This series is on economic ideas of India and for India. This article is influenced by my reading of Made
in America by Sam Walton the owner of the Wal-Mart, the world’s Fortune
No.1 Company, and my reading of Small is Beautiful by E Schumacher, a
very thought provoking book on sustainable economics.
Labor Oriented Economy is purely Gandhian economy which is practiced from ancient India. It is purely an Idea of India. It is people centric & not productivity centric. It is based on providing livelihood. The byproduct of this industry are: people’s harmony, need based consumption, equity of wealth, dignity of labor, sustainable development & production, regeneration of the raw materials, environmental harmony, art & cultural participation & appreciation, local art & artisan development, craftsman development and encouragement, local market etc., The world order created by this type of economy is mainly: Cooperative Movement & Cottage Industry. These 2 are discussed in detail later in the next article.
Capital Intensive Economy is a classic Western Idea for India.
Capital Intensive Economy means, the industry & economy centered on the Investment,
Productivity, Quantity etc. It is simply driven on what is the return on
investment. Time is of essence. Money is of essence. Industry has to produce maximum
output in minimum time & effort. A by-product of this is excessive mechanization.
Machines start replacing humans for quality and quantity production hence
reducing labor requirement pushing up unemployment & agitation. Another
byproduct is over production which in turn pushes for over consumption
resulting in the monstrous “Consumerism”. Where one can live with 3 pairs of
socks is enticed to buy 6 pairs for 3 pairs free creating a demand for 9 pairs
which is not really the demand in a normal market. As one market saturates,
companies are driven to find newer markets for their products. So this results
in 2 major “World Order” s: Free Market Economy & Large Conglomerates.
These 2 are discussed in detail in the sections below.
But before delving into those topics, let’s look at
what is capital and where does it come from?
Capital is “Tomorrow’s
Money = Loan”.
Capital is very cheap. World’s big banks are ready to
lend money at less than 1% interest. They need credit worthiness. If a city commits
to complete a fly over in 25 months and meets the timeline, that’s it, it is
credit worthy. Then all banks queue up with the city to complete more flyovers,
metro etc., then the city, country, states will get into debt cycle infinitely.
The USA for example is the biggest debtor. (Data: http://www.mdleasing.com/nationdebt.htm
). Who cares? The country also runs on debt and the same mentality is
encouraged for the public also. Everyone in US runs on debt only. If anyone is
debt free then he is fool. So they go for higher commitment, higher
consumption & live on credit. There is no ‘savings for tomorrow’ mentality.
Living on ‘tomorrow’s money’ is considered wise in developed countries.
So the consumer becomes rich, and producer becomes
poor!! Horribly convoluted idea. Isnt it? Similarly foreign exchange, stocks, bonds, is
all very complex webs of deceits. All producing countries in east &
tropical are rich in natural resources, minerals, plants, animals etc., people
are also pious, intelligent, well behaved and hard working. But they are Lilliput
in front of the monstrous consuming western countries. So what is the root
cause? I would vehemently argue the LOAN formulas are the root of this evil
design. All sorts of mathematical formula towards, today’s economic confusion are
well rewarded by Nobel Prize. The Nobel Prize in Economics is only reserved
for creation of wealth for the western nations.
When British came to India, they wanted to trade. They wanted to buy spices, diamond, emerald etc., But with what? They had to trade with something. Bullion in either Gold or Silver was standard trading means. But India already had plenty of it & didn't get excited. So they started with “we pay later”. They stocked and shipped items. They cut deals with local kings to build forts around ports of their exit. One important thing they did was fortification of ports and developing security of it using ammunition, guns, canons etc. Slowly they hit upon helping one feudal king to fight the other with arms & ammunition. And the rest is history.
Coming back to the living on LOAN. In the ancient
India, there was a visionary Philosopher called Caravaka. He proposed a system
of Materialistic philosophy called Lokayata espousing religious indifference. Because our religion basically espouses, minimal living ideals
like: vairagya (detachment), thyaga (Renunciation), seva (Service of elders
& needy). His materialistic philosophy rubbished these ideals and espoused,
take LOAN and live a life of luxury. His philosophy came about around 5th-6th
cent BC. At which time, Buddhism was at peak which also espoused ‘desire is the
cause of misery’. Mauryan kingdom was at helm. Most kingdoms adopted Kautilya’s
Arthashastra to run their economy. There was very high opposition to Lokayata.
No kings adopted Lokayata. But still it seems to have survived long in India in
pockets. There are records of this philosophy debated in Akbar’s philosophy
meets also. During Vijayanagara kingdom a great philosopher Sayana Madhavacharya,
and Advaita vedanthi, wrote a book called ‘Sarvadarshanasangraha’. In that book
he details the merits of Lokayata in the beginning and takes up thread by
thread to demerit and demolish the ideals. It seems to have laid the final nail
on that philosophy then.
