India is a much more Entrepreneurial Society than the United States (and that’s a problem)

India is a much more entrepreneurial society than the United States. That may seem surprising since India is poor and we typically associate entrepreneurship with being rich but it’s clearly true. Everyone here is on the make and open to an opportunity. You need to hire someone to fix your wifi or repair a bicycle or make a movie? You can find someone within hours. “Yes, we can do that” is the default answer to any question. Of course, it may have to be done illegally but, subject to that, it can be done. The can do attitude is especially prevalent in Mumbai but it’s true elsewhere in India as well.

Indians are entrepreneurial because they work for themselves. Overall, 95% 80-90% of Indians are self employed compared to just 10% of workers in the United States.* That is perhaps one reason why the National Academy of Science report on immigration found that “Indian immigrants are the most entrepreneurial of any group including natives.”

However, when we reverse the employment statistic–only ~15% of Indians work for a firm compared to approximately 90% of US workers we see the problem. Entrepreneurship in India isn’t a choice, it’s a requirement. Indian entrepreneurship is a consequence of India’s failed economy. As a I wrote in my Cato paper with Goldschlag, less developed countries in general, not just India, have more entrepreneurs,

If we define entrepreneurship as self-employment then there is much more entrepreneurship in poorer countries. People in poorer countries have to be entrepreneurs because there are relatively few jobs, that is to say few employers of large numbers of workers. Moreover, although not all self-employed workers have the skills or temperament for entrepreneurship, the identification of entrepreneurship with self-employment is not a definitional sleight-of-hand. Travelers to less developed economies often are surprised at how much more market oriented, dynamic and entrepreneurial these economies appear to the naked eye. Indeed, tourists are more likely to visit an actual market in a developing economy than they are at home. The visceral hustle and bustle of the town market is a display of real entrepreneurship. The greater familiarity that people in developing countries have with entrepreneurship is likely one reason why immigrants to the US are more than twice as likely to start new firms as are natives (Fairlie 2013).

The problem with developing countries is not that they lack entrepreneurs but that entrepreneurs cannot grow their firms large enough to become major employers.

The modal size of an Indian firm is 1 employee and the mean is just over 2. The mean number of employees in a US firm is closer to 20 but even though that is ten times the Indian number it obscures the real difference. The US has many small firms but what makes it different is that it also has large firms that employ lots of people. In fact, over half of all US workers are employed by the tiny minority (0.3%) of firms with over 500 employees.

Most workers in the United States work for large firms. In India, however, large firms are negligible as far as employment is concerned and that is a huge problem because large firms are more productive. India’s pre and post-colonial history all put barriers in the way of large firms that only recently have begun to fall. In Can Indian Grow?, Anantha Nageswaran and Gulzar Natarajan’s admirably clear and useful summary of the Indian economy, they summarizes some of the key issues:

Before independence, India’s colonial rulers snuffed out enterprise by exporting India’s raw materials to nurture businesses in their own countries. The capacity to create and nurture big businesses in the private sector in sufficient numbers has never been achieved since the state occupied the commanding heights of the Indian economy in the first three decades after independence. Moreover, the post-independence legal and regulatory framework favored small businesses: the production of certain items was reserved for small-scale industries, and labor protection was emphasized rather than efficiency and scale. Because of India’s experience of being ruled by a foreign trading company, a suspicion of big businesses still lingers.

As a result, small firms in India don’t grow:

Most Indian firms start in the informal sector and never grow or, worse, diminish in size over time: according to a 2013 International Finance Corporation study comparing the size of thirty-five year-old firms in India, Mexico, and the United States with their size at start-up, in India the size had declined by a fourth, in Mexico the size had doubled, and in the United States the firms were ten times as large. That is deeply troubling. As firms age, they are expected to get larger and to employ more people. Since India’s experience is orthogonal to this expectation, something in the Indian business ecosystem is badly broken.

Entrepreneurship, like other factors of production, can be misallocated. India has great entrepreneurs but their hard work, creativity, and risk taking is being wasted building tiny, stunted firms.

* The figure for 95% self-employed seemed high. I checked with the authors and after tracking down the figure they found a slight error. The 95% refers to workers in the informal sector. Most firms in the informal and formal sector are small, however, so the corrected figure is that about 80-90% of Indians are self-employed.


Does a failed economy grow at 7% or more per year?

Personally, I think this idea of everyone being self-employed and having lots of small firms is great. It's bad if it's caused by some sort of official corruption, but it also means that capital is widely distributed. It's a sign of a social equality.

There is probably a optimal size of each firm at a given level of technology and I think in India many firms are way below their optimal size.

Yes I think Floccina is right, small sized firms are a sign of backwardness, the Greeks are the same (small firms that hire their relatives).

Larger firms are a sign of economic development, but an absence of small firms is a sign of over-regulation. You want people to be starting small firms, and then growing them, and challenging the big firms all the time. You don't want the big firms being entrenched and supressing the entry of smaller firms.

I think there are two things going on. The US is a more developed economy and in some ways less regulated and/or has the proper institutions for regulating private property, IP, etc., allowing smaller firms to get big (good). But at the same time, the entrepreneurial culture has declined and there are barriers to entry resulting in fewer small firms (bad). Meanwhile India has problems with lack of institutions and over-regulation (bad), but it has a vibrant low-level entrepreneurial culture (good).

Over-regulation can go in either direction depending on enforcement. Suppose there are two equally-regulated countries. You could imagine one where pervasive low-level corruption means that the regulations ultimately don't apply to small businesses until they reach a certain size. This effectively creates a diseconomy of scale favoring small businesses. Imagine, in contrast, that in the other nation the regulations are applied fairly evenly across businesses regardless of size. There, you would expect there to be significant economies of scale and scope in dealing with the myriad regulations, which would favor large businesses.

Again, my knowledge of India is fairly thin, but it seems like they are closer to the former and the U.S. closer to the latter.

