Flights Of Corporate Fantasy - The State and The Free Market

September 25, 2006
C R Sridhar

Those who have no share in the good fortunes of the mighty often have a share in their misfortunes. - Bertolt Brecht, The Caucasian Chalk Circle.

Drawing inspiration from the book The Commanding Heights, written by the authors Daniel Yergin and Joseph Stanislaw, Mr Nanden Nilekani, CEO, President and Managing Director of Infosys Technologies, in his article, When the State took Flight [The New Indian Express-10-02-2006] put forth the view that the balance has shifted from dominant state control to more reliance on markets for economic growth, job creation and capital allocation, with the state being the arbiter and setting the rules for the market, and provider and last resort for societal needs.

Mr. Nilekani supports his argument that in the epic struggle between the state and the free market the scales were tipped in favour of the free market by the collapse of Labour strikes during the Reagan and Thatcher era and the recent airport strike in India.

It is the favourite pasttime of Indian Corporate honchos to extol the virtues of free market, privatization and competition. Susan George sums up the position of the Corporate elite admirably: 'The idea that the market should be allowed to make major social and political decisions; the idea that the state should voluntarily reduce its role in the economy, or that corporations should be given total freedom, that trade unions should be curbed and citizens given much less rather than more social protection- such ideas were utterly foreign to the spirit of the time.' Central to the notion of the all wise encompassing market is competition, that strange animal spirit which separates the sheep from the goats and the men from the boys. Thus it is de rigueur for corporatocracy to pay lip service to the notion of competition. In actual practice it robustly rejects it. The intellectual mentor for the free market fetishists is not Adam Smith but the wise Chinese philosopher Lao Tzu who said 'Above all, do not compete.' Large corporate entities after the initial ferocious display of competition subside into price fixing and cartels. They become adept in playing the game of Alliance Capitalism. [1]

The brutal downsizing of the public sector is another ironclad dogma of free market ideologues. The public sector is viewed as inefficient on the ground that it seldom competes for profit or market share. The question arises, why did the capitalist countries, especially in Europe, have public services to begin with, and why many still do? According to Susan George the answer to the question is a pretty straightforward one: nearly all public services are natural monopolies. A natural monopoly exists when the minimum size to guarantee maximum economic efficiency is equal to the actual size of the market. In simple words, a public service entity has to be a certain size to realize economies of scale and thus provide the best possible service at the lowest possible cost to the consumer. Even today the best steel mills are run by Korean and Taiwanese governments.

What happens when public service monopolies are privatized? The normal reaction of private sector owners is to impose monopoly prices on the public while richly remunerating themselves. Recent examples only confirm this gloomy trend. For instance, In January 2000 Bechtel (a US Corporation) through its majority owned subsidiary Aguas del Tunari took over the management of water resources in Bolivia's third largest city Cochabamba and the result was dramatic. The rates for supply of water was hiked by 200% and this led to wide spread water riots and Bechtel had to close down its operations in that country. The privatization of Delhi power supply has not been exactly a success story. Again the hiking of tariff rates led to civil disobedience among Delhi's consumers. There were allegations that the privatization was not above board. In the Public Accounts Committee report it was alleged that all the guidelines for privatization were flouted and that there were mala fide intention on the part of certain officials to render the public undertaking a loss-making unit. Service in the privatized industries is often disastrous and the case study is the British Rail, which has recorded more accidents and lower safety standards after its privatisation. As a result majority of the British public favoured its re-nationalisation.

The biased media coverage of the airport strike suppressed the real issue at stake about privatization. While the media took great pains to highlight the inconvenience caused to the passengers, it conveniently ignored the vital issue that the government was presented with an eminently desirable plan nearly three years ago to modernize the airports. The plan was submitted by AAI (Airport Authority of India) to the cabinet. The proposal was to finance the modernization by using the huge cash reserves of AAI, (one of the most successful public sector with cash reserves of Rs3000/ crores and zero debt,) as well as borrowed funds. Both the NDA and UPA governments did not implement the plan causing congestion and lack of facilities in the airports. The workers struck as they accused the government of deliberately running down the airport by not acting on the plan with the intention of handing over the airport to private hands. There was also the issue of a natural monopoly falling into private hands and the danger of monopoly prices being charged. A whiff of scandal arose with respect to the bidding process. There were accusations that the bids were manipulated in favour of interested parties. An expert appointed by the government, Mr Sreedheran, held that the selection process was irregular. Thus the lessons to be learned from the strike was not that the tenured workers were protecting their jobs but it also served to debate the desirability to privatize a strategic asset removing it from national control. Thus the thrust of privatization has nothing to do with efficiency nor improved services as claimed by corporate elites but simply a device to transfer wealth from the public purse to private hands. [2]

