Economics - Physician, Heal Thyself !!

In the book “The Name of the Rose” (set in 14th century Italy ), a character makes a very interesting observation. He is part of a mob that is killing Jews in Italy because the Jews are supposedly exploiting poor Italian peasants. This is untrue. The fact of the matter (as revealed in in the book) is that economic opportunities are being taken away by the King and the representatives of a corrupt clergy, both of whom are exploiting the landless peasants and getting rich in the bargain. When asked why he is attacking Jews when they are innocent, the character says “When one’s true enemies are too strong, one has to find weaker enemies”. This is a truly profound observation.

Which now brings me to this particular rant. As usual, I will take some time to get to the point, because I will first lay out my facts and build my case. So bear with me, gentle reader. There was a very interesting headline in the Times of India some weeks ago, where the Indian Prime Minister Dr. Manmohan Singh expressed "concern" about the high salaries being paid to the Chief Executive Officers (CEOs) of some Indian companies - he probably had Sunil Mittal and Mukesh Ambani in mind. Yes - it is true that some Indian CEOs are now paid very highly.

But why is that a "concern" that the Prime Minister needs to express? In a democratic country, the industrial private sector has a few social obligations to the government - they are:

(1) Paying taxes on profits generated

(2) Abiding by the regulations of the land - environmental laws, developmental laws, and so on.

(3) Not discriminating in their hiring and recruitment practices

So why this "concern" about rising CEO salaries in the private sector? And what business is this of the government? The answer is simple - it is not the government's business. CEO salaries should be dictated by market forces and more importantly, shareholders of the company in question - because CEOs are responsible for company performance to shareholders, who as the name implies, are owners of that company.

Dr. Manmohan Singh (a man who I do like) is playing to the so-called "social justice" gallery here. This is a legacy of the old "socialist" days where the Indian government felt an obligation to tell its citizens what to do, where to go, how much to earn, etc. It smacks of a "Big Brother" attitude that we don't need, an attitude that stunted our economic growth for fifty years - a huge tragedy. What if we had adopted the right economic policies in the 1970s instead of the 1990s?? We would have been a world economic power by now. The lives of a billion Indians would have been transformed.

The government's attitude assumes that we, as Indian citizens do not understand what is good for us and that we need a patronizing, condescending government to treat us like little children and tell us. In a democratic, progressive country, salaries that CEOs (or anyone else for that matter) earn is none of the government's business.

The Prime Minister would be better served by reviewing the pathetic condition of the public sector companies that are run by the government - basic infrastructure services such as water, electricity, law and order and so forth. Let us take a status check on these, shall we? Sixty years after independence, a majority of our citizens do not have access to clean drinking water. Sixty years after independence, a majority of our citizens are not assured of guaranteed, uninterrupted electricity. Sixty years after independence, the roads of my home city Mumbai (a city I will always love) resemble cratered lakes every time it rains. Sixty years after independence, wide swathes of India are lawless and in certain parts of North India one feels like one has stumbled onto the sets of an old Clint Eastwood spaghetti western, since no law and order worth the name exists. Large areas of the country are controlled by extreme left-wing "Naxalites", a group similar to the Maoists in Nepal, who set up parallel governments and terrorise the locals.

Remedying the above mentioned things is what the government should be focusing on, not because they are doing us a favor, but because it is their job. On the issue of governmental reform, all we get from the Prime Minister is useless hand-wringing and vague hopes that things will get better in the future. As an economist, the Prime Minister should look at the average Return on Capital Employed (ROCE) from the public sector units run by the government (many of which are monopolies, inefficient and corruptly run) and compare that to the average ROCE earned by India's private sector, which is growing more confident by the day and is at last living up to its potential of becoming a world beater. He will know the answer.

Do not kill the golden goose that is delivering the nation a 9% GDP growth rate, Mr. Prime Minister!! Focus instead on governmental reform and accountability. That is why we have voted you into power. Tell us that you are taking concrete steps to provide us with safe drinking water, uninterrupted electricity, good road and rail infrastructure and an efficient law and order system. Tell us you will provide every Indian child the opportunity to get a decent high school education. Tell us you will open up the retail and insurance sectors to foreign investment. This will generate millions of jobs in rural areas, answer forever the question of why the nation's economic growth is not "all-inclusive" and add at least a percentage point to the nation's GDP growth rate. Tell us that these are your priorities, not how much private sector CEOs are making.

Why are you targeting the private sector, Mr. Prime Minister? Could it be because your true enemies – the corrupt unaccountable Indian bureaucracy, are too powerful for you to take on? Is it because you need weaker enemies? Diagnose and treat the ailment that is destroying the Indian body politic - corruption, lack of accountability and the sheer wastefulness of the governmental sector. Physician, heal thyself!! I am angry, and if you are an Indian citizen, you should be angry too. We have been shafted by our politicians and bureaucrats for far too long.