Gradual Ascendance of Shadow Entrepreneurship

By – Edlyn Cardoza

19th January, 2021

The pandemic has opened doors for various sectors to rise, and has paved paths for those who have gone to extreme lengths to earn an easy livelihood. 

A professor at a business school recently, allegedly misused his faculty position at the school in order to provide students with fake certificates. These students were compelled by the said professor to attend an online course which he taught. He effectively benefitted from India’s pre-pandemic rising gig economy in education. As soon as the authorities of the institution found out about his scam, he was suspended. This tale stands as an exemplary narrative for the rise of shadow entrepreneurship worldwide, and not just in the medium of education but also other platforms and services like the betting economy via the online games, finance – easy loans, and healthcare – where e-pharmacies became an overnight saviour. In the long haul for consumer welfare, given the potential unreasonable outcome of shadow entrepreneurship, guidelines are required to screen the nature and quality of services. 

Supply and Demand Disturbance

But what exactly is the driving force behind the ascendance of shadow entrepreneurship? 

When there is a disturbance or an upheaval in supply and demand, as significant as COVID-19, a new market could open to handle the shifting inwards of markets, due to the availability of low quality products, along with high prices. During the lockdown shadow entrepreneurs were offering the release of frictions, and associated distortions through the appeal of technological mediated services, in the market by providing favourable services that the usual traditional service couldn’t offer because the consumers couldn’t access it or the service provider couldn’t offer it given the lockdown restrictions. This led to the new markets obtaining new consumers, and old consumers opting for the new services available through technology. While markets can self-alter utilizing the invisible hand principles, the initial spike in demand and following lock-in impacts may infer higher market power for early movers. 

Such market powers can be exemplified through various ways, more beyond the obvious price setting impact. Large firms will procure small firms, and the first ones in the space that have high money could gain the power to generate irrationally high valuations. This could also take place with national security, and cross-border implications, such as the recent cases of suspicious loans granted by instant online Chinese loans. But these technological innovations interceded shadow entrepreneurship mediums can also harbour less safe spaces as several telemedicine platforms are already complaining of harassment in India. 

This also means that these immoral individuals who are not truly an entrepreneur will potentially gain more benefits of the post-pandemic market limitations, by becoming complementary service providers for document forgery and earning money from consumers. Such shadow entrepreneurship can also spike the short-run well-being effects with technological-interevened access, but could also develop obstructive welfare consequences in the long haul. 

What’s Next?

Thinking of ways to synchronize this king of activity, Amit Seru at the Stanford University researched with his colleagues and found out via the research by the Indian Institute of Management, Ahmedabad, or the studies of shadow finance in the United States discovered that in the Indian education system of private coaching houses, quality needs to be strongly monitored, reported The Hindu. This requires to be supplemented with non-compliance being punishable with a prison term, bracing down on related severe outcomes, and administrations. Whichever shadow firms agree on these terms, can also join the prevailing method of service delivery with non-shadow firms. But keeping in mind, that without these directives, the situation could spiral out, given that supervising needs of public goods distribution for the developing world. 

Additionally, there also need to be a similar harmonisation of activities or exercises between conflicting authorities of governments, and in that case for India it would be the Ministry of Corporate Affairs, who would adjust government departments, and shadow entrepreneurship in the sectors of finance, education, or healthcare. 

Throughout all this, the question still remains, will the governments globally be able to pay attention whilst dealing with the exhaustion, and pressure to overcome the virus? If they don’t then we might be in for facing the severe welfare issues of COVID-19, given the global rise of shadow entrepreneurship.


Image Sources:

  1. World Economic Forum
  2. The Hindu
  3. Imperial College London

Edlyn Cardoza

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