POLICIES GOVERNING ENTREPRENEURSHIP

Presented By: Ashish Sangar MBA-IB

Policy Landscape for Entrepreneurship

Entrepreneurship policies depend on the various types of

capitalism that are prevalent In further slides we discuss several types of capitalism that exist throughout the world State-guided capitalism Oligarchic capitalism Big-firm capitalism Entrepreneurial capitalism The optimal growth machine is a mixture of big-firm and entrepreneurial capitalism.

TYPES OF CAPITALISTIC ECONOMIES

State-Guided Capitalism
The government plays a substantial role in deciding which

industries and/or which firms should grow Industry policy is often achieved through the state ownership of the banking system Tax breaks for certain companies Exclusive licensing Government contracts Tariffs Examples include India, South Korea and Japan, to some extent China and Southeast Asian countries State guided capitalism can be very effective in helping a country catch up (replicative entrepreneurship) Potential limitations of state-guided capitalism Inefficient investment by the government Vulnerability to corruption Difficult to allow failure

Oligarchic Capitalism
Government policies are designed predominantly to promote the

interests of the elite class Examples include Latin America and some African countries Oligarchic capitalism impedes economic growth in the long run Leads to black economy Results in economic inequality which in turn creates anti-reform tension Can squelch innovation that threatens the status quo

Big Firm Capitalism

In big firm capitalism, large firms dominate the economic landscape Generate large cash flow, economies of scale and scope Have been successful in the past in providing incremental

improvements in products and services Common examples are continental Europe and Japan Big-firm capitalism has shown signs of problems recently Is reluctant to innovate resistant to change Oligopolistic characteristics

Entrepreneurial Capitalism
Defined as an economy where large numbers of actors have the drive

and incentive to invent and commercialize radical or breakthrough innovations Bold rather than incremental innovations Usually driven by a single individual or a new firm Entrepreneurial economies embrace and encourage change Remove barriers that allow resources to shift from dying sectors to dynamic industries Constructive safety net needed to encourage risk taking Constant change in the list of top companies Example: U.S. Information Technology industry

PROMOTING PRODUCTIVE GROWTH

Is a Combination of Big-Firm and Entrepreneurial Capitalism the Best Engine of Growth?

Big-Firm capitalism can supply economy of scale and incremental

improvement Entrepreneurial capitalism can supply radical innovation Logically, both appear to be necessary What is the right balance and how can public policy support it?

Strategies for Promoting Productive Entrepreneurship

Make it easy to start and grow a business
Business registration Bankruptcy protection Access to finance

Create rewards for productive entrepreneurial activity

Legal system (including contract and property) Tax policy Regulatory policy Patent policy Government funded R&D Immigration policy

Create disincentives for unproductive activity (rent seeking, predation)

Keep the winners on their toes

Policies in India
Credit Policy Credit policy has been in place since the early days. Priority sector lending is its most important component. Under it, banks are compulsorily required to ensure that defined percentage of their overall lending is made to the priority sectors, which includes small industries. The other important policies for the sector relate to:- (i)

excise duty; (ii) foreign direct investment approval;and labour laws.

Emerging Policy Concerns for Entrepreneurship

Removing barriers to entrepreneurship
Incentives for start-ups to go public rather than sell out to larger firms have

diminished Barriers to bankruptcy have increased Inevitability of tax reform: how to increase taxes without harming entrepreneurship Excessively liberal patent policy

Discouraging unproductive entrepreneurship

Misuse of antitrust laws
Limiting other non-meritorious litigation

Keeping winners on their toes

Protectionism in trade, immigration and FDI Promoting the transfer and diffusion of foreign technology

Encouraging innovation through the corporate income tax system

Commercializing university innovation

THANK YOU!