Emergic: Rajesh Jain's Blog

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TECH TALK: PM to CII: Fair and Just Profit

June 13th, 2007 · No Comments

Continuing with Atanu Dey’s perspective of the speech that the Indian Prime Minister should have made to the CII last month:

Ladies and gentlemen, poverty is a fact in India. The vast majority of Indians over 80 percent actually live on less than Rs 100 a day. They are poor and have been for decades. The socialistic policies followed since independence did not allow for rapid economic growth. Inward-looking autarkic policies isolated India from the economic growth that propelled the economies of East Asia. Only after the mid-80s was the country granted a very small degree of economic freedom, and that too was in response to a severe balance of payment crisis facing the nation.

By the time India gained political independence, it was a very poor country, impoverished by the dictates of colonialism. But why did prosperity elude India even after independence? Could it be that we the leaders of independent India failed to provide the economic rules that promote and sustain economic growth? A dispassionate review of the facts force us to answer that question in the affirmative.

A lot of self-congratulatory chest thumping can be heard from some quarters of the government for having liberalized the economy to some limited extent. But that is like a man claiming that he is a wonderful husband because he has reduced the severity of the daily beatings of his wife. Liberalization of the economy has given us some gains but certainly not enough liberalization has been done. What the government has to do is to reduce the interference of the government in the economy so that the economy can be truly free to grow.

Big governments that control every aspect of the economy are harmful for social welfare for an obvious reason: it creates an incentive for individuals and corporations to seek profit not legitimately by providing goods and services in a competitive marketplace, but by bribing the politically powerful and thus influencing policy to gain undue advantage in the marketplace for making monopoly profits. Big governments force people to engage in what Jagdish Bhagwati, an illustrious son of our soil and one of the most celebrated economists in the world, calls Directly Unproductive Profit-seeking or DUP activities.

In this discussion on Inclusive Growth the Challenge for Corporations I mention the failures of the government because the government is the greatest challenge that corporations face in what they are supposed to do, namely, produce goods and services so that the economy grows. We must remember that inclusive growth is predicated on growth.

Ladies and gentlemen, every segment of any modern large complex economy has distinct roles to play. It can be considered as a higher-level division of labor. Failure of even one segment to properly discharge its duties and responsibilities has repercussions for the whole economy. The governments duty is to create a society that is free, fair, equitable, just and peaceful. Unfortunately, we are well aware that we have not achieved the ideal society and to a very large extent it is the failure of our government. Although it is fashionable in certain circles to lay the ills of our society on corporate doorsteps, I will not do so because it would be clearly hypocritical of me. Furthermore, it would be pointless to expect corporations to address those social ills which it has neither created nor has any particular expertise in addressing.

So what is the basic responsibility of corporations? Stated most simply it is this: To make a profit. Ours is a deep and ancient culture. Our cultural legacy not only includes profound spiritual values but also ethical business values expressed compactly in the dictum of Shubh Labh or Fair and just Profit. When you make a profit honestly supplying goods and services to society, it implies that society gains since the benefits (represented by the price paid) exceed the costs incurred to produce the good or service precisely by the amount of profit. Making that fair and just profit is your corporate social responsibility and nothing else.

I am here not to ask what corporations can do for the government (or even for the society at large) but rather to promise what the government should do to help corporations. Lets examine that next.


Tags: Tech Talk

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