Governments Don’t Create Corporations

Governments of successful economies don’t create large corporations.

The economic prosperity of a country is usually the consequence of the economic freedom that its citizens have. Entrepreneurs create a large number of small enterprises. Some of these grow up to become giant globe-spanning multinationals not because of government largesse but because some of those small enterprises created value for its customers and grew organically as more people found its goods and services worth buying.

Google, Facebook, etc etc, were not conjured up by some politician, or a bureaucracy, or through government diktat, or any “Make in India” type marketing campaign. For large corporations to grow in India, what is needed is an environment that is conducive to the small enterprise. This will of course not happen because there’s little hoopla one can engage in by freeing the little guy.

Let me haul a comment from the archives:

As it happens, any successful economy is a connected network of self-directed people and firms who do what they have to do, mainly out of self-interest. It is certainly not a neat set of large “investors” working in splendid isolation, shielded from the rest of the economy. A modern economy is best characterized as an ecosystem of diverse people and firms. It is a web of interrelated and interdependent economic agents whose actions are coordinated spontaneously by the market without the intervention of any centralized planning authority.

So you cannot have a set of rules that treat large firms differently from other economic actors. Why? Because every firm depends on the presence of other firms. If you don’t have small firms, you don’t have large firms. If there are missing markets, then all firms are affected. You cannot bring some firms under any umbrella without at the same time keeping out others from under that umbrella.

A large firm like Google depends on firms of every size — large, medium, small — to provide it with goods and services that it should not bother producing in-house. It has to focus on its core competency. A Google can not arise and prosper in a place where it cannot rely on the presence of firms that have complementary competencies.

Google did not arise from some government program that promoted the search engine industry or the advertising industry. It arose spontaneously because the economy provided all the innumerable inputs that are required for Google to do its job of combining them to produce its output. This is true of any large modern firm: it depends on every other industry. Google’s inputs come from every firm of the global economy, either directly or indirectly.

You cannot mandate nor conjure up a Google in your economy. Wishful thinking and fanciful promotions about “Make a Google, Twitter & Facebook in India” will not work. If the conditions are right, if the ecosystem exists, these will arise unbidden. The job of the government is to figure out what are the barriers to any firm — regardless of size — and remove them. The ecosystem will grow. That’s the nature of the world.

But if the conditions are not right, even if the government lays out the red carpet, nothing will happen.

The economy is really an ecosystem. If you have a sunny mild climate, adequate water, fertile soil and the absence of pests, things will grow. Leave it alone and it will soon become a healthy, balanced system. It will not be a monoculture.

If your field is not producing anything, it is best to take a bit of time and ask why your seeds are not growing. It is pointless to fund an advertising campaign promoting the idea “Our Fields are Great for Produce” and expect to reap a rich harvest. The seeds don’t care about ads; they only work if the conditions are right.

No bold and drastic measures need to be taken. Make sure that you are not poisoning the fields and get out of the way.

Thanks to Amit Chaubey for pointing to the comment.

Author: Atanu Dey

Economist. View all posts by Atanu Dey