Last weekend, I learnt about an incident in 2007 involving an anonymous IAS officer from the Karnataka cadre, prime minister Manmohan SIngh, home minister Chidambaram and The Dear Eternal Neta ™ Jawaharlal Nehru. I don’t remember it being covered on your blog, but here is what happened.

This anonymous IAS officer wrote an open letter to the Prime Minister that got published in The Mint. It was a succinct and accurate charge sheet of Manmohan’s utter ineffectiveness betraying a lack of both spine and leadership. (A link to the letter in its entirety is available here.) The BJP raked up the issue and ultimately Chidambaram exhorted in parliament: “… I have read the article. I do not know whether the name of that author given in that article is a true name or a pseudo name. I do not know whether he is an IAS officer. All I know is either he is a disloyal officer or a coward or both. If he had the courage, he should write the letter, sign in his own name and send it to the Prime Minister….”

The editor of The Mint did not let Chidambaram get away with it. He had a brilliant response, which included a reminder to the Home Minister: “In November 1937, the Modern Review, then India’s most well-regarded journal of opinion, published an article on Jawaharlal Nehru written by Chanakya, an obvious pseudonym. The author hit out at Nehru’s latent dictatorial tendencies and his “intolerance for others and a certain contempt for the weak and inefficient”. Its author warned: “Jawaharlal might fancy himself as a Caesar.” There were howls of protest from loyalists until it was revealed much later that Nehru himself was the author of this piece.” That caused Chidambaram and his cronies to shut-up on the matter.

Thanks to you, Chanakya Deux, now I am even more convinced that Manmohan Singh is the most pathetic prime minister of India ever — and that is saying something considering the horrors that we have had before such as Weepy Singh. But even the worst of the lot had some popular support as evidenced by their contesting and winning at the Lok Sabha polls (regardless of how the elections may have been fixed.)

MM Singh does not dare to stand in an election. But then he does not stand for anything much anyway, if you were to go by his record. Let me quote bits from the open letter Chanakya Deux refers to above.

The letter is written by “Athreya” who is an IAS officer. (Note: The letter is dated Dec 10, 2008.)

Mr Prime Minister, you were selected, not elected by the people, for just one reason, that you posed no threat to anyone in the Congress party. . . You were considered the least of all evils. . .

I think that all references to Manmohan Singh should be “appointed Prime Minister.” It is common practice to point out, say, in corporations that someone is “Acting CEO” or “Interim Chairman of the Board” to indicate that it is a make-shift and temporary appointment till someone else is found to take on the job.

News reports could then say, “The appointed Prime Minister Dr Manmohan Singh said that he is powerless to do this that or the other . . . ”

Back to the open letter to the appointed prime minister:

Today, after four years in office and after India has witnessed an act of war on its own soil, your government has lost all credibility with the people, and the buck stops with you.

Here I disagree with the IAS officer. If there’s one thing that most Indians are united about, it’s the apathy and disinterested they exhibit towards matters of governance. If the Indian public had any interest in the matter, they would have lynched the politicians the first time they misgoverned — and that would have been the last time the politicians would have misgoverned.

Let’s move on:

You are scared to even name Pakistan in your speeches in spite of the so-called irrefutable evidence you claim to have; nay, in fact, each time you say something publicly about this now, it sounds like a condolence message, not something that inspires confidence.

What strikes me the most is how pathetically the appointed prime minister whines. He does not even pretend to have any power at all. For example, he whines about corruption — as if he were a stay-at-home invalid writing letters to the editor of a newspaper complaining about how the government does not do anything about the corrupt politicians.

Economic reforms stopped long ago, for your allies didn’t want them; there are many ministers in your cabinet who have perfected Wal-Mart’s cash-and-carry model and you can’t do a damn about it.

The list of stupid, wacky, unhinged from reality beliefs that Indians generally hold is fairly long. At the top of this list is the belief that Manmohan Singh was the prime agent behind the economic reforms. The fact is that it was PV Narasimha Rao as the prime minister who forced the reforms on a reluctant Manmohan Singh who was Rao’s finance minister.