But alas! It is now raising its ugly head through
western influence on India.
1.0 Free Market
Economy:
This is one of the most embraced ideas around the
world in the recent years. This is how the developed countries became
developed. So this is vehemently thrust upon the developing countries to bring
them up. India opening the flood gates since 1990’s though a series of trade
liberalization legislations. It is reeling under its pressure now. It is also
an irreversible phenomenon. So we cannot go back to the closed economy regime. Also
in the closed economy, the Indian companies become laggards and compromise on
the innovation, technological advancement, agility and global competitiveness.
For example, Bajaj scooters were notorious for their bend & kick, difficult
hand gears etc., But same company today is producing some of the best
indigenous bikes and continuously innovating. Similarly, ITI phones, Ambassador
cars, Televista TVs, Mafatlal suitings etc., Either they are bought over, or
revived.
What is free market economy? Basically it is to make India a free market for the world. Removal
of import duty on all items. So that makes all foreign products to compete with
local products on equal footing. So immediately in the aftermath of the
liberalization, in the 90’s, many local companies tumbled big time. Like
Kirloskar, Videocon, Bajaj, Godrej, many units of Tatas like Tata Steel, etc., Because
they couldn’t compete with the sudden surge of foreign brands vying to capture
the Indian market. But most of our companies have revived big time since.
Because once India signed Free Trade Agreement with other
countries, our companies get free access to their markets. And hence the global
competition has pushed our companies on the world stage. Today, for example,
Tatas are a big conglomerate in UK!! J Spate of
acquisitions there like Tetley Tea, Jaguar Landrover, Corus steel etc., has
pushed it well on the world stage. Tables are turning!
1.1 Consumerism Monster
But the bad thing is free market economy has become a
monster. It feeds only the greedy. It drives a very large section of people
homeless, slum dwellers. It creates large scale migration, monotonous labors, long
working hours, loss of dignity. It creates very large companies, large
conglomerates, which can arm twist the governments in their favor.
Lets take American example. As a country of 250Million
people it consumes about 25 clothes per person per year. The car population is
about 1 per person. These are just 2 examples to give an idea. The
self-indulgence life style is high but its consequences are unknown to them. They
think they are leading normal life. For example, the high competition of
apparel export creates unhygienic, high risk working environments in
Bangladesh, China, and India. The producing workers don’t have enough clothes
for themselves. But who does it matter? Recently in Bangladesh, a very large
clothes manufacturing company building supplying to Wal-Mart collapsed killing
thousands of people. America doesn’t ask for flouting security norms, hygiene
norms etc., But it simply demands more, and does volume business. It goes to
anyone who gives them volume discount. If the company supplying it, is squeezing
humans and country is supporting it, it doesn’t care. We can see the same
phenomenon of continuous squeeze in Software services too! In 90’s it was a
sunrise industry, so the labor dignity was enviously high in that industry. Today
it is not the case.
When it comes car production, it requires so much of
minerals extraction, environment degradation, people displacement. For car
running, it requires again all the fuel extraction, river basins impact, etc.,
So all those associated bad things are outsourced out of the country. Hence the
developed country’s citizen doesn’t know & hence doesn’t care how he lives.
He doesn’t even realize he is leading a self-indulgence life which has a spiral
impact on someone else in some other country driving him to abject poverty,
depriving his access to clear air, water, food.
Once the developed countries became saturated market,
they are making developing countries as their free market. And India’s urban
population is best field to play. We are playing well into their hands. We have
created a similar self-indulgent society in the urban middleclass in India. And
that society creates enormous demand on the earth’s natural resources by their
insatiable consumerist lifestyle. It starts a spiral effect exploiting the
earth and its resources, impoverishing the people and regions.
References:
2.0 Large Companies,
Conglomerates:
This is a very typical Idea of the western world that
India has greatly embraced. But it is quite unfortunate for the country. It
doesn’t create equitable wealth. It concentrates ugly, humongous wealth with
few individuals.
There is a very wide deep rooted belief that large
conglomerates are the saviors of India’s economy; Following are some of the
myths of the large conglomerates:
a. Otherwise people would die of unemployment?
2. A large company is large tax payer and helps running economy
3. Large company is environment sensitive, responsible
4. They can invest on R&D and future of the world innovations
2.1 Large Tax Payment Myth:
Lets say a trader opens a shop in a corner in a city.
He does business for couple of years, and he does well. He balances his
accounts, pays salary for his employees & himself, and makes profit. On the
profit, he pays tax. The post-tax profit he either ploughs back into the
business or takes home as personal money.
He then looks at the prospect of opening another shop.
He takes loan from a bank. Bank allows loan based on his business & balance
of accounts. The loan is basically tomorrow’s money and bank
takes the risk on his ability to generate that tomorrow’s money.
