Re­form­ing cap­i­tal­ism for hu­man wel­fare

Mint ST - - VIEWS -

Cap­i­tal­ist en­ter­prises are de­signed to pro­duce prof­its for their in­vestors by

im­prov­ing ef­fi­ciency and ex­tract­ing eco­nomic sur­plus from their oper­a­tions

Iwas a mem­ber of the erst­while Plan­ning Com­mis­sion.

ndian in­dus­tri­al­ists breathed a sigh of re­lief when Prime Min­is­ter Naren­dra Modi at a con­fer­ence on skill devel­op­ment last month said that cit­i­zens should un­der­stand that In­dia’s in­dus­tri­al­ists were con­tribut­ing to the coun­try’s progress. In De­cem­ber 2017, he had be­rated in­dus­try lead­ers at the Fed­er­a­tion of In­dian Cham­bers of Com­merce and In­dus­try’s an­nual gen­eral meet­ing (AGM) for putting their own in­ter­ests above those of the coun­try and the peo­ple. In­dus­tri­al­ists have in­ter­preted the prime min­is­ter’s re­cent re­marks as a restora­tion of trust be­tween in­dus­try and govern­ment.

When politi­cians take up the cause of the peo­ple, in­dus­tri­al­ists com­plain they are be­com­ing pop­ulist. They for­get that it is a politi­cian’s duty in a democ­racy to rep­re­sent the peo­ple. In­dus­tri­al­ists would like po­lit­i­cal lead­ers to ed­u­cate the masses and ex­plain why in­dus­tri­al­ists are good for them. There­fore, there was re­lief when the prime min­is­ter spoke on their be­half at last.

In­dus­tri­al­ists do not like the govern­ment to reg­u­late their be­hav­iour. It con­strains their ease of do­ing busi­ness, they say, dampens their an­i­mal spir­its, makes them re­luc­tant to in­vest and take risks. There­fore, the govern­ment should get out of the way and leave it to the pri­vate sec­tor to reg­u­late it­self if the govern­ment wants faster eco­nomic growth.

Both Modi and, be­fore him Man­mo­han Singh, in a mem­o­rable speech to the Con­fed­er­a­tion of In­dian In­dus­try’s AGM in May 2007, on “In­clu­sive Growth: Chal­lenges for Cor­po­rate In­dia”, have ap­pealed to In­dian com­pa­nies to look to­wards the needs of the coun­try, and the needs of all In­di­ans, and reg­u­late their own be­hav­iour. If cor­po­ra­tions want less in­ter­fer­ence by govern­ment, they should not ask govern­ment to be their ad­vo­cate with the peo­ple. They must win the peo­ple’s trust on their own.

The Edel­man Trust Barom­e­ter, a global sur­vey of cit­i­zens’ trust in in­sti­tu­tions, has re­ported a con­tin­u­ing de­cline in cit­i­zens’ trust in cap­i­tal­ist cor­po­ra­tions and demo­cratic gov­ern­ments. Peo­ple sus­pect cor­po­rate power is sway­ing gov­ern­ments too much. For gov­ern­ments to win the trust of peo­ple, they must of course re­spond to the con­cerns of peo­ple. And cor­po­rates too must re­spond to the con­cerns of peo­ple if they want to win the peo­ple’s trust and also want less in­ter­fer­ence by govern­ment. The cor­po­rate sec­tor must change its strat­egy to win pub­lic trust. The ex­cuse that a few bad ap­ples are caus­ing the stink, cou­pled with glossy sto­ries of cor­po­rate so­cial re­spon­si­bil­ity projects to show how good to peo­ple cor­po­ra­tions are, is not enough to win pub­lic trust in cap­i­tal­ist in­sti­tu­tions. The mis­trust goes much deeper, to the prin­ci­ples by which cor­po­ra­tions func­tion.

Cap­i­tal­ist en­ter­prises are de­signed to pro­duce prof­its for their in­vestors by im­prov­ing ef­fi­ciency and ex­tract­ing eco­nomic sur­pluses from their oper­a­tions. Their in­vestors are their mas­ters. Ef­fi­ciency and prof­its are paramount mea­sures of their per­for­mance. The dharma of in­sti­tu­tions of demo­cratic gov­er­nance, on the other hand, is to en­sure fair­ness in so­ci­ety and eq­uity among stake­hold­ers. In­deed, it is the govern­ment’s re­spon­si­bil­ity to en­sure that com­pe­ti­tion among cap­i­tal­ist in­sti­tu­tions is fair, and that large com­pa­nies do not mo­nop­o­lize mar­kets and leave room for small com­pa­nies to grow.