Manmohan Singh had come up with the usual socialistic bs budget. PVNR rejected the nonsense and told Manmohan Singh that the economy has to change tack. Manmohan Singh followed Rao’s orders.

The appointed prime minister Manmohan Singh’s appointers are happy to erase PVNR’s name and want their prime minion to take the credit — which he does as he is ordered to do.

You have failed on all counts as a leader. So, at least now, when India is under attack on its own soil, please act. And if you can’t act, please get out of the way and allow someone more effective to run the country.

In any district, where there is any act of violence, normally the district magistrate and the superintendent of police get shifted out. As PM, can you not sack or transfer your national security adviser, the Intelligence Bureau chief, the Coast Guard director general, the navy chief—can you or can you not get rid of your entire top brass and send a signal down the line? The signal you are now sending with your inaction is: don’t bother doing your job, for even if the country gets attacked, we won’t touch you.

You have personally demonstrated integrity, but what use is that alone, when almost every key minister in your cabinet is treating every file as an opportunity for cash flows? Are you telling us you don’t know that your telecom, environment and shipping ministries are the home of organized mafias looting the exchequer? What use is it telling us, “Look, I am personally honest, but I’m presiding over a band of dacoits, murderers and thugs. I am only the prime minister and can’t do anything about it”?

What use is it to head a government, Mr PM, when you can’t even protect your citizens from terror, which is the first function of any government? When you can’t act against incompetence or organized corruption in your own cabinet? Is the PM’s job so important beyond the call of your conscience that you want to hang on to it at any cost? Sir, may I remind you that you are holding a trust, not just an office.

Go read the entire piece. And keep a copy on file for future reference:

. . . Your home minister kept combing his hair and did nothing more as India reeled under attacks and you tolerated him because loyalty to a family was more important than the blood of innocent people.
. . .
. . . Can you not ensure simple reforms in the criminal justice system (which scores of committees such as Malimath have outlined) to ensure certainty of punishment for any offence from pickpocketery to terror? Can you not lead legislation to keep criminals out of politics and try to stem the flow of illegal money into campaign funding?

If not, then what use is it being a prime minister if, even after reaching the very top, you can’t do a damn in an hour of national crisis? Soon, all this will be forgotten and it will be back to business as usual. But then, history will judge you. If you have some conscience left, please do something. Don’t forget, “mind without heart, intelligence without conduct, cleverness without goodness are all tools, but only for mischief”.

In my opinion, as I have written before, Manmohan Singh is really a despicably dishonest man. (Previously I had written, “Manmohan Singh is Despicably Dishonest Man” May 2010, and “Manmohan Singh is really and truly a despicably dishonest man“, June 2010.)

He is dishonest to a degree greater than average. The average dishonest man does not conduct his thievery behind a facade of totally perfect personal integrity. People are lulled into trusting someone who is widely proclaimed as an honest man. The reputation is not earned through action but instead achieved through repeated assertion of honesty and integrity — against all contrary evidence — by self-serving media.

The appointed prime minister Manmohan Singh gets a free pass, for now. Truth eventually will out since reality persists while delusions pass.

It’s all karma, neh?

A few excerpts from Kanchan’s article:

[Dr Singh] remained blissfully ignorant about the CBI giving a clean chit to those accused of leading murderous mobs during the ghastly slaughter of Sikhs in 1984 till a national outcry forced him out of his slumber, should do a reality check before he indulges in further chest-thumping. Ever since he was nominated as Prime Minister in the summer of 2004, Mr Singh has presided over a Government whose actions have encouraged terrorists aided, abetted and armed by Pakistan to strike remorselessly and repeatedly. . .

Tough guys don’t cry, Mr Singh says, but he forgets to add that when Mohammed Haneef was detained by the police in Australia for possible links with Islamist bombers of Indian origin in Britain, he, by his own admission, spent sleepless nights, agonising over the plight of the terror suspect and his parents. In the last five years, Mr Singh is not known to have spent a few moments, forget spending sleepless nights, worrying about the victims of terrorism in India — the children who have been orphaned, the women who have been widowed, the parents who grieve for their sons and daughters, the families which have lost their sole bread-earners. If he has expressed any concern, it is for the families of terrorists killed in encounters with security forces and offered them financial compensation. . .

