and just over onethird in China believe the global financial crisis has made starting and running a business more difficult.

This suggests that China has been less resilient than India in facing the financial crisis. This probably flows from China\’s greater dependence on exports.

Large majorities – 81% in China and 65% in India – believe they are more naturally entrepreneurial than other societies. Indians think they have more jugaad. Now, Europeans beat the pants off Chinese and Indian businessmen after the industrial revolution.

But the confidence now exuded by Indian and Chinese entrepreneurs shows that feelings of inferiority induced by the colonial era are almost entirely gone.

Chinese entrepreneurs say the main reason for starting businesses is to make money. Indians give money a lower priority, and say their main motivation is independence, being one\’s own boss.

In both countries, businessmen seek not just money but community improvement. Nearly two-thirds of business owners in both countries say that improving the quality of life in their communities is \’very important, a main motivation for what I do\’. Cynics will scoff. But entrepreneurs see business as aiding, not coming in the way of, social development.

Only a small fraction – 6% in China and 2% in India – sees philanthropy or volunteerism as the primary means for creating social impact.

In India, the immediate family is most important for a business. In China, with its emphasis on networks, the extended family matters more. Indian entrepreneurs get money for startups mainly from their immediate family, while Chinese businessmen depend more on conventional debt and investors. In China, 37% of business owners use loan as the primary source of financing for their startup, against 19% in India. And in India, 39% start with family resources, against 19% in China. Clearly, access to finance is more difficult in India, and \’priority sector\’ obligations on banks do not translate into actual loans to startups.

Ironically, the Chinese are so used to easy finance that they cite lack of it as the greatest reason for business failure, while Indians say it is the bureaucracy.

In India, the biggest immediate motivation to start a business is another entrepreneur (27% of those surveyed). In China, the biggest motivation (23%) is what was taught in school or college. Clearly, Chinese schools and colleges do a better job in this respect.

Chinese respondents cite pro-business efforts by universities, government communications and the media as key factors in their decision to start a business. However, most Indian entrepreneurs are motivated by the family, finance availability and friends.

The most common source of business advice among Indian entrepreneurs is family or friends. But Chinese entrepreneurs seek out other businessmen, and hire consultants at twice the Indian rate.

No single survey can capture all dimensions and problems of entrepreneurship. Yet, the YouGov-Legatum survey provides some useful lessons for public policy.

First, economic liberalisation needs to proceed much faster. The bureaucracy continues to be a major problem, so we need get rid of many pointless rules and regulations. The quality of governance is poor, so we need administrative and legal reforms to reduce corruption and improve access to common justice. Access to finance is a major problem in India, and so the Reserve Bank of India must abandon its ultra-conservative policy in licensing more banks and branches.

Finally, jugaad is a vital ingredient of success. India may not have ample natural resources like oil or copper, but it has jugaad, which is more valuable. Natural resources like oil are often a curse: they can lead to government kleptocracy and authoritarianism. But jugaad helps foil government kleptocracy and authoritarian regulations. It enabled Indian business to survive the licence-permit raj, and to blossom after the 1991 reforms.

Jugaad cannot be measured, and so cannot be incorporated in economic models. That is why most economic analyses of India are incomplete.

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