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The Making of Indian Immigrant Entrepreneurs in the US

the Making of indian immigrant entrepreneurs in the Us Roli Varma, Daya R Varma In 1867, Karl Marx proposed his thesis of m.c.m

SPECIAL ARTICLEjanuary 17, 2009 EPW Economic & Political Weekly64The Making of Indian Immigrant Entrepreneurs in the USRoli Varma, Daya R VarmaIn 1867, Karl Marx proposed his thesis of M→C→M¹, where M¹ (money as capital) is generated from M (money) through the exchange of c (commodity) and thereby the appropriation of unpaid wage labour. This paper examines the source of the initial M in the making of Indian immigrant entrepreneurs in theUS, a disproportionately greater percentage of whom have trained in India’s elite technical institutes. Given the leading role of technology in the world economy and the emergence of the information technology sector, specialised technical skills have assumed unique importance relative to other forms of labour. These skills are not acquired by the exclusive financial contribution of the family or the intellectual endeavour of the individual, but by the social capital and the cultural stimulus of the Indian society. In this specific context, the M in theM→C→M¹ thesis of Marx could be defined as SC, which underlies the making of the Indian immigrant entrepreneurs in the US.This research was supported by a grant from the National Science Foundation (0136467). Roli Varma ( is with the School of Public Administration, University of New Mexico, US and Daya R Varma ( is with the McGill University, Canada.An analysis of “capital” was first presented by Karl Marx (1818-1883) in his celebrated work, Das Kapital.The first volume was published in 1867 and the subsequent two volumes after his death. His basic analysis of the origin and accumulation of capital has been unique in the discipline of political economy for nearly a century and half. According to Marx (1867), the starting point of capital is the circulation of commodities (C) – things which satisfy human needs and are then exchanged for something else. The end prod-uct of the circulation of commodities is money (M). Based on the form of circulation, Marx made a distinction between money and money as capital. The first type of circulation isC→M→C (theconversion of commodities into money and then conversion of money back into commodities). Here the main objective is the “use value”. The second type of circulation isM→C→M (the transformation of money into commodities and then transfor-mation of commodities back into money). In this case, the main goalis the “exchange value”. This suggests that money becomes capital. Money as capital keeps circulating and advancing without any limits. This process is depicted asM→C→M¹, where M¹ = the original money + increment. Marx called this incre-ment over the original value “surplus value”. Money is therefore capital if and only if it appropriates surplus value. For Marx, the primary and only source of surplus value is unpaid labour, that is, the wages to workers are less than the value of the com-modity they generate. This formulation for capital is one of his important contributions. In Marx’s theory of the capitalist system, capitalists use their money to make more money. They buy the labour power of work-ers to carry out production for capitalists. The workers who are the actual producers of commodities do not work for themselves because either they do not own the means of production or their own means of production cannot successfully compete with that of the capitalists. As capital is centralised, a greater amount of capital investment is required to set up a factory which could suc-cessfully compete with the existing factories. In other words, it becomes harder and harder to become a successful independent capitalist. In fact, smaller capitalists continually get eliminated since they cannot compete with their bigger counterparts. In recent times, a large number of capitalists and capitalist enter-prises have started in a way that has nothing to do with the clas-sical manner of capital accumulation. Examined superficially, the M of M→C→M¹ is not exactly the way Marx (1867) presented for capitalists to emerge and flourish. The financial ascendancy of people like Paul Allen and Bill Gates (co-founders of Microsoft),

ince the mid-1990s Indian immigrants have increased their percentage in starting engineering and technology companies (Wadhwa, 2007).

Indian immigrants have become the most dominant ethnic group in founding companies in the high-technology sector in the US.2 One study found that India ranks first as the country of origin for immigrant-founded venture-backed public companies, which account for 32 companies or 22% (Anderson and Platzer 2007). An earlier study of immigrant entrepreneurs in the Silicon Valley revealed that Indian immigrants held 7% of the technology businesses which started between 1980 and 1998 (Saxenian 1999). Since the mid-1990s, they have increased their percentage to 15.5% of all Silicon Valley start-ups. Nation-wise,

have founded more engineering and technology companies than immigrants from the UK, China, Taiwan, and Japan combined.

Their companies tend to be dispersed around the country, though they have sizeable concentration in California (26%) and New Jersey (14%)

successful Indian immigrant entrepreneurs have become role models and opened the doors for the next generation.

