Make it worth their while

The Prime Minister has given 10 new commandments to businessmen. They are well-intentioned, but lasting reform and good behaviour do not come out of good intentions. As Adam Smith pointed out about 230 years ago, the system works best and most effectively when the general welfare is promoted by people acting in their own self-interest. In other words, the rules and situations have to be so geared as to make the desired results worthwhile for all players. For instance, it is futile to tell people to desist from non-competitive behaviour; experience the world over makes it abundantly clear that if companies can get away with such behaviour, they will. What is needed therefore is a framework within which non-competitive behaviour becomes either not feasible or very costly""which is what would be the case if the government got a move on with making the Competition Commission a functioning body. Or take the advice proferred, to invest in environment-friendly technologies. Here too, the general run of companies will do what is required if it is in their interest, not otherwise. The start of carbon trading offers one example; another can be the effective implementation of the laws on water and air pollution; even the simple act of an NGO publishing environmental ratings has encouraged companies in industries like paper to improve their environmental record""for fear of reputation loss.

If one turns to the issue of inclusiveness in jobs, education opportunities and the like""which have been at or near the top of the government's agenda""the approach so far has been to push for expanded reservations for the chosen categories, but this is the precise opposite of inclusion; for it translates into the exclusion of everyone else. It is far better to have uniform criteria for special treatment, to apply these to all categories of people, and to expand simultaneously the opportunities being made available (as is being done by increasing the intake at the leading management and engineering institutes). If the objective is inclusion, then let it be inclusion of everyone and not divisive in terms of caste and community""not least because of the political dangers that invites. In the specific context of giving jobs to the under-privileged, on which the Prime Minister spoke, it should be possible to take a leaf out of the book on affirmative action in the US""where progress has been made in achieving diversity in the job market, without reservations.

Manmohan Singh was at his most naïve when he asked companies to not pay senior executives too much money. Salaries are determined in a competitive market, and companies usually do not pay more than they need to""and there are enough salary surveys in the market to advise employers on the prevailing rates. Further, salaries tend to rise when markets become contestable, because a company's leadership in such situations makes all the difference. Static markets do not have comparable salaries because leaders make less of a difference, relatively speaking, to the bottom line. It so happens that Indian product and service markets are far more competitive today than before, and simultaneously Indian managerial talent realises that it has a global canvas. The result is greater salary differentials. It is of course true that studies in other countries have shown an absence of correlation between salaries and CEO performance, and sometimes bloated salaries reflect internal power structures more than external competition. However, it would be fair to say that conspicuous consumption, while on the rise in India, is nowhere near the levels reached elsewhere""as testified to by the low sales of luxury goods, which is a reliable barometer.

For all that, the Prime Minister can be assured of an enthusiastic response from industry, and promises of action along the desired lines. Hypocrisy levels are high enough in India to ensure that. Whether corporate behaviour adjusts to fit in with Dr Singh's wishes is another matter altogether.