We might be shoehorning the facts to fit an ideologically driven narrative here. Not everything is about over-regulation. ChocolateSeller's response below gives some other possible explanations.

I don't mean to say that I think over-regulation is the main problem in India. I really don't know enough of the details to have a view on that. Just that over-regulation could potentially favor either small business or big business, depending on the enforcement of those regulations. And on that, I get the sense that it is easier to avoid enforcement as a small Indian business/entrepreneur than as the same in the U.S. But even if India or any other nation has the perfect regulatory framework, lack of low-level enforcement could favor small businesses, while generally even-handed enforcement (or, of course, stronger enforcement against small businesses) could favor large businesses. In which case you might see relatively more/less entrepreneurship not because of "regulation" per se, but because of the pattern of enforcement of that regulation.

Same here. I am absolutely willing to sacrifice some economies of scale for the wider distribution of capital (and hence political and social power) that a more entrepreneurial vs. a more big-business society provides. Concentrated economic and social power is as dangerous to individual liberty as concentrated governmental power. And big government and big business can be mutually reinforcing.

It is a version of the yeoman farmer ideal from the Jeffersonian era. The yeoman entrepreneur.

Yes, actually. Extremely high growth rates are kind of the hallmark of a backwards economy. As an example North Korea in many years clocks double-digit growth rates. When you're that poor adapting even very poor facsimiles of first world technologies or practices can often make dramatic differences. Things like "buy farmers a $10 rake" or "stop pooping so close to the drinking well".

The winner of the most improved award is almost always a kid from the bottom of the class.

'As an example North Korea in many years clocks double-digit growth rates.'

No it doesn't - 'The North Korean economy shrank 1.1% in 2015, following a 1% growth in 2014, according to estimates from the Bank of Korea. It is the first contraction in 5 years and the biggest since a 1.2% drop in 2007. Production of electricity, gas and water recorded the biggest decline (-12.7%) as the drought hurt hydroelectric power generation, followed by manufacturing (-3.4%); mining (-2.6%) and agriculture (-0.8%). In contrast, construction surged 4.8% and the services sector went up 0.8%. External trade excluding South Korea declined 17.9%, while trade with South Korea increased 15.7%. Exports shrank 14.8% to USD 2.7 billion with mineral sales falling 14.7% and textiles rising 5.3%. Imports slumped 20% to USD 3.56 billion. GDP Annual Growth Rate in North Korea averaged -0.52 percent from 1990 until 2015, reaching an all time high of 6.20 percent in 1999 and a record low of -6.30 percent in 1997.'

So if we do something simple and, obvious, like spend a trillion on infrastructure, and our economy grows 7%, how would Alex categorized it? And what of China's growth?

"Does a failed economy grow at 7% per year?"

No, but a developing country does. Its catch-up growth. This isnt new people.

Further, people here are failing to distinguish between necessity entrepreneurship and innovative entrepreneurship. Self-employment is not a very good proxy for innovative entrepreneurship.

Just because everyone in India is selling hot dogs or knickknacks in road side stands or working as a handyman building others a shitty home addition, rigging the wiring in someone's house, or rebuilding someone's engine without properly torquing the bolts, it doesnt mean they are engaging innovative entrepreneurship. Its means self-employment is the only option aside from subsistence farming or starvation.

Have any of you ever been to India? To date, its still a disgusting place with streets resembling open sewers, with a plethora of open garbage piles where homeless children scavenge for items to survive on (what is being called entrepreneurship here), water you cant drink without getting sick, and a population suffering from permanent respiratory infections due to smog filled air.

Whats being described as a can do attitude... others would call bull shitting.

So they're failing up? I wouldn't disagree it's a developing economy, because of course they're not rich and are growing quickly. But to me that doesn't mean it's also a failed economy.

What would India's growth rate be if it had larger firms? (It would probably mean that the compounded rate of return from my index fund would be noticeably higher.)

I am knowing that I am outsourcing myself only to do the needful

Teamwork, or the absence of teamwork, seems to be a problem in India. My very unscientific observation: physicians in America who are from India don't work well in teams, the physician's personal agenda always taking priority over the team's agenda. Is that Tabarrok's observation in India? Of course, the diversity in India (cultural, religious, ethnic - even physical appearance) might explain the absence of teamwork. As we are learning in America, diversity may not be such a good thing.


May relate to

" “Yes, we can do that” is the default answer to any question. Of course, it may have to be done illegally but, subject to that, it can be done."

"” “Yes, we can do that” is the default answer to any question. Of course, it may have to be done illegally but, subject to that, it can be done.”"

Well in the engineering world, "Yes we can do that" is indeed the default answer from Indian firms. Unfortunately, it's the answer you get even when they don't understand the process and culturally they tend not to ask questions in public meetings.

So, if they do understand the process, it's not an issue. However when they don't understand the process it's a long slog through a series of missed project deadlines or rejected non-working code or rejected substandard output, until you finally get to a finished acceptable product.

Good insight, entrepreneurship should not be confounded with being unable to work in a team. In that case, "entrepreneurship" is the consequence of a low trust society.

"Indian entrepreneurship is a consequence of India’s failed economy. "

"The capacity to create and nurture big businesses in the private sector... has never been achieved since the state occupied the commanding heights of the Indian economy..."


Effect & Cause

India's oppressive socialist government destroys its economic growth potential.

Surprising that no economists have ever before noticed this negative aspect of socialism (?)

"India’s oppressive socialist government destroys its economic growth potential."

Wouldn't it be more accurate to say that Indian's spend a lot of time and energy getting around the destructive governmental policies? Clearly India is rapidly growing, though perhaps below it's potential maximum growth.

