Sunday, November 28, 2010

2G, Raja, Modi and Greed


(Updated Below)
Ever since the 2G scam broke, I have been waiting for Narendra Modi, CM of Gujarat to say something about it. Then in a seminar, he was asked what he would have done if he was PM. Very original question. And he answered,"It would not have happened."
The reason I was waiting for Modi (or anyone in the media) to link between Modi and 2G is this: Minister Raja's claims during the 2G scam, his justifications and his mentor Karunanidhi's justifications seemed to be the SAME one's that Modi's defenders used during the Nano factory offer in Gujarat.
The rest of this essay will make that connection; and I will try to explore the philosophical underpinnings of the current mess.

Nano and 2G
What is Raja's crime according to the CAG? Raja bent the rules of allocating the spectrum; and favored certain businesses. This caused huge losses to the government - but the important part is that Raja violated the rules to favor certain companies.
But Modi did the SAME thing when he sought out Tata's Nano. He favored a SINGLE company, Tata, and showered a lot of government favors on tha company so that the factory will relocate to Gujarat. Why didn't ANYONE talk about corruption then? In fact Modi is hailed as a pro-business messiah.
Modi justified the handover of no-bid favors to Tata, a single business, as creating jobs and encouraging investment. Raja said he had acted according to policy - but the CAG report showed that he and his department had bent the rules to favor some businesses.
Modi's actions caused losses to the state of Gujarat too - there has just been no auditing of those losses. Raja could be prosecuted because he is a member of the executive. Modi, as the elected leader of a state cannot be. That is the only difference.

Crony Capitalism

Corruption has always existed in India. But in the last 20 years since liberalisation, politicians have come to realize that they have a MORAL argument FOR corruption. Modi's actions or Raja's can now be justified because showing favors to individual businessmen is now called "pro-business". It magically creates jobs.
I wrote a long article detailing the economics behind this here.
To favor INDIVIDUAL businesses is NOT pro-business - it is anti-business. By favoring Tata and showering a lot of favors to him, Modi has made it difficult for OTHER auto companies to thrive in Gujarat. 20 years back this will be called corruption. People will suspect that Modi took a bribe. Now, instead, Modi is called pro-business or business-savvy - even though he is neither.
This moral justification is now used by almost every politician. There is a justification of corruption of this form. Media seems to be convinced that Modi is pro-business - but the same standard should be applied to Raja too.

States are now expected to compete for business, and offer wild concessions to businessmen, offer public land and build roads for private businesses and so on; Raja simply did the same thing. His department "competed" for certain providers; and favored them. What is wrong with that? I think he was creating jobs; "creating wealth" as they call it now. We should make him Gujarat's CM.

The Government as a Corporation

Linked with this is the idea, that has gained traction in media over the past few years - the idea that a government should be run like a corporation. I remember that Chandrababu Naidu called himself CEO of Andhra. Modi is called the CEO of Gujarat.

When your government is confused with a corporation, your government leaders think their goal is maximise revenue. Hence the justifications for "bending" the rules; or justifying stunts such as Modi's.
There are several important reasons why a government should NOT be run like a corporation:
1. A government's role is ensure happiness and a level playing field for its citizens. That is its goal - not maximising revenue. Revenue helps, definitely, but there are higher goals for government.
On the other hand, a corporation's role has very little to do with happiness. The goal is maximising profits for shareholders.

2. A government leader's SPECIALTY is not in running a company; or to determine how much profit can be obtained. That helps, but their specialty is always in human relations or law. Thus, leaders who THINK they are running their government like a company almost always fail; they make short term decisions (like Modi). They fail because their role requires a different specialty.

3. Thirdly, and this is important for later, a corporation has no transparency requirements. It need not be a fundamental feature in a corporation. But in a government, transparency helps.

By confusing government and corporations, in ALL three of the above, government leaders in India have started acting like corporate leaders.
1. They think it is ok to bend rules to bring in revenue; they forget that their oath binds them to manitain the rule of law. Their oath has NOTHING about revenue.
2. They think they are, indeed, the best judges of maximising such revenue, even though they are not qualified.
3. They tend towards less and less transparency


This constant emphasis on revenue and a corporate picture of government has subverted the original intention of the Constitution or the leaders who formed modern India. Politicians now seem to have bought into a worldview of neo-liberal thinkers.
Earning extra money through cronyism used to be called corruption earlier; but now it is corporate-friendly. Even if you are "honest", you tend to make all the wrong decisions because of this worldview.
Then ultimately, your ministers do the same thing and you have a bunch of scams.