The relentless march towards the Global Free Market is a far-reaching social engineering project, which has its basis in Utopia. Ironically enough, free markets, in the words of John Gray, are the product of strong governments. 'They are creatures of artifice, design and political coercion.' Free markets are inherently unstable and its social costs cannot be justified in any democratic society. [3] As the great scholar Karl Polanyi prophetically observed in his book The Great Transformation, 'To allow the market mechanism to be the sole director of the fate of human beings and their natural environment, indeed, even of the amount and use of purchasing power, would result in the demolition of society.' On the issue of Trade Union busting and treating labour as mere expendable commodity, Polyani issued a caveat ' for the alleged commodity "labour power" cannot be shoved about, used indiscriminately, or even left unused, without affecting also the human individual who happens to be the bearer of this peculiar commodity.' [4]

The social costs of the self-regulated market have exceeded the wildest nightmares of Polanyi. In pre-Thatcher Britain, about one person in ten was classified as living below the poverty line. After the Thatcherite revolution, one person in four, and one child in three is officially poor. (1996 report of British Child Poverty Action). The tax reforms of Thatcher-Major also produced some chilling statistics: one per cent of the taxpayers received 29% of all the tax reduction benefits, such that a single person earning half the average salary found his or her taxes had gone up by 7%, whereas a single person earning 10 times the average salary got a reduction of 21%. The legendary trade union busting prowess of the Iron Lady produced some depressing employment statistics: By weakening the public sector the number of jobs was reduced by 2 million, a fall of 29%. The private sector absorption of the lost jobs was insignificant and the net loss was calculated to be in the region of 1.7 million. [5]

Reagan's America did not fare better. The cumulative effect of Reaganomics between 1977 and 1988 was to change the income distribution: the top 10% of American families increased their average family income by 16%, the top 5% increased by 23%, but the extremely rich 1% increased theirs by a whopping 50%. In short, if you were up the beanpole you did exceedingly well but if you were at the bottom of the pole you learnt the joy of hire and fire labour policy with declining income. As the state took flight the trend towards inequality increased in America. There was nothing mysterious about this trend. If you have economic policies that redistribute wealth to the top, where people have most of the things they need, it will go to stock market, speculation and untold paper wealth for the few. If the income were to be distributed to the bottom 80%, it would be used for consumption and generate employment. [6]

The dismantling of India's commanding heights bodes ill for our Republic which has about 52% of its population living below $1 per day. India with 17% of the world's population has less than 1.7% of the world's income. In the Human Development Index, India ranks 127 among 175 countries. Three-fourths of India's rural population and half the urban population do not get the minimum recommended calories. Unemployment has grown sharply over the years with the software services and BPO accounting for mere 0.25 of the labour force. The household saving sector has seen its savings decline with reduced interest rates and high inflation (even though we are assured by RBI that it is hovering around 4.5%). The dismantling of the Permit Raj has not brought the promised El Dorado to the masses. [7]

With the state taking flight by shedding its constitutional obligation to its people and allowing the mystique of the market to rule, it has abdicated its primary role to protect its citizens from economic insecurity. The mantra of the Reform Process glibly trotted out by the ruling elites is in effect an Orwellian term for the return to slavery. A bleak lunar landscape emerges under the hubris of free market, where labour is commodified, where the iron laws of supply, demand and return on investment reign supreme and human voices are stilled forever.

[1] Susan George- A Short History of Neo-Liberalism.
[2] Jayati Ghosh- Macroscan- Feb 8th 2006
[3] John Gray- False Dawn- Granta- page 17.
[4] Karl Polanyi- The Great Transformation- Beacon Press- page 73
[5] Susan George- A Short History of Neo-Liberalism.
[6] Ibid.
[7] Aspects of India's Economy- vol no 41, Dec 2005.

Sridhar is a Koshy's regular, a Tinto Brass fan, and a cynical Bangalorean
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Flights Of Corporate Fantasy - The State and The Free Market


Author: C R Sridhar


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September 25, 2006
01:15 PM

i couldn't find a more biased view towards anti-capitalism.. by any means are you a commi ?

coming to the article.. Please for god's sake quote things like "'The idea that the market should be allowed to make major social and political decisions; the idea that the state should voluntarily reduce its role in the economy, or that corporations should be given total freedom, that trade unions should be curbed and citizens given much less rather than more social protection- such ideas were utterly foreign to the spirit of the time."

Mostly these will be talking about either pure capitalism or pure socialism neither of which is relavant in today's world. Most of the countries take a stand in between. What we need to do is take the best in both forms and leave out the worst. when you take capitalism the best thing about it is "healthy compitetion" "economic freedom" both of which are greatly desired. The bad things are "environmental pollution" "Inequality" and "Monopoly". So the role of government should be to stand guard against these disadvantages..

