Is Regulation killing Private Enterprise?

If Bhutan is ever to escape the economic lethargy largely attributed to our size and our geographical disposition, to say nothing of our dependence on foreign aid, it must do so on the success and vitality of creative free enterprise. Yet everywhere I look I see businesses stifled under bloated bureaucracies and government intrusion that restricts business health.

Don’t get me wrong.  I actually believe in higher and fairer taxation as a partial painkiller to the increasing inequity between the very rich and everyone else.  Maybe I’m still a democratic socialist at heart.  But one thing the autodidactic of everyday business has taught me is regulation is increasingly irrational in its omnipresence and labyrinthine incomprehensibility. I sometimes wonder if the occupational licensing requirements are often more about limiting new entrants than actually ensuring public safety.

Although the conundrum of excessive bureaucratic interference with small business is exasperating throughout the life of the business, this entrepreneurial cri de coeur comes bubbling up even before we begin to work on it. Usually, the rules are confusing and sometimes contradictory.  And government interventions while mostly well intended, have negative unintended consequences.

An economy without sufficient “creative destruction” risks stagnation and decline. That’s especially the case when natural resources are depleting and labour force growth are slowing, making it harder to grow as fast as we did in the past. Slower growth means a slower rise in living standards. And if celebrated French economist Thomas Piketty is correct, slower growth also means dramatically more wealth inequality.

I genuinely believe that there is a place for simple, practical common sense compromises, rather than rigidly mandated bureaucratic micro-management and ideological and ecological perfection, after all in most developed economies; businesses operate, innovate and expand freely.   And it was free enterprise that made economies grow and produced rising wages for middle-income groups.

Anecdotally, I can tell you businesses are holding back because they are not sure if they want to commit more capital and passion in an atmosphere of geometrically growing governmental intrusion.  My optimism is at a nadir, despite my romantic fascination with entrepreneurship fostered by technology and the many opportunities it can create, especially in a place like Bhutan.

We have to try making doing business easier and simpler.  And I don’t mean a small business that serves a small group of people. I am talking about enterprises that mimic the entrepreneurial mythology of heroic risk-takers, from Thomas Edison to Henry Ford to Bill Gates to the Google guys.

And please understand that not all startups are equal. Opening a hair salon may be a smart way for someone without a college degree to climb up the ladder. A one-person accounting firm may be a great way to make a living. But neither enterprise has anything close to the economic effects of starting a company like Google.

I am not saying that my idea will generate the next Google but fewer startups overall inevitably mean fewer new companies that might generate the Next Big Thing and then turn into hugely profitable firms with thousands of well-paid employees. Just as important, fewer startups means fewer disruptive new competitors to force big business to innovate or die.

Bhutan needs the revenue engendered by the success of the innovative entrepreneur.  Regulations need to be reined in with common sense.  A reasonable degree of freedom is the essential ingredient of “free” enterprise.  Overregulation is ultimately the death knell of freedom, ergo the death of the entrepreneur.

The United States of America is plagued by a dysfunctional government but somehow, it manages to get at least one thing right: innovation. That’s the deep magic of the world’s leading economy.

A recent Kuensel article quotes a World Bank report that unsurprisingly states that ‘state dominance of the economy has led to a lack of competition’. Why we needed an institution like the World Bank to tell us this – I don’t know. But it is no secret that state enterprises have a big stake in commercial sectors— and it’s pressing down ever harder.

(The report further goes on to say why Bhutan isn’t attractive for international investors, which I believe is a one-sided view of a more complex and diverse landscape – to be addressed in following blog post)

A complex tax and regulatory code are much easier for a big business to handle than a small one. State-owned enterprises have access to policymakers, along with a “too big to fail” financial mentality — the kind that hinders innovation and breeds regression. We can’t rely solely on foreign aid or natural resources or tourism to take us forward in the new economy. All major trends suggest a nation’s competitive edge may vanish if governments around the world embrace crony capitalism, rather than startup capitalism.

Going forward, we will need to be more innovative than ever to keep economic growth rapid. Our economy will need more competitive intensity and dynamism. But that won’t happen if the lawmakers prevent the next generation of dynamic competitors from ever existing.

Photo by Jon Tyson on Unsplash

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