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A State Entrepreneurial Capitalism or a Family Entrepreneurial Capitalism

The overarching theme of Bhutan’s economic pursuit has always been the need to achieve economic self-reliance, although, today, realizing it before 2020 is seemingly becoming farfetched.

What is the right Business Model for Bhutan?

A State Entrepreneurial Capitalism or a Family Entrepreneurial Capitalism

The overarching theme of Bhutan’s economic pursuit has always been the need to achieve economic self-reliance, although, today, realizing it before 2020 is seemingly becoming farfetched.

To achieve that goal, the major focus so far has been on how to become self-reliant and increase economic output, rather than what are the best models and systems to adopt while pursuing that desired goal.

While Bhutan’s economy continues to grow and mature, different forms of economic system must be explored, studied and debated.

As a student, we were taught, that a nation that pursues Capitalist economic system enables citizens to take risk in pursuit of profit, and that it is this profit that creates jobs and pays taxes.

The essence is that in all human activity lies the wise old adage- ‘nothing ventured, nothing gained’.

At the heart of the nation’s economy lie the business units as the molecules, if the nation’s economic system is modeled around capitalism, then the performance of each of these business units in the country determines material prosperity of the nation.

Two schools of thoughts are currently emerging in such economic system: State Entrepreneurial Capitalism and Family Entrepreneurial Capitalism.

State Entrepreneurial Capitalism is the State-Owned Enterprises (SOEs), often listed on the stock market.

Most of the Chinese and Russian Corporate giants are based on a State Entrepreneurial Capitalism business model. The nation’s strategic industries such as, banking, telecommunication and strategic manufacturing units are owned by the state.

Business units in the country would align its business plans once the state releases its five-year plans. The state would also create platforms for business units to carry out its business.

This model has thus become the most successful model of business in countries like China.

At the other end of the spectrum is another model called the Family Entrepreneurial Capitalism. Family-led capitalism is popular among countries such as Brazil and India. Business houses such as Tata and Reliance Groups represent such model.

These big businesses have ownership and control throughout different sectors. It has also created a huge global force relying on its domestic market as well as on the ability of its family conglomerates to expand aggressively on a global scale.

It has also demonstrated resilience and creativity to stay afloat in times of bad economic situation. It takes measured risk in every venture to make it successful.

Deep down, it appreciates the basic principles of ‘creative destruction’- the scrapping of old technologies and old way of doing things for the new, to increase productivity and hence economic growth for a society. It appreciates a creation of a society in which every body is given not equal rewards, but equal opportunities.

Given these two schools of thoughts, where does Bhutanese Capitalism fit in? Are we in pursuit of either of the models or are we still in search of the right model? Is there a way to blend the best parts of each of these systems?

Consolidation of the State undertakings in creation of DHI (Druk Holding and Investment) is no doubt the sense that Bhutan has imbibed the best part of State Entrepreneurial Capitalism; making sure that SOEs are in line with the State’s priority.

Simultaneously, liberalization of business licenses even in some of the strategic sectors such as banking, finance, telecommunication and aviation are clear signs of Family Entrepreneurial Capitalism.

Even as Bhutan continues to promote both business models, perhaps finding the right kind of business model for Bhutan could be worth exploring.

Both models have its weaknesses. Lack of ownership by managers, leakages, inefficient use of resources and bureaucratic way of governance are some of the weaknesses of a State Entrepreneurial Capitalism form of business model. There are no incentives to work hard.

A family Entrepreneurial Capitalism has its weaknesses imbedded as well, stemming from human instinct, predominantly greed overshadowing society’s interest leading to crony Capitalism.

Amidst these extremes, business model that encapsulates and promotes the interest of all stakeholders could be the best model one can imagine.  State could have a larger interest, and from a delivery front, a private entrepreneur is the proven agent in execution of projects, and operation.

The biggest challenge that Bhutan confronts today is the efficient use of available resources to achieve its economic independence.

The only way towards this goal is to promote a business model that would enable each individual to be productive, creative, hard working and risk taking.

A citizen can only look up to the state to provide an enabling platform to nurture its risk-taking aptitude to be a creative entrepreneur. A simple step towards such objective could be an initiative on the part of the government to spell out clear and stable regulations on each potential sectors; active participation of the state in promoting and taking ownership in every business units along with private entrepreneurs.

Only then, Bhutan could possibly harness the best of its human as well as other natural capital to realize our Monarch’s and the Nation’s dream of realizing economic self-reliance.

Sonam Dorji

Thimphu

RICB

The writer is currently serving as the Executive Director of RICB. View expressed here reflect his own, and in no way represent the organization’s view. 

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2 comments

  1. The author writes, “A family Entrepreneurial Capitalism has its weaknesses imbedded as well, stemming from human instinct, predominantly greed overshadowing society’s interest leading to crony Capitalism.”

    Doesn’t this beg the questions; “Doesn’t human nature apply to State controlled enterprises?” “Are government employees less greedy that private citizens?” “How can crony capitalism exist without the participation of the Government”? “Isn’t society’s interests reflected in the free participation of capitalism without coercion?”

    History is replete with examples of failed economies based on government intervention and coercion. Government’s proper role is to create a framework that encourages investment and risk taking by protecting private property, creating a fair legal system, minimizing regulation and maintaining a fair “playing field”, etc.

    Socialism is based on the notion that somehow governments are staffed with angels who are above greed, corruption and have greater wisdom than mere mortals. That people are not capable of making good decisions for themselves. Nothing could be farther from the truth…

  2. I liked the post and the views as expressed by Sonam. The models are developed looking at the geography, polity, society, economy and other related macro factors. These models came out of the practices countries followed in order to carry on with business. They were driven by the political ideologies and leaders’ bias and as they responded to market they started gaining importance and acceptance.
    My taken on a sustainable business model for Bhutan would be on the basic premise of socialism and broader framework of wealth creation. No established model can suit Bhutan’s economic structure.

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