The Economic Times

The Indian business elite and the illogic of collective silence
[ TUESDAY, MAY 07, 2002 12:17:02 AM ]
GUEST COLUMN / ASHOK DEO BARDHAN

THE communal carnage in Gujarat has been met with a deafening silence
on the part of the business leaders of the state. Notable exceptions
apart, the Indian business elite at large has also chosen to keep mum.

While the lack of an enlightened self-interest, national vision and
social responsibility have long been the hallmarks of our business
class, the present situation has thrown into stark relief the long
term costs of this stance.

The combustible combination of religion and real estate surrounding
the Mandir-Masjid dispute has now set into motion a veritable chain
of events that threaten to knock India off its long-term growth path.

Both external as well as internal sources of future growth are bound
to be negatively affected.

The state's abdication of its mandate to ensure and maintain law and
order can only be seen by foreign investors as a major stumbling
block for further foreign investments.

Although votaries of free markets, let there be no doubt, foreign
investors look for effective governments and functional states.

The notion that there is more to an economy than economics alone is
well understood in international financial circles.

With the trinity of liberalisation, privatisation and globalisation
having become the discourse of our times, country-level differences
are more pronounced at the political and social levels, rather than
in the heterogeneity of economic ideologies.

International investors and country risk analysts appreciate this
emerging dynamic, and it is increasingly reflected in their analysis
of investment and business climate in countries around the world.

Although a vast range of economic and financial variables go into the
making of country risk assessment indicators, increasing weight is
now given to critical socio-political factors such as ethnic tensions
and social fragmentation in the country in question, the extent of
organised religion in politics, bureaucratic effectiveness and the
state's ability to enforce laws.

A proper appreciation of these issues will demystify the seemingly
inexorable avalanche of investments that pour into Mainland China.

Perhaps, more critically for our present purposes, it should also be
understood that regions and provinces within countries that
successfully attract foreign investments tend to compete with each
other on the basis of sound and effective governance and not
financial incentives alone.

It might be argued by some that foreign investment is not critical to
India's economic growth. The real engine of growth will supposedly be
chugging away at home on domestic fuel.

On what rails, may one ask? Instead of a physical infrastructure and
a supportive institutional framework, there is a growing
infrastructure of intolerance and burgeoning institutions of bigotry;
instead of the mobility of capital and labour we have mobility of
murder and mayhem, and instead of a stable contracting environment we
have a stable communal divide.

There seems to a lot of wishful thinking to the effect that once the
disturbances die out it will be back to business as usual; that the
damage wrought is but short-term.

However, the nature, duration and intensity of present events, the
actors involved and the role of the governments, both at central and
state levels, ensure that this will turn out to be a watershed
development in the history of the country.

The business community can turn a blind eye to its larger role in
society only at its own peril.

At the level of a rational, individual businessman it is no doubt
clearly understood that in addition to purely economic reforms and
measures, there are a host of political and social prerequisites
necessary for economic development.

The inability to translate this knowledge into a cohesive,
well-formulated strategy reflecting the collective aspirations of the
business classes for development and nation-building that also takes
into account the well-being of other forces in the country has
resulted in chronic myopia.

Just like the price of liberty, the price of liberalisation too is
eternal vigilance. Business circles need to take a firm and proactive
stance in support of secularism, for it is critical to holding the
country and the markets together.

Since individual businessmen might find it risky under the present
circumstances to stick their necks out, apex industry organisations
and trade groupings can surmount this co-ordination problem.

Ultimately, business must use its clout to restore and maintain
communal harmony in the country for the sake of its own survival and
growth.

One of the lessons of the history of the developed industrialised
world has been the strength and viability, not only of its market
institutions, but more so of its non-market institutions, in the
development of which the business community has played a vital role.

On the other hand, we also have before us the recent disastrous
experience of the few other countries with diverse populations where
the authorities and the people could not manage and contain ethnic
conflict. There is a clear choice to be made.
(The author is with Hass School of Business, University of
California, Berkeley)