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The Financial Express

Economic models and Startup culture

| Updated: October 24, 2017 08:39:32


Economic models and Startup culture

We have been exposed to two major economic models since the beginning of this century - Capitalism and Communism. Communism always intended to confront Capitalism by eliminating the latter's major pillar namely "Private Property" or "Corporations". And the rest is history. 
Recapitulating of these two models, retrospectively, I found communism pivoting on the idea that economic disparity and misery are the outcome of capitalism. On the other hand, capitalism, which had seen a rise after the Industrial Revolution, condemns the very idea of equal distribution despite having "something more to offer" that creates a kneejerk self-demeaning sense of inequality within oneself. Capitalism got global acceptance due to its applicability of "Survival of the Fittest" concept "embraced" by many a part of the world or can be said - "imposed" by some parts of the world on most parts of the world. Whichever we take, it is now a global practice and, whether we agree or not, we live in this chain and sphere of Capitalism. Why I call it a chain? Well, it's partly because of the control mechanism of the factors associated with the global chain and partly because of the core nature of the human genome, "Let's win it all!" 
These two economic models have commonly been distinguished by the nature of possession over "Factors of Production" and the inherent control mechanism that lies therein. Capitalism supports private business owners to own all the resources, technology, equipment, facilities and the means of production. Communism, which opposes the earlier model and supports the idea of subjecting its citizens to authoritarian control, has pitfalls like complete state-controlled financial system, lack of business freedom and innovation in economic activities and unusual growth of a single economic power house badly affecting the business ecosystem. In capitalist setup, many a times, world's top economies failed to predict and survive recessions and its subsequent events such as Economic Collapse of Greece and Contemporary Italian Economic crisis, recession of 2008 of US economy and ongoing downscaling of EU economy from which these nations have not fully recovered. The worst part is - many top economists are forecasting dimmer days for the US and EU (economy and there could be more recessions in the near future. Global citizens started questioning about the future of capitalism and traditional companies and corporations since this system is now posturing more and more problems for the economies people live in irrespective of the standard of the economies and location of the citizen. The controversy has many names - unemployment, recession, inflation, poor working condition, low wage rate and so on. For these two models, the very question of having control over "Factors of Production" and its multi-faceted usage could not be a safeguard till date. 
The figures in the Graphs show how market capitalization for the largest listed companies in world economy has changed its volume and dynamics from 2006 to 2016. Energy being the largest sector as volume has been replaced by IT sector in a significant manner. Apple, Alphabet, Amazon, Facebook which were not even in the list 10 years ago are now among the largest companies in terms of market capitalization. Having a cross-cutting industry presence, these companies' cumulative growth and total volume helped IT sector to capture the top position. I have collected the data from the Economist and prepared these comparative graphs to illustrate the analytical changes.
The birth of internet in 1989 and the exponential growth of information and communications technology  (ICT)-driven companies have shown us how important, now-a-days, the contribution of these "once-a-Startup-then-a-Unicorn" companies is and how larger economies throughout the world are taking benefits out from the upswing of these companies. For the last couple of decades, these tech-based companies have shaped up the respective economies in such unprecedented ways that the world was not anticipating such rapid growth of economic revolution which ultimately resulted in changes in policies. Rise of Fin-tech startups, in some countries, has even helped the central governments to take major reformatory measures in their economic, fiscal and monetary policies. Operational adjustments of financial transactions, as in India's current ban on higher denominating currency case have, partially, been backed up by some Fin-tech startups, as we have seen. There are many such examples. In essence, we have witnessed many situations where the rise of startups have significantly reshaped the economic model or infused the adjustment factor for many fiscal and monetary policies. 
With the sharp rise in the field of technology, especially, in Information Technology, and its tremendous impact in world economies and businesses, economies around the world have taken new shapes. For last 10 years or so, Fortune 500 list of the most valuable companies in the world, shows that how the role of ground-breaking ideas (thanks to internet) and various forms of access to so-called "Factors of Production" have re-moulded and necessitated a newer approach to measure and justify the factors which eventually make up the very economy. Many tech giants such as Apple, Alphabet (the mother company of Google) and Microsoft, which are the three most valuable companies for 2016, were "Startup" by nature and these companies have, to a great extent, redefined the "Factors of Production" and their applicability in modern capitalistic economy. Though the amazing rise of the tech companies have started from late 80's, it is important to note that the phenomenon of "Startup", which can be attributed to "an amplified entrepreneurial movement", actually began to take shape in late 90's or in 2000. Many people would wonder how "Startup Culture" has something to do with economy and economic model, for that matter. 
As we know, heretofore, the "Factors of Production" and the control mechanism over these factors define the very nature of a certain economic model. Essentially, in the case of tech-based startups, we see an indulgent approach of conventional business environments and in many cases, the very nature of these "Factors of Production" changes according to the set of parameters these startups are functioning in. The sheer value propositions of these companies to their respective economies have shown us how a small startup can get access to various forms of factors of production and how this model can help intrigue a revolutionary sphere still being pre-installed in the so called "Capitalism" setup. 
If we look at the basic structures of the conventional economic models, one thing stands out clearly - the nature of factors of production and access to these factors by the stakeholders. Over the years, especially after the distribution of internet and its being the number one carrier of IT-enabled services, we have seen the rise of startups and each and every time, some way or the other, every ground-breaking startup has redefined the access to these factors of production and leveraged on this ground. So, can this be said that land, the primary factor of production, is being replaced, in many parts, by data centres and virtual spaces; labour is being replaced by Artificial Intelligence (AI) and Big Data Analytics; Capital is being replaced by Venture Initiatives, Hedging, and Crowdsourcing and by many other investment and financial instruments? In due course, entrepreneurship is the key factor of production which has had its strong appeal from all the economic models and the recent upsurge of startups proves it strongly more than ever before. 
The writer is a Tech entrepreneur and economic analyst. 
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