Now taking the examples you provided - the Airport modernisation. You said AAI should be awarded the contract but why ? If you think they can manage it well then why can they take part in the compitetion and win the bid against private players ? Shall i tell you why ? Because it can't. Just go to any airport and see how inefficiently AAI utilises the Airports. In our country airports occupy prime land which if given a chance can be utilised in a much better way and a lot more revenue can be produced from the same asset. AAI can't do that. It has no incentive to do it while a private player can do it because he needs profit.

I couldn't help but laugh when you compared the Indian situation with Thatcherism.. Also i couldn't understand how are the last 2 para's related to Free Markets. Even in case of perfectly utopian capitalism governments role isn't just collecting taxes, then how come you are talking about government shedding its duties and bullshit like that in the Indian senario ? GOvernment should take care of Education,healthcare etc etc.. but what we question is why should it sell steel? why only it can run universities? why only it can carry small posts/parcels? why only it can run railways? produce electricity??? why-o-why?

pardon my ignorance if God told all you commies that all these are ESSENTIAL government duties..

poison pen
September 27, 2006
02:17 AM

# 1 Deepu

Wow what a ego trip. Trouble is your comment is long on hype and short on logic and facts.What is the main point raised in the author's article? Simple Deepu- No government can leave market forces to dictate social, political and economic policies. Do you know why? Because the market is unstable and sends wrong signals.

If health is dominated by private companies only a few can afford health care as it is expensive.If the state
does not provide health care to the many who are poor then they waste away. Proof? get a standard book on stats and check how much we spend on public health (less than 1% of our GDP)Which country has the best health care? Commie Cuba!

The public sector in India was built with public tax payers money as your capitalist friends did not have enough money to invest or were disinclined to invest in long gestation projects. So the Government stepped in.The result is an industrialised India able to manufacture things.

In education the IIT's got support from public funding and its students got subsidised tuition which helped the middle and lower middle class to send their sons and daughters to these institutions.Again the state stepped in.

Without state control/ pollution control laws you have corporate entities spewing pollution.Without anti-trust laws you have corporate entities screwing the consumers.

Lastly,No airport in the world is privatised as it is a strategic asset. Only certain operations within the airport could be given to private companies. The extension of this logic would be to outsource the Indian Army to GE.

Deepu- Are you a paid hack of bloated Corporate interests? If so you are doing a bad job.

Deepu buster
October 2, 2006
04:02 AM

Dear Deepu...I don't think you've quite understood what privatization is all about...Before you resort to such squalid maneuvers as name calling ...observe....(."Commie!".)...it would be better if you were aware of some home-truths

George Monbiot writing about the same issue said
. " Chandrababu Naidu, the state's chief minister, was the West's favourite Indian. Tony Blair and Bill Clinton both visited him in Hyderabad, the state capital. Time magazine named him South Asian of the Year; the governor of Illinois created a Naidu Day in his honour, and the British government and the World Bank flooded his state with money. They loved him because he did what he was told.
Naidu realised that to sustain power he must surrender it. He knew that as long as he gave the global powers what they wanted, he would receive the money and stature which count for so much in Indian politics. So instead of devising his own programme, he handed the job to the US consultancy company McKinsey.
McKinsey's scheme, "Vision 2020", is one of those documents whose summary says one thing and whose contents quite another.(1) It begins, for example, by insisting that education and healthcare must be made available to everyone. Only later do you discover that the state's hospitals and universities are to be privatised and funded by "user charges".(2) It extols small businesses but, way beyond the point at which most people stop reading, reveals that it intends to "eliminate" the laws which defend them,(3) and replace small investors, who "lack motivation", with "large corporations".(4) It claims it will "generate employment" in the countryside, and goes on to insist that over 20 million people should be thrown off the land.(5)
Put all these - and the other proposals for privatisation, deregulation and the shrinking of the state - together, and you see that McKinsey has unwittingly developed a blueprint for mass starvation. You dispossess 20 million farmers from the land just as the state is reducing the number of its employees and foreign corporations are "rationalising" the rest of the workforce, and you end up with millions without work or state support. "The State's people," McKinsey warns, "will need to be enlightened about the benefits of change."(6)