This is true of most developing countries. In Latin America, Indonesia, and the Philippines for example, tax policy is such that formally progressive taxes end up destroying growth by effectively taxing the formal and more efficient companies that hire the middle and upper middle classes. The poor are hard to tax directly and the rich can evade taxes. The net result is that those areas where firms are the most productive, the most technically progressive, and the most likely to promote development are effectively constrained from growing. These countries can still grow at 5-7% because the countries are so poor that even one small area can bring up the whole. It would be like adding Hong Kong to Indonesia or the Philippines.

So, you are saying that high taxes and regulation drive entrepreneurs to go where the poor are and hire them making them a lot richer, and then moving on to more poor people once the now richer workers demand government make their lives better, drawing attention to their income that can be taxed to pay for water, sanitation, public health, education for their children, clean air and water, streets free of garbage, etc.

You are making the same argument of Milton Friedman back circa 1970. He argued government policy caused the destructive tax dodging of paying workers to build capital producing too much stuff to be consumed that prices were driven down eliminating profits to get the workers to buy and consume, leading to keeping up with the Jones desire to consume more, leading to higher wages, higher taxes, and then too much demand and now price hikes driving wage hikes.

Clearly, eliminating government will maintain the ideal of most people in poverty.

After all, can you point to any region of the world with low taxes and regulations that is extremely wealthy? In 1492, the Americas had no taxes or regulation to speak of, but Europe had both, and was wealthy enough to take the Americas and impose high taxes and regulations, leading to 1776, leading to the US Constitution giving a small elect in Congress the power to tax and spend as their prime directive.

If conservatives who argue tax and spend always fail were right, then Shays rebellion et al would never have happened, and thus there would never have been the evil failing disasterous US Constitution dooming the American Experiment of Liberty.

"Most workers in the United States work for large firms"

That would be a surprise to the 53% of workers not in large firms. Maybe by large you mean more than one person.

Why don't Indian enterprises grow? Some reasons and possible remedies:

1. Ability to fail - The entrepreneur has to take greater risk to grow quickly. With more risk comes greater risk of failure. Indian business environment (and society) is not suited to accommodate failure. There is an urgent need to strengthen bankruptcy laws (on paper and in implementation) such that it is ok to fail and yet start over again.

2. Incentives to staying a small firm - regulatory / statutory requirements are oriented to benefit the small company that stays "under the radar" - everything from compliance with labour laws (e.g. easier rules for firms <20 employees), excise duty (no duty under a certain turnover), benefits in sales tax & income tax in staying under a certain turnover (in addition to not having to get audited if under a certain turnover).
One can often find two names for the same store / business - probably one owned by the husband and one by the wife. Turnover gets divided by two and hence stay "under the radar" even when you exceed the minimum turnover norms.
GST law will reduce the incentives to staying small from the taxation perspective. Labour laws need to be reformed so the "pains" of being a large employer are reduced. The Modi government tried this soon after coming to power in 2014 - but met with furious political opposition and labour law reforms are held up.

3. Enforcement of contracts - One often stumbles upon firms who are making / selling an exciting product but stay small only because the owner cannot reveal business secrets (innovative mfg process / business contacts etc) with his employees. If it is an innovative mfg process, he stays small, hires uneducated labour for the fear of educated employees going out and starting on their own with the same product (or sell confidential information to a competitor). It is practically impossible to enforce an employee confidentiality contract. Any sort of litigation means years and years of wasting time and resources. It is sometimes more beneficial to keep an innovative process proprietary and not patent it. Patenting comes with disclosure and it is very difficult for a small-to-mid company to enforce patents effectively.
The judicial system has to be reformed. Easily said, though.

4. Lack of cognitive ability. Growing an informal one man operation into a 50-plus employee well-well-structrued corporation requires a certain amount of brain power. There's a whole host of relatively complex decisions and tasks that require a good deal of literacy, numeracy, and abstract reasoning. Accounting statements, legal contracts, credit facilities, human resources, cash flow management, growth projections, regulatory compliance, brand management, etc. Those are things that can be ignored or pretty much half-assed until you reach a certain size, at which point getting them right all of a sudden becomes *really* important.

In India, average IQ is 82. That's much too low to be competent at most business related activities. In the US it's 100, that's still probably too low. But the bell curve tells us that a random American is 8 times more likely to have 110 IQ than a random Indian. So the guy who makes great ribs off the highway in West Texas is much more likely to have the brainpower to scale up and build a restaurant franchise, than the guy who has a great samosa stand in Bombay.

But IQ is a function of GDP and childhood nutrition, also a function of GDP, so you have a chicken-and-egg problem, Dug.

It would be hard to invent a clearer example of why a large proportion of the IQ discourse is not only useless, but actively harmful. In a country with 1.2 billion people, 60 million people will be in the top five percent of the distribution, and twelve million will be in the top one percent of the distribution. Even if I accept your argument that the IQ measurements you are citing are well-measured and meaningful and thus that people in the middle of the distribution can't handle these tasks and scale up their companies, that suggests literally tens of millions of capable people are capable of scaling up, and that there are also plenty of people for the people in the middle and left side of the distribution to hire to carry out these tasks.

Yes, and more importantly, the fewer people in the society capable of scaling up there are, the MORE concentrated capital should be. In other words, if you think relatively few Indians can handle large-scale businesses, then there should be a small number of large scale firms dominating everything, not a huge number of small-scale firms. The IQ discussion does nothing to explain why there is an absence of effective large-scale firms.

"....that suggests literally tens of millions of capable people are capable of scaling up, and that there are also plenty of people for the people in the middle and left side of the distribution to hire to carry out these tasks."

Why would the absolute number matter as opposed to the ratio? It's not clear to me that 2 smart guys among 100 dumb guys is better than 1 smart guy among 10 dumb guys. It seems like there's a limit to how much a single person can do.

@JWatts: If the economy were at capacity, the ratio is what would matter. If the hypothesis is that lack of capable people are the reason India has very few corporations, then the fact that there are millions of capable people who are presumably underutilized matters.

