Dubai's done well through allowing an innovation culture to take hold. But it's also done in a way keeping safeguards in place for risk takers. Image Credit: Gulf News Archive

The idea of capitalism was hijacked by Joseph Schumpeter in the 1930s, when he narrated a drama in which the entrepreneur entered as a hard-nosed antihero and a driver of progress and innovation.

He painted the entrepreneur, in the words of the economist Arthur Smithies, as a “prescient rogue”. The innovative entrepreneur, Schumpeter declared, was the “most rational and egotistical of them all, because his characteristic task consists of breaking up the old and creating new tradition”.

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In other words, if you see an egotistical entrepreneur leaving a path of destruction in his wake in the form of lost jobs and bloated monopolies, then this is not to be lamented, but rather celebrated. Because this is how the capitalist system revitalizes itself.

The problem with this mythology is that it is false, and when we go back to first principles and Adam Smith, we see the moral sentiments that were deeply ingrained into the theory of capitalism and subsequently were discarded.

Return of virtues

Business history that has emerged in the last three or four decades attest to a form of corporate governance that is closer to Adam Smith’s founding principles than the romantic view espoused by Schumpeter. Courts have been instrumental in setting standards, and the rights of the consumer, and regulators have increased oversight in order to offer protection to both the employee as well as the employer in response to crises that have plagued ecosystems.

The narrative employed by Schumpeter continues to remain popular, even though it is subjunctive history, a history that for the most part, has been imagined.

Managed innovation

Ecosystems, and economies, are built block by block, and when systems and standards go awry, regulators and stakeholders collaborate to take everyone to (hopefully) a higher ground. In Dubai, this has been the software that has been in place since inception.

And even though the vision has been modified from time to time, it has been as bold and far-sighted as it was in the early days. There is undoubtedly a place for innovation to be sure, but it has to be managed, lest there be runaway inflation and/or unemployment.

Spread the cost benefits

Currently, that emphasis is on cost reduction as the economy comes to grips with the after effects of the pandemic. Some of these costs will be taken care of by market forces (such as the reduction in rents). Others such as utility costs and other fees will be mandated by government fiat or through a series of stimulus measures that seek to incentivize risk taking behavior once again.

This has ricochet effects on asset prices, but even here the “stampede behavior” can be avoided through mechanisms such as moratoriums and equity-like incentives that serve to buttress cashflows.

History books will be referred to as remedies are suggested. Even though the pain cannot be removed, what is paramount is for the pain to be minimized, as SMEs are coaxed to stoke the fires of entrepreneurship once again.

However, this entrepreneurship is starkly different from what is embedded in the mythology of capitalism. The model of “creative destruction” embedded in popular narratives has been precisely the variable that has led to xenophobia and the rise of unruly forces that have shaped the reactionary movement against transparency and openness.

Never an easy fix

In reading, one should always notice and fondle details. There is something palpably wrong with the moonshine of generalization. When we begin with ready-made conclusions, we are at the wrong end, with the consequence that we travel away from the remedy before we even begin to understand it.

There remains a sense of palpable anxiety as to which course we are to take. Like merchants in a desert caravan, we need to know where we are going. Rather than looking at popular narratives through disconnected fragments, the need of the hour is to approach the issue of first principles in a holistic manner.

Wealth creation, job security, infrastructure cost reductions and growth (both economically and intellectually) form part of the discourse. To quote Abraham Lincoln, “The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty and we must rise with the occasion. As our case is new, we must think anew and act anew. We must disenthrall ourselves”.

Dubai has never been one to stand still, and the need of the hour is to nurture innovation, and the entrepreneurship symbiotically with the backing of forces such as banking, regulation and the law such that the city shakes off its shackles and acts anew.

- Sameer Lakhani is Managing Director at Global Capital Partners.