Sunday, December 23, 2012
Thursday, December 06, 2012
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.
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.
Sunday, September 09, 2012
Sunday, August 12, 2012
There are many lessons in the recent tragedy at the Maruti-Suzuki factory at Manesar in Gurgaon district. One of them is that labour trouble is not only a management's or a union's problem but a vital concern of the state. Haryana has not learned this lesson. It destroyed the vibrant industrial town of Faridabad more than a generation ago due to poor industrial relations. It is now bent on scaring industry away from Gurgaon as well. Last year's unrest at Maruti resulted in Rs 2,500 crore loss. This is a shockingly high figure-half a billion dollars-for any company to lose anywhere in the world from industrial trouble. For Suzuki, whose Indian operation brings in half its global profit, it is appalling. For a Japanese company to be continuously in the news for labour unrest is extraordinary when Japan has taught teamwork and industrial harmony to the world. Suzuki should ask itself if it has the right persons in charge.
The role of the state is less obvious. In the 1970s, Faridabad had an active municipal government, fertile agriculture, a direct railway line to Delhi, and a host of industries. Gurgaon at the time was a sleepy village with rocky soil and pitiable agriculture. It had no local government, no railway link and no industries. Compared to Faridabad, it was wilderness. Thirty years later Gurgaon has become the symbol of a rising India. Called 'Millennium City', it has dozens of shiny skyscrapers, 26 shopping malls, seven golf courses, countless luxury showrooms of the world's most famous brands. It has 32 million square feet of commercial space and is home to the world's largest corporations. Its racing economy is reflected in fabled apartment complexes with swimming pools, spas and saunas, which vie with the best gated communities anywhere. How did this happen?
Gurgaon's disadvantage turned out to be an advantage. It had no municipality and was more or less ignored by the state government. This meant less red tape and fewer bureaucrats who could block its development. Seeing its stupendous rise, people began to ask, why do we need a government at all - with corrupt politicians and unresponsive bureaucrats? When they saw prosperity spreading across the nation amidst governance failure, they cynically claimed, "India grows at night when the government sleeps." But the Maruti incident teaches that India also needs to grow during the day. It needs an effective state. An alert police could have prevented the tragedy. Rational labour laws would have stopped Maruti from hiring contract workers, whose status and benefits are at the root of the worker unrest. If red tape and corruption are the downside of Faridabad's governance model, then the problem with Gurgaon's laissez faire model is the lack of basic services-it has no functioning sewage system; no reliable electricity or water supply; no decent roads or public transport.
A sensible company in India will not hire a permanent worker today because of our senseless labour laws. Instead, it hires contract workers to which it denies long-term benefits. Meant to protect workers, the laws have harmed them. They are the main reason why India has not been able to create a manufacturing revolution and create more jobs. The spread of contract labour has reduced the bargaining power of unions as well, who now represent less than 4% of India's workers. Nowhere in the world has so much harm been done by a piece of legislation.
The lesson from the Maruti story is that India cannot forever grow at night. It must have an effective state which upholds the rule of law and grows during the day. Neither Faridabad's nor Gurgaon's model of governance are the right ones. Haryana should ponder over the vigorous competition that exists between the states for investment. It will lose out to the states that offer better governance.
Sunday, July 08, 2012
Justice V R Krishna Iyer of the Supreme Court made a distinction between the ‘rule of law’ and the ‘rule of life’. In a judgment in 1975, he used this distinction to uphold the election of a Muslim candidate who had won supposedly by appealing to his Hindu constituents that his mother was Hindu. It was a sectarian appeal and contrary to the law. But Justice Iyer gave greater weight to the primordial, irrational realities of social relations in day-to-day life. In his mind, this sometimes trumped the higher, rational ideals embodied in the rule of law and the Constitution. To do otherwise, he felt, would mean not listening to the voice of the people.
Justice Iyer was wrong —it is dangerous for a judge not to uphold the rule of law. The judge was articulating, however, the ever-present tension between a universal ‘rule of law’ and an insular ‘rule of life’ at the heart of India’s democracy. The human DNA is imprinted with a natural propensity to favour family, friends and community. These loyalties invite corruption and nepotism in the absence of strong incentives in favour of impartiality. The social anthropologist, Ernest Gellner, labelled it ‘tyranny of cousins’. The historian David Gilmartin equates the ‘rule of life’ to sva-dharma, duties to one’s family, caste and community. In contrast, the rule of law is akin tosadharana dharma, duties which reflect the higher, universal ideals of the Constitution.
