Even Communists Need Entrepreneurs

I just returned from a 10-day trip to the People's Republic of China. The highlight of my trip was the Global Entrepreneurship Congress, where the conversation revolved around the emerging entrepreneurial ecosystem developing amongst the world's largest population.

Shanghai, the site of the Global Entrepreneurship Congress

Wait a minute. I traveled to a communist nation, the home of Mao's little red books -- a country that was largely closed just thirty-five years ago -- to hear some of China's most important political leaders endorse entrepreneurship as a career choice for young people?

Even "Red China," which once openly railed against the evils of capitalism, realizes that it needs more entrepreneurs. Initially, entrepreneurship in China sprung up where the government did not exhibit strong control, but now the Chinese government is actively promoting entrepreneurship as the key to the country's future. New firms no longer spring up only where the government isn't looking; now they launch with the full backing of the Communist Party.

The organizer of the Global Entrepreneurship Summit, the Shanghai Technology Entrepreneurship Foundation for Graduates (EFG), runs a series of programs to support recent college graduates in their entrepreneurial endeavors with full government support. One of the speakers at the conference was Li Kaifu, an entrepreneur with Google and eBay on his resume, who runs a business incubator called Innovation Works. The Chinese government subsidizes his rent, and perhaps more importantly, stays out of his way.

The outbreak of entrepreneurship in China began with reforms started by Deng Xiaoping when he ascended to the leadership in 1978. Deng realized what every other failed socialist state had neglected to realize, that only a vibrant private economy could keep communist rule afloat. The Communist Party in China began to relax controls on economic matters while they kept tight controls on all political matters.

According to Richard McGregor, the author of "The Party: The Secret World of China's Communist Rulers," "These days, Chinese officials treat questions of any inherent contradiction between a communist political system and a capitalist economy as almost banal."

What about starting a business?
Deng's reforms, and those of his successors, set in motion one of the greatest economic growth stories in global history. The Chinese economy has doubled in size every eight years since 1978 and has lifted millions of people out of poverty.

According to McGregor, "The Party--has often been overwhelmed by the sheer wealth of the new entrepreneurial class. The wealth, jobs and increase in living standards that have been constructed by China's entrepreneurs have become impossible for the Chinese government to ignore."

Apparently communists in Cuba feel the same way. Cuba recently announced an initiative to encourage startups in the home of Fidel Castro. According to a recent Wall Street Journal article, "Cuban government officials approved several measures aimed at helping the many start-ups that were launched after reforms last year eased restrictions on privately-owned businesses."

Who's next? Hugo Chavez?

I think these actions further reinforce the importance of entrepreneurs to any economy, no matter what political system it employs. Every country's economy needs to grow and entrepreneurs are the surest way to get there.

Still, it's hard to imagine how these efforts can be truly innovative given the authoritarian constraints that entrepreneurs in these countries face. In China's case at least, its entrepreneurs have found a way to build their companies despite the political constraints. It has been estimated that the private sector now contributes over 70 percent of Chinese GDP and that 75 percent of the workforce are employed by a firm under private ownership, though exact numbers are difficult to ascertain.

Though American entrepreneurs often complain about high taxes, permitting, and health care costs, it could be much worse. Chinese entrepreneurs face much more difficult obstacles, particularly regarding their interactions with their government. But they don't seem to mind -- they are still growing their country's economy at a breakneck pace.