John Perkins in his book, ‘Confessions of an Economic Hitman’ argues that corporate greed can drive high-powered firms to coerce developing countries into enormous debt. They are using taxes to convince state governments to repeat a debt cycle.
Pakistan is no exception. For the past many years, we have had serious issues affecting our ability to manage resources to indigenously develop our ideas into sustainable ones. Debt, fear and militarisation are mantras fed to the economic hitmen and fed by the economic hitmen to utilise resources in low-developed countries to make the developing world buy into the idea of getting debt financing. They want to incorporate it into fiscal mechanisms that do not allow for growth in a country like ours to take place.
Perkins argues that all human capital in a country should individually follow a passion and take a path to develop our skills from a debt economy into a life economy. The economists, he argues, have power over corporations and are nothing more than perceived realities trying to maximise profits.
Building on this, startups are a new phenomenon which can help economies develop faster. There is no one agreed upon definition of a startup, but it is usually small which is just beginning to develop, and are usually small and initially financed by a handful of founders or one individual. These companies offer a product or service which is not currently being offered elsewhere in the market or are being offered in an inferior manner.
At this point you might be wondering what the similarity between a startup and a corporation or a country might be. The answer is funding and funding opportunities. The investment in a startup is done by investors for a possible return on it. The donors or the economic policymakers want something similar. In order for the country to do well, it must know how to manage its funding opportunities in the right manner.
Like a startup should know how to manage its resources and understand what its minimum viable product is going to be, a country should be able to understand what its sustainable development goals will be viz a viz its long-term strategy.
Most startups face a lot of failures. I would imagine this is similar to what developing economies also face. Failures on a regular basis. However, startups need to come up with innovative ways to manage their failures as they also have to have means to manage their investments to remain viable, therefore developing economies must understand what key resources they must use to manage long term failures also. This can be done by devising ways to understand key exports based on innovative ways to manage resources. Last year, the global economy was valued at USD 2.8 trillion (Global Startup Survey on COVID Impact 2020) and growing over 10 percent per year about three to four times faster than the rest of our economies. With the worlds transition to a digital economy, technology startups and their ecosystems have become more important and the jobs they create more sustainable because they are better adapted to our economic failure. The COVID crisis has accelerated the digitisation of the offline economy making tech companies even more important. In the wake of the last crisis, startups contributed strongly to the economic recovery. By 2011, employment in the computer systems design and related services industry had grown by 2.6 percent per year from pre-recession level while the overall economy’s job creation was negative at -1.2 percent. The 2.6 growth rate is higher than that of large sectors including healthcare.
The first goal for policymakers should be to increase capital in the hands of angels and series A funds by about 100 percent. The second goal should be to save 80 percent to 90 percent of existing VC backed startups and especially those at Series A and B.
Historically, a lot of money has gone into traditional businesses with a focus on Small and Medium Enterprises – an action needed to reduce the depth of the recession we are entering by preserving the economic fabric supporting both demand and supply sides.
Pakistan should have and will benefit if its ecosystem of tech companies becomes a significant contributor to online platforms and develops a digital mindset among its youth.
Tech employees are a highly productive talent pool. Layoffs not only cut the productivity of these employees in the short term it might encourage them to work for the tech giants in places like Silicon Valley, New York and London. Currently companies like Facebook, LinkedIn and Dropbox are all based in the Bay Area. The Silicon Valley ecosystem is not about to let its most promising startups die. We need to follow a model which works for a developing country. Recently, grocery delivery applications started to emerge as a result of the COVID-19 lockdown which preempted users to start online buying. This was an opportunity for local companies like 24/7 delivery and Cart2Door to become prominent sellers and deliver from one part of the country to another. This also connected local farmers to online buyers and offered a real solution to an agri-based economy.
Knowing that the value and importance of saving startups for our economies is higher and the cost much lower than for SMEs, then the appropriate government goal for its startup ecosystems would be to save all or almost all the startups. Like many did for SMEs.
Some of the VC-backed startups should be solving indigenous problems and allow for entrepreneurial activity to increase during recession, when many very talented and experienced staff are laid off and suddenly have the time and incentive to start working on their great idea.
Mahvesh Mahmud
The writer is a Shell-Chevening-DFID-Noon Foundation Scholar to the University of Cambridge, UK. She is an Assistant Professor at the Lahore School of Economics.
