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Words for Princes*
|by Dr. Pradip Bhattacharya|
“Wise Princes ought not to be admired for their Government, but Governance”—OED *
‘Ugly’—yes; ‘good’ and ‘bad’—no. This has been the prevailing stance of the corporate world and of management thought and teaching spawned by it in the twentieth century. Morality and Mammon make ill bed-fellows. Scrooge, after all, was a flight of Dickens’ fevered imagination. What matters is what sells, what is packaged well, what tickles the greed to have more—ye dil mange more. In that context, what do we make of the sudden propagation of the concept of ‘good governance’ in the new millennium by the same institutions that had so aggressively denounced application of moral concepts to the creation and amassing of wealth? It is another matter that the person industry projected as the torch-bearer of good governance in India, which it equated with functioning as the chief executive of a company, not as the kartta of a joint family, was ignominiously rejected by the electorate. Expectedly, this has not made business schools ponder over the simplistic solutions based upon business models which they peddle as universal panacea for problems of governance in the polity. Globalisation, the product of the IT revolution and the insensate drive of multinational corporations to parcel out the globe among themselves, bears witness to business interests using international financial agencies to mould public policy to their advantage, keeping intact and even exacerbating the exploitative structures. Somewhere the prick of a still, small voice raises some uneasiness that is sought to be soothed by organising symposia to discuss the dimensions of “good” governance. Memories crowd in of Andrew Carnegie’s inspiring pronouncements on the social responsibilities of business that co-existed with his practice of the most ruthless, amoral business tactics. Practice and precept arranged in classic dialectical opposition—or shall we call it schizophrenia or even plain, old-fashioned hypocrisy (‘the white man speaks with a forked tongue’ said the Native American)?
We have in hand the proceedings of an international conference organised in the IIM Calcutta in April 2002 documenting Indo-European perspectives on good governance in democratic societies—which seems to leave room for pondering whether non-democratic regimes do not govern well. Splendidly edited by Professors S. Munshi and B.P. Abraham of the IIMC, the book is a pleasure to read. They have arranged the papers under three themes: the societal (‘social’ is such an anathema in academia!) context of governance; administrative reforms; corporate governance (ah, at last—one was wondering where this had got lost with a business school hosting the event!). The proportions are well balanced, with seven papers (three by Europeans) in the first section and six each in the second (two by Europeans) and the third (five by foreigners), each section beginning with a fine summing up by the editors of the views of each speaker. Besides the European Commission, speakers come from the Netherlands, Italy, England, Germany, and from the North American continent (Canada and USA). The Indian speakers include practising civil servants besides academics, an NGO, and a journalist.
Munshi’s is the first paper in the book and provides a masterly overview of the problems involved in rethinking governance, “a concept that sets the normative basis of government”. It is interesting to find that Peter Drucker, of all persons, should stigmatise the twentieth century “megastate” as having gone “morally as well as financially” bankrupt. Yet, the alternative he advocates, “effective government” is concerned not with what is the right thing for government to do, but what it can do effectively. That begs the question: what about developing and under-developed countries? Or is that not the concern of the management guru? Henry Mintzberg’s critique of Drucker scrupulously skirts the moral issue and is content pointing out that government must not withdraw from state-ownership in areas dealing with citizen and subject activities while leaving customer and client services to private hands. Though not spelled out, his objection to a complete hands-off policy of governance is a moral one. Munshi points out that Mintzberg has “turned out to be right” in arguing that governments must not emulate businesses, as urged by Osborne and Gaebler in Reinventing Government, since this replaces the “citizen” altogether by “customer”, creating a dissonance between the public and private sectors. In 1998, the American, British, German and Italian governments sought to adopt a “Third Way” based on Clinton’s idea of “opportunity for all, responsibility from all and community of all.” It is refreshing to find Munshi stating that the crisis of governance India faces “has to be approached with an awareness of what is wrong and also what is right”, and that she has already done much that the European Union is struggling to achieve. Munshi also makes the very important point that governance needs must concern itself with public interest, which is not merely a conglomeration of private interests. Hence the need to go far beyond Drucker et. al. to Kautilya’s Arthashastra which prescribes that the ruler (in this case a monarch—but the injunction is no less applicable to a democracy) shall evaluate as “good” not just what pleases him, but what pleases his subjects. Mahatma Gandhi took this further, defining the test of a decision by whether it benefits the poorest and weakest person. In dealing with “good governance”, we find ourselves back in the moral arena!
