Profit from his words
The Prime Minister has thrown the gauntlet at corporate India, challenging it to eschew ‘vulgar’ display of wealth. He has appealed to the wealth generators “to be role models of probity, moderation and charity”. Through a telling quote from John Maynard Keynes’ early work, Manmohan Singh linked the current stage of Indian capitalism to the comparable period in Western capitalism.
Behind his admonition lies a vast amount of economic literature, spearheaded by Max Weber’s classic, The Protestant Ethics and the Spirit of Capitalism. Weber sharply differentiated modern capitalism from all other systems — monarchic, feudal or mercantile. “In fact, the summum bonum of this [capitalist] ethic [was], the earning of more and more money, combined with the strict avoidance of all spontaneous enjoyment of life... It [saving and investing] is thought of so purely as an end in itself... Economic acquisition is no longer subordinated to man as the means for the satisfaction of his material needs.” Weber goes on to say: “Over against the glitter and ostentation of feudal magnificence... they [the capitalists of the time] set the clean and solid comfort of the middle-class home as an ideal.” Obviously, one can hear the echo of these Weberian thoughts in Singh’s voice.
The PM has brought a Weberian perspective to the table. India Inc. must introspect on this wise counsel, both on strategic and idealistic grounds. On the other hand, marriages and festivities do engage thousands of small entrepreneurs who employ millions of service workers. The moot point is of vulgar display and aggrandisement, a Laxman rekha that everyone has the freedom to define for themselves. And to be fair, the biggest corporate leaders in this country do show enough restraint to not be charged with wild displays of wealth.
On this question, we must recall a radical missive offered by Mahatma Gandhi on April 7, 1931 at the 4th annual general meeting of the Federation of Indian Chambers of Commerce and Industry (Ficci). Gandhi challenged the captains of Indian industry: “The industrial classes… could even take over the Congress’s reins but on one condition. They should regard themselves as trustees and servants of the poor.” Gandhi’s perspective was moulded by John Ruskin’s Unto This Last. What impressed Gandhi was Ruskin’s assertion, “It becomes his [the merchant’s] duty, not only to be always considering how to produce what he sells in the purest and cheapest forms, but how to make the various employments involved in the production, or transference of it, most beneficial to the men employed.”
Interestingly, the Prime Minister alludes to both the elements of ‘trusteeship’ and ‘worker welfare’, emphasising “healthy respect for your workers and invest in their welfare. In their health and their children’s education....”
But there is the other matter that Manmohan Singh could do well to rethink. Till the 1990s, the salary of a CEO, whose organisation fell under the ambit of the Companies Act, could not be higher than that of the President of India. It was as little as Rs 7,500 in the 1970s and grew to Rs 15,000 in the 1980s, leaving aside the 90 per cent tax bracket CEOs were subjected to. Obviously, the market process inducted massive perks to escape this cap and remain legitimately outside the reach of the tax net. In an article in Business Standard, Kaushik Datta et al have alluded to a simple change in designation by the company to ‘President’ in place of ‘Managing Director’ to escape the ridiculous salary cap suggested by the PM.
It was Manmohan Singh’s giant step of liberalisation in 1991 that freed the corporates to follow the market signals on human resource pricing with transparency and accountability. In fact, Mercer’s Global Pay Summary 2007 concludes that Indian CEOs are the lowest paid in Asia, with Korea topping the list and China way above India. Where talent can vote with its feet, we will need to keep abreast with market forces, particularly in a talent-starved India that is globalising at a rapid pace.
Mr Prime Minister, you are absolutely right in challenging Indian corporates on ostentation from a Weberian perspective. But I appeal to you to reflect on your missive on remuneration.
Amit Mitra is Secretary General, Ficci