Business and Government

Business–government relations have long been a staple of business history literature. However, as with business history in general, the literature largely concentrates on Europe, North America, and Japan.^{Footnote 14} The notable exception is Latin America, especially Mexico, where the relationship between modernizing governments and foreign and local capitalists has attracted significant attention.^{Footnote 15} The general focus has shown how governments shaped (for better or worse) industrial growth and modernization.^{Footnote 16} The oral histories in the CEM archive contain insights on government and business relationships that add nuance to and bring new perspectives on existing debates. Five different insights emerge from the interviews.

First, CEM interviews provide a corrective to narratives about the exclusive role of governments in spurring development. This is illustrated in recent research using CEM interviews examining why Costa Rica emerged as the world’s largest ecotourism destination between the 1970s and the 2000s.^{Footnote 17} While confirming the influence of government policies and NGOs, the interviews revealed that small entrepreneurs also played important roles. For example, although the Costa Rican government is widely credited with creating the national parks system, Jim Damalas, who founded the first luxury-oriented eco-hotel in 1993, observed that “it’s more the private sector and not the government that [is] vigilant about preserving” these areas, because the government is hindered by budget restrictions and bureaucracy.^{Footnote 18} The interviews also revealed a symbiotic relationship between tour operators and eco-lodge proprietors, who collaboratively worked to attract Western eco-tourists to the country and then met the dual needs of recreation and accommodation. The judgements in these interviews were not taken at purely face value, but neither were the interviews assessed or screened based on their degree of “factual accuracy.” Rather, the value of these sources was the additional perspective they afforded on well-known trends in conjunction and cross-trianglization with existing scholarly literature, demonstrating how oral history sources can help to produce a more balanced picture of co-creation.^{Footnote 19}

Second, the CEM interviews enable a discussion of how government policies were executed, how they impacted business, and why certain policies succeeded and others did not. Interviews with Indian business leaders expose the hassles of dealing with the country’s bureaucrats, especially during the era of extensive state planning between the 1970s and the 1990s. This was a major theme in Prathap Reddy’s interview. Reddy, a U.S.-trained cardiologist, founded the first Apollo Hospital in Chennai in 1983, which would grow into Asia’s largest healthcare provider, with a network of hospitals, clinics, and pharmacies. He describes in detail how difficult it was to get his business started:

In his interview, Jerry Rao, a commercial banker who first founded an IT services provider in 1997 before venturing into low-cost housing, offers an explanation for this state of bureaucracy in India. “We just have a palimpsest of laws,” he said. “Each might have been a good idea at that time,” but the failure to update and overhaul legislation has created a highly restrictive environment such that India has become a country “locked in a traffic gridlock.”^{Footnote 21}

Filipino entrepreneur Jaime Augusto Zobel de Ayala shared an example of successful policy implementation. He identifies the importance of a good bidding process in explaining how he brought clean water to the Philippe capital of Manila in the 1990s: “To give President Ramos credit, he brought a lot of political will to [the water privatization] process. … He brought the IFC [International Finance Corporation of the World Bank] in to create a framework for the bidding. And he decided to create two zones, not just one zone, an east zone and a west zone. It was quite well thought through.”^{Footnote 22} Zobel de Ayala’s confidence in government policy would also induce him to bid for (and win) the water privatization contract.

Third, CEM interviews help account for why certain things did not happen, something notoriously difficult to research in written records. Hakeem Belo-Osagie, the chairman of Nigerian-based United Bank for Africa between 1988 and 2004, thus explained why global fund managers made few investments across the African continent during those years. While it might be assumed that they simply found better investment opportunities elsewhere, Belo-Osagie provides a more nuanced insight, pointing not to lack of interest but to the complexity of regulations:

On a similar theme, Kenyan entrepreneur Eva Muraya, who pioneered a screen printing and embroidery business in the early 2000s before building a wider branding and marketing business, explained the absence of women from the government’s large procurement business:

By revealing the hindrances that government regulation placed on businesses, Belo-Osagie’s and Muraya’s testimonies both debunk the notion that emerging markets are less attractive sites of entrepreneurship. Of course, such excerpts are individual interpretations of complex phenomena, rather than definitive analyses of or explanations for them. Nevertheless, the use of oral history sources not only provides a deeper understanding of complex (and often opaque) business ecosystems but also reveal the motivations that led entrepreneurs to pursue business opportunities in these environments that may have seemed perilous to outside observers.

