24 May 2007 ~ 0 Comments

Crony capitalism? It’s in our DNA


Crony capitalism? It’s in our DNA THE PRIME MINISTER HAS HIT OUT AGAINST THE POWERFUL MOVING ECONOMIC LEVERS TO BENEFIT THEMSELVES; BUT WHO IS GOING TO STRAIGHTEN THINGS? DILIP CHERIAN We have to blame Prime Minister Manmohan Singh for starting this. First, he created a frisson of concern in March. Addressing the Confederation of Indian Industry (CII), he asked in his keynote address whether India was encouraging crony capitalism. At the time it seemed to be a rhetorical question since he immediately answered by expressing his confidence that Indian enterprise would “compete and win in competitive markets…” thereby quickly soothing nerves and feathers. But as they say, once could be an accident but, in the case of prime ministerial pronouncements, a second time is definitely either by design or enemy action. After all, puerile political rhetoric is rarely repetition-worthy. But when Manmohan Singh’s spin doctors chose to come back to the same theme in May, in yet another speech, he definitely was sending out a categorical new message. For Singh to worry aloud, “Is this a necessary but transient phase in the development of modern capitalism? Are we doing enough to protect consumers and small businesses from the consequences of crony capitalism?” is distinctly attention-worthy. The big question, of course, is whom he is targeting. Are persistent barbs a harbinger of things to come? Is he indicating victims or proposing prospects for the long-awaited significant Cabinet reshuffle that is the subject of buzz in the Capital at the moment? Or, is he hinting at some dramatic new policy promulgation that’s now politically possible? Who exactly is hurting consumers is the big question of the moment. Unless of course, like several other initiatives of the UPA government, this one too sinks like a stone without a trace, with nary a bubble rising to the surface. Consider this as an example to watch for the future. To some, the fact that Enron has not yet been bailed out is testimony to the absence of crony capitalism in this government. I have a different interpretation: wait and watch for what happens next, before you either forget or whitewash that deal-in-waiting. Things are going to unravel once more, and those in the know will only then be able to figure out the pattern of happy coincidences. A wily administration, thanks to a lack of public interest in the matter in recent times, refuses as yet to disclose information that would eventually show the role of corporate interests in setting up the new parameters of energy policy, pricing and the principles involved in the disposal of huge assets and liabilities that are currently in the public domain. In a society that seems loaded rather heavily with the DNA of feudalism, you don’t have to scratch too deep to unearth a mother lode of crony capitalism. India’s economic history is replete with the stuff. In feudal India, this feature would have appeared normal and acceptable, given the structure of those times. Nobody knew any better. Certainly, nobody expected any better either. Through most of our long and colourful colonial history, the existence and the flourishing of crony capitalism was seen merely as an extension of the process of colonial subjugation. The masters, foreign as they were, were expected to find appropriate numbers of toady merchants willing to barter their pride. Fortunes awaited those willing to succumb and ignore the opprobrium that may have come with the trade-off. Then came Independence, accompanied by democracy. The early decades of independence, overlaid with the heavy hand of socialism, contain episodes that reveal how our basic genetic patterns always played rather close to the surface. A veneer of State dominance that was called the License Raj generally ensured the suffocation of the spirit of enterprise in most places. The indomitable ones were considered natural success stories. Very often, ancestral business bloodlines were brandished to disguise the most repugnant revelations of cronyism. Dormant for a while and yet eventually dominant, that’s the character of DNA. The most interesting episode of crony capitalism in recent times is about to blow up in our faces. It involves an extremely high profile deal involving a commodity company and three other large capitalists who all have cronies tucked away in high places. In what was an inexplicable and rather rare turnaround of freshly minted fiscal policy, export duties on this high margin commodity were changed dramatically between the announcement on budget day and the Bill’s final passing. In the meantime, a certain large corporation owned substantially abroad, changed hands. The eventual victor came out of nowhere and trounced the other two enthusiasts, who are not exactly lightweights. That too at a price which still has the markets shaking their heads in puzzlement. Who lost, who gained, and why victory went to that particular player is all part of the jigsaw puzzle that is the face of crony capitalism at its rampant best. As is inevitable in India, communists, socialists and hard-to-find-or-define capitalists have all been at odds over assigning blame to others for the rise of crony capitalism. Communists believe it is capitalism that is the basic problem. Of course, when the Salem group comes along and seduces West Bengal, it’s immediately described as a fast-track partner in rapid development. Socialists believe that crony capitalism is the inevitable result of unfettered capitalism. They believe that people who are in power look to stay in power, and the only way to do this is by creating networks between government and industry. Corruption and cronyism are seen as the byproducts of necessity rather than symptoms of a deeper malaise. On the other hand, those difficult-to-define capitalists believe that crony capitalism arises from the overarching need of socialist governments to control the State. This requires businesses to operate closely with the government to achieve the greatest success. And when they do, voila, it’s cronyism. Now that Manmohan Singh has let the genie out of the bottle, does it mean that a serious attempt is about to be made to curb the problem? That the dangers to even the new Indian economy have been finally realised? Was there a deep-seated cronyism in the massive rash of demolitions that took place in the capital recently? While citizens and some elitist Residents’ Welfare Associations cheered the upholding of the law of the land, those in the know merely sniggered. At that time there was a persistent buzz that huge business and developer interests were behind the aggressive intervention of the highest court. Dismissed at the time, the doubts have returned through revelations of a shocking sequence of events that started out as just one instance of judicial malfeasance on the part of the highest court in the land. Could this be pointing to chronic judicial crony- ism, one wealthy enough to be dubbed capitalist? If not, why has nobody dared to raise the issue? Is it because of cronyism in the ranks of the judiciary? Fundamental to the logic of crony capitalism is an asymmetric access to information and control over the levers that determine policy. Lack of transparency in policy-making is something the UPA has promised to address. There is, however, another aspect to this problem that is more deeply rooted, and thus more difficult to root out: the possible cultural genesis of crony capitalism. This phenomenon is consistent with, and reinforced by, aspects intrinsic to both South Asian and Islamic cultures. What these cultures have in common are traditions of hospitality towards strangers and guests. But the most overarching societal norm expects a firm line to be drawn between insiders and outsiders. This creates room for the DNA of feudalism to work. And with politics, insiders change as frequently as the outsiders. Now that Manmohan Singh has let the genie out of the bottle, can we expect further follow-up utterances or actions? Did his outing of the genie mean it has now been realised that crony capitalism is dangerously undermining even the new Indian economy? Is it an indication that a serious attempt is about to be made to curb the problem? Nobody seems to be articulating the problem except for a seemingly rabid bunch of Naxalites battling away in the faraway forests of middle India. They may not quite threaten the Centre, but everybody now recognizes that unchecked crony capitalism could gnaw away at the foundations of the country’s new economy like a cancerous growth. Maybe that’s what cronyism is: an incurable disease that’s a debilitating but integral part of the body politic. And let’s not forget that’s what DNA is all about. Cherian is consulting partner at Perfect Relations, New Delhi

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