The great achievement of our Constitution was to create strong incentives to behave impersonally in public life. But India’s political parties have become family firms. They are overflowing with relatives and cronies, thus undermining the impartial principle. This is at a time, ironically, when our best companies are managed by professionals from outside the family. Almost a third of India's parliamentarians in 2009 had a hereditary connection, according to Patrick French in India: A Portrait. Every MP under the age of 30 had inherited a seat; more than twothirds of the 66 MPs under age 40 were hereditary; every Congress MP under the age of 35 was hereditary. Because of the ‘tyranny of cousins’ merit does not prevail. Since there is no democracy inside any party, the inheritors often behave like feudal lords. Napoleon would have called these mediocrities “hereditary asses, imbeciles, and this curse of the nation.” This is why it is so difficult to come up with a leader for 2014.
The hope for the 2014 election may, however, lie with some of our best performing states (such as Bihar) whose leaders did not inherit the mantle and came up through merit. But Sukhbir Badal, heir to the Akali Dal, put up a spirited defence of dynastic leaders. Soon after his party retained power in February 2012, he said, “I have lineage and this is a huge plus, but the post is not hereditary. If I fail to deliver, I will be voted out the next time.” Yes, the distinction between legacy and dynasty is useful, but it’s not enough consolation. India’s “tyranny of cousins” has drastically reduced our options for merit-based leadership in 2014.
Raja was asked if he was surprised by the hero’s welcome he received in Chennai. “No”, he replied, “It was natural”. As natural, perhaps, as passing along hundreds of crores of ill-gotten money allegedly to the Karunanidhi family. Katherine Hepburn’s advice in The African Queen was really meant for Raja rather than Humphrey Bogart. "Nature is what we are put in this world to rise above," she said. Leaders of all our political family firms might ponder over it.
Tuesday, May 22, 2012
The Man: Gurcharan Das's second career as a writer and public intellectual is more noticed and in some ways far more influential than his first as a professional manager. It spanned 30 years, and across six countries and included a term as CEO of Procter & Gamble India. His writings drew from his experience and also from his wide reading. He tells us that individuals could be immoral but the institution of the market itself is deeply moral.
The Oeuvre: His first book India Unbound captured the country in economic transition and became an instant best seller. In Difficulty of Being Good, his most recent book, he turned to Mahabharata to find answers for some of the pressing ethical questions.
X-Factor: A beautiful writer—wise and pragmatic.
The Message: There is a purpose to economic activity, and the pursuit of money is justified so long as it leads to the good life.
Human beings may be immoral and will behave badly whether in a socialist or a capitalist society or under a democracy or autocracy. But the institution of the market itself is deeply moral and has its underpinnings in the Indian notion of dharma.
Dharma is a frustrating word and not easy to translate. Duty, goodness, justice, law and custom have something to do with it, but it is chiefly concerned with doing the right thing, both in the private and the public life. The market system depends ultimately not on laws but on the self-restraint of individuals. A sense of dharma provides that restraint for the vast majority of people who tend to behave with mutual respect in most societies.
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. Like most people, Indians believe that the market is efficient but not moral. I have come to believe, the opposite. Human beings may be immoral and will behave badly whether in a socialist or a capitalist society or under a democracy or autocracy. The institution of the market itself is deeply moral and what has convinced me about its ethical nature is the classical Indian notion of dharma. 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. The reason that strangers are able to trust each other in the market is, in part, due to dharma, which is like an invisible glue that is based on underlying shared norms and which gives people a sense of safety when they cooperate and transact.
Supplier, customer, and employee—all business relationships depend on a certain behaviour which one could call the behaviour of Dharma. When people behave according to that, the business runs well. Very often companies cut corners, squeeze their suppliers. They will be the ones that will lose their employees, their suppliers. If they are not honest to their customers then the repeat purchase of their products will not happen. The whole market system depends on this shared belief that we will all do the right thing. There are companies who default on their debt obligations and it would seem they can do it repeatedly. But ultimately they pay the price. Their multiples [of stock price] are low and investors are wary of putting their money into the company’s equity.
The idea that an ancient Indian idea might offer insight into capitalism’s nature is, on the face of it, bizarre. I was exposed to Western ideas when I was in college, and I assumed unthinkingly that ‘capitalism’ came from the West. I read Adam Smith, Marx, John Locke and others, who introduced me to the liberal tradition. But I realised my mistake later in life when I happened to read the two thousand year old Sanskrit epic, Mahabharata. The epic is obsessed with the notion of dharma, and as I tried to come to grips with it I realised that there might also be non-Western roots for the ideas of liberty and market capitalism, and the liberal tradition might, in fact, be universal.