This sounds like utter BS.

Is there anything resembling a reliable source for your estimate?

India did- and in parts still does- have appalling malnutrition, terrible schools etc and this is a genuine problem and one reason why 'micro-finance' does not work. However, those parts of India which are advancing had a 'caste' system such that you could always hire good accountants and administrative staff so scalability was not a problem even for non-profits.

There was a bottleneck for technologically savvy staff but this was solved in an unexpected way for the I.T sector. What happened was that the Govt. had tried to create a cadre of technocrats to run Public Sector enterprises but bureaucratic in-fighting meant that these people were forced to retire early. They went to work for the tech savvy sons and daughters of the elite bureaucrats who had forced them out and this enabled the IT sector to scale up rapidly. In the Steel industry, global entrepreneurs like Lakshmi Mittal were able to hire ex. Public Sector technocrats who did an excellent job.

'Chocolate seller' makes an important point about contract enforcability. There is a huge difference between doing business in Surat- where there is a long mercantile 'trust' tradition- and doing business even in new built ultramodern locales where a 'get rich quick' mentality prevails.

Young people may have an MBA but if they can't enforce contracts how are they to proceed? Often they have borrowed from parents and relatives who blame them for trusting 'outsiders'- i.e. of a different caste or region. But smart young people don't want to work for a 'casteist' firm because they know they will hit a glass ceiling.
To some extent, these problems have lessened a lot for alumni of elite institutions- e.g. IITs & IIMs but such institutions are too few and too difficult to get in for the vast majority of the middle class. Some means of creating a proper moral climate is needed to foster trust.
Ultimately, however, massive investment in Judicial capacity is required.

"If we define entrepreneurship as self-employment then there is much more entrepreneurship in poorer countries."

I have a problem with this definition. When I hear entrepreneur, I think of someone who started a small company and then grew this into something much larger. A person who has a stall at street market is hardly an entrepreneur. I am not saying this is bad or anything. I just think this is misleading, which is why I hear all of these arguments about how immigrants are so much more "entrepreneurial" than Americans, I ask how the immigrant family that owns the convenience on the corner counts as an "entrepreneur." Again, this is great and they obviously contribute to the local economy, but they are not realty contributing that much to economic growth or employment overall.

Your definition is an outlier. An entrepreneur is someone starts their own business. Whether it grows to a size that you think is large enough is quite an odd way to lay definitional boundaries.

Fair enough. But "self-employment" does not equal entrepreneur. Can we at least agree that an entrepreneur is someone who employs more than himself or immediately family members? My point is that when people hear the word entrepreneur they think Steve Jobs, Elon Musk, Mark Cuban, etc, not the guy at the street market.

"An entrepreneur is someone starts their own business."

And starting your own transportation service business could never be easier!

Sign up with Uber and you are in business! Sign up with Lyft, and now you own two businesses. Sign up with airbnb, and now you own three businesses providing not only transportation but hotel service.

False. And needlessly dramatic. "Own" is the operative word. You just cited examples of (maybe) self-employment.

What interests me is why poor people in India self-employ and poor people in the US do not.
You state this as a problem because it's a consequence of a poor economy, but the entrepreneurship itself is NOT a problem it is a healthy response to lack of employment opportunities. If you can't find a job, invent your own. Do whatever oyu can that other people will pay you for.

So, why is it the the poor and unemployed in American don't do this more often. I doubt it is because of a lower regulatory burden in India. (Corrupt bureaucracies are a well known problem in less developed economies). What happened to American culture that destroyed entrepreneurship among the bottom quintile?

You might equally ask why day laborers, with the "Yes, we can do that" attitude, are non-citizens. I suspect the answer is some combination of regulation and a desire by citizens for "jobs" rather than "day labor."

day laboring is not that great of a way to make a living. Jobs are better if you can get one.

Risk aversion.

Self-employment comes with a large amount of risk. Employment is a steady paycheck.

In some ways though, employment is an illusion of low risk - more like bundling your risks into concentrated discreet events (getting laid off after years of experience) instead of a steady trickle. You're taking a big risk of letting skills get rusty or concentrating too much specialization in a particular field by only working one job for a long time.

I think its expensive to enter formal entrpeneurship in North America due to the cost of everything.

When I visited South Asia, it was clear that the license was usually the most costly thing around, compared to stocking up, hiring help or even rent. Those things are far more expensive here. Likewise, we have regulated and socially enforced mininum standards for health, safety and quality that are higher than rural Indians who just want a quick masala chai before they leave.

Also be careful of underestimating informal businesses on the side (including drugs!) that many poor Americans have in their houses. Anecdotely, I had Asian and Jamacian neighbours who did a lot of hairstyling, sewing, and fashion services on the side for members of their community.

I'm very pro informal businesses, and I also note that your Asian and Jamacain neighbors are likely immigrants. In general I find that immigrants from poor countries are much more entrepreneurial than Americans, in spite of our ideology to the contrary.

I am reading "$2.00 a Day: Living on Almost Nothing in America" right now. Good book on these issues.

That is an excellent question.

I wonder the same. The beggars in India are part of organized crime. Everyone else who is poor hustles like crazy. In America, beggars don't hustle but would rather ask for a handout.


Very interesting question.

Q: "What happened to American culture that destroyed entrepreneurship among the bottom quintile?"

A: The upper quintile decided to replace them with fifty million ringers from foreign lands.

Yes, I'm sure this explains why it is that Koreans open groceries in the inner city and Sikhs drive the cabs there. The baad baad foreigners destroyed the entrepreneurial spirit of American blacks!

