Friday, December 30, 2005

Will the Real Adam Smith Stand Up, Please!!

Sometime in the last century, Adam Smith was hijacked, gagged, and new words were forced into his mouth!

The hijacking of the 300-year old dead Scotish economist happened, when in 1948, I believe (or so I read somewhere), he got misquoted in Paul Samuelson's Textbook of Economics. That perhaps, was the first time the theory of "invisible hand" of the free-market got articulated. The so-called "quote" from Adam Smith's An Inquiry into the Nature And Causes of the Wealth of Nations (1776), reads:

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

Every individual endeavours to employ his capital so that its produce may be of the greatest value. He generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security, only his own gain. And he is in this led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than he really intends to promote it."

This (mis)quotation from Adam Smith, which has been so often repeated (by politicians, media, adademics, policy-planners) that it has become an underlying - a dogma/ ideology - of our present flavour-of-the-day global economic system. It helps justifying the unregulated "free-market" ideology, globalisation, the doctrine of "self-interest"/limitless-greed, and the irrelevance of state/government in promoting public good.

The only problem is that this is not exactly what Adam Smith had ever said!!!

What Did Adam Smith Say?
The Book IV/Chapter 2/Para 10/Line 2 of Wealth of Nations gives the full quote:

"As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."

It is, indeed, perhaps more than a coincidence that the popular version of Smith's (mis)quote, completely misses out his views about the individual employing his capital "in the support of domestic industry" or preferring "the support of domestic to that of foreign industry."...

According to the full quotation, Adam Smith was actually saying that investment in domestic industry and its produce - i.e., localisation not globalisation - promotes the "public good"... He was, actually, promoting a sort of economic nationalism!!!

What Else Did Adam Smith Say?

There are many other things that Adam Smith wrote, which are also never mentioned or highlighted. Some of his other observations, that are carefully never mentioned:

On "State vs. Business" Issue: Lesser of the Two Evils!

  • "The capricious ambition of kings and ministers has not, during the present and the preceding century, been more fatal to the repose of Europe than the impertinent jealousy of merchants and manufacturers... the mean rapacity, the monopolizing spirit of merchants and manufacturers, who neither are, nor ought to be, the rulers of mankind..."

    On Industry/Trade Associations/Forums
  • "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary."

    On Nature of Sustainable Nature of Wealth:
  • "The unstable and perishable nature of stock and credit, however, render them unfit to be trusted to as the principal funds of that sure, steady, and permanent revenue which can alone give security and dignity to government. The government of no great nation that was advanced beyond the shepherd state seems ever to have derived the greater part of its public revenue from such sources"

    On Corporation & Corporate Governance
  • "The pretence that corporations are necessary for the better government of the trade is without any foundation. The real and effectual discipline which is exercised over a workman is not that of his corporation, but that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence. An exclusive corporation necessarily weakens the force of this discipline."

    On "Export-Led" Economies
  • "According to the natural course of things, therefore, the greater part of the capital of every growing society is, first, directed to agriculture, afterwards to manufactures, and last of all to foreign commerce... Some of their lands must have been cultivated before any considerable towns could be established, and some sort of coarse industry of the manufacturing kind must have been carried on in those towns, before they could well think of employing themselves in foreign commerce. "

    On Bilateral Trade Agreements
  • "WHEN a nation binds itself by treaty either to permit the entry of certain goods from one foreign country which it prohibits from all others, or to exempt the goods of one country from duties to which it subjects those of all others, the country, or at least the merchants and manufacturers of the country, whose commerce is so favoured, must necessarily derive great advantage from the treaty.... Such treaties, however, though they may be advantageous to the merchants and manufacturers of the favoured, are necessarily disadvantageous to those of the favouring country."

    etc. etc.

    To be sure, Adam Smith was not against free-market. However, his definition of "free-market" was quite different (in many ways, opposite) than what is attibuted to him nowadays.

    A couple of years back, I had made a posting on this blog entitled: Capitalism contradicts Free Market!!! I am reproducing it again:

    We normally use the term capitalism and free-market in the same breath -- in fact, often interchangeably.