We could go on and on and cite example after example of how Mr Singh is responsible for the collapse of internal security. But that would be of no consequence to him and his admirers. But since he has raked up the issue of conceding the demands of terrorists, it would be in order to remind him that a Government of which he was the Finance Minister had ensured safe passage for terrorists who had taken over Srinagar’s Hazratbal shrine. And, till such time they were holed up inside the shrine, the Government had fed them biryani and oranges. But they would have blown up the mosque if we had not done so, Mr Singh will argue. Sure. Just as the hijackers of IC 814 would have blown up the plane with the hostages had the NDA Government not released three terrorists. Mr Singh, representing the Congress in discussions with the Government, would repeatedly assert one point: Do whatever it takes to ensure the safety of hostages — something which he forgets today. Strong men have strong memories, Prime Minister.

Does makes sense, doesn’t it? Motivating the task is the real job of the leader, not messing around with petty details.

Somehow, Indian leadership has consistently failed in that primary job. Setting the goal and articulating the motivation for why the goal is worth achieving is what leaders should do, and leave all the details to those experts who have professional expertise in the various areas.

Let’s say that the leader wants the educational system to be improved. He or she then should just explain why it needs to be done and get the best minds in the country (or wherever) to figure out how it should be done. The leader should not go into details because it is not possible that he or she is the expert in that domain.

Being unable to acknowledge that one does not have expertize in everything is basically hubris born of a failure of imagination. I see this failure fairly widespread among Indian leaders. Gandhi believed that he had everything figured out: religion, economics, development, history, conflict resolution, etc. Perhaps he could have specialized in conflict resolution and left the economics to those who knew the subject, and left the development to others who had some experience in it. But no! He had to dictate everything.

Same goes for Nehru. Idiot savants are generally phenomenally good at one specific thing and are abysmally below average in most other areas. But if one thinks that one is phenomenally good in every area, then one is merely an idiot without the redeeming savant bit.

A leader figures out which mountain is worth climbing and why, and leaves the actual logistics of the climbing to professional mountaineers, so to speak.

All this is preamble to my critique of Mr LK Advani’s recent address to the Federation of the Indian Chambers of Commerce and Industry (FICCI). At the start he points out that the stock market is down. Fair enough. He correctly characterizes a stock market bubble as “notional prosperity” and laments “greed-driven” financial instruments. “Such undependable devices of the free market economy cannot be the basis for building a truly prosperous nation.” True but I don’t know of anyone who has seriously advanced that thesis that financial shenanigans can be the basis for anything useful.

But more disturbing is Advani’s claim that “unfettered capitalism” is at fault for the distress that the mango man (aam aadmi) is suffering. As far as I can tell, India does not have unfettered capitalism. The financial system is controlled by the government. So are all the organized sectors. Industries have to follow the law of the land which places serious restrictions on what they can produce, how much they can produce, who they must or must not employ, who they can fire and when — the list goes on. India is a socialist economy in theory and in practice.

It is a government of the poor, for the poor, by the poor. The poor outnumber the rich by an order of magnitude. And in a country with universal adult franchise, that means that the governments are elected by the poor. It is definitely government by the poor. Every political party of whatever color (red, green or saffron) is loud in its proclamation that its primary concern is the welfare of the poor. That’s government for the poor.

Surely, after all these years, the cancerous effects of capitalism must have been eradicated from India. But apparently not. There is still some lingering capitalism that needs to be urgently dealt with.

Advani is not happy about “unbridled capitalism”.

We believe that the new as well as the entrenched developmental challenges before India cannot be met by carrying the influence of either free-for-all capitalism or freedom-killing communism. What India needs is a robust, self-confident Swadeshi (nationally-oriented) model of development, which is rooted in the ideals of democracy, equality, justice and integral human progress.

“Swadeshi” is a nice word much beloved of MK Gandhi. It means “self-sufficient.” It is closely related to a word that I love, autarky. I like the sound of the word, not what it represents and its effects. “An autarky is an economy that is self-sufficient and does not take part in international trade, or severely limits trade with the outside world. Likewise the term refers to an ecosystem not affected by influences from the outside, which relies entirely on its own resources. In the economic meaning, it is also referred to as a closed economy.”

