Monday September 26, 2022

Reasons for economic insolvency [Part – II]

August 20, 2022

The writer is a former managing partner of a leading professional services firm and has done extensive work on governance in the public and private sectors.

The rise of western Europe started with the Renaissance, a remarkable period in world history, which began in 14th-century Italy and later spread to other countries. Italian city state Florence, considered as the birthplace of Renaissance, became the hub of art, architecture and other fields of learning, patronized by rich business families like Medici, an Italian banking family.

The family ruled Florence for 60 years and was the owner of the Medici Bank, the most profitable enterprises of that time; this highlights how entrepreneurial culture uplifts society. The fortunes of western Europe started to skyrocket when they started exploration and discovering new worlds in the 15th century as Columbus and Vasco da Gama discovered the US and India in 1492 and 1496 respectively.

The development of shipping and sea trade through chartered companies in the 15th and 16th centuries laid the foundation for wealth creation and colonization in the subsequent two centuries. The most prominent of them was the English East India Company, formed in 1600 through the charter of Queen Elizabeth I, which became the world’s largest enterprise in the 17th and 18th centuries and created the largest empire the world had ever known. At its peak, it had an army of 260,000, twice that of the British army. This indicates the power of business enterprise.

From the Renaissance to the fourth Industrial Revolution in the 21st century, confirms that two critical factors have a massive impact on development and progress of nations: first, the quality (knowledge and skills) of people; and second the quality of an entrepreneurial ecosystem. These factors are conspicuous in almost all nations across the globe, which have achieved a high level of progress and prosperity. Unfortunately, Pakistan is lagging in both, and must focus on them to provide a strong foundation for socio-economic progress.

With a large proportion of the population either unskilled or semi-literate and poor quality of tertiary education, it is no surprise that our country’s human resource is deeply messed up. This is the biggest impediment to its progress, which needs separate discussion. Nevertheless, a sizable population out of 230 million has reasonable education and capacity to contribute towards building a more dynamic entrepreneurial ecosystem than what we have, given the right initiatives and policy framework.

This article will discuss some inherent cultural traits of society that hamper our entrepreneurial ecosystem – why are the innovation and productivity of businesses low, making the country uncompetitive? In the next part of the article, I will discuss policies and governance aspects that have hindered growth of businesses.

As discussed in the first part, except for a few small communities which are engaged in business in most sectors of the economy, an overwhelmingly large portion of society does not think beyond government or other traditional jobs. The first strategy should be to expand this pool by motivating more young people towards entrepreneurship. The second step is to develop and implement a strategy to change the mindset of wider society by addressing the following cultural attributes that seriously undermine innovation, productivity and growth of our enterprises:

Ambition and big vision: An essential attribute for big accomplishments in any field, especially for business, is largely missing in our people, perhaps owing to beliefs in fate and a tribal mindset. People are generally complacent, satisfied or accept pathetic conditions in which they live as they think it’s their destiny.

Courage and risk taking: Only people who are risk takers can set up businesses and achieve success. As most of our society is risk averse; they would rather take government or other jobs where monthly salary is assured than venturing in business and lose their capital.

Curiosity and questioning: Perhaps, the biggest societal weakness is lack of curiosity and appetite to raise questions. From a young age, children are discouraged from asking questions; more inquisitive ones are advised to either keep quiet or confine to discrete questions. Parents, teachers, managers in government and businesses discourage openness. Creativity and disruptive innovation happens when people are encouraged to raise disruptive questions.

Hierarchy: It is pervasive from home, government to private organizations. The eldest male in the family, the CEO of a company, the prime minister/chief minister/minister/secretary exercise all authority for decisions, and cannot be questioned or challenged by juniors. In political parties, party heads call the shots, all others are obedient followers.

Promotions in government and most organizations largely based on seniority, not competence. The judiciary is a prime example, where senior judges, irrespective of competence, become chief justice. This culture does not promote thinking and innovation. Anti-hierarchical ethos is a key driver in robust societies, where young people are empowered to raise questions, challenge existing norms leading to discovery of new ideas, ways and approaches.

Mistakes: In most organizations, people are expected to perform routine tasks. Mistakes are sinful and penalized, so people fear to try new ways or approaches.

Failure is a sin: Failure in business, especially if a person or organization becomes insolvent, is considered a big stigma. If people or organizations fail, they become pariahs. For instance, in all cases, where a business fails and defaults on loan repayments, even in genuine cases owing to unexpected adverse situations like change in government policies or adverse economic events, its sponsors and directors are put on defaulters list, a kind of black list for getting future loans from the banking system. In dynamic cultures, failure is considered as the best teacher. Many leaders talk about failures openly to analyze what went wrong to learn from it. Great enterprises are built after multiple failures.

Lack of empowerment and experimentation: Another serious problem is the lack of empowerment of young people to make decisions, encouraging them to try new ideas, challenging existing norms and processes for improvisation. Consequently, the culture of the status of quo remains supreme. Innovation happens when we promote a culture of ideation and experimentation, out-of-box thinking and empowering young people to benefit from their creativity, energy and enthusiasm.

Sycophancy and submissiveness: Both in government and the private sector, the culture of ‘the boss is always right’ – directions/orders of the boss have to be carried out without questioning – reigns supreme. People do not challenge past and existing practices to see whether they remain appropriate in the fast changing world or whether they need improvement. What has been happening for decades is considered the right way.

Continuous learning: The best entrepreneurs are made not born. They never stop learning. In our culture, most entrepreneurs stop learning after achieving a degree of success. For continuous success and achieving scale, one must have the passion for ceaseless learning.

Collaboration and teamwork: No one person, no matter how smart, can excel in everything. A large number of people who achieve some success continue to rely on themselves, instead of developing teams and relying on talent.

Continuous investment and search for talent: an overwhelming majority of businesses in Pakistan are family businesses. And while many of them produce brilliant minds, they do not appreciate that there are more brilliant minds beyond their family. Also, most organizations have traditional systematized hiring practices, looking only for routine degrees and experience, and missing outliers. As they say, “only thing more important than your ability is your ability to recognize the ability”.

No tolerance to crazy ones: the best description of people who cause disruptive innovation was given by George Bernard Shaw in his play ‘Man and Superman’ in these words “The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.” Unfortunately, our society does not tolerate the ‘unreasonable man’.

In my humble view, as a society, we need to enhance the number and size of businesses, through a comprehensive strategy. I also believe that most of the top business groups in the country are highly under-scaled compared to their potential, owing to limited vision and appetite to take risks.

There is a serious need to address inherent weaknesses discussed above to build a more robust entrepreneurial ecosystem and enhance the pace of innovation and productivity.

To be continued

Twitter: @Asad_Ashah


    Syed Imtiaz Abbas Hussain commented a month ago

    Rightly put finger on problematic issues in entrepreneur ecosystem in Pakistan. True baggers can't be rewarded as they are thin in quantity as fraud baggering become an industry. So majority of entrepreneurs are also facing this problem.

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