Dharma is a frustrating word (even for Indians) and not easy to translate. Duty, goodness, justice, law and custom have something to do with it, but it is chiefly concerned with doing the right thing, both in the private and the public life. It derives from the Sanskrit root dh, meaning to ‘sustain’ and ‘hold up’ like a foundation. It is the moral law that sustains an individual, society and the cosmos. From its root ‘to sustain’ dharma carries the connotation of ‘balance’—it is the balance within each human being, which is reflected in the balance and order of the cosmos. When individuals behave in accordance with dharma there is order, balance and trust within society.
Dharma is especially suited for understanding the dynamics of the market place in particular and of public policy in general, because it does not seek moral perfection. It is based on a pragmatic view of human beings—it views men to be sociable but imperfect, with strong desires and passions that need to be restrained by dharma. For example, the king’s dharma is to nurture the productive forces in society: ‘The king, O Bharata, should always act in such a way towards vaishyas, ‘merchants’ and ‘commoners’, so that their productive powers may be enhanced. Vaishyas increase the strength of a kingdom, improve its agriculture, and develop its trade. A wise king levies mild taxes upon them.’ [Mahabharata XII.87] Practical advice indeed, for otherwise, the epic adds, they will shift to the neighbouring kingdom.
Sunday, April 08, 2012
It takes a lot of doing to make the economy fall from a 9 per cent growth rate two and half years ago to 6.1 per cent in the quarter ending December. A fall of one per cent means the loss of almost 15 lakh jobs and so there is a lot of pain, mostly inflicted by the UPA government. Corruption scandals also refuse to cease. But the real tragedy is that the rule of law, one of India’s strengths, is crumbling.
This government undermined the rule of law when it overruled the Supreme Court in Vodafone’s tax case. It decided to change the law retroactively and tax similar deals going back to 1962. It was unfair when it announced in this Budget to make Cairn, India’s largest producer of petroleum, pay $90 a ton in tax suddenly when other private companies are paying $18. As it is, India’s reputation has suffered ever sinceenvironmental permissions were re-opened after they had been granted officially. But when Maharashtra Hybrid Seeds Company was arbitrarily denied a license in 2010 when it had had toiled for a decade to develop Bt Brinjal, the world’s scientific community was aghast. The company had completed 25 environmental bio safety studies through independent agencies, rigorous field trials by two Indian agricultural universities, and all protocols to the government’s satisfaction. Finally, there is much sympathy for Norway’s Telenor, which became the unwitting victim of the Supreme Court decision to cancel licenses given out corruptly--no wonder Telenor is claiming $14 billion in damages from India.
Citizens look to the state to reduce uncertainty in their lives. The state does this through a robust rule of law. As it is, there is great uncertainty in an entrepreneur’s life, which is why three out of four businesses fail. But the UPA government, instead of making life predictable is the main source of uncertainty. It has weakened the rule of law; corruption is a symptom of this weakness. Some think it was inevitable: the rule of law was a foreign import of the British; after they left it began to wither. When officials began to think they were above the rule of law, it collapsed.
The rule of law is based on a moral consensus, expressed daily in the ‘habits of the heart’. People obey the law not only because they fear punishment but because they think it is fair and it becomes a habit and a form of self restraint. While Indian habits may not be quite as liberal as English habits, India always had a rule of law expressed as ‘dharma’, which gave coherence to people’s lives, reduced uncertainty and provided self-restraint. For this reason the founding fathers of our Constitution often invoked dharma in their speeches. The great P.V. Kane, who won the Bharat Ratna, called the Constitution a ‘dharma text’. In pre-modern times, dharma restrained the power of the state via raja-dharma—it was higher than the king whose duty was to uphold it. Some of the UPA’s ministers would do well to ponder this thought.
It may seem bizarre to invoke tradition when that tradition was responsible for so much unjust hierarchy and social injustice. But the rule of law originated in religion almost everywhere. In the West, it emerged from Christianity. Long before modern European states, Pope Gregory I established laws for marriage and inheritance. The Church also discovered the old Justinian code, which became the basis of civil law in continental Europe. Frederic Maitland says the rule of law gained higher legitimacy because it emerged from religion; thus, no English king ever believed that he was above the law. Indian kings had the same conviction about dharma. In the same way, the rule of law is central to Muslim civilization.