Autarky is not a nice thing, nice sounding though the word is to me. Swadeshi too sounds nice but its effects are damaging. Gandhi liked the sound of that word and loved what it did, I presume. So anyway, Advani wants to dress up swadeshi in nicer clothes so that it does not look as bad.

The “Swadeshi re-interpreted creatively” goes this way.

Swadeshi means that national priorities must override policies that have benefited only a minority and largely excluded the majority in the nation’s progress. In other words, just as the centre of gravity of the world economy is shifted from the West to Asia, the centre of gravity of our national economy must shift from “India” to “Bharat” ― to agriculture, revitalization of our villages, small and medium enterprises, and unorganized and informal sector of the economy. . .

Similarly, it sees no conflict between the public sector and private sector. There is no place for dogmatism in favour of or against either, since both have to be strengthened. In view of the recent global experience, the public sector needs to be further strengthened in the financial system and in core sectors like energy.

Swadeshi is not antithetical to cooperation with the international community, just as the concept of Swaraj was not. Nevertheless, its cornerstone is national pride and the belief that the India of our dreams has to be built only by our own genius, with our own efforts, and principally with our own natural and capital resources. India’s problems need Indian solutions.

Swadeshi wholeheartedly embraces the knowledge and products of modern science and technology. It holds, however, that our country should revive its own rich and diverse knowledge traditions and emerge as a major contributor to global scientific and technological progress, instead of remaining mere consumers of outside knowledge.

Swadeshi affirms that business and economy should serve as a means and not an end in themselves, and the higher possibilities of human progress should not be sacrificed at the altar of acquisitiveness, consumerism and environmental destruction.

I will concentrate on the above extended quote in the next post in this series.

In the meanwhile, you may wish to take a peek at my thoughts on Gandhian self-sufficiency.

And for real substance, check out the series on “The Fake PM’s Speech to the CII” from June 2007.

This is the concluding part of my re-write of PM Dr Manmohan Singh’s speech to the CII. (Previous part on Social Contracts here.) The PM in his speech had quoted from Tagore’s Gitanjali. I suppose the irony of quoting Tagore in the context of the government’s sustained effort to divide the country along caste and religious lines is lost on him. Severe cognitive dissonance perhaps. I have critically examined the PM’s speech for what it was, an attempt to browbeat the Indian industrialists into further crippling the Indian economy. It is all very sad.

Ladies and gentlemen, our society is not today that heaven of freedom which Tagore prayed for, where “the world has not been broken up into fragments by narrow domestic walls. . .” The industry did not create these walls. The fragmentation of our society along caste and religious lines is the doing of political policies. Our policies of favoring special groups arise out of “the dreary desert sands of dead habit” of dividing the country for narrow-minded mean political gains.

The industry did not create the divisions in society, it cannot be expected to correct these distortions, and it must not be commanded to perpetuate these odious divisions by hiring based on caste and religious categories. The destruction of whatever Indian industry has accomplished must not be lost in the cesspool of communal politics. Industry did not create the deep social inequalities. The government by raising the specter of violent social revolt to force industry to assume responsibility for the divisions in society is guilty of blackmail, criminal negligence and gross dereliction of duty.

The government has failed so far to address the real concerns of its citizens. Universal primary education, although guaranteed by the constitution, is still not a reality after 60 years of independence. It is shameful that half the world’s illiterates are Indian. Surely, the failure of the Indian education system cannot be laid at the doorsteps of Indian industry. Indeed, Indian industry itself suffers as a consequence of the massive failure of the government in providing education. If Indian industry can build world-class corporations, surely it is quite capable of efficiently educating the population – provided of course that it is allowed to do so.

