Atanu Dey On India's Development

Fake PM’s Speech – Part Teen

Fair and Just Profit

Why has profit become such a profane word in India? I believe that it is due to a failure to fully comprehend the nature of what humans do when they engage in economically productive activities and what results from that action. If you believe that the world is static in the sense that there is only a limited amount of stuff to go around irrespective of what one does, then naturally you would believe that it is a zero-sum game, a game in which Ramesh gains only at the expense of Suresh. But perhaps the world is dynamic and when economic activity takes place, the available amount of stuff goes up and Ramesh’s profit is not necessarily Suresh’s loss. True, the question remains about the distribution of the total gain from the activity: perhaps Ramesh gains disproportionately more than Suresh. But even in that case, it can be argued that it is better for society to allow that activity than to prohibit it merely because of the unequal division of the gain.

Anyway, on with our continuing series (earlier bit here) on what the PM should have said at the CII address.

Ladies and gentlemen, poverty is a fact in India. The vast majority of Indians – over 80 percent – actually live on less than Rs 100 a day. They are poor and have been for decades. The socialistic policies followed since independence did not allow for rapid economic growth. Inward-looking autarkic policies isolated India from the economic growth that propelled the economies of East Asia. Only after the mid-80s was the country granted a very small degree of economic freedom, and that too was in response to a severe balance of payment crisis facing the nation.

By the time India gained political independence, it was a very poor country, impoverished by the dictates of colonialism. But why did prosperity elude India even after independence? Could it be that we – the leaders of independent India – failed to provide the economic rules that promote and sustain economic growth? A dispassionate review of the facts force us to answer that question in the affirmative.

A lot of self-congratulatory chest thumping can be heard from some quarters of the government for having liberalized the economy to some limited extent. But that is like a man claiming that he is a wonderful husband because he has reduced the severity of the daily beatings of his wife. Liberalization of the economy has given us some gains but certainly not enough liberalization has been done. What the government has to do is to reduce the interference of the government in the economy so that the economy can be truly free to grow.

Big governments that control every aspect of the economy are harmful for social welfare for an obvious reason: it creates an incentive for individuals and corporations to seek profit not legitimately by providing goods and services in a competitive marketplace, but by bribing the politically powerful and thus influencing policy to gain undue advantage in the marketplace for making monopoly profits. Big governments force people to engage in what Jagdish Bhagwati, an illustrious son of our soil and one of the most celebrated economists in the world, calls “Directly Unproductive Profit-seeking” or DUP activities.

In this discussion on “Inclusive Growth – the Challenge for Corporations” I mention the failures of the government because the government is the greatest challenge that corporations face in what they are supposed to do, namely, produce goods and services so that the economy grows. We must remember that inclusive growth is predicated on growth.

Ladies and gentlemen, every segment of any modern large complex economy has distinct roles to play. It can be considered as a higher-level division of labor. Failure of even one segment to properly discharge its duties and responsibilities has repercussions for the whole economy. The government’s duty is to create a society that is free, fair, equitable, just and peaceful. Unfortunately, we are well aware that we have not achieved the ideal society and to a very large extent it is the failure of our government. Although it is fashionable in certain circles to lay the ills of our society on corporate doorsteps, I will not do so because it would be clearly hypocritical of me. Furthermore, it would be pointless to expect corporations to address those social ills which it has neither created nor has any particular expertise in addressing.

So what is the basic responsibility of corporations? Stated most simply it is this: To make a profit. Ours is a deep and ancient culture. Our cultural legacy not only includes profound spiritual values but also ethical business values expressed compactly in the dictum of “Shubh Labh” or “Fair and just Profit.” When you make a profit honestly supplying goods and services to society, it implies that society gains since the benefits (represented by the price paid) exceed the costs incurred to produce the good or service precisely by the amount of profit. Making that fair and just profit is your corporate social responsibility and nothing else.

I am here not to ask what corporations can do for the government (or even for the society at large) but rather to promise what the government should do to help corporations. Let’s examine that next.

[Continued in part 4.]

  • http://the-redpill.blogspot.com Kiran

    Hi Atanu

    I looked at the PM’s speech and I agree it looked a little silly at some places. But basically, it is not evil. His speech is something like a religious injunction – “help your neighbors, love your friends …” It is not bad to talk like that, right ?

    What gets really bad is when he starts saying he will be penalizing companies for not having social responsibility. That will be nasty. He did not display such a tone.

    So, so far so good ?

    The problem obviously is that the Government is not doing the job it is meant to do. It has no answerability to the CII. The vast majority of the citizens are completely incompetent in judging the performance of the government.

    Maybe the CII should take a bolder step and demand direct answeribility from the government how the taxpayer’s money is being spent – especially on the issues which really matter like infrastructure and education.

  • Arvind

    Without the vision and power of execution, the nature takes its own course. As India was poor at the onset of independence, it was difficult to make all rich. “If you cannot make all rich, make all poor”. That is much easier and natural flow of not doing anything except fight elections and try level best to win by hook or crook.

    If you make some rich, actually the poor get poorer by comparison. Hence our great leaders wanted to follow the ideal of equality – distribute poverty in equal measure. Where the equality was too unjust like the past treatment of lower caste, have reservation. Such mighty thinking and implementation, and we still crib. There is something wrong with us, cannot see the idealism of our leaders!

  • http://chanakya2006.blogspot.com AG

    Atanu
    I don’t think Manmohan is hearing you… he’s busy grovelling before his white masters, as you can see here:
    http://epaper.timesofindia.com/Repository/getimage.dll?path=CAP/2007/06/09/11/Img/Pc0111300.jpg

    Perhaps a fund for spine surgery?

  • http://www.worldisgreen.com Suhit Anantula

    Kiran:

    I think you missed the point. The role of the leader of a billion people is not to talk nicely. But to show leadership.

    Leadership is about showing the right direction. The Honourable Prime Minister of India needs to act and talk like the leader of a billion people.

    Cheers,
    Suhit

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  • http://zeitgeist84.blogspot.com Shriram R

    Hi Atanu,
    It seems that Swami Anklesaria Iyer is also equally riled at the PM’s speech noted here –
    http://timesofindia.indiatimes.com/Opinion/Columnists/Ten_commandments_for_Dr_Singh/articleshow/2112102.cms
    Hilarious, particularly the end.
    -Shriram R

  • ankan

    Atanu

    I hope you will finish your parts on Bihar as well :)

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