Fourth, and building on the above point, the interviews provide insights as to why business leaders invested in certain industries but not in others. Some scholars have begun to dismantle generalizations about the growth of certain major industries in emerging markets; however, geographic and environmental factors are typically given prominence.^{Footnote 25} Little attention has been paid to the interaction of business leaders with the regulatory environment, and even less consideration has been given to the impact that these relations have on entrepreneurial decision making and path determination. In CEM interviews, Indian business leaders frequently refer to the impact of government pressure and bureaucracy on their career trajectories. For example, Suresh Krishna, who founded the industrial manufacturing company Sundram Fasteners, described his diversification strategy for the group: “We, in our group, have never been comfortable with dealing with the government. … So one of the policies of the group has been, regardless of however attractive it is, to stay away from any industry which is under the control of the government.”^{Footnote 26} Oral histories also help explain the seeming paradox of the Indian housing industry. In his interview, Rao explains the reasons why commercial real estate in India is so focused on the luxury sector:

While bureaucracy acted as a deterrent for Krishna and Rao, this was not always the case. Iconic fashion designer Ritu Kumar credited government policies with the birth of her fashion business during the 1960s. Her business became known for its emphasis on Indian rather than Western fashion; however, in her interview, Kumar revealed that early moves in this direction were actually the result of government policies:

The influence of government on industry choices was not confined to India. Abbas Akbarally, who founded Akbar Brothers, Sri Lanka’s largest tea exporter, before diversifying into other products, explains why the group entered the export business:

Akbarally thus reveals the ways that government regulation could create openings for domestic companies through high tax barriers that undermined foreign firms. The success of Akbar Brothers reveals the importance of adaptation in unpredictable regulatory environments.

Similarly, CEM interviews help to explain why companies adopted particular organizational forms. Studies of the legal industry in twentieth-century Mexico have addressed the ways that law firms helped businesses adapt to new regulatory environments.^{Footnote 30} However, oral histories reveal this practice to be more widespread, with firms and businesses often undertaking major restructuring initiatives independently. Arturo Acevedo, for example, explained why ACINDAR, the construction company founded by his grandfather in 1942 to build roads and bridges, later diversified into a wholly owned integrated steel company. During the 1970s, he explained, the nationalist military government of the time blocked a proposal to form a joint venture in steel with an American company, prompting ACINDAR to launch an integrated plant.^{Footnote 31}

Murat Vargı, who founded Turkcell, now Turkey’s largest mobile provider, faced a similar situation in 1993. In his interview, he describes how he adapted to Turkey’s regulatory environment, which forbade private companies from importing foreign goods. After working at Koç Group as a foreign sales representative, Vargı sought to capitalize on his existing business networks when he began his own business. He thus “started the other way around … doing the opposite of what [he] was doing at Koç Holding” by acting as a representative of foreign companies and working as an intermediary with the Turkish state.^{Footnote 32}

The above examples demonstrate that the influences of government policy on business are complex and highly variable: regulations can be both a deterrent and a promoter of growth, and can also influence avenues of growth. “Entrepreneurs,” as Rao observed, “[react] to the opportunity that’s available.”^{Footnote 33}

Finally, CEM interviews, notably those with Argentinean and Chilean business leaders, reveal the impact of government macroeconomic management on firm time horizons, a relationship that is difficult to quantify using traditional sources. Business leaders contrasted the impact of Argentina’s macro-economic and political turbulence with the greater stability achieved in Chile over the past four decades. Starting in 1969, political instability grew in Argentina. Hyperinflation began in the 1980s, and in 2001 a massive currency crisis led to an overwhelming economic downturn.^{Footnote 34} From an Argentinean perspective, Acevedo observed: “Argentina is a very unpredictable country. Investments in the steel industry are usually 20/30/40 year capital-intensive investments that require long-term planning. Lack of predictability in Argentina creates uncertainty and this drives companies’ unwillingness to commit resources.”^{Footnote 35}

Jorge Marín Correa of Grupo CGE, a leading utility company in Chile, had a similar assessment. “Argentina and Chile are worlds apart,” he explains. “The rules of the game in Chile are definitively more stable and reliable in comparison to Argentina, and implicit risks are completely different. … [Chile’s] stability allows you to plan into the future with reasonable certainty.”^{Footnote 36}