    If one really thinks about it, the "Free Market Capitalism" (or "Capitalistic Free Market") is a contradiction in terms. Capitalism is based on an economic doctrine which concentrates the power to a few., while Free Market is based on assumption of equal distribution of power across markets.

    Also Adam Smith's Free Market Theory was based on some assumptions:

    (1) player are not large enough to influence the market dynamics
    (2) there are no "information assymetries" (or trade secrets)
    (3) trade across nations/ regions is balanced
    (4) sellers are also producers, etc.

    Clearly, none of these holds in the present day real world: World's largest 200 corporations earn sales revenues which are greater than the combined GDPs of 48LDCs; IPR regime blocks free flow of information; trade barriers and subsidies by richer nations do not allow balanced trade across regions, and sellers are often out-sourcers... etc.

    So one can either support capitalism or support free market!!!

  • Sunday, December 25, 2005

    Setting the Terms of Debate - Part II (Volcker Report)

    This is the promised continuation of the last post, which ended with the statement:

    For that matter, the Volcker Report itself is a good example of "setting the terms of debate".

    ...Set-up to investigate the corruption in the UN-sanctioned Oil-For-Food program, Paul Volcker's agenda clearely (and cleverly) skirted any investigation in the historical background of the Oil-For-Food Program (and the illegal, criminal activities that led to the necessity of having such a program) here is a brief reminder of the historical background:

    1. In August 1990, UN Security Council, led/convinced by the US, imposed trade santions against Iraq, as a punishment for its invasion of Kuwait.

    2. Why did Iraq invaded Kuwait? Iraq suspected and blamed Kuwait of "slant" mining into Iraqi territory... As this story points out, apparently, it was "set up" to create a justification for US to invade...
    Was Gulf War A Setup For Iraq?

    3. To build up support for military action against Iraq, in October 1990, "Nurse Nayirah", an alleged refugee from Iraq, told the US Congress how she had witnessed Iraqi soldiers dumping Kuwaiti infants out of their incubators "on[to] the cold floor to die," and then leaving with the machines.

    This testimony was organised by the PR company, Hill & Knowlton, who were hired by the exiled Kuwaiti government, to create support for the US counterstike. The company also got the tearful performance filmed and circulated it to more than 300 news-channels...

    The 15-year old "Nurse Nayirah" later turned out to be the daughter of Kuwaiti ambassador to the US, and two maternity nurses in that ward later said that they had never seen Nayirah there and that the baby-dumping had never happened).

    But by that time, the US Congress had already approved the invasion of Iraq (leading to Gulf War I)...

    ...Hill & Knowlton got paid US $14 million by the US government for its help in promoting the Gulf War.
    Nurse Nayirah (Wikipedia)
    Lies, Damn Lies and War (Daily Mirror)

    4. During the Gulf War of 1991, US forces intentionally - and in contravention to Article 54 of Geneva Convention - bombed Iraq's civilian infrastructure (the Iraqi electrical grids that powered its 1,410 water-treatment plants). This was a calculated move. To quote the scenario predicted in one of US Defense Intelligence Agency document (Jan 1991, titled "Iraq Water Treatment Vulnerabilities"):

    "SUBJECT: Effects of Bombing on Disease Occurrence in Baghdad
    Food- and waterborne diseases have the greatest potential for outbreaks in the civilian and military population over the next 30 to 60 days.... Increased incidence of diseases will be attributable to degradation of normal preventive medicine, waste disposal, water purification/distribution, electricity, and decreased ability to control disease outbreaks. Any urban are in Iraq that has received infrastructure damage will have similar problems."

    How the US Deliberately Destroyed Iraq's Water

    5.Not surprising that by mid-90s, the Iraqi population was devastated.

    Iraq was dependent on its oil exports for its food imports. Combined with the use of later UN sanctions - embargo on export of Iraqi oil, which reduced its legal foreign trade by 90% - to prevent Iraq from getting the equipment and chemicals necessary for water purification (and food), this was a perfect recipe for an UN-mandated genocide:

  • The World Health Organization (WHO) observed in March 1996 that, due to the sanctions, there was a six-fold increase in the mortality rate for children under five and the majority of the country's population was on a semi-starvation diet.

  • UNICEF reported in October 1996, that about 4,500 children under the age of 5 were dying every month in Iraq due to hunger or disease.