SPECIAL ARTICLEjanuary 17, 2009 EPW Economic & Political Weekly68start a company, they are not taking a great risk like in India; they can find another job, if they are unsuccessful in business.Contributions of Social CapitalThe important question then is: Why and how are the Indian im-migrant entrepreneurs performing exceptionally well in theUS high-technology sector? We argue that the firstM of Marx’s (1867) M→C→M¹ is theSC rather than the initial assets of the future entrepreneurs or their families in India. WithoutSC, they are un-likely to be professionals turning into entrepreneurs.In the scholarly literature, the termSC has been defined and interpreted in numerous ways (Alder and Kwon 2002) and sepa-rated from other forms of capital, namely, economic capital (money, assets, resources, etc) and human capital (education, knowledge, skill, etc) (Portes 1998). For instance, Pierre Bourdieu (1986) has definedSC as the aggregate of the actual or potential resources which are linked to possession of a durable network of more or less institutionalised relationships of mutual acquaint-ance and recognition. James Coleman (1988) has argued that SC is not a single entity or an attribute of individuals, but a context-dependent aspect of social structure. According to him, it is a community-level attribute and thus a public good. While Bourdieu’s (1986) treatment of theSC is instrumental, Coleman’s (1988) treatment of it is functional.Even though there is little agreement on the definition ofSC, the term remains popular among scholars partly because of its explanatory power. It has been argued that it contributes towards the economic development, growth and production at the national, regional, and local levels (Fine 1999; Day 2002). One study showed that it is an important element in educational attainment (Israel, Beaulier and Hartless 2001). Another study highlighted its role in public health (Subramanian, Lochner and Kawachi 2003). Yet another study proposed its positive contributions in community governance (Bowles and Gintis 2002). We findSC a useful concept since it has both dimensions – capital and social. The term capital suggests economic aspects, namely, the production and distribution of goods and services whereas the term social suggests non-economic aspects which are outside the production and distribution of goods and services. Yet, both economic and non-economic aspects require investment of money, time, effort, and initiative by individuals and the society. Social capital does not exist independently of the society. Political system, economic conditions, social environment, and cultural norms all channel and influence it. As shown in the previous section, after being successful as scien-tists or engineers in the US, Indian immigrant entrepreneurs have adopted the goals of establishing their own high-technology com-panies. They have uncompromisingly pursued new opportunities to achieve their goals and have engaged in a process of converting their intellectual ideas into innovations without being limited by financial resources. They have taken personal risks, worked with confidence to overcome financial and other obstacles and synthe-sised their ideas with commercial applications. By successfully transforming their inventions into innovation, they have defied the traditional capital accumulation process. Thus SC has contributed to the success of Indian immigrant entrepreneurs in the US.Education, a key element of social capital in the making of Indian immigrant entrepreneurs, is heavily subsidised by the Indian government and byUS institutions if Indian students obtain graduate degrees from there. The Indian government has made a constitutional commitment to provide free and compul-sory education to all children up to the age of 14, though India falls short of meeting its goal of achieving 100% literacy. Secondary education, which provides a crucial link between ele-mentary and higher education, is supported by tuition fees and government financial aid. Almost half of the total expenditure for higher education comes from the Indian government and the rest from private sources. However, only a small number of central institutions that cater to less than 2% of the students get 85% of central funding(Agarwal2007).TheIITs, where most of theIndianimmigrant entrepreneurs in the US have received their education, are heavily subsidised by the Indian government since they are institutes of “national importance”. Even if we assume that a significant portion of money spent by IIT students is personal, the overall cost of attaining a degree at anIIT is far more than what is contributed by the students. For instance, if monies spent on the IITs are channelled into primary education, India is likely to see low fertility rates and improved healthcare (Murali 2003). Since significant official funding is going to very selective institutions of higher education, the poorer sections are being denied access to primary education. The govern-ment funding which is of immense benefit to the individual Indian immigrant entrepreneur also deprives a vast majority of Indians from receiving quality education and other social services such as reasonable healthcare. Also, the child of a poor labourer has almost zero possibility of admission to such elite institutions. This means that forces that lead to the division of rich and poor also decide better opportunities for the rich than for the poor.India does not restrict migration out of the country. It did not do so even when skilled personnel were most needed in the im-mediate post-independence period. India may have legitimate reasons for restricting departure of its scientific and technical personnel because institutions of international quality training in engineering and technology were founded precisely to meet the domestic need. India’s first Prime Minister Jawaharlal Nehru considered science and technology essential to the building of a modern country in every way. Indeed such restrictions on emi-gration existed in some countries. The result of this liberal policy of the Indian government resulted in what has been termed “brain-drain” (Gaillard 1991; Cohen 1997). It has been estimated that In-dia loses approximately $2 billion per year by supplying trained personnel, many of whom are IIT graduates, to the developed countries (Murali 2003). It is the social capital of India which has been helping the US in technological innovations. Ironically the SC that is shipped out of India to the US in the form of future Indian immigrant entrepreneurship is far greater than all the aid that country has given India since its independence in 1947. ConclusionsThough Marx (1867) introduced the concept of “technological change” in the theory of capitalist development, he did not dis-cuss the role of entrepreneurs in converting scientific/technical
SPECIAL ARTICLEEconomic & Political Weekly EPW january 17, 200969inventions into innovations. This is partly because Marx did not distinguish entrepreneurs (people who take risks have ideas, and explore the possibilities of converting them into innovations by combining labour and capital) from capitalists (who by virtue of owning means of production provide the way for investment in forces of production). Also, he did not distinguish between the two forms of labour that go into transformation of scientific/technical ideas into innovations – the mental labour of discovery and the actual construction of a product from that discovery. It is therefore no surprise that in Marx’s theory of capitalist development, the entrepreneur bringing about technological changes is rarely mentioned. It should be noted that Marx wrote about capitalist development over 100 years ago when the engines of growth were manufacturing, construction, and mining. Today, the growth in services exceeds growth in every industrial sector in most developed economies, and the use of information tech-nology is having a profound impact on globalisation. In the era of information-led and service-based economy, capi-talism has become vigorously dependent on the creative scientific/technical labour and entrepreneurs who can successfully integrate creativity into production. Nonetheless, the making of an individual into an entrepreneur in the high-technology sector is a complex process. It is much more than a bright student graduating from an elite institute through his/her efforts. An academic is the product of social contribution both financially and culturally. The presence of an Indian immigrant entrepreneur in the US high-technology sector has been made possible mostly because his/her education has been subsidised by the Indian government and the Indian value system which encourages that education is the only way to rise above economic hardship. Moreover the cultural heritage of India has served as a key motivating force in the genesis and fruition of his/her entrepreneurship. In the context of Marx’s thesis of M→C→M¹, an Indian immigrant entrepreneur in the US high-technology sector represents SC→C→M¹, where M represents the SC (social capital). Notes 1 The software field contains computer program-ming services, pre-packaged software, integrated system design, processing services and informa-tion retrieval companies. 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