evil entrepreneurship

Entrepreneurship will bring about the destruction of the middle class.

Got your attention there, didn’t I?

The current trend emerging since the 1980s is that to succeed in life, one has to be an entrepreneur. Then stories of the taipans (Tan, Gokongwei, Sy) and recently the pinoy trailblazers (Villar, Hortaleza) would be narrated. However, articles don’t usually cover the mid-sized entrepreneur or the effect entrepreneurship has on the professional class.

When businesses and ventures fail, banks would usually be involved in the cleaning up process (whether to collect a direct loan from a failed expansion or to collect from a dead credit line). When asked why companies fail, they have two major reasons: succession problems and poor hedging.

Succession problems occur when the 2nd or 3rd generations of the owners don’t do as well as their trailblazing parents. Some squander the fortune, some don’t have the same acumen as their parents, and some have the exact acumen as their parents but the talent is inapplicable to the changing current business environment.

Hedging happens when one offsets one risk with another risk. For example, a businessman would need cash for the future, so he borrows in dollars in order to pay a lesser amount, with a reasonable expectation that the exchange rate will not fluctuate too much.

What happened was before 1997, where the exchange rate was P27 to a dollar, capital was free-flowing, and it was easier for businessmen to avail of loans for expansion. After all, this was the Ramos boom years, everyone was optimistic. But the crisis struck, and interest rates shot through the roof. Thus, the businesses couldn’t pay off the loans anymore and they shut down.

While thinking about these things, I thought about the life cycle and profile of an entrepreneur. Entrepreneurs usually belong to upper middle class to high class families. Lower middle class and low class families usually have little access to capital to start a sustainable and realistic enterprise (there is a limit on how much sari-sari stores and fishball stands one can put up in a community). Standard entrepreneurs on the other hand have access to their families’ capital, or have enough clout to borrow from a friendly bank.

Due to the intense competitive business environment, only a few entrepreneurs succeed; even then, these successful entrepreneurs have been through numerous failures before hitting the big time. Thus, with their instincts hardened by experience, most entrepreneurs believe that they alone can dictate how the business should be run, if not by someone they trust. Thus, they appoint family members to hold positions of authority.

The pattern isn’t breaking anytime soon, as can be seen by the failure of several businesses due to succession issues. Entrepreneurs would cling on rather than change, until the friendly bank becomes less than friendly and/or funds run out because of the sheer magnitude of losses.

When members of the middle class (upper and middle) opt to work as professional employees, they become disheartened since their way up the ladder is necessarily blocked by family members of the owners. Add this to the fact that because of the low level of trust owners have for outsiders, professional employees are only exposed to supervisory and administrative duties; no real responsibility is given.

To achieve a sense of accomplishment, professional employees currently have two options: become entrepreneurs or become OFWs. As more professionals leave the country, the country’s supply of professionals lessen, and the quality of work degrades. If they become entrepreneurs, the cycle begins anew, distrusting yet another generation of middle class professional hopefuls.

The original goal of entrepreneurship encouragement is to stem the preference for title-specific white-collar jobs, but lacking in substance. However, through selling entrepreneurship, emphasizing the “own-boss” notion only solidifies the señorito mentality, too many chiefs, not enough Indians.

I wish I could give a solution to this observation. I could always say, encourage a sense of professionalism within companies and the public sector, in order for professionals to have a better sense of self-worth, but that’s pointing the finger to the powers-that-be; and in this republic, the powers-that-be are still relatively ensconced that they do not feel the pressure to change. Any attitudinal change for the professionals themselves can only create incremental effects, due to the leverage of resources between the haves and the have-nots.

And the drain continues…