Sunday, December 20, 2015

Road to smart cities goes via Dharavi, not Chandigarh

Since the Congress party is determined not to let Parliament work, Prime Minister Modi has an unexpected opportunity to focus on executive action. So much can be achieved through good execution, and voters too will generously reward those who visibly improve their lives. Urban reform is one area crying for such vigorous attention.

The intriguing phrase ‘smart cities’ conjures a vision of a technological and sustainable future for an aspiring India. Yet no one quite knows what it means, including those in charge. I believe the Indian city will only become ‘smart’ if it builds around the way Indians actually work and live; and second, if it seizes autonomy from state governments. Until our cities have directly elected, empowered mayors who can raise funds for the city, and to whom municipal commissioners report, urban India will not become ‘smart’.

Since Nehru’s time it has been fashionable to create elitist master plans that were hugely wasteful of land and capital, and ignored the way Indians worked and lived. The plans imposed rigid ideas about separating the workplace from the home, which was reflected devastatingly in a Supreme Court judgement a few years ago that destroyed the livelihoods of lakhs of poor in Delhi. It is the same mindset that encouraged Nehru to create the visually exciting Chandigarh, with its acres of greenbelts, which only served elite bureaucrats and was always hostile to the needs of the masses.

Modi should not make the same mistake. His people talk about smart cities mainly in technological terms. This is fine, but I believe a smart city is also about doing ‘smart things in a city’. One of these is to design it around the livelihoods of the aam aadmi. Such a city should humanely place the urban poor and our informal economy at the centre of its thinking; take inspiration, not from leafy Chandigarh, but from the sprawling slum of Dharavi in Mumbai.

Dharavi teaches how a city grows organically when people move from villages and learn to live and work in the same place. To service their needs, kirana shops, barbers, cycle repair and mobile phone recharging vendors pop up. The strength of Dharavi is its face-to-face sociability where human bonds of inter-dependence are formed with strangers.

Because of historic prejudices, many city regulators do not allow mixed use of land where working and living co-exist. Many do not allow high-rise buildings, which is absurd in a country where land is in short supply. By living vertically we would make horizontal space available for precious common goods — parks, schools, libraries, and public squares — which encourage sociability and friendliness. In a country where the aam admi walks and cycles, we should have generous pavements and bicycle paths. Instead of wasting hundreds of acres on a university for a thousand students, a land-scarce country should have high-rise campuses in the middle of a downtown where students become part of the community.

Most important: a smart city must have freedom, especially autonomy in governance and finances. Today, an Indian city is at the mercy of the state government. The 74th Amendment provides for this political reform but the states have thwarted it. Unless there is an elected mayor accountable to the citizens of a city, the delivery of services to the community will not improve. The municipal commissioner should report to the mayor and not the chief minister. A city should be able to become financially more independent. It must have its ‘own’ sources of revenue, both from taxes and from levying rational user charges for services. It must be entitled to predictable formula-based transfers from state governments as part of revenue-sharing arrangements. It should be able to issue municipal bonds as many cities do around the world.

Modi’s critics call it old wine in a new bottle. They are right — many of the ‘smart city’ ideas were a part of the old JNNURM (UPA’s Jawaharlal Nehru National Urban Renewal Mission). But twenty years from now, which one will you remember: Smart cities or JNNURM? Now that we have a name to rally people around, let us not focus on technology alone but on innovative solutions to transform the future of the Indian city.

Monday, December 14, 2015

The Dharma Of Capitalism

Dharma is a frustrating, almost untranslatable word. Duty, goodness, justice, and law have something to do with it, but they all fall short

Some nations seem to possess a code word, which is like a key — it unlocks the secrets of the country. That word is ‘liberty’ in America’s case. It is égalité, ‘equality’, in the case of France. For India, the code word is ‘dharma’. You wouldn’t know it, though, if you were a member of the India’s english speaking elite, but it resonates in the hearts of the vast majority of ordinary people.

Dharma is a frustrating, almost untranslatable word. Duty, goodness, justice, and law have something to do with it, but they all fall short. Dharma is chiefly concerned with doing the right thing, both in the private and the public life. Dharma provides the underlying norms of society, creating obligations for citizens and rulers, and it thus brings a degree of coherence to our everyday life. What makes dharma different from notions of morality in the other traditions, such as Christianity, is that it does not seek moral perfection. It is pragmatic; hence it is eminently suited to exchanges in the market place and to public policy. This is especially true of rajdharma, or dharma of the king or the state.

At the heart of the market system is the idea of exchange between ordinary, self-interested human beings, who seek to advance their interests peacefully in the marketplace. Dharma places restraints on buyers and sellers and creates a sense of trust between strangers. Since I trust you as a person of dharma, I readily accept a check from you. In the same way a taxi driver stops and takes me in as a passenger because he knows that the restraint of dharma will ensure that he will get paid at the journey’s end. Thus, millions of transactions in the global economy are conducted daily based on this shared trust.

People believe that markets are efficient but they are not moral. The truth is that market is neither moral nor immoral, but people are. However, the market sends powerful signals to people to behave in accordance with dharma. It tends to reward dharmic behaviour and punish adharmic behaviour. This reinforces a sense of trust in society.

I trust the woman who sells fruit to me regularly in Khan Market near my house in Delhi. One day she claimed that she had received exceptionally good mangoes but they were expensive because of their higher quality. I reluctantly bought the mangoes but unfortunately they turned out to be bad. I promptly punished her by shifting my allegiance to her competitor. Not only did she lose my custom but I also told half a dozen friends and neighbours. All of us shared similar stories of her behaviour. As word of mouth spread, she came to be known as a person of low dharma, and lost market share. In this way, the market punished bad behaviour.