Abram de Swaan from Amsterdam University argues that in the European Union—which is still feeling its way towards governance—the absence of politics in government makes for an uncorrupt, technically competent, legally correct, efficient administration that is citizen-oriented. This is a rather exaggerated and even mistaken claim when we recall that in 1999 its members had to resign en masse in the face of revelations regarding false contracts, lax financial controls and cronyism. In 2003 scandal broke about a massive looting operation in Eurostat, the commission’s statistical service, siphoning off about $1 million into personal accounts of managers and even for funding a staff volleyball team! Yet, it has not led to any simplification of inordinately cumbersome procedures and fixing of accountability since 1999. The buck stops nowhere. In July 2003, Italy’s Prime minister Silvio Berlusconi became president of the European Union despite being found guilty in three criminal cases. The Berliner Zeitung described him as a “shady dealmaker…whose hand we would not shake voluntarily” and France’s Liberation called him a “threat to liberal democracy.” Swaan does admit that democratising the EU looks an impossible task and pleads for developing procedures of accountability particularly for transnational corporations.
Luke Martell from Sussex University explores the “Third Way” that seeks to make politics respond to social changes—something that the EU could learn from India which is now seeing the converse phenomenon of politics being moulded by international business concerns. Blair’s emphasis on the community not just claiming rights but also accepting responsibilities is already found in the Fundamental Duties chapter of the Indian Constitution. The question for Europe, as for India, is how to implement the concept in a society that has been brought up on shouting from the rooftops for the state to ensure people’s rights. Martell perceptively notes that the attempt to marry economic efficiency and social justice is marred by the former undermining the latter. Anup Sinha’s paper on the Indian experience correctly notes the rapid growth of NGOs as illustrating the citizens’ need to represent their interests beyond the ballot box. The problem, of course, lies in what Vithal Rajan analyses as the take-over of the NGO sector by funding agencies with their own hidden agenda, and the use of NGOs by carpetbaggers to feather their own nests. Veteran columnist Prem Shankar Jha’s hard-hitting study of India’s degeneration from a welfare to a predator state provokes considerable introspection. The unmitigated—indeed ever increasing—rent-seeking behaviour of the ruling coteries has made extortion a way of life that has sapped people’s faith in the democratic government. It is symptomatic of this that the Vohra Committee report that bluntly spoke of a vicious nexus prevailing between the mafia, the politicians, the bureaucracy and the judiciary has never been used to take any type of corrective action by the government. Even the Supreme Court failed to pursue its own directive to the government to report on what action it had taken on this report that was placed in Parliament on the golden jubilee of India’s Independence.
Abraham, in an excellent survey of administrative reforms in Europe and India, has noted that the failure of this in India is because of the lack of political will. It is international agencies who have forced some reforms such as gradual withdrawal of the state from running businesses and allowing private enterprise freer play. Abraham has perceptively noted that it is the peculiar structure of the Indian constitution that stands in the way of reforms: action taken at the central level is hardly ever matched at the state and local levels on account of political reasons. Some basic changes in the constitutional structure appear to be called for. Despite the Commission set up for this purpose having submitted its report, it remains in the cold storage. Parliament is least concerned to discuss its recommendations. As Kuldeep Mathur points out in his paper, neither the Chief Secretaries Conference of 1996, nor that of Chief Ministers in 1997 resulted in any concrete steps to bring about greater transparency and accountability. The Freedom of Information Bill still lies unimplemented with Parliament and the Citizen’s Charters brought out by various agencies remain on paper. The political executive firmly believes in maintaining status quo whereby power remains concentrated in select hands who make the most of the opportunity to extort whatever they can out of the system.