Indians are as talented a people as any other. Wherever they have enjoyed economic freedom, they have been among the best, in everything from steel manufacture to high technology. Let’s ask ourselves why Indians in the US do so well, to just take one example out of scores of places where Indians shine. They succeed more often outside India than within India because in India they are denied economic freedom. They are forced to leave India to concentrate their entrepreneurial and innovative skills in building things rather than stay and fritter away all their energies in fighting our impossible bureaucracy. Our laws and regulations are so onerous that it can sap the strength – if not kill – the most talented and dedicated of our entrepreneurs. We have to radically change our regulations and our labor laws.

Indians thrive when they are free to get into the rough and tumble of the competitive marketplace. But our socialistic policies have crippled India’s industries. Allow me to quote Pranab Bardhan, one of India’s foremost economists at UC Berkeley (India loses fine academicians and researchers as well, not just engineers and doctors, due to a lack of freedom). “Leftists are understandably wary of the ‘wastes of competition’ and of the ‘anarchy of the market-place.’ But the last several decades of socialism have shown us unmistakably that the waste and anarchy of the bureaucratic command system are far more injurious to the health of the economy. Without competition in the sense of rivalry among firms (public or private) and a mechanism for exit for chronically sick firms, no economy can attain or retain its vigour and dynamism.”

The market rewards excellence and punishes underperformance. The government does not have to worry about whether you are doing your job to the best of your abilities or not – you would not be here if you were incompetent. But in government and politics, competency is not that much of a barrier to entry. The ability to manipulate the system is more valued. It appears that it is politics, not patriotism, which is the last refuge of the Indian scoundrel. Hardened criminals sit in our legislative bodies and we all are apparently powerless to change it. But there is a way out, I believe. If you, the captains of the Indian industry, were to support clean political candidates, you can make a difference. It is choice that you can exercise as citizens of this great democracy.

In conclusion, thank you for helping build the nation. You have my gratitude and you have my promise that I will do everything I can to help you create wealth so that no Indian is poor. Let’s make India a great nation.

I have a strong aversion to sanctimonious hypocritical idiotic talk (just to spell it out) but it happens, as they say. Perhaps it doesn’t just happen, it is demanded. A sort of reverse Says’ law, “demand creating supply.” If not actually demanding it, sufficient people are not disgusted by it that the supply is maintained. Lack of aversion, or at least a publicly stated aversion to the peddling of it.

With that, here is part four of my re-write of PM Dr Manmohan Singh’s speech to the Confederation of Indian Industries.

Friends, the primary job of industries is to produce goods and services. The first necessary condition for a successful economy is that it produces sufficient amount of stuff. If industry cannot meet that goal, all other activities are futile. Distribution of insufficient production – however equitably – will not solve the problem that we face. Nor will merely generating employment because employment is a means, not a goal, of economic activity. Let’s not confuse means with ends. Given sufficient production, the problem of equitable distribution can be tackled if necessary by the government.

Which brings us to one important distinction between industry and government. Baldly stated, industries engage in productive activities whereas the government, at best, engages in activities that are sterile. A government takes part of the production in the form of taxes and redistributes it according to some objective function that is arrived at through a process of political bargaining among the electorate. This redistribution is often necessary but is not costless. Part of what it extracts with the purpose of redistribution, the government “consumes” in the process of redistribution. That is a “deadweight loss” which grows not just with the size of the amount redistributed but also with the size of the government mechanism doing the redistribution. One of our former prime ministers, Mr Rajiv Gandhi, had famously stated just only 15 paise out of every Re 1 gets redistributed; the deadweight loss is 85 percent in India. Therefore increasing the efficiency of distribution is paramount if taxes have to be reduced without actually reducing the transfer to those who need it.

Reducing the size of the government is important for increasing the efficiency of transfer, of course. But there is another more compelling reason: reduction of corruption. It is a simple matter to recognize that the larger a government is, larger the control it has, which in turn creates an incentive for people and firms to “capture” the government. It creates an unholy nexus between the government and industry, with the former being lobbied by the latter for licenses, permits, and quotas.

We both, the industry and the government, have a social contract. Yours is to produce efficiently without imposing social costs, and to make a profit. Market forces will ensure efficiency and the laws will ensure that externalities are compensated for. Our social contract is to make and enforce the laws fairly and efficiently, and to correct for any imperfections that exist in society.