I think socialist/communist ideology has done a massive disservice to black people in America by indoctrinating them with the idea that jobs are to be provided by the state with heavily enforced unionization. I also sometimes wonder if this is some sort of byproduct of slavery. Slaves working on a plantation were somewhat like identical factory workers - they take orders and are provided with food and board and a regimented lifestyle. Factory workers are expected to just show up and punch the clock and do your tasks and that's it. So similar to the way the labor movement conceptualizes what the employer/employee relationship should look like. Workers are just automatons who do their monotonous identical tasks so they can all be treated as identical units of labor.

In a way, it's like the commodification of labor. Slaves were commodities, and so, in a sense, are unionized factory workers.

Strange how nothing is stopping unemployed Americans from self-employing. Yet, immigrants do it and Americans don't. Many of those "replacements" aren't even formally employed. They are day laborers who are self-employed, so who are they replacing?

"Strange how nothing is stopping unemployed Americans from self-employing. "

Incentives matter.

Unemployment rates are often higher among foreign born, in the USA included:

Even if you use the participation rate, within about 1% of each other - and

But whatever I guess.

Government assistance isn't easy or generous in India. It's a fatalistic society so you do what you have to today, there isn't much thought for the future.

To start a list:
(1) More extensive social safety net (and particularly the decent standard of living it provides) make entrepreneurship less necessary as a means of survival.

(2) The U.S. does a pretty good job, all things considered, of letting talented people join "the establishment" in some way. A smart kid from the ghetto or a trailer park is probably going to be able find their way to college and a solid job. In India, my sense is that it is more likely (for many different reasons) that the smart kids won't have another outlet to succeed, or at least make ends meet, such that you will have more smart people who have no outlet except entrepreneurship. In the U.S., some established business would likely grab these talented people instead.

(3) Culture and the status quo. Our culture has moved, for many decades, towards expecting people to be employees, to find jobs, to work for someone else. And many people do this. If no one you know runs or has run their own business (or small farm, as would've been common 70+ years ago), it feels much less like something that you can do (or that people like you do in fact do).

re. the "extensive social safety net"

I have been reading some interesting history in the $2/day book (above). When Welfare reform was first proposed in the late 90's, it was a two part solution. First, Welfare for fit adults would be limited to 2 years. Second, at the end of 2 years they would transition to a private sector job or failing that, a government jobs program. So Welfare became a transition to work, on way or another.

Unfortunately "a government jobs program" cost money, and so it wasn't done.

The unintended consequence is that people who do manage to get in at Walmart can collect their EITC, but people who don't get in .. have really no benefit but SNAP. A couple hundred a month, maybe.

A public source on the same topic is here:

"...have really no benefit but SNAP. A couple hundred a month, maybe."

Even when adjusting for Purchasing Parity, a couple hundred a month is far more money than a poor Indian will earn.

Also, a poor person in the US can easily get far more than SNAP. There's Medicaid, TANF, Section 8 rental assistance at the Federal level. Then at the local level, free cell phones, public transport passes, etc.

There was actually a discussion between Lowrey and Deaton about which is the better place to be poor. It's why I picked up the book .. that and it was only $5

"Annie Lowrey: In your speech, you said something provocative: That you think you might be better off living below the World Bank’s extreme poverty line in a country like Bangladesh rather than here. I wouldn’t think that would be true.

Angus Deaton: I’ve been struggling with it. There’s this terrific book by Kathy Edin called $2.00 a Day, with Luke Shaefer. Then there’s Matthew Desmond’s book, Evicted, which I was very impressed by. I was trying to think: The World Bank does collect these income numbers—now, they’ve started doing this for the whole world because the [sustainable development goals] are supposed to cover everything—and in the United States, unlike other western countries, there are 3 million people who are under this limit."

" I doubt it is because of a lower regulatory burden in India. (Corrupt bureaucracies are a well known problem in less developed economies)."

Part of that corruption is the taking of bribes with no attempt to actually enforce the rules. For the businessman, that's often better, though not for the consumer.

"Do whatever oyu can that other people will pay you for."

Like what? Sell Oranges on the side of the highway? Ferry passengers in a rickshaw? Consumers don't want it, and Americans don't want to work for 50 cents an hour.

Ferry passengers in a rickshaw?

Why not?

I've often wondered why they don't have these all over the Mall in DC.
Every time I've been to the Mall to hit a few museums, it kills my feet walking up and down to get from one to the next.

Pedicabs are popular in many tourist areas in the US.
Are they legal in DC?

Pedicabs are legal in DC if they follow extensive "safety" rules such as only using roads with speed limits <30mph, all passengers have seatbelts, they have lights and other features similar to cars. That makes them more expensive, but still viable.

However, most of the tourists are visiting areas (like the Mall) managed by the national park service and they've given an exclusive contract to a tour bus company for transporting tourists around the various areas, so the NPS harasses and drives away pedicab providers whenever they see them near their managed areas.

So bottom line, you have to look for (and pay for) the hop-on/hop-off buses instead of pedicabs if you're a tourist.

What is India's social safety net like?

Hunger and shelter are great motivators.

OTOH, what's our underground economy like?

Our underground economy is all about drugs, and is also very immigrant heavy.

(We don't even have decent organized crime networks anymore! J/k).

"What interests me is why poor people in India self-employ and poor people in the US do not."

A poor person in the US can reliably eat, have reasonable cloths, electricity, running water and a game system with cable TV and probably a free cell phone from the US government.

A poor person in India will literally starve if they don't hustle.

In which Republican controlled States is this true? I'm not sure if this is true in any Democratic controlled State.

Or are you talking about the free room and board of prison? In which States do prisoners get free cell phones?

And your fashion sense is strange to call orange "reasonable" clothing.

Is it the case that India has lower unemployment?

"What interests me is why poor people in India self-employ and poor people in the US do not"

Well, Nixon, then Reagan, and Republicans waged war on poor entrepreneurs by declaring the goods and services illegal, and these new entrepreneurs as criminals who must be locked up.

Now Trump has redoubled this attack on poor entrepreneurs, equating them with criminal Mexicans.

