Monday, September 03, 2007

Do a 1991 on cricket August 26, 2007

Not unlike other unrepentant fans of Indian cricket, I have been feeling pretty low ever since our ignominious exit from the World Cup. Although we managed to defeat England recently, there is something rotten with our cricket and it lies in the monopoly of our cricket board (BCCI). I am no cricket expert but I do know something about how organizations work and the damage that monopolies can cause.

BCCI is reminiscent of the ugly days of License Raj when you could choose any TV channel as long it was Doordarshan and fly any airline as long as long as it was Indian Airlines. You could queue up and wait forever for a telephone, a gas connection or an Ambassador car. Our lives changed after 1991 because economic reforms brought competition. Waiting lines disappeared, prices came down, quality went up, and service improved. If there is one lesson we have learned as a nation, it is that competition can transform the lives of citizens, producers, and even regulators.

Some areas have not experienced reform, however. One of these is electric power; another is cricket. Like the old department of telecom (DOT), our cricket board is both a player and an umpire. It is the only buyer of cricket talent, the only supplier of matches, the monopoly controller of cricket infrastructure and the sole regulator. Despite its tall talk, BCCI has never bothered to nurture talent. If it had there would be a hundred Kanga Leagues in a hundred Indian towns. BCCI is mainly focused on 11 players for the national team. This is why no one watches Ranji Trophy. Thus, the market for cricket players remains tiny, much as the telephone market was before the reforms. In 1990, there were only 5 million telephones in the whole of India; today there are 200 million, growing by 8 million a month. The old DOT was politicised—you needed a political connection to get a telephone. So is the BCCI, whose corrupt and dysfunctional state cricket associations are run mostly by politicians. With Indian agriculture in deep trouble should the honourable minister, who is the head of BCCI, worry about 11 men in whites? No wonder a nation of a billion people can’t produce a decent cricket team.

Things are about to change, however. A new venture, the Indian Cricket League (ICL), will soon begin playing cricket with six local teams, and this will grow to sixteen in three years. When 176 players play on television night after night, millions of viewers will judge them. Talent will no longer remain hidden. Rishwat and sifarish will not get you selected by state cricket associations. ICL will become a nursery for talent like the professional sports leagues in America and Europe, and India might even field a world beating cricket team soon. BCCI will fight tooth and claw to defend its monopoly, of course, but it will fail in the end. For Subhash Chandra, the man behind ICL, knows how to break monopolies. It was his Zee Televison that broke the Doordarshan’s monopoly in the 1990’s.

India was a sick economy in 1991. It took the medicine of competition and went on to become the second fastest growing economy in the world. The same could happen to Indian cricket. Competition is like a school in which companies learn to improve. Competition created excellent companies like Infosys, Airtel, Jet Airways, and ICICI Bank. Indian Cricket League could also become a world class brand as international players vie to play in it. So BCCI, don’t play spoilsport. Let’s do a 1991 on Indian cricket.

It’s time to free our schools August 12. 2007

A dear friend of mine has grown weary. He runs five schools in the slums of Delhi which provide a fine education to 13,500 poor children with 250 motivated teachers. But his idealism is frayed from fighting the ‘license raj’ for 20 years. He has been unable to gain accreditation for his schools because he is unwilling to bribe. Instead he is humiliated daily as he runs from one official to another. Ironically, ‘license raj’ went away in industry in 1991 but it still thrives in education. You need 11 licenses to run a school and each comes with a bribe. The most egregious one is an Essentiality Certificate by which a bureaucrat decides if your school is ‘essential’.

The answer to corruption is institutional reform--get rid of licenses and Essentiality Certificates and create massive disincentives against corruption. The new science of sociobiology explains how this works and how to get people to behave honestly. Evolutionary scientists teach us that human beings have evolved through a long struggle in which only the fittest have survived. The fittest are those who pass on their genes. But it is a mistake to believe that life is a tooth and claw struggle where only the selfish survive. Yes, we have evolved from animals—we share 98.6 percent of our genes with chimpanzees—but nature is replete with dharma-like goodness. Wolves and wild dogs bring food back for their young who cannot hunt. Dolphins will help lift an injured companion for hours to help him survive. Blackbirds and thrushes give warning calls when they spot a hawk even if it risks their own lives. Similarly, human parents make huge sacrifices for their children with little expectation of return. So, it is wrong to view nature as an amoral law of the jungle.