Hellmut Wollman of Humboldt University concludes in his paper that the existence of a jealously defended “sovereign state” concept stands in the way of the “supermarket state” of Anglo-Saxon countries moving towards a successful government of the European Union. How does one promote a single European administrative space without interfering in the internal matters of member states? In this, the situation is not too different from that obtaining in India between the Union government, the states and the local self-governing urban and rural bodies. Manfred Roeber admits that the interface between politics and administration is one of the most problematic issues that bedevils administrative reforms in Germany. One would have thought this is a truism applicable to India, except that in Germany it is the trade unions that have played an active role in modernisation of the public sector.
Daryl Reed from York University seeks to understand what makes for good corporate governance. He argues that the influence corporations have on national governments needs to be sharply curbed so that democracy truly operates in favour of the citizens. Anju Seth from the University of Illinois studies systems of corporate governance in USA, Germany and Japan vis-à-vis India to conclude that minority shareholders are not protected where a limited number of families control the corporate sector and the government is also heavily involved in and influenced by business. With India scoring very high on the Transparency International’s corruption scale, the sell-out of public policy to corporate gain need not be laboured. She quotes the admission by Xerox of having paid $700,000 in bribes to government officials in India, and the fact that we have not heard anything about action against guilty public servants. Nor, for that matter, did anything happen to the Chairman of the Unit Trust of India when the savings of millions of Indians were wiped away because of his questionable dealings. Seth’s pious hope is that increasing international pressure for competitive markets will foster efficiency in governance in India.
Paolo de Vincentiis from Turin University argues that the need today is for global action to set and enforce prudential standards in the wake of the massive financial scandals erupting in Europe and America. The Forum of the European Securities Commission (FESCO) has urged creation of a compliance function within each financial firm to look after preparation of a code of conduct of procedures, advocating steps to ensure compliance with this, monitoring the extent of such compliance and ensuring measures in case of violation. How this is going to be ensured is left unsaid.
Rudi Schmidt of the University of Jena analyses the development of two different types of capitalism, forecasting a rift between MNCs following the international Anglo-Saxon model of free market capitalism and the small-and-medium firms sticking to the ‘Rhine Model’ which keeps close to stakeholders’ interests and holds on to the participatory tradition of corporate governance.
Peter Abell and Diane Reyniers from LSE present an examination of the viability of participatory firms, comparing the governance of worker-controlled and capitalist companies. A study of the OECD countries indicates a drift towards greater managerial control and increasing ownership being vested with the labour, away from the capitalist firm. The move has been considerably influenced by tax inducements and regulations governing companies. The authors conclude that the more heterogenous the workforce is, the more likely it is that the firm is organised in capitalist fashion. Successful worker-managed firms have narrow foci because of which homogeneity among workers is assured, as in plywood cooperatives, taxi and refuse collection industries in the San Francisco Bay Area. The paper has a valuable corrective to the general assumption that globalism equalises returns across the board. Research shows that top management gets away with maximum rent-extraction and CEOs set their own pay and perquisites irrespective of share prices, even in the capitalistic competitive market. The authors also point out that existing laws are weighted in favour of capitalist firms and do not provide a level playing field to worker-managed or owned companies. Hence they urge a change in public policy, particularly in the wake of Enron and its aftermath.
It is curious that the signal success of milk producers’ cooperatives in India’s Operation Flood has not been studied by any participant in this seminar, nor the success story of SEWA. Similarly, the outstanding performance of Infosys and Wipro, both swearing by a strong ethical code of conduct, has not been studied vis-à-vis the no-holds barred operations of Reliance and Bajaj. The marked failure of Indian laws to measure up to the challenge of carpetbaggers masquerading as NBFCs, cheating hundred of thousands of middle-class investors, with the RBI and the Company Law Board remaining mute spectators has not been considered worthy of examination by Ashis Bhattacharya who sets much store by SEBI’s Code of Corporate Governance (2000). Its ineffectiveness was comprehensively demonstrated in the subsequent Calcutta Stock Exchange scam. Even the massive UTI scam is not mentioned by him. It is because of such socially irresponsible silence on the part of the management schools that society witnesses such astonishing travesties of justice as evinced by the Securities Appellate Tribunal’s reducing to ridiculous token amounts the punitive fines SEBI had imposed on delinquent firms like Reliance who had violated norms of corporate governance.
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