And the Trump supporter official from NYC put in place the policy of sending lots of police to overwhelm poor entrepreneurs, calling them broken windows, leading to the death of an entrepreneur while held down by police while he was struggling to say "I can't breathe."

And conservatives and police hate the entrepreneurs who created a major industry: rappers, especially those backed by samplers and remixers. Many of these entrepreneurs incorporate the police war on them by self identifying as "public enemy", etc.

This analysis is well and good but it seems India is the definition of Arnold Kling's point on 'Mini-Mall' entrepreneurial society. It is an important part of the economy of these businesses but not the definition of massive growth.

Anyway, didn't the US have a lot more businesses (including farms) 100 years ago?

I believe that's the point of this post. India will never attain substantial growth until large companies can grow and become more efficient. I don't see political system will not allowing that to happen.

If you're an Indian government official, I'm sure you are frustrated at how difficult it is to collect taxes from a million tiny firms rather than a smaller number of big firms. You might even blame some of India's problem on this government revenue shortfall.

"Before independence, India’s colonial rulers snuffed out enterprise by exporting India’s raw materials to nurture businesses in their own countries. "

Ergo, former colonies with no raw materials to export like Hong Kong and Singapore also had no enterprise.

I wondered about that statement as well.

It's not like India's raw materials were laying around in the open and could be picked up without any effort. Like WWII scrap drives.

The failed I dian regime heads for a collapse when its slaves will finally wake up and rise up against their masters.

There is this joke about Indians sucks so badly at soccer because if you grant them a corner, they set up a shop....

that's actually pretty funny, dad jokes and all.

I usually don't agree with Alex but this time I can't praise enough this discussion on entrepreneurship.

Entrepreneurship is a sacred cow, overrated in Tyler's framing. Without any doubt, entrepreneurs like Ford of Jobs generate welfare for millions of people. When self-employment is the only alternative, entrepreneurship is survival. However, in developed economies, some people chooses shitty self-employment, or even unemployment, over "being bossed around". Of course, the liberty to do that is great, but at least popular culture shouldn't praise them. Being self-employed and poor should not be a source of pride in developed economies, man up and get a damned salaried job.

It's probably Prof. Tabarrok's Canadian background showing.

You're not the boss of me!

Report cited by AlexT: "Before independence, India’s colonial rulers snuffed out enterprise by exporting India’s raw materials to nurture businesses in their own countries" - stupid pandering to nationalism. It gets causation backwards as a sort of conspiracy to keep India poor, rather than simply being a flawed mercantilist theory. Google "Calico Law" in the UK during the 17th and 18th C: for a while, the East India company was importing cotton cloth from India, but as more and more wool cloth manufacturers in England went out of business (people even in England prefer cotton undergarments over wool, though, for colder climates, wool underwear is actually better and not even that itchy, but I digress), the English wool makers complained, so "Calico Laws" (protectionism) were passed from 1700-1721. Henceforth only the cotton fiber, not the cloth, could be imported easily. After 1721 a series of UK inventions, 'the flying shuttle, the spinning jenny, the spinning mule, and the water frame', perhaps in part spurred on by the Calico Laws (an example of the benefits of protectionism, a sort of 'infant industry' model that the Germans perfected with the economist F. List), made the UK competitive vis-à-vis India for manufacturing cotton cloth, using machines in the UK rather than labor as in India. Then of course the Calico laws were abolished. You saw the same pattern of politics dictating trade laws with the "Corn Laws" a century later, i.e., only when cheap food to feed industrialized England was needed did grain become duty free. Source: Alan Beattie's book "False Economy". So who is behind the US free trade movement? Probably middle class Americans who want cheap trinkets IMO. Consumerism, aided by economists who love free trade (strangely they don't like patents that much, why it's not clear as the production possibilities frontier long-term is driven by innovation, not by free trade, but I digress).

Actually this is an incorrect read of the British colonial rule- India's share of Global GDP declined from 23% in 1750 (Europe was 22.5%, US <12%) when Brits came in to about 2% in 1947 when they left. Excellent book outlining British depredation of Indian society - Era of Darkness by Shashi Tharoor. ,

India's small business entrepreneurs are very politically mobilized as well. The reason why Walmart can't sell stuff directly to consumers over there is because of resistance by trade groups of small vendors (which goes to show that they can be rent-seeking forces as well, contra small business fans like Matt Stoller).

"That may seem surprising since India is poor and we typically associate entrepreneurship with being rich but it’s clearly true."

Who is that "We" that associates entrepreneurship with being rich? I think that is more or less common knowledge that at least self-employment (if self-employment=entrepreneurship is a more complex story; but a problem in most other definitions is that they make the connection "entrepreneurship = being rich" almost a tautology) is much more prevalent in poor countries (even in Europe we see that - is the south that is the land of small grocery shops, coffees, restaurants, etc.,)

The entrepreneurial model is the best for India to follow. One thing that is missing in this discussion is the historical context. India has been entrepreneurial for centuries and have been trading with the whole world from Indonesia in the east to the carribean in the west (Not for nothing did columbus try to find India and landed in America and called them the Indians). The way the society works has not changed inspite of the invaders and colonialism by the British. 95% are employed in the informal sector and it's a product of how the society sees itself. For example, more than 60% of diamonds Worldwide are processed in a single city in Gujarat.

"The diamond cutting industry in India can be still considered an unorganized sector, despite attempts by large companies to corporatize their businesses. It consists of more than 100,000 units, big and small. Gujarat alone houses 80% of all the processing of diamonds produced in the country, with a concentration of 90% in diamond cutting companies in the single city of Surat. India completes 60% of the diamond cutting and polishing business worldwide. About half the diamonds exported from India originate in Surat and estimates for this city are that this industry alone employs about 700,000 workers and more." (

There's simply no way that any large company can even think of employing these many people. In fact, only Walmart employs more than this number in the entire world and they are just a retail outlet. The article continues:

"Way back in the 1970s, India began cutting low-quality gemstones and exporting them to the U.S. This paved the way for a robust cutting centre to thrive as labour was cheap and easily available. Having said that, it is not just cheap labour that allowed India to find a niche for itself in the diamond-polishing business, but the main edge comes from the enterprising Palanpuri Jains of Gujarat who turned the very scattered cottage industry to a robust Rs.80,000 crore industry of today.