A government leader's role is to take the set of laws you have and apply them uniformly. It is not to speculate about how much revenue the government can additionally earn by bending those laws. The laws are there for a reason. They provide a level playing field in the market. If you think the laws are holding you down, change them through the legislature. Do not violate them and then talk about how it helped create jobs. That is not your role.

The Angst of Sonia

Sonia Gandhi complained that leaders have become more greedy. Manmohan Singh seems to be saying the same thing.
I don't think greed is the issue here. Why should government leaders be less greedy than any of us?
What we have now is a more subtle form of corruption. When magazines talk about corruption, they paint vivid pictures of suitcases changing hands. That is not how it works now.
The benefit for favoring certain businesses and bending the rules is to gain a powerful presence in the table. Raja or Modi need not get money transferred to them. They just have power, a power that is almost as sexy as currency. Karunanidhi has it. Jayalalitha has it. Maran has it. What these people have done, is they have gone and identified themselves as entrepreneurs. They consider themselves businessmen and women. And they think that is the ultimate career goal for them. Not being just an executor of laws.
You cannot fight this by appeals to personal quality. I don't think Karunanidhi or Jayalalitha are greedier than your average guy on the street. They are just in the wrong profession. Or the profession has bent to them.
If we fought tooth and nail and made the laws and the systems transparent enough; and in many areas, remove government power, then they will just move to professions more "natural" to them, such as owning and running companies.
We may even gain some benefit from that.

Update I:
I posted an update to this article called "Pawar proves my point" here.

9 comments:

Mathi Rajan said...

All of this revolves around a simple process of,
1. Occupy public and common men property
2. Handover to your favourite businessmen
3. Brand it in the name of development.

In the whole process government accounts loss whereas the politician gains.Look at the number of new property and business managed by the politician. It is very difficult for common businessmen to stand against this power, money and muscle.

Mouli said...

On a tangent, I'm curious to know your opinions on Lee Kuan Yew.

Destination Infinity said...

To say that Raja was only favoring certain companies over the others for business upper hand or control and not for any other reasons is like hiding your eyes with your hands and saying that there is no sun, in broad daylight!! Please get in touch with reality.

Destination Infinity

Ramiah Ariya said...

DI, We do not know otherwise at this point.
But the point of the article is not that - the main point is that Raja is held to a different standard as compared to "CEOs" such as Modi, even though they did the same thing. Why was there no uproar in our media about Modi handing over public land to Tata almost for free? Why was there such a fawning coverage, as if Modi had won a competition, a privilege?
The main point is that as long as we do not define crony capitalism for what it is; we do not make it clear that favoring certain businesses does not amount to creating jobs or wealth; we are going to continue to see scams and scandals of this sort. It is no longer possible to distinguish corrupt politicians from "business-friendly" politicians.

Shans said...

Your views are of no logic. Bringing Nano to gujarat is to prove it's the best place to invest. It's business. Maybe the land to nano is ground cheap. But this will attract many more investors and overall a profit act.

But in 2G whats the profit you goof. The amount is 1.75 lakh crore which is uncomparable and how the hell you compare it with nano-modi.

Be patriotic & think neutral.

P.S : Know you will filter out. But this is the fact. f*** off.

Ramiah Ariya said...

Shans,
Where do I start? Read the below carefully.
Modi is not a businessman. He can be a businessman with his money - not public money. What he did was an abuse of power. It is not his job exactly to figure out "profit".
Let us see why not - you only think it is a profit act because you think the profit is GUARANTEED. But it is not. Modi has no control over the Nano product. It could, in fact, be a bad product. So, in effect, Modi was GAMBLING with public money. We do not elect leaders for that.

If business should be bribed to "invest" in a state; in fact, if individual businessmen should be bribed to actually do business,then we are talking about some kind of parallel economics. That is certainly not two centuries of economic theory.
When government interferes in a market and favors a single businessman, government is skewing the market.
For example, the success or failure of a product should be based on market conditions - that is, the quality of the product should be the sole determinant of its success.
But if government favors the Nano as "its" car company and offers subsidies, then the Nano's quality is not purely determined by market. If there are flaws in the product, it will still sell.
In the end, goernnment's intervention in the market does the following:
1. Stops competition
2. Gives consumers a bad deal
3. Sets up a monopoly
and finally, because of those:
4. LOSES Jobs and business

This is not very obscure theory; it is pretty basic to economics.

You CAN be industry friendly without favoring individual businessmen. That much is clear in every developed country - after all the UK or USA do not offer free land to businessmen. They simply have policies and infrastructure that makes businessmen thrive.
Creating an industry-friendly environment cannot happen just by waving a wand and bribing some businessman. It takes some time. You have to have good education system; law and order; infrastructure. If you had all that, over time your state will be an attractive business destination.