  • UN figures showed that by 1995-96, more than 1.7 million Iraqi civilians had died as a result of the sanctions. ...etc.
    Bleeding The Gulf
    UNICEF Says Thousands of Iraqi Children Are Dying

    6. In May 1996, Madeleine Albright, the then US ambassador to the UN (and later made the US Secretary of State), when asked about the death of half a million Iraqi children due to sanctions, made the (in)famous statement: "I think that is a very hard choice, but the price, we think, the price is worth it."
    Iraqi Sanctions: Were They Worth It?

    7. After a major public outcry, the Oil-for-Food program was established in 1996 through a UN resolution... after much resistance by Saddam Hussain.

    Reasons for the reluctance/resistance were many:

  • The price fixed for sale of oil was much below the global market price.

  • Proceeds from such oil sales were banked in New York. 34% of that was disbursed to outside parties with claims on Iraq, e.g., the Kuwaitis, UN, etc. Another 13% went to meet the needs of the Kurdish autonomous area in the north.

  • The rub was that US could anytime deny the import of any equipment - which it did, e.g., when it allowed the purchase a sewage treatment plant, but blocked Iraq from buying the generator necessary to run it!!! ...etc.

    8. Meanwhile, the US-UK coalition enforced "no-fly" zones over north and south Iraq (they were illegal, since not mandated by UN... Surprisingly, they were also not objected-to by UN either!), and kept on bombing Iraq for 12 years... The so-called "international community" - an oft-used term these days - sat on the fence and watched a nation being decimated...
    Iraq Was Being Bombed During 12 Years of Sanctions
    Squeezed to death

    9. Since then, we all know that US re-invaded Iraq on the pretext of the alleged WMDs (Weapons-that-Mysteriously-Disappeared...

    ...etc. etc.

    Predictably, Paul Volcker's report on Oil-for-Food program does not go into this histry of deceptions/ crimes/ payoffs, etc...

    It starts with the innocent premise that the Oil-for-Food program was "legal" (thus, justifying the sequence of actions that led to - and followed - it as "legal")....

    After all, if Genocide is taken as legally sanctioned by the "rule of law"... Then any action - for whatever reasons - that violates the intention to kill becomes "illegal"...

    This is setting the term of debate!!!

  • Wednesday, December 21, 2005

    Setting the Terms of Debate - Part I

    An old adage of public deception - to paraphrase Thomas Pynchon - is:

    "If you get them to ask wrong questions, you will never have to give the right answers."

    This is a good description of what is often termed as "setting the terms of debate" - he who sets the ground rule, is bound to win.

    A good example of this phenomenon is the response of Indian main-stream media and politicians to the Volcker Report. The report mentioned 129 Indian companies and one politician (Natwar Singh) as the "non-contractual beneficiary" of the kickbacks.

    Predictably, there are numerous questions raised in the parliament, cover-page articles, first-page headlines, etc., about Natwar Singh's role (or its refutal).

    Surprisingly (or perhaps not really so), there is hardly any coverage, questions or comments about the alleged role of the Indian companies mentioned in the report (that include some big names like Reliance Industries, Tata international, India Oil, Godrej Boyce, Kirloskar Brothers, Alembic Chemicals, Ajanta Pharma, State Trading Corp, etc.).

    And that is how, the terms of "public debate" are set...

    ... for that matter, the Volcker Report itself is a good example of "setting the terms of debate".... (so wait for Part II of this posting)...

    Saturday, December 10, 2005

    Organisations as Phrog Farms

    I had read this article, by Jerry Harvey, when it was published in Organizational Dynamics journal, I think, in 1977. Recently, I discovered it once again (as a chapter in his book Abilene Paradox and Other Meditations on Management)...

    ...It is a depressingly insightful and hilariously zany look at the contemporary organisations - that sadly remains as much relevant now, as it was then.

    Some excerpts:

  • All organizations have two essential purposes. One is to produce widgets, glops, and fillips. The other is to turn people into phrogs. In many organizations, the latter purpose takes precedence over the former. For example, in many organizations, it is more important to follow the chain of command than to behave sensibly.

  • Phrog is spelled with a ph because phrogs don't like to be known as frogs, and they try to hide their phroginess from themselves and others by transparent means... For one who has been a person, it's a great come down to be a phrog.

