Tuesday, May 26, 2009

Slumdog Entrepreneurs

Ed Glaeser's column today in Economix (NYT) focuses on the dense concentration of self-employed entrepreneurs in Mumbai's slums. Glaeser cites one survey that found that around 43% of urban Indians in Mumbai were self-employed. There is no comparable comparison in the U.S. - not even close. I think he correctly analyses the important reasons for this high level of "push entrepreneurship" when he writes: "I suspect that it reflects both good things about the country, like energy and intelligence, and bad things, like a maze of regulations that make it difficult to build large firms that follow the rules."

You can certainly see the regulatory problems reflected in the World Bank's Doing Business Survey. Overall the headline indicator("Ease of Doing Business") ranks India 122 out of 181. Among the lower middle income countries in the sample India is only 35 out of 57, with Bosnia and Herzegovina above, and Lesotho right below. Among the subsets in the survey there are some bright spots, such as Getting Credit (28) and Protecting Investors (38), but other categories reflect India's institutional weaknesses. For Starting a Business, India ranks 121, for Registering Property (105) and Dealing with Construction Permits (136). Finally, in some categories India's performance is flat out horrendous: Closing a Business (140), Paying Taxes (169), and Enforcing Contracts (180). Glaeser captures the impact of these regulatory burdens with this excellent paragraph:
Fifty years ago, John Kenneth Galbraith described America as a place of private affluence and public poverty. India is a nation where private citizens, both rich and poor, do amazing things despite tremendous failures of the public sector.

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