No­bel lau­re­ate econ­o­mist Mil­ton Fried­man’s thoughts in­flu­enced Mar­garet Thatcher and Ron­ald Rea­gan’s drives to push back the pub­lic sec­tor to make more room for the pri­vate sec­tor in so­ci­ety. Govern­ment, Rea­gan said, is not the so­lu­tion. It is the prob­lem. There­fore, pri­va­ti­za­tion of ed­u­ca­tion, health ser­vices, and pub­lic util­i­ties, which are of­ten not ef­fi­ciently man­aged by gov­ern­ments and re­quire sub­si­dies to op­er­ate, was a good idea. How­ever, Fried­man also said that the busi­ness of busi­ness must be only busi­ness. So, when pri­va­tized, these ser­vices must be run on busi­ness prin­ci­ples. Ef­fi­ciency in de­liv­ery must be the prime con­cern. En­ter­prises must pro­duce prof­its for their in­vestors and so­cial­ist no­tions of eq­uity must not dis­tort cap­i­tal­ist en­ter­prises.

Econ­o­mists see so­ci­ety as a mar­ket, in which peo­ple trans­act with each other in money. This view strips out other forms of non­mon­e­tized trans­ac­tions in so­ci­ety, such as be­tween fam­ily mem- bers and neigh­bours. It can­not count the value of vol­un­tary work. Nor can the value of a for­est or a pris­tine lake be added to the gross do­mes­tic prod­uct (GDP) un­til it is com­modi­tized and ex­ploited for some busi­ness. Mar­kets are deep­ened with the con­ver­sion of hu­man re­la­tions into mon­e­tary trans­ac­tions be­tween peo­ple and by the com­modi­ti­za­tion of na­ture, when ev­ery­thing can be bought and sold, and mea­sured in mon­e­tary terms. The global eco­nomic sys­tem has gone too far with the fi­nan­cial­iza­tion of economies.

The money made con­verts into fi­nan­cial wealth, which is in­creas­ingly ac­cu­mu­lat­ing in the hands of fewer peo­ple who use their wealth to in­flu­ence the rules of the game. Hence, the in­creas­ing in­equal­i­ties of wealth within all so­ci­eties.

M.K. Gandhi said he had no prob­lem with busi­ness­men’s drive to gen­er­ate more wealth. They may use nat­u­ral re­sources in their busi­ness, he pointed out. How­ever, he urged them to be­have as trustees of a so­ci­ety’s wealth. That is the way for them to earn the peo­ple’s trust. He also said that na­ture has enough for ev­ery­one’s needs, but enough for ev­ery­one’s greed.

Con­cepts of so­cial en­ter­prises and im­pact in­vest­ing emerg­ing in the world of cap­i­tal­ism are at­tempts to cre­ate new forms of cap­i­tal­ist en­ter­prises. The pur­pose of these en­ter­prises is not max­i­miza­tion of in­vestors’ wealth, but im­prove­ment of well-be­ing of so­ci­eties. Such en­ter­prises should pro­duce enough profit to meet in­vestors’ needs, but no more than that for sat­is­fy­ing in­vestors’ greed. The mea­sure of these en­ter­prises’ suc­cess can­not be share­holder wealth cre­ated, but so­cial wealth pro­duced. So­cial wealth must in­clude the wealth of na­ture and the wealth of hu­man re­la­tions.

A na­tion’s wealth can­not be mea­sured by its GDP alone. The qual­ity of so­ci­ety and the en­vi­ron­ment con­tribute greatly to cit­i­zens’ well-be­ing. Na­ture and so­ci­ety must not be con­verted into money mar­kets for the con­ve­nience of econ­o­mists’ mea­sure­ments, in­creas­ing GDP, and cre­at­ing wealth for cap­i­tal­ists. Gov­ern­ments and busi­ness en­ter­prises must work to­gether to con­tribute to these qual­i­ties to win cit­i­zens’ trust.

Com­ments are wel­come at theirview@livemint.com

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