Let’s take the matter of employment to distinguish between the two social contracts. You will compete in the marketplace to employ the best that you can. Who you hire and how much you pay is not our business. Today your survival in the global marketplace is determined by how well you run your business. The government will not dictate how you go about conducting your business. If your employment policy discriminates against people based on any criterion not relevant to the job, the discipline of the market will weed you out in short order.

The government’s job is to ensure that every citizen – irrespective of caste, religion, sex, or economic status – has an equal opportunity to be what he or she is capable of being. The government must enforce equality of opportunity but cannot, and must not attempt to, enforce equality of outcome. Discrimination is abhorrent and the government will not practice it nor force the industry to do so. To give equal opportunity, the government will support the education of the poor without discrimination. That is, the playing field will be level but who plays well and who doesn’t will depend on the individual.

Your job is to produce as much as you can and as efficiently as you can. Our job is to make the rules and ensure that everyone has a fair shot at playing in the game. To level the playing field, we have to do some appropriate redistribution of production. We must keep the amount we redistribute within reasonable limits so that we don’t cripple the industry. We have to become more efficient in effecting the transfer and this means we will reduce the size of the government.

[Concluded in part 5.]

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.]

Yesterday I posted the first part of the fake speech that I wish the real PM of India had delivered. The message in the first bit was simply that there are things that the government is supposed to do and there are things that individuals and the private sector is supposed to do. There is a natural division of labor arising from comparative advantages of the competing parties. The government has a comparative advantage in governance, not in producing stuff. The government must stick to governance. Here’s why.

Ladies and gentlemen, the sole objective of a government has to be to provide governance. The raison d’etre of a government is the creation of social capital, to be a guarantor of civil rights, to maintain law and order, to correct for externalities, to create an environment where individuals and corporations have the freedom to create wealth. The government has to be an enabler in the process of wealth generation, not an inhibitor that it has been for so long.

The role of the government is to set the rules, not play in the great economic game. Nobel prize-winning economist Douglass C. North noted that “economic history is overwhelmingly a story of economies that failed to produce a set of economic rules of the game (with enforcement) that induce sustained economic growth.” It is a cautionary observation and clearly underlines what lies at the root of our failure so far in sustaining our economic development: the government has abdicated its primary function of designing the rules and enforcing them fairly, and instead entered the game as a player.

The results of the government’s involvement in production rather than in rule-making and enforcement are plain to see. Just to take a very critical example, consider the generation, transmission, and distribution of electrical power—the life-blood of a healthy economy. Public sector power corporations have let us down. The shortage of power is severe, acute, and chronic. Just in the state of Maharashtra, demand outstrips the supply of 15,000 MW by over 5,000 MW. It is a crisis for consumers, but even more for our industries, the producers of wealth. It raises the production costs of our manufacturers and they are handicapped in the global marketplace.

In an era of globalization and international competition, Indian corporations face challenges that are mainly derived from government interference and control. Indian industry faces an acute shortage of trained human resources. It is regrettably reported that only about a quarter of our college graduates are employable—a sure sign of our failed education system. Once again, the government needlessly prevented the private sector to be in education, and instead took monopoly control of the sector. The results are as could be expected: poor quality, extreme shortages, and high costs.

The production of goods and services is not the job of the government; that is the job of the private sector. By getting into production – too often as a monopolist – the government has demonstrated its abject failure. And this is understandable because governments are not capable of inventiveness, entrepreneurship and innovation; qualities that it does not have and thus cannot compete in the marketplace. By wasting its energies on activities that it has no comparative advantage in, the government has neglected what it is required to do: design the rules and enforce them, and create the environment where contracts can be made and enforced. That failure is as costly – if not more – than the failed attempts by the government to produce goods and services efficiently and in sufficient quantities. Consider the functioning of our legal system, as an example.

Among the institutions of governance are the legislature, the executive, the bureaucracy, and most importantly the judiciary. The statistics of the inadequacy of the judiciary are staggering. There are an estimated over 20,000 cases pending in the Supreme Court, around 3 million in the high courts, and a mind-numbing 22 million cases in the rest of the legal system. There are cases in the high courts which date back to the 1950s. Aside from the deep concern that justice delayed is tantamount to justice denied, the backlog of cases has a detrimental effect on the conducting of business in India. When contracts cannot be enforced, the economy loses from potential trades that do not take place.

