Monday, March 28, 2005

The Politics of Envy

Times of India, March 27, 2005

Since I am constantly tripping over my frailties it is a relief to stumble over someone else’s for a change. Last week I read about a woman in Lajpat Nagar in Delhi who had always dreamed of owning a car. After years of working hard and saving money, she finally got a white Maruti. But instead of being happy, she was plunged in sorrow because her best friend got a Zen the same week. It is not easy keeping up with the Khannas in this post-reform age!

Khushwant Singh once wrote that no people are more envious than Indians. He was wrong, of course. Behavioural economists have found that relative wealth matters more than absolute wealth everywhere. A study among Harvard University students shows that they would prefer to earn $50,000 a year (when their peers are earning $25,000) rather than earn $100,000 (when their peers are earning $200,000). CEO compensation in America has been pushed to astronomical levels because each company board wants its CEO to earn more than his competitor. Envy is universal problem, and hence, the proverb: if envy were a fever the whole world would be ill.

Competitiveness seems to be built into our genes, and envy is its nasty face. Even jealousy, envy’s cousin, is excusable because it has the mitigating quality of the potential loss of a loved one. Othello’s jealousy is forgivable because he is afraid of losing Desdemona. But envy is general and arises from the inability to tolerate the good fortune of others. Such as Duryodhana’s uncontrolled envy of the Pandavas, which is the driving emotion of the Mahabharata. If I can’t make it, let me spoil it for the others.

The Left has always had more problems with envy. Marx thought that he would conquer inequality by giving everyone equal income. Yet, the old Soviet Union was reeking with envy because tiny differences, such as a new tablecloth, got exaggerated in the neighbours’ eyes. Lord Richard Layard in a recent book, Happiness: Lessons from a New Science, characterizes income inequality as a psychic wound uniquely worthy of state intervention. He suggests that while those who work excessive hours may improve their own income, they also cause others to feel dissatisfied. The rat race forces people to spend less time with their families and community activities, and reduces the overall contentment of the community. Hence, he recommends the classic (and pathetic!) answer of the Left—tax those who work too hard. This will, he feels, tame the rat race, reduce envy, and improve overall human happiness.

Although I believe that every Indian is equal inside the polling booth, I am quite happy if a few become filthy rich, increase society’s wealth, and help raise our economy’s investible surplus. The rise of inequality after 1971 may be a problem in the West, but in India we should single-mindedly focus on investment and growth, which are the best remedies for lifting the poor. The Indian Left’s obsession with inequality verges on silliness, I think, just as the Left’s obsession with state intervention makes me value my liberty all the more. Although I value liberty over equality, I do believe that everyone ought to get an equal chance. That answer lies in primary education, and India’s tragedy is that the worst minister in every state cabinet becomes the education minister.

The cause of envy is excessive self-regard. This is why Krishna teaches Arjuna nishkama karma or the art of diminishing the ego. If one could somehow learn this art of self-forgetting, without hurting one’s healthy ambition, it would certainly make for a better world.

Monday, March 14, 2005

Now, turn to governance

Times of India, March 13, 2005

The Budget has come and gone, and it is time now to turn to governance. It was a good Budget, overall–it should continue our growth momentum. It lowered tariffs, reduced corporate tax rate, raised infrastructure spending via public-private partnerships, and simplified personal income tax. I especially liked some of the reforms buried inside like nuggets: for example, a city like Mumbai will only get funds if it reforms land ceilings, stamp duty and rent control; states will get funds from the horticulture mission only if they disband their dreaded Agricultural Produce Marketing Committees, thus giving farmers freedom to sell anywhere; scholarships will not go schools but to Dalits, who can now choose their school. The folly of the fringe benefits and cash withdrawal taxes has been rightly criticized--it’s a pity that Chidambaram persists in defending the indefensible, and diminishes himself in the process.

Every leader, whether political or business, has two jobs: to deliver results and to build the organization. For a finance minister, the Budget falls in the first category and it will deliver a certain sort of result. It is time now that Chidambaram turns his considerable talent and energy to his second job, which is to reform his three revenue-collecting departments. Despite many honest and hard working officers in income tax, customs and excise, these departments give India a bad name. Surveys show that foreign investors invariably cite them as the chief reason why India is still not a good place to do business.

In the case of Income Tax, a huge opportunity for transparency is waiting to be seized. Government has invested over Rs 1000 crores in creating a powerful computerized Tax Information Network. As with any new IT system, it has plenty of teething troubles and tax collectors and tax payers are tearing their hair out. Part of the reason is that the actors, especially in the banks, have not been trained. In the private sector we have learned that a major IT investment is a great opportunity to change systems and attitudes, and Chidambaram would do well to invest in a massive training program by outside professional, expert change managers and transform the ethos of the dreaded tax officer.

There are similar opportunities for transparency, improved systems and attitudes in Excise and Customs. Now is also the time to begin work on a national VAT and the dream of a borderless India. To small entrepreneurs, the excise collector is our government’s blackest face that holds the unfortunate power to imprison. He unleashes terror daily in honest entrepreneurs’ hearts, and is the symbol of the Inspector Raj that continues to prevent India’s industrial revolution. I applaud Chidambaram’s zeal for revenue, but he must reverse the unintended impression he has given to some officials that he doesn’t care about the means.

This Budget has continued India’s slow, elephant-like pace of reform. While it is frustrating to know that we could grow faster, let’s remember that even slow reforms add up over time, and it is this that has made India one of the fastest growing economies in the world. Prosperity is indeed spreading, and one per cent of our poor have been crossing the poverty line relentlessly for 25 years. Hence, I am confident that India will solve its age-old economic problem within a generation. I am less sure about governance. It is tragic to see the pain inflicted daily on the ordinary citizen by bad governance. This is partly because ministers ignore administrative reform. Ironical, isn’t it, that succeeding finance ministers have made our companies world class while our administrations remain in Jurassic Park?