The Palanpuris, an enterprising lot, hail from the town of Palanpur in Gujarat is a close-knit community that thrives in the atmosphere of secrecy and informality. The Indian diamond industry is built on trust with no written contracts. Even today, this method of doing business is prevalent. Stones worth millions of dollars are traded on just verbal agreements and transported with virtually minimum security. The Palanpuris have also successfully ventured overseas, setting up family-run polishing centres and sales offices in Antwerp and Tel Aviv, the USA and now in China.

Years ago the stones that were processed in India were only of smaller size, generally smaller than 0.5 carat, because companies were not technically well adapted to cut stones from 1 to 2 carats. But understanding the potential business opportunity, the Palanpuris gradually moved into larger, pricier stones. The perception that stones that are processed in India are only of smaller size, generally smaller than 0.5 carat does not hold good anymore. Today, the fact is that many large manufacturing facilities are technically well equipped with high tech technology to cut bigger stones from 1 to 5 carats. The high end, larger stones are an irresistibly lucrative market, as it is assessed to account for half of the value of the entire world's diamonds. Though these top-quality stones were mostly cut in Antwerp, New York and Tel Aviv in the past, today they are processed in many branches of Surat-based companies manned by Indian diamond cutters."

The same can be said about other places as well like Tirupur in Tamilnadu:

"The Tirupur knitwear cluster is growing by 15-20 per cent every year. The hosiery town which began with a production of a few crore worth garments three decades ago has pitch-forked into a major hub, grossing an annual turnover Rs 27,000 crore for both in domestic and export markets. According to a recent study by the Sripuram Trust, Tirupur has about 800 garment manufacturing and exporting firms and 1,200 merchant exporters. Of them, 300 garment manufacturing firms are producing garment for domestic market.

Tirupur is home to about 1,800 job-working garment manufacturing units, 425 dyeing units, about 3,085 supporting units including for finishing, embellishment, compacting and raising units. Tirupur textile industry employs about five lakh (500,000) workers directly."

Again, there's no way that any large corporation is going to give employment to this number of people. It will simply end up as more automation and capital driven than employment driven. The way forward for India is to spend more on education, invest in people and not privileging corporations. The largest private sector employers are IT companies which is a very specific case with specific skillset. Automobiles, Refineries, Manufacturing etc. are going to reduce jobs more and more and it's a fool's errand to think that large companies are the future. It will be people with skills who are the future.

"The modal size of an Indian firm is 1 employee"

This is also true in the US, is it not? I was looking up statistics on this the other day and saw that roughly 70% of US firms have zero employees (or one, if you count the owner-operator).

"and the mean is just over 2."

This, of course, is not.

India is eating more meat because meat is a sign of wealth.

Then there's the caste system which, I would think, doesn't help.

So, 1 billion people, caste system, tribal loyalties and socialism.

I guess the main reason why lack of employment in large firms in India and other countries is the lack of trust of employers, employees simply goof off in such societies if they are not heavily supervised.

Incidentally does every discussion of Indian economic problems have to blame the British for the lack of an Industrialisation strategy during colonial days. Contrary to the assertion that the British prevented industrialisation, Greg Clark discussed in his book Farewell to Arms the problem that British entrepreneur's had in starting factories in India, which was put down to the quality of the workmen. Clarks thesis is that essentially Western Europeans were bred in a Malthusian kitchen for capitalism, whereas most other countries didn't have this kind of selection process.

Well, India's share of the world GDP was 24% before the british came and it was 3% when they left India after artificial famines, draining of resources, using its people in the world wars etc. I think that's more than an indication of what happened. Chk this video just for a few examples

But enough about Ireland.

If Greg Clark is claiming that, then Greg Clark is full of it. "British entrepreneurs" had no interest in investing in India; they just wanted to make money and return home. They tried to get on by paying a pittance to workers and treating them poorly; I'd be surprised if productivity were high under those conditions. When Indians tried to start factories with their own capital (in the face of obstacles put forward by the imperial state), they did just fine. And the state was just interested in maximizing its revenue, and had zero interest in improving the lives of the poor. Its policies left millions in a perpetually starving and emaciated state, which couldn't have done much to improve productivity either.

"ruled by a foreign trading company, ", "colonial experience" blah blah blah.

It is worth considering that India was run by command economy socialists for a long time, still has a stultifying sexism not to mention a caste and semi caste system -- even more so in the 60s and 70s -- and aligned itself with the Soviets for decades (which partly explains, and is partly explained by, the fact that Pakistan was close to the US).

It is amazing how little colonial history is taught in the west whitewashing the sins of the past so much that their successive generations are fed this meme that imperialism was for the good of all etc.

Tirthankar Roy - - "Economic History: An Endangered Discipline"

"What accounts for the obsolescence of economic history" in India "today? My answer is that, at least in part, the decline stems from a confusion and crisis within economic history scholarship....

Paradoxically, the decay of economic history scholarship can be seen as the sign of an extraordinary success or of an extraordinary failure for that generation of scholars which, until recently, taught this subject in major universities and played leadership role in research. Indeed, this generation – that I shall loosely call the ‘old school’ – succeeded in becoming the economic history establishment. The establishment reinforced a particular theory of Indian economic history, and a particular paradigm of research. Its success can be measured not in terms of how well the theory was validated, but that of its political effectiveness."

