Wednesday, September 9, 2009

The State, Morality and Capitalism and Mahabharata

On 15 July 2007 Gurcharan Das wrote a piece in TOI titled “Capitalist morals” which not only will raise your eyebrow but will give you how The State in the Independent India has been in “economic loss from Nehru's decision to place the State at the 'commanding heights' of the economy.” and more importantly “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.”

To save the reader’s time, ready reference and for a record also I am posting the full piece below!

Capitalist morals

Times of India

  • “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 wondered about my responsibilities as an independent director. Should I resign from the board? Do we sack the managing director?
  • 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.”

Other readings:

From his new book release and an article on the book:

The difficulty of being good by Times of India

  • “Remember, there are crooks in every society, and they will get around the most fool-proof systems. So, don’t try to reform the system — it will only create more red tape and kill the animal spirits of capitalism. The important thing is to quickly get to the truth, and put the guilty behind bars. Ideally, make the crooks sing and book their political protectors as well. Don’t blame liberalisation either — the answer is more reform, not less, in order to break the nexus between politicians and business in the unreformed sectors of our economy.”

The Dharma of Capitalism by Wall Street Journal Asia

  • “If envy is the sin of socialism, greed is the sin of capitalism. As capitalist nations grow, the resulting wealth creates enervating influences. Generations of savers are replaced by spenders. Ferocious competition is a feature of the free market and it can be corrosive. But it is also an economic stimulant that promotes human welfare. The subtle art of dharma tries to strike the right balance between healthy and unhealthy competition.

Yudhi·shthira’s answer comes as a surprise:

In times of trouble one’s duty alters. When one’s livelihood

is disrupted and one is totally poverty-stricken, one

should wish for other means to carry out one’s prescribed

duties.… which means that in dire situations one may

perform normally improper acts. (CSL V.28.3-5)

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