A V Rajwade: The world is not just capital and labour

WORLD MONEY

The Left criticises privatisation because it does not see the value of good management that it results in.

The Economic Times recently carried a debate feature, titled "Public private partnership in infrastructure". One participant, Kamal Nayan Kabra, retired professor, IIPA, Delhi, asked: "What does the private sector bring in that the state is not capable of obtaining on its own?" His answer was "nothing". He argued that "as for management effectiveness and flexibility, accepted wisdom does not consider ownership pattern as such... to be greatly relevant."

While the Left has been opposed to disinvestment, privatisation and FDI on ideological grounds, the proximate cause for the prime minister being forced to suspend all disinvestments, was not even ideological. He succumbed to the blackmail of a coalition partner. While the Left must have been gratified by the turn of events, the issue does bring into focus the question posed by Kabra. The ideological divide rests on the inputs needed for growth. Kabra and those on the Left believe that capital and labour are the necessary and sufficient conditions for growth, and for increasing returns and output.

The problem is that while these two inputs are clearly necessary, if output is to grow, they are not sufficient: in addition, what is needed is innovation, technology and organisation of resources for optimum output. Over-reliance on capital and labour, which the state can access as easily as the private sector, too often creates an inefficient bureaucracy, a parasite on the society as a whole, answerable to nobody. It kills innovation, favours the paper-pusher over the self-motivated achiever, an inward-looking, procedure obsessed system that too often forgets the objectives. In other words, the state becomes a predator on society, not a facilitator of growth.

When Lenin established the first socialist utopia, one slogan was: "To each according to his needs and from each according to his abilities". What an ideal world it would be if only the slogan were practicable! The first part requires the state to have unlimited resources; as for the second, at the current evolutionary stage of human character and morality, the individual puts in his best efforts only when he sees rewards from doing so: if the rewards are identical, irrespective of abilities and efforts, why do anything more than the minimum necessary?

It was nice to see Kabra acknowledge the importance of management effectiveness vis-à-vis ownership. Having worked in the public sector for almost two decades, and having been connected with both sectors one way or another for almost half a century, I find a difference in management effectiveness. In fact, in the segment I know best, namely the financial sector, for more effective management, the shareholdings in most star performers have been so structured as to avoid becoming a PSU! Lack of autonomy is clearly one problem. The netas and babus want the public sector for patronage distribution, power and sometimes for more venal objectives. Sycophants and hangers on are preferred to innovators and achievers. The organisation culture, with few material incentives, becomes bureaucratic. Those who do not please the higher ups are hounded, as witness the recent events in ONGC and AIIMS.

In the 20th century, capitalism and a liberal state survived and indeed triumphed by adopting many of the ideas in Marx's Communist Manifesto "" free education and healthcare, old age pensions, and so on, which are now an integral part of state responsibility in the richer capitalistic societies. Correspondingly, socialism, with its admirable concern for social justice for the worse-off, will need to use the positive features of a capitalistic society; foster and reward innovation, technology, superior organisation and systems, skills and so on. This requires autonomy, creative cultures and proper incentives. But then what happens to the power, perks and privileges of the netas and babus vis-à-vis the PSUs? Reform is unlikely to work; disinvestment and privatisation are also important for the generation of resources for the state to fulfil its basic responsibilities. FDI brings in much more than capital by way of work cultures, global best practices, technologies and so on. For a learning society, these are even more important than capital.

Tailpiece: Currently, we are witnessing an odd combination of sky-high street prices of primary goods, even as farmers are unable to service their debts because of uneconomic prices, and a number are resorting to suicide. There cannot be a stronger case for organised retailing that will cut out a chain of inefficient middlemen, provide far superior storage and transportation infrastructure, reduce wastage, and give better prices to both producer and consumer. The Left would prefer a million-strong, corrupt bureaucracy to administer prices than facilitate an efficient distribution system through competition between private and foreign investments in the sector.

Email: avrco@vsnl.com