Now let us talk about Modi's role.
You think Modi brought in Nano to "prove" something. You only think that because you like Modi. What the evidence shows is that Modi decided that Tata will get a lot of free land, electricity and road transport in his state. To me, that points to corruption, because it does not make sense from economics. To YOU, it makes sense - but only because you REFUSE to look at the evidence, but instead believe that there is some reason why Modi must be good. So your beliefs determine your statements, not open facts.
Also search for "crony capitalism" in Wikipedia.

The whole "competition" between states is a myth created by the media. Every state now believes that they can pay a businessman to prove they are "friendly". That is a shortcut and it makes no sense.

Now, Raja COULD claim the same argument - he favors individual businessmen. The loss in 2G, is after all, a PROJECTED loss. Modi's decision causes losses too, projected losses. He is just not being audited for it.
I suggest learning some economics.

Ramiah Ariya said...

Shans,
Where do I start? Read the below carefully.
Modi is not a businessman. He can be a businessman with his money - not public money. What he did was an abuse of power. It is not his job exactly to figure out "profit".
Let us see why not - you only think it is a profit act because you think the profit is GUARANTEED. But it is not. Modi has no control over the Nano product. It could, in fact, be a bad product. So, in effect, Modi was GAMBLING with public money. We do not elect leaders for that.


When government interferes in a market and favors a single businessman, government is skewing the market.
For example, the success or failure of a product should be based on market conditions - that is, the quality of the product should be the sole determinant of its success.
But if government favors the Nano as "its" car company and offers subsidies, then the Nano's quality is not purely determined by market. If there are flaws in the product, it will still sell.
In the end, goernnment's intervention in the market does the following:
1. Stops competition
2. Gives consumers a bad deal
3. Sets up a monopoly
and finally, because of those:
4. LOSES Jobs and business

This is not very obscure theory; it is pretty basic to economics.

You CAN be industry friendly without favoring individual businessmen. That much is clear in every developed country - after all the UK or USA do not offer free land to businessmen. They simply have policies and infrastructure that makes businessmen thrive.
Creating an industry-friendly environment cannot happen just by waving a wand and bribing some businessman. It takes some time. You have to have good education system; law and order; infrastructure. If you had all that, over time your state will be an attractive business destination.

Now let us talk about Modi's role.
You think Modi brought in Nano to "prove" something. You only think that because you like Modi. What the evidence shows is that Modi decided that Tata will get a lot of free land, electricity and road transport in his state. To me, that points to corruption, because it does not make sense from economics. To YOU, it makes sense - but only because you REFUSE to look at the evidence, but instead believe that there is some reason why Modi must be good. So your beliefs determine your statements, not open facts.
Also search for "crony capitalism" in Wikipedia.
Now, Raja COULD claim the same argument - he favors individual businessmen. The loss in 2G, is after all, a PROJECTED loss. Modi's decision causes losses too, projected losses. He is just not being audited for it.
I suggest learning some economics.

Ramiah Ariya said...

In an interview with rediff.com, the lawyer who caused the notices on 2G scam, Prashan Bhushan, says this:
"Through corrupt practises, land is being acquired from the poorest of country and given away to the largest corporations.

The cases of corruption has always angered me, particularly, corruption in higher places. It has the most serious impact on society. Unfortunately, the common people don't know about this kind of corruption. They are not much aware about the loot of public resources for the benefit of a few corporates.

The simple point is that when land is acquired for rich corporates, poor people are directly affected but when 2G spectrum is allotted they are affected indirectly because public exchequer is deprived of huge sums of money. "

Note that he explicitly links handing over land to corporations with the 2G scam.

Link here.

duvijan said...

This is ridiculous argument. Modi and Raja are incomparable so are the decisions. Modi is a selfless leader and Raja is Selfish hypocrite. Modi has not accumulated wealth but being pro-investments the Government acts as a enabler to the Industry(whomsoever it may be) . The Vibrant Gujarat summit is a case in point. Reliance, Tata and other big business giants find favor in Gujarat easily the most well developed state in the country. Modi is clean and no-nonse man. The country has no other leader.

Raja is a selfish crook who came to power by the exit of Dayanidhi maran because Murasoli did a poll on Alagiri and Stalin. Raja is a sycophant of the Karunanidhi family rule. He has looted all wealth in the name of policies and the money has not come back to the General public if thats the case. The licenses are already sold at a rate of 700% for the next companies , so how does the common man make the benefit from the License ,the share of which is belonging to every Indian.

Get a EEG and have your brains checked