Tuesday, November 30, 2010

Pawar proves my point

In my earlier blog I had connected Modi, Raja, the Telecom scam and the Nano car deal to a general confusion between "corporate friendliness" and corruption. All that you have to say is "create jobs" and you can justify any corrupt practice.
After liberalisation politicians have figured out how to make money and gain power while appearing to serve the nation at the same time. That is by saying they support individual businessmen and then yell that they were "business-freindly" when caught.
Being corporate friendly is NOT the same as being MARKET-friendly. Government leaders are expected to maintain a fair market - that is, to be MARKET-friendly. The market has buyers and sellers. Leaders are supposed to look out to BOTH their interests.

Instead what we have is CORPORATE friendliness - which translates to accepting money from corporations and then shilling for them. That was my point in my earlier blog.

Now, within two days of writing it, I found the BEST example of that in an Economic Times link today. Here is the link to the original story:
Pawar turns crusader for India Inc against Centre

As investigating agencies turn the heat on business groups over issues relating to corruption and insider trading, Agriculture Minister Sharad Pawar cautioned the government against “targeting” corporates without “adequate” reason.

He said recent developments that have triggered corporate disaffection with the government could have adverse implications on the coalition’s stability. More crucially, he went on to suggest that if this persisted, big corporate houses could shift their loyalties to the Opposition. “This will not augur well for the government,” Pawar is learnt to have said.

On Monday afternoon, Pawar raised the issue at a meeting of UPA leaders and warned that there was a “growing feeling” that the government was no longer “corporate-friendly” and had stopped having a “soothing effect” on companies.

The agriculture minister, who is known to be industry-friendly, is learnt to have presented this issue of corporate disaffection as one that affects the sentiments of the share market. Fluctuations in the capital market would affect the average investor, said Pawar, whose own tenure at the helm of consumer affairs over two stints of the UPA has witnessed volatile commodity market fluctuations.

Read that and weep.
So Pawar thinks the government is not corporate-friendly if it investigates wrong doings.
Note how the Economic Times frames this - read the title of the piece again. "Pawar turns crusader for India Inc against Center". Pawar is NOT crusading for India Inc - he is "crusading" for a few rich businessmen.
Secondly, Pawar is right that this may turn some corporations, the party's big donors against the ruling coalition. That is bad for the party - but NOT for the GOVERNMENT. The party is not the government in India. Something like this, although bad for the party, is actually good for government, isn't it?
So, that is what we are dealing with here. Pawar is obviously proud of his "industry-friendly" title, helpfully provided by the Economic Times and other media. What he should be called is "the corrupt agriculture minister". Replace "corrupt" for "Corporate friendly" in the above article and you have an accurate picture.

Politicians now actually have an excuse to claim they are creating jobs or they are corporate friendly - when actually what they are is simple: they are corrupt.

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.