But how do you get human beings to behave as nicely with strangers as they do with their children? Two weeks ago I wrote in this column about two prisoners who would go free if they cooperated and how dharma-like behaviour emerges from reciprocal altruism. In The Descent of Man, Charles Darwin wrote that each person ‘learns from experience that if he aided his fellow-men he would receive aid in return’. However, if a person is mean, he will receive ‘tit for tat’ according to the principle of reciprocity. This is sociobiology’s answer to corruption: reciprocate corrupt behaviour with exemplary and quick punishment. Even Yudhishthira in the Mahabharata, who is inclined to turn the other cheek, realizes this and finally declares war on the Kauravas.

We have forgotten this lesson in India and this is why Gunnar Myrdal called us a ‘soft state’. Our idealistic approach to labour prevents quick punishment of the guilty. We have all the laws in place but our administrative processes are so ‘soft’ that they allow both the bribe taker and giver to get away, and this in turn sends a signal that corruption pays. Western countries were able to eliminate corruption because they punished it ruthlessly at various moments in their history. The message, ‘corruption does not pay’, became encoded in their culture, and their citizens over time acquired virtuous habits.

The answer to my friend’s problem is thus two-fold: first, liberalize and get rid of most licenses in education. If you do this, honest professionals will start good schools. More schools will mean more competition and this will improve quality all round, and good schools will drive out bad schools. Second, bribe-taking bureaucrats will behave decently if you vigorously inflict massive, rapid punishment on the guilty in accordance with sociobiology’s principle of reciprocity.

Tit for tat make sense July 29, 2007

The police investigation into the botched terrorist attacks in Glasgow and London reminded me of the classic Prisoner’s Dilemma. In this famous game, police don’t have enough evidence and are trying to get two prisoners, say Bilal and Sabeel, to confess. If one of them confesses he will be let off but the other will spend his life in jail. If neither confesses, both will go free. If both confess, then both will have to spend seven years in jail. The logical selfish strategy is to confess, betray your partner, and hope that he won’t. The altruistic path is not to confess. The best strategy is to collaborate--neither should confess.

Oddly enough, Prisoner’s Dilemma is relevant to our nation’s hazy moral health—to Pratibha Patil’s ambivalent record; to government employees who insist on bribes; and landlords who renege on promises—indeed, to the question I posed in my last two columns: ‘Are people good only because of the fear of punishment?’ Draupadi asked this question in Mahabharata and Robert Axelrod, the American social theorist, speculated in the early 1980s about how to get strangers to cooperate and be nice to each other in capitalist democracies. He used this game to show that if people only pursue the selfish strategy they undermine the collective good.

Axelrod conducted a Prisoner’s Dilemma round robin tournament in which contestants played 200 games with one player and then moved to the next, the objective being to minimize the time in jail. The reason for repeating the game was to simulate real life where people meet each other repeatedly. The winner was Anatol Rapoport, whose strategy was neither altruistic nor egoistic but ‘tit-for-tat’, what we call ‘nehle pe dehla’. ‘Tit-for-tat’ means don’t confess (be nice to the other prisoner) on the first move, but after that do what the other player does. Axelrod re-ran the tournament; ‘tit-for-tat’ always won; cheaters always lost.

What this game teaches about life is that one ought to be nice when one encounters strangers. ‘If you are nice, others will be nice to you’, my aunt used to say. If the other person is not nice, then ‘tit for tit’ is the wiser response so as to not to be taken advantage of. This principle of reciprocity keeps cheats in check in society, whereas Gandhi’s (and Jesus’) teaching about turning the other cheek sends them a wrong signal that cheating pays. All societies have evolved principles of dharma in part to make people cooperate.