The ideal of a ruler guided by ‘dharma’ exists in the Indian imagination even today, thanks to the extraordinary continuity of our civilization. When the vast majority on the sub-continent is deeply religious, it is not inappropriate to turn to tradition to seek that moral core that can restrain public officials and citizens. Fusing tradition with modernity could help restore the moral core in a meaningful way in support of the modern rule of law to re-invigorate India’s democracy.
Sunday, March 11, 2012
With time we come to realize that the only reliable pleasures in life are the smaller ones. The big sources of happiness--success, fame, marriage and religion—often fail us. Among the smaller enjoyments are things like friendship and humour. What is true for individuals can also apply to nations. Instead of nationalism and military grandeur, a modest delight in trade is more dependable, and this was underscored by a happy piece of news on February 29th.
Prime Minister Yousuf Raza Gilani told Pakistani reporters, "People have not understood MFN. It means ‘most favoured nation’, not ‘most favourite friend'.
This beleaguered civilian government in
It is better not to be euphoric when it comes to
Presently India-Pakistan trade is a paltry $2.6 billion, less than one per cent of their respective global trade. It should quickly climb to $ 10 billion by 2015, still modest compared to $ 60 billion trade between
In this case
Much credit goes to Prime Minister Manmohan Singh, who has persisted in engaging patiently with
For the moment,
Sunday, February 12, 2012
In a shock ruling ten days ago, the Supreme Court cancelled 122 mobile phone licences that had been deceitfully awarded in 2008. The ruling sent the telecom industry into chaos, confirmed dreadful corruption in the government’s decision-making process, and damaged the reputation of our nation in the eyes of the world—especially foreign investors. There was much euphoria inside the country, however, for justice had seemingly been served.
The Supreme Court also instructed the telecom regulator (TRAI) to auction the illegally gained 2G spectrum, as it was done in the case of 3G spectrum. “While transferring or alienating natural resources, the state is duty bound to adopt the method of auction by giving wide publicity so that all eligible persons can participate,” said the Court judgment. Auctions are certainly a better way to allocate a scare resource than first come first served, but what Mr Raja did was, of course, preposterous — he subverted the “first come first serve” policy by changing rules mid-way; he allocated spectrum out-of-turn in a non-transparent manner, and that too at 2001 prices, thus creating the biggest corruption scandal in India’s history.
But is auctioning the best way to allocate radio spectrum? Although it is scarce, should it used as a money making device by government? Since water is scarce, should it be auctioned? No. The risk in an auction is that “animal spirits” of entrepreneurs forces them to bid very high, which is then reflected in high tariffs, and this forces the poor out of the market. Thirty one countries have used spectrum auctions and many have regretted it for this reason.
In the ideal world, radio spectrum would be like sunshine which is not owned by anyone or any government but everyone enjoys it without any cost. But unlike sunshine, spectrum is finite and hence it has been historically controlled by governments. It is widely accepted that government allocation is inefficient and leads to corruption. Ronald Coase, the Nobel Prize winner, exploded the myth long ago that governments should control spectrum to prevent airwave chaos. Today many experts think of spectrum as a common grazing ground around a village, which is open to everyone to use freely. They claim that new spectrum sharing technologies allow a virtually unlimited number of persons to use it without causing each other interference--this eliminates the need for either property rights or government control. This is why the
If the spectrum were a “commons” nobody would own it nor need to auction it. A telecom company would merely register with an authority, which would assign it a spectrum frequency for its use. When the company reached the limit of its spectrum, the authority would release it some more. Just as a villager pays a nominal tax for maintaining the commons, depending on how many cattle he grazes, each cell phone subscriber would pay a nominal fee, say a paisa per minute, towards upkeep of the spectrum. It would be form a part of the monthly bill, and transferred by the phone company to the authority. Just as a village needs rules to prevent over-grazing, there would be rules in maintaining spectrum to avoid a “tragedy of the commons”. The rules would be transparent, monitored in real time, and no one would be able to corner the spectrum.
Unfortunately, the Supreme Court judgment has come out so heavily prescriptive in favour of auctions that future governments in
Sunday, January 08, 2012
The mistake is to think that the current paralysis in decision making in
The other mistake is to believe that the Indian state has weakened in the past two decades as a result of coalition politics. Truth is that
The past twenty years of capitalist growth have made
A ‘strong state’ usually carries a bad odour, conjuring up authoritarian images of Nazi Germany or Soviet Russia. A ‘liberal, strong state’ is, however, not oppressive. It is efficient, enabling and tough against law-breakers. It punishes the corrupt swiftly. But it also protects liberties and dissent and enjoys legitimacy among the governed. A strong civil society is needed to hold such a state accountable. More than ever, Indians today need to make a liberal case for such a strong state.