Every purchase manager has the temptation to squeeze his supplier. If he does not treat the supplier dharmically and gives him a fair price, his own company will suffer when the supplier delivers sub-standard components. On the other hand, the market rewards good behaviour on the part of a company that treats its employees well. The best will want to join such a firm, and with the influx of talent it will be rewarded with high performance and market share. I know of one such company, a small one, that is able to consistently attract talented people from IITs and IIMs because it has built a reputation for having happy employees fairly. Behaviour in accordance with dharma strengthens a company’s brand.

In the same way, a company which builds a reputation for honesty and for doing good for the community is rewarded. I was recently asked by a large multinational to recommend a partner. I immediately suggested the Tatas. A person or a firm of high dharma is rewarded with a good reputation. Smart businessmen know this and work incessantly to improve their reputation.

These are some of the ways in which markets are not only efficient but they also reinforce good behaviour. The market system depends ultimately not on laws but on the self-restraint of individuals. Dharma provides that restraint in order for people to behave with tolerance and respect. However, there are limits to self-restraint and trust as there are crooks in every society. They have to be punished. Bhishma instructs Yudhishthira in the Mahabharata about the importance of danda, the ‘rod’of the state to punish persons of low dharma. The epic says that when dharma is low in a society, the dependence on danda or intrusive regulation rises. A society where dharma is weak suffers from pervasive corruption of public officials and ineffective public administration.

Such a situation is painfully obvious in contemporary India where public institutions of governance — the bureaucracy, the police and the judiciary —continue to fail to enforce the law. Why should it take fifteen years to get justice in the courts? This is because people of low dharma find ways to manipulate the courts and the police. The reform of these institutions is a key unfinished agenda of reform in India today. Too many tend to blame the market for the pervasive corruption, especially in high places, calling it ‘crony capitalism’. The opposite, in fact, is the case. Corruption exists mainly in the unreformed sectors of the economy where public officials still have discretionary authority over economic decisions.

Although two decades have passed since the reforms of 1991 when Indians began their love affair with free markets, capitalism is still trying to find a comfortable home in India. India reforms by stealth because no political party has bothered to explain the difference between being ‘pro-market’ and ‘pro-business’, leaving people with the impression that liberal reform mostly helps the rich. They do not understand that being pro-market is to believe in competition, which helps keep prices low, raise the quality of products, and leads to a ‘rules based capitalism’ that serves everyone. To be pro-business, on the other hand, means to allow politicians and officials to retain power over licenses, which distorts the market’s authority over economic decisions and this leads to ‘crony capitalism’. This confusion explains the timidity of reform and prevents India from performing to its potential.

Part of the reason, I am convinced, why capitalism is so disliked lies in linguistic confusion. Too many glibly equate capitalism with greed and confuse self-interest with selfishness. When Adam Smith wrote about self-interest he had in mind ordinary people going about making sensible decisions in their day-to-day lives. When I go to buy mangoes in the market, for example, I naturally want the best quality at the lowest price. This is not being selfish; it is merely being self-interested. If it rains, I will carry an umbrella—nothing selfish about that. In buying and selling each person gains by benefiting others, and an “invisible hand”, to use Adam Smith’s famous phrase, ensures that everyone gains from self-interested behaviour.

A selfish or a greedy person, on the hand, is not morally neutral —he promotes his interest at another’s expense, and that is wrong. Selfishness is a social attribute and a selfish person often transgresses on the rights of others. Self-interest, on the other hand, is not a social attribute and can be practiced in solitude on a deserted island. Self-interest is the pursuit of whatever is in one’s interest —a scientist pursues science, a doctor pursues medicine, and an artist pursues art. There is nothing selfish in that, which is why Adam Smith called it rational self-interest. In the Theory of Moral Sentiments, he said that what is rational is not only from the viewpoint of the person involved but also from that of a disinterested rational observer.

There is purpose to economic activity and the ancients in India were acutely aware of this when they posited artha, ‘material well being’, as one of the goals of life. They believed that the pursuit of money is justified to the extent that it leads to the good life. That good life also consists of other goals, in particular, dharma, ‘moral well-being’. Mahabharata reminds us that the goal of artha is subordinate to dharma. In other words, there is a right and a wrong way to pursue wealth. In today’s language, the pursuit of artha is to make the world a better place —to lift the poor out of poverty. Thus, the moral purpose of capitalism is take societies from poverty to prosperity. The problem begins when poverty has been conquered and a society has become prosperous and middle class. Beyond a certain point increased wealth does not make people happier, and they seek other goals. Successes of capitalism produce over time enervating influences when a generation committed to saving is replaced by one devoted to spending. This is a problem which will confront India and China in the next generation. Ferocious competition is another feature of the free market and it can be corrosive. But competition is also an economic stimulant that promotes human welfare.

It is in man’s nature to want more. And dharma seeks to give coherence to our desires by containing them within an ordered existence. Since no amount of regulation will catch all the crooks, self-restraint is needed on the part of each actor in the market place in order to achieve dharma within society. The choice for policy makers is not between unregulated free markets and central planning but in getting the right mix of regulation. Except for communists, hardly anyone in India wants state ownership of production, where the absence of competition corrodes the character even more. Dharma’s approach is not to seek moral perfection, which leads inevitably to theocracy or dictatorship. It offers a modestly coherent world that is also close to our day to day life and hence suited for exchanges in the market place. Self-restraint is one of the meanings of dharma and the trust that self-restraint helps to create in society is I believe the ‘dharma of capitalism’.

(This story was published in BW | Businessworld Issue Dated 14-12-2015)