It is only in India that we are not brand conscious. Every other country is. China is. Russia is. France and Germany are. And brand America, which is now under attack for its financial market muddle and double-talk on democracy will renew itself.
The collapse of Satyam Computer Services has again exposed the soft underbelly of the Indian new economy corporations. This is so far the biggest financial fraud in many years. In the new context we have to restate our core values in a modern idiom. A Satyam bust need not have happened if we had taken the right message from the Enron bust eight years ago. It takes a few years to happen in India the mistakes of America, since we have globalised on American terms. This is a natural and inevitable consequence, and be sure, Satyam is not the last. Failure is inbuilt in any organisation that passes down from visionaries to operators to caretakers to undertakers as Nobel laureate economist Paul Krugman noted in the context of Detroit auto manufacturers.
The arrogant investment bankers and the new economy honchos have been bestriding this land for the past two decades. What The Economist wrote in 2002 after the American new economy bust rings so true of the present Satyam catastrophe. They subtly in the beginning, and outrageously in the end, pressed on their clients? seductive arguments for lucrative (at least for them) mergers and initial public offerings. They exploited their supposedly independent research analysts to peddle dubious shares to gullible investors. They fervently preached the gospel of the new economy and its productivity miracle. All the while they made a tidy heap for themselves even when investors lost a bundle.
The world economic crisis has not fuelled calls for wholesale rethinking in India. Booms and busts are part of the capitalist system. IMF, according to reports, tried to make a sense of what is happening after the September 2008 crash of the global financial market by analysing 122 recessions in the last fifty years from 1960 to 2007. The number of recessions in capitalist economies is rather mind-boggling. Perhaps as many booms followed them. A shortest recession lasted for six months according to this analysis, average one year and the longest two years. But this round of the recession in the west is deeper and the damage it would cause or the length it is likely to persist has not yet been evaluated. That is why many compare it with the great depression of 1929. This is the first time, housing, banking, credit, manufacturing and almost every sector of the economy is under threat. Above all the trust quotient. The great depression redefined the world economic order. This time the emphasis is on protecting the diseased order.
Every recession, according to the above analysis, forced a two per cent fall in GDP. This time it is higher. The US is talking of a five per cent decline in its GDP. India is already talking of a fall of at least three per cent, though it is still safe and growing. Like Satyam, the DDA authorities proved notorious. It shattered investor trust. There is again no accountability. The Satyam promotors would have earned a 24-year jail term in the US. The DDA scam is under the CBI scanner. But all will go scot-free.
It is saddening that the DDA house allotment draw has opened a Pandora'sbox. There is huge demand?one estimate is 30 million?for affordable houses in the country. It could have been a big growth engine in the rural and semi-urban clusters. There were five lakh applicants for the 5000 houses on offer in the DDA auction. This had demonstrated the affordability of the Indian consumer to invest in long gestation assets. The scandal has taken away the shine and it will erode the credibility, if not, also delay future housing plans in other cities.
Scandal is inbuilt in the capitalist system. In 2002 the US was rocked by a spate of new economy scams. Enron, WorldCom, Global Crossing, Tyco and the fall of a string of lesser companies pointed to the ills of personal greed, lousy accounts and inadequate surveillance. It further established the connivance of auditors, politicians and advocates in protecting the spivs. The Enron link led up to the White House. Investors, that is ordinary citizens, have to be clear about one fact of life in globalisation: The capital markets are fundamentally biased against their interests. That is why often there is talk about loss of trust. The banks refusing to lend to other banks. Sentiment is everything in stock market, bailout not corporates but confidence, that is everything in financial transaction. These home truths are being repeated ad nauseam.
The banks are not sure of their own balance-sheet. Ever-rising share prices encouraged companies to stuff their bosses? pockets with cash and stock options. Corporate India dived headlong into a new wave of mergers, expansions, takeovers and lavish lifestyle often taking the political class, bureaucracy and media under its protective perch. This is classically demonstrated in the Satyam case.
This neo-capitalist style often created odds making the companies heavily indebted. The media glorification, corporate hero worship and the nirvana of new economy swarmed investors into the vortex of farcical business plans which had little or no profit potential. The media, particularly the ones specialising in business and technology, financial chat shows on television played their own dishonourable part in helping to inflate the bubble.
When India'spoliticians talk of the irreversibility of the reform process they are only underlining the political consensus on capitalism. Capitalism survives when socialism failed not because it is infallible but because it recognises human genius and operates on a bigger canvas. Every economic system has undergone changes from conceptualisation to operation. Socialism is dictatorial, secretive, intimidating, interfering and the wealth becomes the monopoly of the politician and the corrupt bureaucracy. So we rejected it.
Capitalism is as George W Bush keeps on repeating the most creative, enterprising and productive system ever devised. It is more democratic, liberal in sharing the wealth and encouraging for private initiative. Its canvas spreads across politician, bureaucracy, corporate, media and the well-off. So it creates a larger vested interest. Above all it releases the beastly energy in man. Its retributive justice is cruel when big bad criminal indulgence is exposed. In Socialism violent regime change is the only option.
India can and should reject both because both revolt against our native genius. We cannot afford a system that bothers only about the top 300 million of the 1200 million population. And this is the challenge before the country'snationalist thinkers.
(The views expressed in this column are personal. The writer can be contacted at [email protected])