24th April 2019 BUSINESS STANDARD
(*The writer is a corporate advisor and Distinguished Professor of IIT Kharagpur. His new book titled “CRASH: lessons from the rise and exit of CEOs”, has just been published by Penguin Random House. Email: firstname.lastname@example.org
Business and entrepreneurship are clearly promoted by fostering and advancing trust in a society. I came across two books, both of which emphasized trust as a social and behavioral ingredient in the spread of entrepreneurship–Rainforest: the secret to building the next Silicon Valley by Victor Hwang and Greg Horowitt and Trust: creating the foundation for entrepreneurship in developing countries by Prof Tarun Khanna of HBS.
Powering the energetic drive for entrepreneurship in the country, our policy and business leaders should do much more to nurture trust. The manifesto of one party mentions motherhood statements, having done nothing during its time, “Since our economic model is based on entrepreneurship and innovation, we commit to simplifying and lowing tax rates. An important aspect of the ease of doing business is the ability to enforce contracts and resolve disputes. Therefore, we promise to significantly increase the capacity of the legal system within five years in partnership/co-ordination with the judiciary.”
Is it for entrepreneurs or for governments and policy makers to act? Or is it a shared job? If policy initiatives are likened to positive energy that accelerates, then dilution or reduction of trust works as a negative energy that retards. The final benefit to society is the sum of these two opposing factors. Business must adopt trust-building systems like quality and reliability, while, and governments must provide unambiguous policy and speedy dispute resolution.
Members in societies develop trust through two broad strategies: first, is the positive nurturing of trust through social behaviors of mutual understanding and adaptation to one another’s differences; second, is the avoidance of the negative of diminishing trust by speedily investigating and adjudicating on inevitable differences in society. India can improve in both respects.
Nurturing of trust: Trading tradition is based on trust, on communities living adaptively and in harmony. Trust-building systems are an intuitive part of Indian life. The Multanis traded as far as Central Asia and Persia because they developed a system of transferring money based on trust, the hundi. The Marwaris were able to extend their geography by developing a third-party system of the gumastha. The Kutchis became masters at intuitively understanding the winds and ship-building systems, which enabled them to venture out far into the oceans. By developing the training system of podiyan-aduthavan, the Chettiars could undertake controlled risk-taking across the seas. Social adaptiveness and harmony lie at the core. I will digress through an example.
Around 1650, a Tamil priest, Rangarajan, migrated from Kanchi to rural Bengal at the invitation of the local raja. A Tamil enclave developed at Gadi Bero over 350 years, speaking only Bengali, dressing in authentic nine-yard saree and panchakacham veshti, more elegantly than those in Mylapore! They told me with pride, “Aamrau aapnaar motun Bodogalai Iyengar, kintu Tamil bolte pari naa. Kemun lagchey amader poshak?” (We are also from your community, but we cannot speak Tamil, how do you like the way we dress?). Their adaptiveness and diversity has produced a Principal for Patna Medical College, two well-known neurosurgeons, scholars and parliamentarians.
The marked deterioration in social tensions is an economic drag on entrepreneurship. The social fabric and the centuries-old entrepreneurial instincts of Indian business are being damaged in a truly anti-national manner.
Deciding on disputes: India must take the cake for her inability to resolve disputed through the legal system. Speedy justice is absent in every political party’s manifesto, even as the situation declines precipitously. While there are good economic reasons to have a speedy dispute resolution mechanism, there must be good political reasons to have an increasing logjam of commercial and criminal court cases.
As Prof Tarun Khanna states, “Without this ambient trust, the workings of just about everything would be compromised…..in the developing world, entrepreneurs must create the conditions to create.” In Rainforest, the authors describe the case of two professors (husband-wife), who set up a company called Profusion. Its technology was so good that PC Magazine awarded their firm the “Best Meta-Search Engine” Award. They lost in commercialization to Yahoo, not because Yahoo had better technology, but because Yahoo built better relations and networks.
Entrepreneurs can be tasked to develop systems of positive trust-building, like superior customer service and quality systems—but politics must not diminish those efforts by fostering social tensions and delayed dispute resolution. Whichever government may be formed in May should note this important aspect.