Public ethics, July 1, 2007

We have been feeling pretty down recently after perhaps the most popular president in Indian history is about to be dethroned in unseemly backroom horse-trading. We have tried to console ourselves, saying that politics is competitive by nature and what else can you expect from political parties who are only ruled by self-interest. What finally lifted our spirits, however, was the news that our niece had landed a good job. She called to say that she had signed a lease for a lovely room at an ‘unbelievably low’ rent. But after two weeks she was in tears. She had arrived bag and baggage at her ‘new home’ to find that the villainous landlord had given away her room on a much higher rent. She blamed her plight on the ‘greed of capitalism’.

I told her that the landlord is not at fault for wanting more rent; he is guilty of breaking an agreement. She could go to court but it would take a lifetime to get justice. What had failed my niece was governance not capitalism. If our courts enforced contracts speedily, the landlord would not have dared. People behave more morally in the capitalist countries of the West because the rule of law allows one to be good. On the other hand, millions of workers in the government of India do not work because they have the ‘socialist’ guarantee of a lifetime job. Their moral failure, it seems to me, is far greater than the landlord’s.

My niece’s room hunting woes soon got submerged by murky reports that had the potential of gravely damaging the highest office in the land. Indeed, what should we make of the news that the front runner for the President, Pratibha Patil, had started a cooperative bank whose license was cancelled by the Reserve Bank four years ago? The bank, it seems, gave Pratibha’s relatives ‘illegal loans’ that exceeded the bank’s share capital. It also gave a loan to Pratibha’s own sugar mill which was never repaid. The bank waived these loans, and this drove the bank into liquidation. The government liquidator of the bank, P.D. Nigam, said this week, ‘The fact that relatives of the founder chairperson (Pratibha Patil) were among those indiscriminately granted loans and that some illegal loan waivers were done has come up in our audit’. Six of the top ten defaulters in Pratibha’s bank were linked to her relatives.

If these facts are true, then it is a serious moral lapse. If allegations against Pratibha Patil are just ‘mudslinging’ as the Prime Minister says, then the charges will not stick. However, if she does become President and the charges turn out to be true, then the citizens of India will punish the UPA government in the only way that they can, and that is by throwing it out at the next elections. In the meantime severe harm would have been done in diminishing the President’s office as well as the Indian nation.

Whether it is presidential or capitalist ethics, the starting point is the recognition that both democratic politics and capitalism are based on competition and this is what keeps people honest in the long term. Both democracy and capitalism are decentralized systems where no single person is in charge. Adam Smith wrote more than 200 years ago that when millions of self-interested individuals act in their own interest in the marketplace, an ‘invisible hand’ promotes the common good of society. However, institutions are not perfect and the examples of my niece’s landlord and the UPA presidential candidate teach us that ethics matter profoundly in our democratic capitalist system.