Monbiot also adds... "companies are partly responsible for causing the problems they claim to be solving. .....If the state is failing to supply enough school books, or, in sub-Saharan Africa, AIDS education programmes, it's because decades of corporate lobbying have ensured that its scope and its spending have been curtailed. As companies appear to fill the gaps they have helped to create, they can present themselves as indispensable vehicles for social provision, enabling them to argue for a further reduction in state services. Gradually, universal public provision gives way not, as Steve Hilton claims, to a new inclusive modernity, but to an old-fashioned philanthropy, in which the survival of the poor depends upon the whims of the rich.
.....As the Business in the Community website reveals, the primary purpose of these new intrusions upon the public realm is not to make the world a better place, but to raise the profile of the brand. It is a privatisation of our minds, a means of reaching those parts of our consciousness untouched by conventional advertising.
....Nike is working in schools not because its directors want to stop bullying, but because it wants children to recognise its brand as an immutable component of society, with which they will grow up and to which they will attach their identity. Asda is taking parties of schoolchildren on "Big Eat trails" around its stores not because, as it claims, it is worried that children aren't eating enough vitamins, but because it wants to implant in them the habit of shopping at Asda. Programmes ostensibly designed to encourage self-reliance are instead contrived to foster dependency and control.
All successful conquests go through three stages. First the defeated are dispossessed. Then they adopt the habits and the outlook of the conquerors. Finally, they thank their new masters for their dispossession. Corporate power has entered the third stage of conquest. And everywhere we are told how grateful we should be.
....The defeated participate in their conquest, and offer up their thanks to those who have dispossessed them. By privatisating our minds, corporate power makes enemies of ourselves......"

October 21, 2006
09:39 PM

This article should be in the politics section

October 22, 2006
12:45 PM


captured well the challenges in India today. congrats.

isn't it funny that the indian state receives more money in taxes today than some time ago and wants to 'shrink' it's engagement with the community? and seems to prefer to walk away from socially important things?

just one of the critical social spaces - health -
the state has been very reactive some times and non-active often - there seems to be no policy about health - which is an important issue even for 'capitalism' - a healthy work force!

i think we are emulating the horrible US healthcare system - which is one of the most expensive systems per capita in the world probably and delivers little!

DB, i agree with you. All the great global consulting stuff! i guess most of the folks who worked on it had no clue what India is. I had met some of the folks in the govt offices during Naidu's time! fresh from college and utterly green behind the ears - and pontificating about anything or everthing!

the people of Andhra Pradesh seem to have rejected the brand of economics - pushed by WB and the great consulting company!

how come the great global consulting company did not foresee the farmer suicides? vision 2020!

in my humble view, markets do not necessarily work the same for everybody. if we cannot create access to the poor and dispossed to the 'market economy', it does not make any sense. period.


October 23, 2006
02:41 AM

dear Balaji,

Thank you for your comments. It is a pleasure to write for people who discuss issues logically and initiate well informed debates about subjects.


October 23, 2006
02:34 PM

My pleasure CRS.

unfortunately the IT whizkids have a limited world view. that includes many of the celebrated kinds.

while i appreciate and value their contributions to indian economy - in making the indian flag fly high in the global tech sweepstakes - i have a problem when they prescribe - World Bank thoughts in a trite fashion.

i can only say - 'pardon him lord he know not'!

what wd nandan say about farmers committing suicides? what about the suicides of weavers?

i guess everyone wd tend to believe that 'privatization' solves all the problems.

wd like to challenge them both at macro and micro level.

and at the same time not taking away the contri butions of Nilekanis, Murthys, Ramalinga Rajus, and Ramdorais among others.

corporates have their strengths. their credibility. A Ramalinga Raju cd contribute a few millions of dollars to initiate a world class 911 equivalent service in AP. that's leveraging technology and process capability. Murthy cd conribute a few millions to create infra for educational institutions and hospitals. welcome. Or Premji cd contribute to create e-learning material for many govt schools and others.

charity is not policy. in my humble view. all such efforts cd supplement but not supplant govt initiatives.


October 24, 2006
02:31 PM

C R Sridhar:
Once again a good article.

I do not believe them when people say market is going take care of itself. There are certain important aspects of people's lives that cannot be allowed to be ruled by the vagaries of the market. That's why Europe is heavily socialist and even US has many socialistic policies.

Our capitalists learn certain half-truths. For example, they believe meritocracy and quality of its employees is what drives them to be globally competitive. How come they don't learn the social responsibility that US companies carry out in maintaining the minority percentages in its staff?

None of our industrialists have set great examples in charity, donation, promoting education institutions, research bodies, etc. While they keep on asking Indian government for sops they do not return anything in return while enjoying the tax-holiday.

Even the concept of 'Flat world' is lapped up without understanding its meaning and consequence. Infosys has a blog on this concept where even Nandan Nilekani writes. [I have an article on desicritics called Is the World Flat?]

We still hold a great deal of responsibility to take the wealth to the masses of India. 'market' will not take it there all by itself.

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