Saturday, October 17, 2009

Mukesh’s Sacrifice

Corporate Affairs minister, Salman Khurshid, created quite a stir recently when he warned companies to refrain from paying “vulgar salaries” or face the music. Mukesh Ambani took his advice and cut his salary by 65%. Flaunting wealth is distasteful; it is also imprudent when market capitalism is still trying to find a comfortable home in India. However, the minister was profoundly wrong. The trouble with judging other people’s lifestyle is that soon you are tempted to control other things, and this is a short step to the command economy. Not to live ostentatiously is a call of dharma, not a legal duty.

The distinguished minister, who is a sensible lawyer, quickly realized his error and pulled back the next day. “Only the company’s shareholders can decide salaries…It cannot be mandated, but should be self-exercised,” he said. Yes, this is the right position—only shareholders have the right to fix salaries in a democracy, not the government. The significance of the minister’s two positions, however, goes beyond vulgar salaries and reflects an old conflict between our ideals of liberty and equality.
There is a voice in each of us which values liberty. It was alarmed at the spectre of the dreaded days prior to 1991 when our government did believe that the way to make a poor person rich is by making the rich poor. There is another voice, however, which values equality. This egalitarian voice was sympathetic to Khurshid’s advice to CEOs. Millions are hurting from the global economic recession and something is wrong when some earn Rs 40 crores while 250 million Indians survive on less than Rs 50 a day.

These two voices constitute the modern idea of a fair society. In democracies, liberty precedes equality. Socialist societies value equality more and will sacrifice freedom for more state control. The contest between these two ideals has been going on for 200 years but it ended when the Soviet Union collapsed in 1989. Liberty won, and it will win in China too one day. Absolute equality is unrealistic because the human ego will not shrink that far. So we have learned to live with the lesser goal of an “equality of opportunity”. In our desire for a just society, the political Left continues to champion equality while the Right gives precedence to liberty.

I have always believed that it is none of my business how much Mukesh Ambani earns. He creates lots of jobs, pays his taxes, produces wealth for society--and that is good enough for me. Moreover, we ought to be more concerned with reducing poverty in a poor country rather worry about inequality. Controlling CEO salaries will not lift the poor. But economic reforms will. A minister of corporate affairs can make a huge difference by making it easier for a person to start and run a business. The vast majority of Indians are self-employed entrepreneurs in the informal economy. They cannot enter the formal economy because of formidable barriers of red tape and bribery. Hence, India has the shameful distinction of being 134 in a list of 180 countries in the ease of doing business. Cut the tape, Mr Minister, and you will spawn enterprise and prosperity.

A well-ordered society, however, ought to design institutions that help to diminish inequality while preserving liberty. If the advantages of the affluent are perceived as a reward for improving the situation of the worst off, then the inequality will be perceived as more just. If the lowest worker in a company believes that his prospects will improve if his company performs well, then he will not resent an outstanding CEO earning 50 times more. This was elaborated elegantly by the American thinker, John Rawls, in his famous book, The Theory of Justice.

If you want to take the sting out inequality, Mr Minister, cut red tape but also give the poor titles to their small property so that they can get a loan against it and start a business. And persuade your UPA colleagues to implement labour reforms so that 90% of Indians in the informal economy can hope for some sort of safety net. This is the way to genuine, inclusive growth. And let’s not worry too much about vulgar salaries.

7 comments:

charles.mcguinness said...

This topic is current for the USA too, with the Federal Reserve just issuing its "Proposed Guidance on Sound Incentive Compensation Policies". I guess it really is a global economy!

Anonymous said...

Though there is some meaning in the statment of the Minister, as suggested by Mr Gurucharan, it is the red tapism and corruption that is forcing millions of Indians to live shabbily and below poverty line.

I always wondered how dirty our politicians and government machinery when it comes to giving opportunity to the Indian citizen to do business. I hope that trend changes for the betterment of our society. Just go to any Govt office and it is disgusting to deal with them.

Most unfair system in India is we do not have justice system for normal people as we can't fight the corrupt system and there is no mechanism to take action/file cases on corrupt people or there is no intention to reduce it.

Hope our political class change this attitude to genuinely build a trust worthy society.

I quote: "Like father, like son", when we have a corrupt political and administrative system, we couldn't take any action on any one in India. Most of the people behave as if they are all right and they have connections to do any misdeeds boldly as we do not have a system to punish any one.

Sunil said...

About 46% of Reliance ownership is with the promoter group and about 5% public ownership is from Reliance owned companies. I do not believe Gov. must control salaries but do not completely understand how shareholders can control promoters with dynastic inclinations from promoting self-interst over that of shareholders.

sandeepchilukuri said...

I srongly support Mr. Das ideas about economic reforms,labor reforms , about liberty and equality.
INDIA needs son like Mr.Das.

BV said...

A few years ago, the MNC I worked for had a situation that I can find some parallels with. The company had a "rockstar CEO" - praised by the press and worshipped by his shareholders.

One particular year this CEO gave up his "entire salary" to fund an Employee Benefit scheme - to fund international scholarships for the deserving children of employees, etc.. Noble as the thought was, we were very impressed and were discussing as to how would the CEO get his next meal from - only half in jest.

Most CEO's these days make their compensation from Stock Options, Dividends, etc. It is estimated that he earns atleast a few hundred crores from dividends of the companies that he manages ( see link: http://www.livemint.com/2009/10/16004839/Mukesh-Ambani--takes-a-66-pay.html)

Just in case Mukesh needs dal chaawal due to his reduction in his salary, my doors are always open for him ;-)

Hope Mr Khurshid can see the folly of his argument.

Yayaver said...

Corporate Affairs minister, Salman Khursid is President of the Delhi Public School Society and he know exactly how much profit school earn in the 'non profit' education venture...

Anonymous said...

Rather than worrying about salaries in private sector, government should be more worried about efficiency in the public sector. Private Sector salaries and job continuity are based on performance and performance alone. What about public sector?