Government in Business? A Contrarian View

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One of the most frequently asked questions that startup founders face from investors is – “What would you do if Google decided to do what you are planning to do?”.

This is a trick question, for the purpose of the question is actually to see how the founder/s react when faced with insurmountable odds. Nowadays however, the answer has become easy – build up enough value so that when Google enters this domain, they would find it advantageous to buy us out.

The implications however are very disturbing for they indicate that now, the criteria for success and growth is no longer a brilliant concept or even excellent implementation – it belongs to those who have the deepest pockets.

In India, from independence till the liberalization in 1990, business success was linked to contacts in government, which in turn mostly depended on the capital one had. Thus it was the large industrialists who grew larger and the small and medium ones had to be content with what they had. The spirit of entrepreneurship was frowned upon and young people from non business backgrounds starting ventures of their own was a rare phenomenon, confined mostly to those who could not obtain a job.

Post liberalization, there was an upsurge in the animal instincts of the youth as they ventured into the private sector – both as employees as well as job creators. This has reached its peak now as the startup frenzy draws thousands of youngsters to ideate and put serious efforts into implementing their ideas.

One other question that these entrepreneurs face is “What is your moat?“. Like in a fortress, a moat is something that helps prevent competitors from entering into the entrepreneurs domain and harming the business by eating into their revenue and market share. This moat could be a very strong Intellectual Property ownership of an excellent product – like the algorithm of the Google search engine, huge entry barriers – capital or regulatory requirements for example, or extremely deep pockets – like Jio in the Indian telecom sector.

Now, in an ironic twist of events, the survival and growth of enterprises is dependent once again on capital – obscenely large amounts of it.

Take any recent success story in the Indian startup ecosystem – Byjus, Ola, Flipkart, OYO, Jio or any other successful startup. 

While they may have begun with an innovative idea that either opened up a new and better way of doing things, or increased the size of existing markets, they have wound up being dependent upon massive capital infusions to survive the onslaught of competitive forces.

The capital is used to either force competition out of business through disruptive discounts, or by simply buying them out. 

This naturally severely inhibits ventures without access to matching levels of capital, and in the long run, could lead to a repeat of the seventies and eighties when deep pockets cornered all business opportunities.

Large size and availability of capital will naturally lead the organizations to optimization of processes and increasing efficiencies in all their activities. 

The way to do this is through use of technology – Artificial intelligence and Machine Learning, something smaller companies cannot afford, at least in the scale the larger ones can. 

This increased automation exponentially improves the company’s performance and profitability. One of the ways is by drastically reducing employee costs through reduced requirements in the medium to long term.

There will be an increase in the requirement of highly skilled personnel and they will earn astronomical sums, but for every one such employee, there could be a loss of jobs for thousands of others. 

And this is not just blue collar jobs that are at stake – a thirty person company providing AI based HR solutions can wipe out thousands of HR jobs – not just in the country but globally.

When small businesses become unviable or severely limited in growth potential and jobs begin to disappear, the only option left for survival is dependence on the government.

For the government to be able to face this challenge, it needs to be able to generate massive amounts of revenue.

Raising indirect taxes ultimately puts the burden on the already oppressed population, while raising direct taxes beyond a point on a shrinking taxable population becomes infeasible.

The only solution then would be for the government to become a revenue generator itself. 

And the way to do that would be through rethinking the concept of PSU’s by inculcating a private sector mindset and reimagining the way they are managed. Monetizing assets, not by selling them off but by making them profitable needs to be the policy. 

It is time that value addition is professionalized and taken up on mission mode. For example, the Government has ownership of all minerals in the country, and while iron ore is priced between Rs.6,500 to Rs.8,000 per tonne, when converted to steel, it can be sold at ten times that amount. So instead of selling off NINL, whose value ironically is primarily dependent upon the mine leases it has, the government could give itself the same advantages it is offering potential purchasers and turn it around with a team of professionals drawn from the private sector.

Linking remuneration and job security with performance, creating a sense of long term ownership through equity stakes, focussing on profit maximization instead of job creation are some of the things that could be done to bring a sense of accountability and deliver the same level of efficiency and productivity found in the private sector.

More importantly, it needs to be understood that governance is different from business management. The skills that make an excellent administrator are not necessarily the same as that of a successful CEO. Recognising this and building up a cadre of professional managers is necessary.

And the time to do all this is now, so that in ten years time, when the effects of technology as well as changing demographics will have manifested themselves, we will be ready to face the challenges that will confront us then.

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