The limited liberalization of the economy from the shackles of socialistic control has given us an economy growing at a respectable rate of 7 to 9 percent annually. But unless the governance of the economy is improved, even further liberalization – which is sorely needed – will be insufficient to sustain growth. And if growth is not sustained, the hundreds of millions so long trapped in poverty will not have a reasonable shot at economic emancipation. Let’s consider what needs to be done.

[Continued in Part Teen.]

The “fake”qualifies the “speech” and not the PM, I hasten to add lest there be any misunderstanding. You must have come across the much celebrated speech that appointed Prime Minister Dr Manmohan Singh gave the other day at a CII conference. I read it with rising disappointment and dismay. Smeared with high-sounding socialistic rhetoric, the message was clear: take care of the mess or else dire consequences will follow. Never mind that the mess was not the creation of the Indian industries, that it is not their responsibility, and most importantly that they are not equipped to clean up the mess.

It appeared that the PM’s speech writers are ill-educated socialists. You can’t get good speech writers for the money the government is willing to pay, I suppose. (Even the PM is paid Rs 30K a month.) Now if they had hired me to write the PM’s speeches, that would be a different matter. But then, I suppose they can’t afford me. So as a public service, I present in five easy-to-read parts the speech as I would have written it. This is the fake speech.

Dear Members of the Confederation of Indian Industries:

I am very honored to be invited to share my thoughts with you on the subject of “Inclusive Growth – the Challenges for Corporate India.” I appreciate deeply the critically important role that Indian corporations play in the present – and will continue to play – in the economic growth and development of India. For that, you have my gratitude; not just mine but the gratitude of the people of a nation that is on the move.

You, more than any other group, certainly understand the source of all wealth – production. And what is more, you know how to create wealth. Wealth does not drop like gentle rain from heaven; it does not come as a gift from some government agency; it does not spontaneously arise from some softly spoken magic spell; it does not materialize out of the vain electoral promises of some demagogue; it does not flow unbidden from the earth like some volcanic eruption. No, you know as well as anyone does that it requires hard work, entrepreneurship, risk taking, imagination, skill, investment, and vision to create wealth.

Production – that is, the creation of wealth – matters because ultimately that is what gets distributed as income to the people. If production were inadequate for whatever reason, even equitable distribution of that production would not eliminate poverty. The problem of a fair distribution of wealth is a much more tractable problem than the production of wealth. Society rightly burdens you – the corporations of the economy – with the task of producing wealth, and relieves you of the burden of correcting for any unfair distribution and assigns that task to the government. It is an understandable division of labor. Corporations have a comparative advantage in creating wealth. If any redistribution is necessitated, then it is the job of the government to do so.

You – the private sector – have to do what the government cannot do. The government does not create wealth; you do. In every sphere, wherever you have been allowed to go ahead with your job – producing wealth – you have surpassed all expectations. Decades of government involvement in attempted production of wealth had resulted in diminished expectations from India and Indians. You have demonstrated that if given the chance, India and Indians are second to none.

Consider for a moment those things that India is known globally for in the world of excellence and achievement. Every sphere in which India competes and comes out among the leaders has been the result of private enterprise, whether it is in IT and ITES, or in manufacturing. What about the government and political leadership? While the captains of our industries – the Tatas, Birlas, Kalyanis, Mallyas, Ambanis, and others – compare very favorably globally, our political leadership is infamous for being a haven for criminals. The percentage of criminals among the politicians is an order of magnitude greater than that in the general population. That is a fact that we have to keep in mind when we talk about governance of this great nation.

Ladies and gentlemen of the CII, in my talk here I will remind you of your responsibility and your duty, of course. But I will also take this opportunity to remind us of what the government’s responsibility is. I further assert that the industry and the government have distinct and important roles, and that separation of industry and government must be maintained if we have to have growth.

[Continued in Part Duh -- Governance.]