He does well & business grows well. His risk
taking appetite gets him to open few more such shops, all on loans. The loan
keeps increasing, but the risk is shifted to the bank & he keeps increasing
his asset building. For accounting purpose the shops are liabilities and not
assets. But for him it is assets. So the loan also helps contain the taxes
to bare minimum. And that also encourages the entrepreneur to keep growing
his business across cities, counties, states, countries, continents and on and
on.
So the large tax payment myth is busted. If he were to
run a small business, after the loan clearance, he would pay taxes on one shop & continue business for
ever. And similarly 100 such shops by different individual owners would do
business paying taxes from each of them. Now they are all bulldozed by one
large player who doesn’t pay tax as he is on loan always!
2.2 Social and Environment Responsibility Myth
Back to the story. His ambition to expand further is
limited by lot of accounting, balancing loans and that revenue is trickling
branch by branch. So he intends to go public! This public trading is another
big scam that the western world has created. When he is going public, the
market analyzes his business & prospects and gives a verdict that he will
grow by 20 times in next 5 years! That’s it. If his revenues are $1Mil for annum
today, the market evaluates his company as $20Mil. So he rises $20M overnight
that too from the public! So the entire risk of the business is shifted to the
public! If “he fails”, the “public lose money”!! But do the public see it that
way. No it is a crowd mentality; everyone is upbeat as long as it lasts.
It lasts as long as that business idea keeps
generating revenue as per market expectations. In this case as long as he keeps
opening shops and generating revenue. That’s why he goes across county, country,
continent, world. Apply same logic for Car manufacturers, Earth movers,
Oil&Gas extractors, Airplane manufacturers, Software, Hardware product
developers, services etc.,. If they are public companies, they have to keep
growing. Any slowdown they go down in history. All of these industries (Yes
even software, hardware also) require enormous amount of earth excavation,
hills, forest, and rivers destruction. Tribals in hills, forests, rural
population to become victims of displacement.
The government is so helpless in the tax collection
from big companies, that they have given up, and pushing “mandatory CSR spend” by large corporates now. CSR =
Corporate Social Responsibility. It is another very big scam. Corporate buys a
million, 20Rs Notebook, and hope to distribute it to poor students. It calls
for corporate individuals to donate “time” for the distribution. The corporate
while encouraging the rat race doesn’t incentivize CSR activities. I have seen
even good hearted people getting frustrated and giving up. So where do those
note books end up? It is up to your wild imagination. No level of CSR can match
government, not even, Azim premji’s education foundation. I’m not undermining
that great person’s good heart. It is greatly laudable. But private entities
are private. One quarter results go bad, they pull the plug out.
References:
http://indianexpress.com/article/business/economy/mandatory-2-csr-spend-set-to-kick-in-from-april-1/
2.3 Large Employment generation Myth:
The large conglomerate of course generates a lot of
employment. Because it is large. But it is at the cost of killing SMB s (Small
& Medium Business). And in comparison of those SMB s would otherwise have
created a lot more jobs, lot more independent businesses. Take for example
Apollo pharmacy chain or any other medical shop chains. You won’t get any
medicine there. But only get toothpaste, soaps, cosmetics etc., and some cough
syrup/ crocin. Why? Because they are a profit making company & not a public
service company. They have to have optimized storage, inventory, maximum goods
transportation in minimum trips, maximum sales in a day etc., So they become
only FMCG company and not medicine shop. So their service to the society is
also bad.
If it is a group of multi owned medical shops, then
they need to serve their customer’s needs in order to make business. Because
they have only one shop to survive on & few customers in their area. So
they work with multiple suppliers. So it creates an environment for specialized
suppliers in each area. Some are general medicine suppliers, some are cold
storage based, etc., Similarly inventory owners in each area and their network.
So each are independent business owners. SMBs. So they
hold their head high with dignity and work hard, under nobody’s compulsion but
their own desire to do well and serve better. They create large employment,
independent small businesses.
So why not everyone become big tycoons if it is
so easy? By just passing the risks from himself to bank and then to the public.
A formal education ends with certification or
graduation etc., A high point of graduation is landing a high paying job in a big
company. At that point in time nothing beats that feeling. And normal
population once financially independent, doesn’t look for risk taking in life.
Entrepreneurs are rare in population, probably 1 in 1000. They have such
abundance of energy, they don’t wait for formal graduation, certification etc.,
they jump out and start out on their gut feel. Again in that most end up being
SMBs. But really perseverant, brave, intelligent are those who break out of the
league. It takes lot of courage. Once they become big, then it is not the
personal greed but the whole system including government, private competition,
employees, doesn’t let the corporate settle down at a certain level at all. It has to grow, big, large and enormous.
Next Series 2.2: I wanted to cover the topics of
Labour Oriented Economy in this series itself. But this itself became so big,
that I have to carve out another article to complete the Economic Ideas topic.
Kindly put your comments and suggestions to move
forward.
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