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High Risks of Entrepreneurship by the Very Poor in an Underdeveloped State

13/7/2014

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The main fight with our government funders these past few months, has been their insistence on the "Below Poverty Line" eligibility criterion for participation in our slum development project activities. This is not to debate affirmative action; the entire point of our work is to bring very poor and unemployed women into the workplace. But I did want to discuss the appropriateness of this criterion for economic development projects in general, regardless of a project's model. 

In this first post of a two-part series, I note the risks and barriers associated with [micro] entrepreneurship by the poor, the social and cultural barriers especially faced by women in this local context, and the socio-economic profile of [urban poor] women that tend to venture into entrepreneurship. Note however, that these observations stem from my experience in the state of Orissa, a state that is notoriously "un-entrepreneurial" and a state whose economic and physical infrastructure are  poorly developed.

In my next post, I describe some specific profiles of women that have tended to engage in our entrepreneurship development project, and why it would be problematic to focus solely on those who are "Below Poverty Line", or meet very stringent eligibility criteria.
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The businessman shown above has been a "consultant" to our snack production enterprise, and has provided some interesting insights on entrepreneurship & labor dynamics.
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Left: A highly successful local businessman, who's made a fortune by processing and trading spices, Indian snacks, and various kitchen groceries. Above: Individuals working for our project's in-house snack production enterprise. The latter are not entrepreneurs, but are skilled artisans who so far have been too risk averse to own the snack business

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Mini post: Following up on the labour rights vs. business rights issue

4/5/2014

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I found an article by the economist Kaushik Basu on the BBC website, you can read it here:  "Why India's Labour Laws are a Problem". Below is an extract from the article, and below the extract are my brief thoughts on it.

Most of India's labour laws were crafted with scant respect for 'market response.' If X seemed bad, the presumption was that you had to simply enact a law banning X. But the fact that each law leads entrepreneurs and labourers to respond strategically, often in complicated ways, was paid no heed. In a poor country no one with any sensitivity wants workers to lose their jobs. 

So what does one do? 

The instinct is to make it difficult for firms to layoff workers. That is exactly what India's Industrial Disputes Act, 1947, did, especially through some later amendments, for firms in the formal sector and employing more than 100 workers. But in today's globalised world, with volatile and shifting demand, firms have responded to this by keeping their labour forces as small as possible. It is little wonder that in a country as large as India less than 10 million workers are employed in the formal private sector. 

Some commentators have argued that India's labour laws could not have had much of a consequence since most of them apply to only the formal sector. What they fail to realise is that one reason the formal sector has remained miniscule is because of these laws (and also the culture that the laws have spawned).
Response I'm not entirely sure if the above is quite accurate in its reading of the situation. From what I understand, employers and employees in India's context enter into informal contracts because it allows both to evade taxes and bypass regulatory complication (here it is regulation implementation rather than the existence of the regulation, that is problematic). 

India is a relational market, and these contracts are based on trust. The trust comes from repeated interactions between individuals or shared "community" (for some fundamental ways in which to think about trust, social networks, institutions, and repeated interactions, see the book Foundations of Social Capital). 

Which is why a lot of the employers here prefer working with someone from their own community, or village (even if they themselves have migrated from that village for a generation), someone they know, or someone who has proven their skills and commitment with a rival employer (poaching). The challenge of retaining and trusting employees is the issue that I discussed in my post  yesterday. 
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Transparent Institutional Constraints for Small Business

3/3/2014

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Transparency in governance and regulation : Everyone discusses information and transparency today, as factors for (and measures of) good governance. But after engaging extensively with individual government officials and with the "system", I'm wondering what a transparent process really means, and what it achieves on its own.
  1. Does transparency necessitate the direct engagement of citizens with the government at all levels ? 
  2. Is access to the millions of documents processed daily at government offices via the Right to Information sufficient to assure a transparent governance system?
  3. Does transparency only help when the issue is significant not routine, when large amounts of money are laundered versus petty sums of money exchanged as bribe?
  4. Do we conflate transparency with fairness? Also, is transparency a necessary precondition to a fair and just governance system? Aren't many of our petty corruption practices common knowledge? What is the difference between common knowledge and transparency?
  5. What kinds of action by citizens, courts of justice or other government bodies need to follow that first step of creating transparent governance? Naming and shaming? Bringing the accused to court? Publicizing these acts in media?

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    Sobhi Mohanty
    I am currently a PhD student at the Graduate Institute of International & Development Studies in Geneva, Switzerland. My interest lies in inclusive governance - participatory governance in cities, political participation by women, making local government work better, and community-based approaches to environmental sustainability. 

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