Upon winning the elections, Prime Minister Modi has declared, with one of his usual flourishes, that the era of caste-based politics is over. From now on there will be only two castes, he says: those who are poor and those who want to free them from poverty. Some economists are fearing the country is slipping back into socialism. They are urging Mr. Modi to take advantage of his renewed mandate to minimize government. They should introspect on their own responsibilities as members of the caste that must reduce poverty and examine if their tools are designed for the task.
The government, NGOs, and businesses belong to the caste that must free people from poverty. The government’s dharma in a country with millions of poor people has to be to free the poor from poverty. NGOs are devoted to helping less-well off citizens in various ways. Businesses too, are taking interest in uplifting the poor, through philanthropy, CSR, and new forms of social business ventures. This caste, of government, NGOs, and businesses, needs a new tool-kit to have a greater impact in its mission to reduce poverty. The tool-kit it is applying is increasingly being adopted from the world of business. It is not the appropriate tool-kit for the task of reducing poverty sustainably.
The collapse of the Soviet Union marked a landmark in the history of ideologies, noted by Francis Fukuyama in his book, ‘The End of History and the Last Man’. The ideologies of free markets and capitalism had defeated forever the ideas of communism and socialism for the governance of societies, he said. Ronald Regan and Margret Thatcher were the heroes of an Anglo-Saxon model of capitalism, and Milton Friedman, a Noble Laureate in economics, was their intellectual guide. Ronald Regan declared that ‘government is not the solution; it is the problem’. Friedman, while favoring business over government, went further to say that ‘the business of business must only be business’.
Admiration of business management methods, and demands for its purveyors, i.e. business management schools and business management consultants, has greatly increased in the last thirty years, since the moment history ended according to Fukuyama. Leaders of governments were urged to perform like CEOs of large business corporations, even to appear with their report-cards before the leaders of the business world in Davos. Business management consultants were hired to reform governments. Large NGOs, who can afford to, also hire management consultants to guide them.
Five years ago, when he first became Prime Minister of India, Mr. Modi had coined the phrase, ‘Minimum Government, Maximum Governance’. Economists of the Regan-Thatcher tradition, noting the first half of his slogan, cheered him. They were dismayed when he did not reduce the government’s role in the economy. He seemed more focused on the second half, of maximum governance from the perspective of the poor, as he should be as a leader democratically elected by hundreds of millions of people not completely out of poverty. Thus, he won the people’s trust and they re-elected him with a larger majority.
The ideology of business, since Friedman, is that the purpose of a business is to increase returns for its financial investors. The management took-kit that business’ use provides methods for increasing efficiency and profits. It includes lenses to find more opportunities to make profits—including profits from the ‘bottom of the pyramid’ by devising new products and services the poor need and can pay for. Within this world-view it would be immoral of a manager to give away something, that ultimately belongs to financial shareholders, to someone who cannot afford to pay for it. Therefore, those who cannot afford to pay for the healthcare and medicines the business is selling, perforce must be excluded from the scope of the business. The business of business must be business; it cannot be charity and provision of free services to the poor. Equity amongst citizens, which must be the prime concern of a democratic government, is not the concern of a business.
In the paradigm of maximizing share-holder value, value must be extracted for shareholders from customers, the physical environment and from society. More powerful analytical tools can reveal which customer segments produce least profits, which employees are least efficient, and which environmental resources have the most potential for profit. Rigorous quantification, aided by more powerful computation tools, drives non-quantifiable values out from management equations, such as injustice in the use of a community’s resources, and the impacts of a company’s practices on the lives of its employees and their families. These are incalculable ‘externalities’ to the business model.
The dominant paradigm of business management of shareholder value maximization would presume that was is good for the business’ shareholders must be good for everyone; that others benefit from the operation of some ‘invisible hand’. This selfish paradigm has caused a decline in citizens’ trust in businesses around the world. The mistrust is erupting in the US in a revival of ‘socialist’ ideas which worries hard-core capitalists. Therefore, it is ironical that, in much poorer India, some economists and business leaders should be urging the government to convince the masses that more big business and less government is good for them!
