CEIBS Podcast/Video Centre

Vice President and Dean John A Quelch on “Misallocation of Talent

“I will start this discussion with the concept of a fake LV bag. How much of China’s entrepreneurial talent is being siphoned into this kind of activity? Is this productive or destructive innovation? This kind of misbehaviour not only undercuts the value of these brands but also reduces the efficiency of all society’s transactions and exchanges.

There is also the question: Is too much money and effort going into real estate? Is too much going into short-term profit making in private equity funds? Another issue: We have examples of many high net-worth Chinese taking their assets or their capabilities offshore. Is that good or is that a misallocation of talent in entrepreneurship? How can we do better? How can we make sure that our entrepreneurial capabilities are allocated to productive and not destructive entrepreneurship?

Since we are the China Europe International Business School, I will tell you a story about entrepreneurship in France -- the story of the Canal du Midi, built between 1666 and 1681. It is 241 kilometres long. It was the greatest engineering work in Europe in the 17th century.

This canal was not built not by the French government -- it was built by an individual with a vision: Mr. Pierre Paul Riquet. He built the canal with permission from King Louis XIV in 1666, so it was built as a private-public partnership. When Mr. Riquet died, just one year before the canal was completed, his family was nearly bankrupt. Still, his sons finished the project, and it remained the greatest transportation innovation in France until 1858 -- for 177 years. By 1858, the railway came along and undercut the project.

In 1789, the monarchy fell. That means the Bourbon Dynasty that had approved the project had its head cut off long before the project was completed, but it still continued.

What’s the message here? The message is that you had an “enabling environment” that respected property rights. Secondly, in that environment, rule of law prevailed, so the contract was honoured long after the Bourbon Dynasty fell, meaning that contractual obligations were sustained. There was a long-term sustainability in the surrounding legal and social system which allowed this kind of visionary innovation to be launched.

The point is that, in order for entrepreneurs to have that long-term vision, they need the enabling environment and transparency to allow long-term capital investment.  So the key issue is: how can we ensure such an enabling environment exists here and other emerging economies?"