Corruption

Corruption in business is a highly sensitive topic that is unlikely to generate much written evidence, either in developed or emerging markets. The Oxford Handbook of Business History contains only three brief references to the issue. ^{Footnote 37} This does not mean that there is not a wider literature on the issue of corruption. Leftist scholars in Latin America have long seen corruption as the hallmark of the business class in the region. Hugo Notcheff coined the term cuasi rentas de privilegio for Argentina, which sociologist Ana Castellani renamed in English as privileged areas of accumulation. Much of this scholarship, however, is not based on empirical research.^{Footnote 38} A major complication in the whole domain is the distinction between so-called grand corruption, which takes place at the highest level of society and politics, and so-called petty corruption, which involves small facilitating payments. These conceptually different types of corruption overlap in practice, and involve forms of payment extending beyond cash, further complicating research in this area.^{Footnote 39}

Thus, a significant contribution of the CEM interviews is to explore the drivers and consequences of corruption in more detail. These interviews add nuance as to why corruption is so difficult to avoid, how individuals understand corruption at a personal or company level, and how business ecosystems are broadly affected by corruption.^{Footnote 40} Such questions can be difficult to assess using traditional sources, as they are inherently subjective and require more complex considerations of individual consciousness and self-reflection that are well-suited to oral history sources. However, the following examples from CEM interviews nevertheless demonstrate the benefits of incorporating such sources into business history research.

In the case of India, Rao recounts why the Indian real estate sector was notoriously corrupt:

Many Indian business leaders expressed similar frustrations with the extent of government bureaucracy. Rahul Bajaj, chairman of the diversified Bajaj group, noted the issue when discussing the era of tight government regulation before 1991. “You could expand,” he explained, “but a lot of things were required—bribes—and we would never give a bribe, so our growth was slow.”^{Footnote 42} Bajaj hits on a theme found across geographies: avoidance of bribery often came at a cost. Kenyan entrepreneur Manu Chandaria, chair and CEO of the diversified Comcraft Group, echoed such sentiments: “If we can’t do something in the simplest and most straightforward manner, we’ll not do it,” he asserted, even if it means that “our growth gets retarded.”^{Footnote 43}

Avoiding corrupt business transactions, however, is not always easy. Francis Okomo-Okello, chairman of Barclays Bank of Kenya and a Nairobi-based luxury hotel group, explains why: “It’s not easy because you’re talking about dealing with a value system that is embedded in an ecosystem that treats the [corrupt] practices as a given, so if your template is different from the majority of the templates that the environment is used to, it’s surely going to be a tough and bumpy ride.”^{Footnote 44}

Jerry Rao makes similar observations about the ecosystem of corruption in his discussion of the Indian housing market. Although his business “has taken a pretty hardline position” on corruption, he explained that, as a consequence, government officials “hit on our lawyers or architects … who are doing multiple projects and who probably need to keep [these officials] on their side, and who can’t take as holier-than-thou a position as we have chosen to take. That’s the way the system works. There [are] intermediaries everywhere.”^{Footnote 45}

While most interviewees repeatedly asserted that they never engaged in corruption, this was not universally the case. Some interviewees spoke candidly about their experiences with corruption internally, and confronting it in the context of business–government relations. For example, Argentinean business leader Jorge Born, former president of Bunge & Born, discussed the seeming normalcy of corruption during the presidency of Carlos Menem between 1989 and 1999. Commenting on the privatization of petroleum company YPF, Born observes: “Corruption was rampant … I told Menem, ‘This can’t be right; this is immoral.’ And he said … “If you want a ‘pure’ country, go somewhere else, because it’s not going to [work] here.”^{Footnote 46} Born went on to describe how he wrestled with the reality of such a system and the implications for Argentina’s future development: “We may have fixed the telephones, YPF and Aerolíneas, but that was not the right path … the rule of law was missing,” he observed.

Anu Aga, who became chairperson of the environmental engineering firm Thermax in 1996 after her husband’s death, was equally revealing about moral objections to corruption being balanced with practical expediency and efficiency. In her interview, Aga discussed why her firm was not always completely free from corruption. “When I first took over,” she explains, “[the company] said we will not succumb to giving [bribes] except as a last resort. So it wasn’t a 100 percent definite no. … [W]e justified it [on the grounds] that in India, to be 100 percent honest is next to impossible. … [S]o [we engaged] a little bit as long as we didn’t do to extract anything for our personal welfare.” Two factors caused Aga to change her stance on corruption. “Some years ago,” she explains, “I [began] telling the executives that I [was] very uncomfortable … [that we had] no moral right to talk about corruption if we [were] not 100 percent honest.” Only after the company was raided did Thermax executives adopt a similar position. “Our executives learnt their lesson, so for many years now, we do 100 percent honest business … and it gives me the moral right to speak against corruption; otherwise in India we all grumble about corruption but keep adding to it personally.”^{Footnote 47}