NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

This question gets asked a lot. For the Indian social enterprise LabourNet, the answer is both. While the necessary development efforts implied by this answer are dynamic, organizations often focus on only the entrepreneurial or wage earning aspect. This is fine, so long as they work in balance with other complimentary programs, but this isn’t always what we see. The overwhelming prevalence of microfinance in Bangladesh is probably one of the best examples.

I had the chance to sit down with the management at LabourNet in their Bangalore headquarters to learn about their perspective and model. Rajesh Joseph, LabourNet’s Manager of Strategy and Research, explained that from LabourNet’s point of view, the poor are much like you and me: “Starting a business is an entrepreneurial skill. Not everybody [has] it. If somebody gives me money and tells me, ’Start your own LabourNet’, I won’t do it because I don’t have it. I will work for somebody first. And I might do it after a period of time, but the condition has to create it for me, or I simply don’t have it in myself.” Instead, Rajesh says that if you want to be a wage earner, LabourNet can equip you with the tools you need. If you want to be an entrepreneur, that’s great – LabourNet wants to train you up.

LabourNet is applying this idea to try to legitimize and empower the 40+ million informal urban workers who comprise India’s economy. Urban informal workers – who are only becoming more common in India’s cities as rural-urban migration intensifies – generally struggle to find consistent work, lack any type of insurance, and are unable to save, which precludes the crucial process of wealth accumulation. LabourNet has positioned itself as an orchestrator between labor and clients. Using a computer database and an SMS platform, LabourNet is able to match appropriate laborers to its clients. It offers a simplified and reliable labor solution to clients like a construction company building a supermarket or a family in need of a maid, while at the same time providing job security to the workers. And it’s not just a middleman. It provides social services such as a bank account, health insurance, ongoing training, and even childcare for the many women using LabourNet’s services. Any profits are plowed back into worker welfare and scaling up the organization.

Where does the entrepreneur dynamic factor in? As workers move up the ladder from unskilled to skilled labor, LabourNet allows them to stay in their roles as wage earners or try their luck at entrepreneurship (they can even leave LabourNet if they want). Says LabourNet founder and Ashoka Fellow J.P. Solomon, “We want to move into an area where entrepreneurs can come and build businesses on top of LabourNet, so [that if] they have a business that requires a lot of labor…they can build their virtual labor source from here and we can also specialize training according to what the customer needs.” Their move out of the system allows LabourNet to focus on the next batch of unskilled workers. Herein lies their biggest problem, which refreshingly, they were quick to admit. They want to market their workers as the ones who can do the best job, but LabourNet’s best workers aren’t the ones who need the help the most – it’s the newbies in the system.

Thus, for LabourNet, the distinction of the poor as entrepreneurs or wage earners is more a chicken-and-egg question than an either-or question. Effective development on the one hand means creating a support network for those who are more risk averse, unwilling, or just want to earn enough money so they can go back to their villages. On the other hand it means adding the capacity building that microfinance organizations are often accused of overlooking for those ready and willing to make the plunge as an entrepreneur. This generally implies some sort of training and working as a wage earner before becoming an entrepreneur.

Why is all this important? Because if we don’t try to identify those with the right guts and then arm them with the necessary training and education, we should have reasonable expectations for what they will create: probably one-person businesses. But if we can create this entrepreneurial environment, then those entrepreneurs may be on the way to generating not only employment for themselves, but also for scores of those wage earners.