Thursday, June 30, 2011

Corruption in India - 4

There is a tendency among elitist Westernized Indians to think of corruption as an obstacle to the coming of the corporate Promised Land where “People Like Us (PLU)” enjoy the benefits of the free market untroubled by government gnats.

There seems to be no awareness that the joint-stock corporation has been the greatest fount of corruption in human history.

Since 1600, when a group of merchants in London founded the first one, the East India Company, corporations have been the primary vehicles of colonialism, the transatlantic slave trade, and the production of increasingly deadly weaponry used to kill some 250 million people in the wars of the 20th Century. They have poisoned air, land and water, promoted the widespread use of carcinogens, and trafficked in opiate drugs that ruined the lives of millions of people, mostly young. (“Heroin” was a Bayer trademarked drug promoted as a treatment for menstrual cramp and colic in babies.) The giant “scams” that have kept us entertained in India over the last few years, from the Satyam boondoggle to the 2-G auction shell game, have all centered on corporate interests.

The reasons for the inherent tendency of corporations to generate corruption are set out in Adam Smith’s classic work on the operation of free markets, The Wealth of Nations. Published in 1776, the year of the American Revolution, it noted two reasons.

One was the corporate tendency to establish selfish monopolies regardless of the cost to society. In making that point, Smith pointed out how the enormous economic potential of the Americas and Asia had, by the “savage injustice of the Europeans” been rendered “ruinous and destructive,” how “all the benefits which could have resulted” from free trade had “been sunk and lost in the dreadful misfortunes” visited on the native populations. Only the imperial monopolists profited from such policy; the British people certainly did not, for they not only paid for the products of the colonies but bore “the whole expense of maintaining and defending the empire.” Just the interest on the debt incurred by the government to retain the American colonies by force, Smith argued, was “greater than the whole extraordinary profit, which it ever could be pretended, was made by the monopoly of the colony trade.”

The second reason was that the ease with which investors could buy and sell stock and their limited exposure to the liabilities of the company resulted in its directors having command of very large sums of money. Smith held out the example of the South Sea Company, established to carry on the slave trade. Its trading stock at one point amounted to over £33,800,000, some three times the entire capital of the Bank of England, which at the time was £10,780,000. With “an immense capital divided among an immense number of proprietors” the company had been run into the ground by the “folly, negligence, and profusion” of its managers and the “knavery and extravagance … the profusion and depredations” of their “factors and agents; some of whom are said to have acquired great fortunes.”

Such profligate corruption was the rule, not the exception. The “managers of other people’s money” did not exercise “the same anxious vigilance” with which private partnerships “frequently watch over their own,” Smith wrote. “Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.” He cited as another example the East India Company, also a behemoth. In telling its story, Smith noted that after the acquisition of Bengal in 1757 the Company had an income of over £3 million a year (about £3 billion now). Despite those “splendid earnings” it “was sunk in debt” by 1773, and had to be bailed out with a government loan. Its story of incompetence, greed and arrogance continued long after Smith's time; it culminated in precipitating the Indian revolt of 1857, a disaster too large even for the profiteers of London to ignore, who finally put it out of business.

On average, over the 400 years that joint-stock corporations have been around, they have been involved in major financial and/or moral scandals once every two years. Smith listed 55 for the first 165 years, and they have grown in frequency as corporations have grown into transnational giants outside the control of any government.

Why haven't governments done more to control them? For one simple reason: the corporation is the most efficient form of wealth creation yet invented. It allows a small group of people to package capital, technology and labour to profit from available resources. This is the reason a country like India or China, with huge and growing populations, cannot afford to turn away from the corporate economy. But we might be approaching a situation where the choice is between growing rich faster and national self-destruction.

To see why, we have to look at a factor that Smith did not note in his analysis of the negative aspects of corporations: the concept of “limited liability.” It had originated in the corporate guilds of medieval Europe in which each individual was responsible only for his own business. With the joint-stock company, that limitation of liability took on an altogether new and sinister meaning. Limited financial liability became moral impunity.

That change occurred initially as corporations dealt with distant lands and “lesser breeds without the law,” but with the Industrial Revolution, European society too became a victim. Investors who had remained untroubled by the miseries of far off peoples were equally unperturbed as workers, including children, were subjected to inhuman conditions in mines and factories; they even remained quiescent as industries poisoned the air, water and land around them.

Today, as that assault on Nature expands in scope and seriousness, as we watch the atmosphere heat up and the polar ice caps melt, as species go extinct at a rate faster than at any time since the dinosaurs disappeared, investors still continue pouring money into "development."

Although social activists and trade unions have managed over four centuries to improve working conditions gradually and put in place some environmental standards, the stockholder tendency to ignore everything but the bottom line has only grown stronger through the 20th century.

As corporations grew into gigantic transnational concerns, they became ever less sensitive to ethical, social and environmental considerations. They took control of the mass media and clothed themselves in a “free market” theology founded on the preposterous claim that The Wealth of Nations commanded the pure pursuit of profit in disregard of the social good. The separation is actually a legacy of the time when the emerging entrepreneurial class of Europe had to fend off feudal authorities; it has stayed in place long after the roles reversed and governments became instruments of the corporate elite.

During the Great Depression of the 1930s when corporations themselves felt the need for government help, a distinction was made between “macroeconomics” and the “microeconomics.” Governments were accorded a continuing macroeconomic “pump priming” role, managing the money supply, keeping a weather eye on business cycles and ensuring a policy framework supportive of business; but they were not to interfere with the running of individual enterprises.

The net result of all this has been the emergence of a global corporate elite that effectively controls what governments can and cannot do. The power of sovereignty thus constrained has been further hobbled by the post-Cold War dispensation of the World Trade Organization that promoted a wide range of corporate freedoms masquerading as “free trade” between hugely unequal participants.

Developing countries have fought a rear-guard action to keep themselves from the tender mercies of giant corporations that have revenues dwarfing the GDP of many of them. India has been one of the leaders of that struggle, but as its own corporations buy into the global network, there are privileged and powerful people within its borders now arguing for seamless integration into a system that is killing the planet. The voices in opposition are a jangle of confused interests ranging from doctrinaire Marxists to tree-hugging environmentalists and farmers desperately fighting to hold onto their land.

How that situation will play out depends very much on how India fares in the current global crisis, now building to an unpredictable climax. (China is already completely at the mercy of foreign corporations and cannot be a factor; other countries do not have the necessary heft to make a difference.) And how India fares will be decided by the efficacy with which we deal with the massive corruptions rooted in the immoral pursuit of corporate interests.

The Lokpal debate is thus actually about much more than the criminal malfeasance of those in power. It brings into focus a set of issues that will determine how creatively India engages with the world, and thus the future of our civilization.

More on that in Part – 5.

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