Dr Bharat Jhunjhunwala
CAPITALISM has proven to be best among the many social systems that mankind has experimented with including those of tribal community, monarchy, feudalism and communism. It has brought unprecedented prosperity and increase in standards of living of people of the world. This has been achieved mainly due to competition in a free market. Every individual is free to experiment with new products, processes and markets. The farm hand does not have to seek consent of the landlord to try new varieties of hybrid seeds.
The success of one enterprising farmer is soon replicated by thousands of others. Soon the cost of production comes down and quality of goods in the market improves. This leads to better standard of living for all the people.
Talented people have opportunities to do new things. Bill Gates was able to create the Windows software and usher in an all-encompassing revolution in the global economy because he did not have to seek consent of the Tribal Chief, the Feudal Lord or the Communist Party Boss to undertake such activity.
The Government is expected to interfere in the working of the market in favour of competition in a true capitalist system. It must prevent cartels and promote competition. Economic Advisor to the Finance Ministry Raghuram Rajan has shown that the growth of civil aviation industry in the United States came because the Government intervened proactively in favour of smaller players. Result was that the mighty PanAm came to its knees but air fares declined and new age of cheap air travel was ushered in. The Government should not intervene in favour of a particular person or group. Rules should be applied equally to all. The permission to import a particular item or to grow a particular type of hybrid seed or to buy spectrum or coal blocks should be available equally to all players. This ensures that the best among them wins and, in the process, the economy is not held up by inefficiencies of a particular group.
Crony capitalism arises when the government begins to intervene in favour of a particular group such as the allotment of land, spectrum or coal blocks without giving others an equal chance. This leads to inefficient use of these resources by the favoured party. BSNL is a case in point. Their shoddy telephone services led to a huge loss to the economy. I was once running a paper factory. I had to send a peon 200 km to fetch reply to a query because phone calls would simply not get through. It would cost Rs 1,000 to do a job that could be done in a few rupees. Such wastage takes place because of inefficient production is endemic to crony capitalist economy.
Government intervention in favour of particular persons in appointments produces a similar result. Every applicant gets an equal opportunity in true capitalist system. In contrast, appointments are made in favour of particular persons in a crony capitalist system. For example, Sanjay Gandhi determined certain policies during yesteryears simply because of his position—with disastrous results for the country as well as his party. There is an interesting event described in the Ramayana. King Bharata undertakes certain major construction works after Rama leaves for the forests. These, it seems, prove to be disastrous. Ayodhya soon became empty. Such ill-fated policies are implemented because equal opportunity is not given to talented persons. Favouritism in appointments has an especially negative effect on human capital. Students focus more on ‘carrying the bag’ of the teacher instead of undertaking their studies. Knowledge is not created and the economy loses potential gains that could have come from their education.
Worst form of crony capitalism comes to the fore when state power is used to smother those exposing cronyism. Indira Gandhi banned the RSS, appointed the Kudal Commission to launch a witchhunt against the Gandhians and launched many cases against the Express Group. In recent times the actions against Balkrishan of the Ramdev movement for allegedly fudging papers; and against Kiran Bedi for misuse of travel funds smack of cronyism. There would be thousands of such cases. It would certainly be appropriate to investigate all such cases. But to single out specific instances is designed to stifle criticism. The result of such misuse of state power is that cronyism reigns unrestricted.
Logical result of crony capitalism is reduction in the growth rate. Inefficient production by favoured parties continues unabated. India wasted billions by using fuel-inefficient Ambassador and Premier cars for more than two decades after fuel-efficient technologies were available because the government created barriers to the entry of new players. Same was the case with the telephone services under BSNL. Such inefficiencies lead to increased cost of production and bring down the growth rate.
Another consequence is that growth gets limited to a crony sector. One can see few persons moving in SUVs with armed guards these days. They have no shortage of money while the common man cannot; often, even afford a bicycle. The crony sector captures the natural resources and money capital leaving the rest to languish.
Crony capitalism also leads to migration of the talented persons from the country. Laboratory facilities and consultancy opportunities are apportioned on the basis of closeness to the powers-that-be. The talented migrate as they are unable to find suitable environment at home. The strength of the United States lies in substantial measure in attracting talented persons. They create new technologies for American companies who export these at monopolistic prices to suck out wealth from India and other developing countries.
Let us not forget that English cloth was able to conquer the Indian market because our production was inefficient. Our weavers produced highest quality of silk and brocades for the kings and queens but the cost of common man’s cloth was very high. There was no opportunity for the technicians and businessmen to lift coal from mines by steam engines and to run power looms. This led to our economy being pushed on the defensive.
Fortunately such crony capitalism does not last long. The family of President Ben Ali of Tunisia had captured all the major business opportunities in that country such as telecom and real estate development. It is here that the Arab Spring started. Indian businessmen had supported Mahatma Gandhi against the British because they found that opportunities were captured by the cronies of the English Government.
Cronyism arises because the division between businessman and politician is blurred. Separation of the two groups leads to friction between them and they become a check on each other. A tyrant is thrown out by the businessmen just as Indian businessmen helped the Congress throw out the British. On the other hand, erring businessmen are shown the door as happened with Satyam Computers. But when the same person does business as well as politics then he spontaneously starts bending the rules in his own favour.
This was the principle behind the Varna system. The Kshatriyas and Vaisyas were supposed to carry on their own work. The same person was not allowed to do both functions. They became a check on the other. We should think ahead. It seems to me that we should ask every adult in the country to choose his Varna and thereafter he should be restricted to undertake activities of his Varna only. This would prevent politicians from engaging in business and businessmen from engaging in politics. That would help avoid cronyism, maintain high growth rates and the common man will have an opportunity to grow and prosper in this great country.
(The writer is a Gandhian thinker and veteran columnist on economic affairs).