I think numbers are given for self-employment (it means it covers farmers who are working on their land and in India, around 40% of total population are working on farms). So by this number we can’t say that the informal sector in India is very large. Yes it is large and in urban area it is expanding while in rural area, it is declining. (Naik, A. K. (2009, September).). Yes small scale industry reservation had a negative impact. Instead of this government should have tried to expand agri-based industries as informal sector was increasing because of low (rather negative) growth in agriculture sector and migration. Yes there are some problems in labor laws like chapter VB and rigidity which might be the reasons behind the expansion of informal sector.. But now I think we should take an initiative to expand agri-based industries in rural area. This might help to reduce the informal sector. Self-employment is not a problem. Informal sector with a low probability of getting positive return is a problem.

While small firms are a bad thing for India, the corporatization of the workforce in the US will continue to make it less entrepreneurial. Few care about the regulations coming out of Washington and the various state houses b/c the HR department will simply take care of that, won't they?

How many in the US have shuttered business ideas simply b/c regulatory and tax compliance appeared too daunting?

Interestingly, after my first visit to China, I had a similar thought, i.e. "This is much more the country of the small businessperson than my own country (America) is."

"You want a toe? ... I can get you a toe by 3 o'clock this afternoon"

I think their causality looks bizarre and ad hoc.

Seems on this topic, we get back to Tino Sanandaji on whether entrepreneurs are desirable or whether they are specific groups who work to do something new and innovative on a new model - "Shumpterian Entrepreneurship"
I don't think personally think there's a lot of value in the distribution of labour favoring individuals investing in high levels of sales, advertising, and trade skills - "hustlers". I'd prefer a "shokunin" economy - an economy of skilled technical specialists, craftsmen and product development with a much small minority of specialists in sales and exchange who manage the actual business of retailing the service or product. Tbh, I view salesmanship as a mostly negative personality quality though (does not correlate with honesty and trust).

Very interesting post.

I wonder what capital markets are like in India. How easy is it to get a small business loan, for example, or to raise some equity once your firm has grown a bit?

"too few jobs"


what jobs are these entrepreneurs doing, or is it that we have reached a global usage of that euphemism as is used in such economies like USA where it essentially means unemployed.

India has something that America does not: a real democracy. And that democracy is grounded in this spirit of independance and self-rule (i.e. almost no boss man outside of yourself). India will continue to evolve and change, and that might include larger team efforts over time, but I would strongly defend India for who and what they are now. Frankly, knowing and understanding their past and present culture, I see absolutely nothing wrong with where India is at today. Long live India; many blessings to them in their struggle and well-wishings to their careful cultivation of a future world worth living in.

"The problem with developing countries is not that they lack entrepreneurs but that entrepreneurs cannot grow their firms large enough to become major employers."

Funny, just yesterday I showed my macro class the section from the "Commanding Heights" video where Hernando de Soto says that enterprising people in poor countries face a "paper wall" that prevents them getting a loan, mortgage, or growing their small family business. And so they are locked out of the global system. And that "Oliver Twist has come to town and he has a TV set, and when he sees how he lives compared to how we live he's going to get very angry....and find another locus of power very quickly." This was in 2000.

Not that I think it will happen that way in India I hasten to add. The latent institutions and culture are all there. Just get rid of the paper wall.

"Indians are entrepreneurial because they work for themselves."

I found this statement problematic. Or they work for themselves because they're entrepreneurial.

Pro-market Economists tend to understate the problems faced by Big Employers in India. Left wing British academics, however, are able to state the incredible truth re. the consequences of property rights in jobs. Thus, Prof Jonathan Parry, a respected Left wing Professor, has documented that labour attendance went up at a Govt. Steel plant during an official strike. Why? People who normally stayed absent had to come in and sign the register otherwise their pay would be docked.
More recently, Andrew Sanchez- also of the LSE- has revealed that 'permanent employees' at a Tata plant are in a permanent state of intoxication. They only come into work so as to get away from their wives. Meanwhile young 'temporary' workers get lower pay. Management is afraid to confirm them in employment because they will then have no incentive to come to work. So what happens is that a good worker is offered a chance to run a contracting business on the side to supplement his wages.
Sanchez tells us about one such young man- who had an M.A in Politics. He was initially very happy to get the chance and prepared a business plan and applied for a loan from the Bank. He was turned down because he had no assets or experience. The young man, naturally, felt bitter against 'neo-liberalism'. However, the solution was not far to seek. He needed to borrow from a local 'Don'.This way his contracts would be enforced. But there is a cost to doing business in this manner. You may be targeted by a rival Don.

The tragedy of the Steel Industry and other big employers was that populist Politicians who targeted them unwittingly criminalised local politics and disintermediated themselves. One reaction was for the big industrialists to look abroad where there is better Rule of Law. Another reaction is that Indian H.R Depts. in Manufacturing Industry have become vulnerable. Again and again such managers, who are well trained and sympathetic to the genuine demands of the workers, have been killed with impunity. This means they become demoralised and ineffective.

This does not mean big industry can't grow in India. The Ambanis are very successful and technologically advanced. The comic aspect is that Ambani was able to create a big factory using state of the art technology because the Govt assumed that anyone using artificial fibres was a small craftsman! Ambani became a hero of popular capitalism- there is a Bollywood blockbuster about him- because he broke the rules for a good purpose.

There's a big, big whopper here. 95% of Indians are NOT self-employed. The link to Carnegie India shows nothing of the sort. All it shows that most of the listed firms are very small micro-enterprises, but their contribution to total employment is minuscule, contradicting the claim presented here. On what basis did the author come up with the 95% figure?

I don’t think self-employment is bad but it depends on what that self-employment is. I do Forex trading, I am sort of self-employed as I do it whenever I wish and I make money without any limits, so I find it better than a job. It helps with having broker like OctaFX, as they support me well with the epic ECN account that works beautifully and they even have daily market news update, it all works highly for me and makes me comfortable.

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