Doctor heal thyself. Rather than crying for less government, business should improve its own governance. And It should re-design its management tool-kit before teaching it to governments and NGOs.
Role models must be chosen carefully. The policies of Franklin D. Roosevelt, and ideas of John Maynard Keynes, which grew an inclusive US economy after a great depression, with a universal social security system and government investments stimulating growth, are better models for India’s needs today than the ‘minimum government’ ideas of Ronald Regan and Milton Friedman. It would be wise to also recall President Dwight D. Eisenhower’s caution: “Should any political party attempt to abolish social security, unemployment insurance, eliminate labor laws and farm programs, you would not hear of that party again in our political history”. If we must import ideas from Washington, let us choose the ones that apply to our conditions today.
The ethics of citizenship in a good society demand that individuals take care of others’ needs, not just their own. No individual can be forgiven for harm caused to another while looking after his own needs no matter how desperate. A good citizen is not the one who has the most wealth, but the one who always respects the rights and needs of others.
Corporations are virtual entities that have acquired all the rights of human citizens of societies—the right to own property, the right to free speech, the right to sue, the right to justice in courts. They are giants in size amongst human citizens: some with more wealth than most countries’ GDPs. Thus, they have powers that common citizens do not have. Surely it is unethical for these giants to not just surreptitiously follow their own interests, but even declare that their goal is to pursue only their own interest (the business of business being only business)!
Some business leaders have struck out onto a different path—dared to, one may say. Paul Poling, former CEO of Unilever, comes to mind. Poling courageously broke away from the practice of explaining his company’s financial performance to analysts every quarter because they would not understand the longer-term objectives he had in mind. However, he could not escape the gravitational pull of the system of institutions which Unilever is locked into—stock markets, market regulators, business analysts, and financial auditors. His legacy is already under scrutiny with questions whether his strategy of sustainability has increased returns to shareholders—the over-riding measure of performance amongst the business-capitalist establishment. Tata Steel, with its century-long record of social responsibility, has struggled against the spread of the ideology that the business of business must be only business. In 2000, by when the company had joined global markets, its CEO was asked by an analyst, during a quarterly earnings call, when the company would stop being ‘socialist’!
The Anglo-Saxon system of capitalism is formed around pervasive ideas about the purpose of a business corporation, measures of its performance, and methods for achieving its goals. These ideas and tools are taught in business schools, applied by management consultants, and reinforced by the financial markets. It is not possible for any CEO, or any company alone, to escape the demands of the system. When they step out to create new forms of enterprises, such as ‘social ventures’, to create social impact, they cannot escape pervasive expectations of financial returns and efficiency from investors.
The history of humanity’s progress on multiple fronts shows that it is not enough to have high aspirations; one must also develop vehicles to take one there. The dream to reach the moon could not be realized with airplanes that cannot escape Earth’s gravitational pull. Rockets, with very different shapes to airplanes, made it possible.
In Gandhiji’s 150th anniversary year, one must remember his vision of a casteless society without poverty. Business leaders should recall Gandhiji’s plea to them to be trustees of societies’ wealth. And, all leaders in government and business should remember his talisman. “Whenever you are in doubt, or when the self becomes too much with you, apply the following test. Recall the face of the poorest and the weakest man [woman] whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him [her]”. Clearly this will not be the face of a financial investor in the corporation.
Dominant ideas of business management do not provide an appropriate tool-kit for institutions who aspire to reduce poverty and create an equitable society. Business management itself needs a new, ethical toolkit. It must begin with a redefinition of the purpose of the corporation in society. Which must be the improvement of the well-being of everyone, not just increasing the wealth of investors. Business managers must be re-oriented towards systems thinking, to see their small place within a system shaped by many forces. Business leaders must have more humility and display less arrogance that, because they have accumulated large wealth for themselves, they know better than governments and civil society organizations how to make the world better for everyone.