There is great discontent in Western societies. The financial crisis exposed the deep damage caused by the unbridled pursuit of profit by Wall Street, which almost brought down the financial system. Just before the crisis the financial sector was making 40 per cent of corporate profits in America and the City of London made up a fair chunk of the United Kingdom GDP. A large part of these profits were illusory, created by financial engineering, using synthetic derivatives that supposedly dispersed and reduced risk. Regulators and governments played along, lauding such innovation. Risk was dispersed, except that it travelled round the world and came back to the neighbouring street in New York.
The result has been an unprecedented bailout by governments round the world, driving up their borrowings, reducing their social spending and creating massive unemployment across their economies. The sins of the past in terms of excessive government borrowings in the PIGS – Portugal, Italy, Greece and Spain – have stood fully exposed. Governments have adopted austerity measures to contain their huge deficits, which has deepened the pain for their vulnerable populace. In the last decade, a small part of the population in the West saw an unprecedented increase in its wealth and income, though the large mass of the middle class saw almost no increase in its income. Business interests have perfected the art of regulatory capture, weakening the ability of the state to level the balance — almost a classical class conflict in a capitalist way.
The middle class is now striking back with the Occupy Wall Street movement with demonstrations in over 80 countries, showing its disgust at corporate greed and lack of punishment for the perpetrators. Strangely, innocent victims are made to pay for the greed of the financial sector even as governments show a distinct lack of action to punish the villains. There is a need to restore balance between society and business so that business works for the larger cause of a just society rather than the unchecked pursuit of profit.
In the past decade, India has seen an unprecedented growth in corporate profits. Corporate taxes were at Rs 2.5 lakh crore in fiscal 2011. At a tax rate of 22 per cent, the pre-tax profits would be slightly more than Rs 11 lakh crore, about 14 per cent of the GDP. A decade earlier, this was less than half this figure. Reports indicate that big companies have cash worth over Rs 4.5 lakh crore on their balance sheets. Corporate India, too, has demonstrated an unbridled pursuit of profit at the cost of society. There has been greater concentration of wealth: about 50 billionaires hold more than $250 billion of wealth, and counting. There has been impoverishment of the labour class, a very deep casualisation of labour bordering on exploitation, with labour costs reducing as a percentage of revenues.
The recent strike at Maruti Suzuki is the tip of the iceberg. Reports indicate the extent to which labour has been underpaid and exploited, and the widening gap between managerial compensation and labour payments, almost reminiscent of the Roman slave galleys. The practice seem to be widespread. Across business units, casual labour is growing, labour payments do not meet the minimum needs, and managerial remuneration is growing rapidly — it is a classic case of corporate greed winning over societal needs with a distinct tilt in balance. Compassion seems to be deserting our business leaders. Our billionaires do not seem willing to spend from their billions for the greater social good; our managers are not taking care of the lower levels in the enterprise; and our government is blinded by the glitter of Dalal Street. The balance has tilted acutely.
Our business leaders and billionaires need to do much soul-searching. We need more compassionate capitalism before it’s too late. We need our wealthy to behave as trustees of society since much wealth has been given to them by reduced taxes, beneficial government policies, a trusting labour that has worked very hard but not fully enjoyed the benefits, and a society that expects much from them. They have not redeemed fully the trust society has in them. The mood is changing in India as elsewhere in the world and may tilt the other way, against enterprise, against an open economic system, against individual economic freedom. Greed is never a long-term competitive advantage and never in our history was so much owned by so few.