Moral rules are grounded in human self-interest; they teach one to adopt a friendly face to the world but not allow oneself to be exploited. Reciprocity does not apply to those one loves, of course. If the prisoners care for each other like brothers they will instinctively think of minimizing the time both will spend in jail. But in large cities like Delhi or Mumbai, where we are surrounded by strangers, the principle of reciprocity is the guiding principle of civilized existence. This pragmatism also runs through the Mahabharata but is absent in the Left’s moralizing.

It’s a pity we use ‘tit for tat’ in unflattering ways. Congress used it last month to defend its retaliation for the BJP’s smearing of its presidential candidate. This newspaper’s headline read on August 6, 2006: ‘Tit for tat: India, Pak play spy games, expel envoys’. New York Times called Pakistan’s firing of the Abdali nuclear missile ‘tit for tat’ in response to India’s Prithvi on March 26, 2003. It’s a pity I say, because ‘tit for tat’ is the reciprocity inherent in decency, friendship, trust and eventually civilization.

Capitalist morals 15 July 2007

In a meeting of the board of directors that I joined recently, the company disclosed that it had paid a bribe to recover an overdue payment from the government. My first reaction was: Holy cow, how did I land in this unholy mess! I thought about my responsibilities as an independent director. Should I resign from the board? Do we sack the managing director (MD)?

Seventy percent of the company’s sales came from this government customer, who had always received 2% of the invoice under the table for expediting payments. The bribe was shared by many state employees. Our new MD, who had joined a year ago, refused to pay the bribe. As a result, the company’s bills were not paid for nine months. The MD tried everything—cajoling, political influence, cutting off supplies—but nothing worked. One painful morning he found that the company was bankrupt and would cease operations in 48 hours and 829 people would lose their jobs. He closed his eyes, said a prayer, and ordered the bribe to be paid. Thus, he saved the company but disclosed the improper payment to the board’s audit committee.

‘Why doesn’t this problem occur with your private sector customers?’ I asked. The MD replied that in the private sector, it is somebody’s money--the founder’s or shareholders’. Hence, accountants and auditors are vigilant, and no one dares. But it is no one’s money in the government. If supplies stop because of non-payment, no one cares. No one is accountable. He is right, I thought. I have been a director or consultant to lots of companies. I have never heard of bribing a private sector customer. If you are unlucky enough to do business with the government, you always have to bribe someone.

The board decided that morning to close its government business. Sadly, 390 workers lost their jobs. I felt guilty, but I think we did the right thing. If you have to work, you might as work honestly. We are aware of the missed opportunities and the economic loss from Nehru’s decision to place the state at the ‘commanding heights’ of the economy. We don’t realise how much damage Nehruvian socialism has done to our moral character. Our reforms are rightly shrinking government’s role in business, but it will take much longer to rebuild character.

Are people honest only because of the fear of punishment? Without checks would people behave like Duryodhana in the Mahabharata? Modern social scientists assume that people are only motivated by ‘self interest’. But is that true? If a child is in danger, don’t we have a natural desire to rush and save it? Adam Smith called this sentiment ‘sympathy’ in his Theory of Moral Sentiments. Rousseau called it ‘pity’ in his classic, Discourse on the Origin of Inequality. We are not purely selfish, but our public institutions have to hold individuals accountable. In our case accountability is eroded because our idealistic labour laws relied on the worker’s ‘good’ nature and his superior’s ‘bad’ nature. Hence, there isn’t quick punishment for corruption in the government (while you are sacked in the hour in private companies.)

Institutions have to depend both on the ‘good’ and ‘bad’ in human beings. If one is cautious and re-designs government only on selfish motives, you might erode whatever public spirit that exists. But ours was the opposite mistake--we relied on too much public spirit. To restore accountability now you don’t need new solutions. Just adopt the accountability systems of high performing governments like Canada and Australia. Even better, follow the recommendations of our own administrative reforms commissions.