Thursday, December 06, 2012

To equate capitalism with greed is a mistake


On an evening in early October , the announcer at one of our premier news channels screamed 'greed' while describing the misdeeds of the latest victim of Arvind Kejriwal. Earlier that day, Mr Kejriwal had accused Robert Vadra of receiving favours from the real estate company DLF Ltd. In the next breath, the announcer explained that crony capitalism was at the root of the problem. 

Indeed, not a day goes by when someone does not employ the word 'greed' to describe capitalism. They say that if envy is the sin of socialism , greed is the sin of capitalism. Capitalism is sometimes called a 'system of greed' and is this perhaps a reason why capitalism is finding it difficult to find a comfortable home in India? India is an open, tolerant, liberal democracy, but why is it unable to institutionalize free markets? Why does India have to reform by stealth? Corruption, for example , will not be beaten with a big, new authoritarian bureaucracy, as antigraft protesters want. It will diminish only when discretionary powers are wrested from dodgy bureaucrats and politicians and turned over to transparent, competitive markets. 

To equate 'capitalism' with 'greed' is a mistake. We tend to confuse self-interest in the marketplace with selfishness or greed. At the heart of capitalism is the idea of exchange between ordinary, self-interested human beings, who seek to advance their interests peacefully in the marketplace . Adam Smith called this 'rational self-interest' . It is the same motive that gets one to jump out of bed in the morning or makes one carry an umbrella if it rains—nothing selfish about that. To be human is to be self-interested , and this is what exchange in the market place entails. 

Greed or selfishness, on the other hand, is an excess of self interest and often transgresses on the rights of others. It is present in all of us, but we find it easier to see it in others and difficult to see it in ourselves. Greed can motivate theft, entail himsa—hurting anotherwhose opposite, ahimsa, is a virtue that Mahatma Gandhi extolled. But the other side of greed is ambition, a positive thing, and when rightly directed, is life-affirming . Herein lies the conundrum of human existence: that the same inner forces that result in a vice can just as easily become virtues that can motivate the well-being of our species. 
Those who believe that capitalism has been forced on us by the imperial West are also wrong. Friedrich Hayek, the Noble laureate, called the market a spontaneous order—it is natural for human beings to exchange goods and services, and this is how every society evolved money, laws, conventions and morals to guide behaviour in the marketplace. These are natural products of human endeavour. Competing and cooperating in the marketplace existed in India before the West was imperial or modern. 

Whether we like it or not, India is headed in the direction of some sort of democratic capitalism. After two decades of reforms, hardly anyone in India wants state ownership of production, where the absence of competition corrodes the character even more, as we know too well from the dark days of the 'license raj' . Our animus against capitalism has diminished after communism's fall as people increasingly believe that markets do deliver greater prosperity, but most think that capitalism is not a moral system. They continue to believe that morality must depend on religion. 

Although the market is neither moral nor immoral, human self-interest usually brings about good behaviour in the marketplace. A seller who does not treat his customers with fairness and civility will lose market share. A company that markets defective products will lose customers. A firm that does not promote the most deserving employees will lose talent to its competitors. A buyer who does not respect the market price will not survive. Lying and cheating will ruin a firm's image, making it untouchable to creditors and suppliers. Hence, free markets offer powerful incentives for ethical conduct, but they must be backed by state institutions that enforce contracts and punish criminal behaviour . If the market has an inbuilt morality, why are there so many crooks in the marketplace? The answer is that there are crooked people in every society, and this is why we need effective regulators, policemen and judges. We should design our institutions to catch crooks and not harass innocent people as we do so often. 

The other cause of our grief is to mistake being 'pro-market' with being 'probusiness' . To be 'pro-market' is to believe in competitive markets which help to keep prices low and gradually raise the quality of products . Competition also means that some businesses will die because they are poorly managed and cannot compete. Kingfisher Airlines and Air India should be allowed to die and not be bailed out by the government . Thus, being pro-market leads to 'rules-based capitalism' ; 'pro-business' often leads to 'crony capitalism' . Not to have explained this difference has been the great mistake of our reformers and this has led to the false impression that the reforms only make the rich richer. Crony capitalism exists in India today because of the lack of reforms in sectors such as mining and real estate. To get rid of crony capitalism we need more rather than less reform. 

The doom-mongers , who claim that we are now resigned to live in an age of decaying moral standards, are also wrong. Yes, the new Indian middle class is permissive and indulges enthusiastically in har mless pleasures. Yes, it is materialistic , consumerist and capitalistic. But these impulses are not to be mistaken for greed. Only when one's pleasure hurts another does it become a matter of the law and then, of course, it must be punished. The shared imagination of the new India with its harmless pleasure and victimless vice should not be condemned. Think of ours as a society in transition . Mass wealth is profoundly disturbing but once there is enough, India might again return to its old character of renunciation. 

Instead of religious rules, young Indians are motivated by duties to fellow human beings rather than to gods. Those who accuse them of shallow materialism ignore the injustices that prevailed when religion held a monopoly on morality. They overlook real ethical progress with regard to sexual and caste equality that our secular society has begun to deliver. So, the next time Kejriwal makes an expose and the TV screams 'greed' , do not fall into the trap of believing capitalist culture is morally sick or that we should return to a moral order rooted in socialism or religion.

21 comments:

Anonymous said...

Sir the article is excellent...

Satya Balakrishnan said...

Mr Das - This article is quite good. I liked the way you have differentiated b/w pro market and pro business. By not letting KF/AI die, they are actually hurting the markets.

Keep these articles coming. I have thoroughly enjoyed reading your India Unbound and other blog entries.
Thanks
Satya

Vinoth mani said...

Hi Sir,

I understood from your previous writing and after reading "India Grows AT Night" that you are a staunch supporter of capitalism. I do accept with few point of yours in a way that capitalism creates more jobs and pulls many our of poverty.

Now the case is we have some 100 million people pulled out of poverty into middle class. How many days should we stay as a middle class? Capitalism and crony capitalism is not helping me move forward.

If i invest One million to start a business a high class capitalist invest 10 million to compete me. With his political clout and economic advantage he relegates me easily. Do you call it a human self interest? How will capitalism help me if crony capitalism comes into picture. Middle class were pulled up for their advantage and with the advancement in technology they would easily replace us. What will we be after that? Should we once again return to disguised bondage?

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Anonymous said...

it really hurts to see when a well educated person like you are still praising/quoting gandhi. He was the biggest hypocrite, the traitor,idiot, goes on hunger strike like a small kid who stop eating when he wants something,etc. But people like you who knows everything but still are so afraid to accept the naked truth about gandhi, it really hurts
I didn't read the article, sure it must good considering you're the writer behind it. But as soon as I saw a quote about gandhi, I stopped.
I really don't understand why you people are being so egoistic, that for supporting gandhi's hollow/false/fake/negative/wrong ideals, you are ready to destroy the whole country, contaminating the whole generation? why?

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Nikhil Mahen said...

Great article sir. I agree with you on every point and really enjoy the explanations for many common misconceptions. However I have one question and I'd be obliged if you can answer it. You mentioned one line : "The shared imagination of the new India with its harmless pleasure and victimless vice should not be condemned. "
I'm struck with a thought which admittedly was first sowed in my brain by the minister from Karnataka - R Chandrasekhar. He said that the modern day corruption (coal - gate scams, 2g etc etc), are all victimless crimes (or maybe these are just perceived as victimless crimes). However, and I'm betting you would agree, these are crimes which should not be ignored because they are harmless pleasures of the few. The analogy holds good for the guy who takes the 100 Rps to push someones application a little faster. Also victimless, plus the payee was willing. Should this paradigm of give and take for convenience when no one asks questions be accepted? Keep in mind that a resounding "Yes" is perfectly acceptable. If No, then does your statement need an adjustment? Or am I interpreting it in a narrow light.

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