  • Phrogs tend to live a solitary life in the swamp, or as one phrog said, "It's a lonely life on the lily pad." Phrogs compete with one another for insects, vie for the right to head the flicking order of the swamp, and are ultimately evaluated for what they do in their own mud flats.... Most phrogs spend more time flicking flies in the fog than draining the swamp. It seems that their behavior is circular. If they were to spend time draining the swamp, there would be no flies to flick - and no phrogs. For that reason, it's very important to phrogs to maintain the swamp as it is rather than to drain it.

  • In phrog farms, bullphrogs generally get to be phresident. In other words, the better a phrog can tolerate the loneliness of his lily pad,
    - the more facile he becomes in flicking flies,
    - the more skillful he becomes at appropriating others' lily pads, and
    - the more adroit he becomes at maintaining the swamp,
    the more likely he is to become phresident.

  • Bullphrogs are greatly revered in the swamp. In fact, other phrogs assume that bullphrogs have magical powers because of their unusual abilities to turn people into phrogs... The magic exercised by bullphrogs comes from humans' belief in it. The tyranny of bullphrogs stems not from the reality of bullphrogs' power, but from the human belief of the myth of "bullphrog power." Belief in bullphrog power prevents humans from having to take responsibility for the fog and mud and moss that make up the atmosphere of the swamp.

  • Bullphrogs - particularly phresidents - frequently feel very trapped in the swamp. Many of them are destroyed by it. They feel trapped because they are trapped...

  • ...Management improvement programs generally consist of phrog kissing, which is magical, harmless, and platonic. Any activity designed to facilitate phrog kissing is cosmetic organizational development an example of ODD behavior - that is, organizational development, by deception - or organizational improvement as practiced by phrogs. Activities such as phrog style assessment, phrog chorus-building, and inter-lily-pad conflict resolution, in the absence of swamp drainage and area reclamation, are examples of phrog kissing by ODD managers...

  • ...Occasionally, during meetings of Phrognarians, a phrog pharts in the fog. When that happens, the phrog loses some of his or her phroginess and, therefore, represents a great threat to the balance of the swamp. Phrog pharts are seldom sanctioned by Phrognarians. They are too real. They put holes in the fog and ultimately threaten the atmosphere of magic required to maintain the swamp...

  • ...The job of most swamp managers is to maintain and enhance the swamp, not to drain it... The purpose of swamp consultants - in the eyes of swamp managers - is to help the swamp operate effectively, not to drain it.... Most management improvement literature is designed to facilitate swamp management, not area reclamation. Most managers are phrog farmers, and most management consultants and phrogfessors of marsh management are phrog farmers' helpers. The relationship is symbiotic.

  • Most phrog farmers and their helpers are aware that they are mired in the swamp... May God have mercy on their souls...

  • God does have mercy on their souls. Otherwise, God would be the greatest phrog farmer of them all.


  • Thursday, December 01, 2005

    India's Most Privatised and "Invisible" Workforce

    One may have used the term "Working Poor" to describe them, but, to my knowledge, this term is not much in currency in India. Instead, they are termed as part of "unorganised or informal workforce"...or more often than not, they remain nameless, faceless part of the country.

    So who are they?

    Of course, the "rural poor" are part of this category. But even if one lives in an Indian city/town - big or small - and moves out of the neat and clean commercial and residential area (only from which one would be able to access this blog/mail)... and one decides to notice ...well, they are actually all around!!!

    - On the sidewalks which are occupied by vendors and hawkers of vegetables, fruit, meat, fish, snack-foods and a myriad of non-perishable items ranging from locks and keys, soaps and detergents, clothing, vessels to books...

    - On the sidewalks and street corners, as the owners of those numerous stalls and kiosks selling various things and services... as the road-side cobblers, barbers, tailors, book-binders, cycle mechanics... as the garbage collectors, rag-pickers... construction workers...

    - On the road, one would also notice them as head-loaders, cart-pullers, camel/bullock/horse-cart drivers ferrying goods/passengers to other places... and of course, the rickshaw and auto rickshaw drivers... the truck drivers...

    - Down the narrow crowded lanes, they work in/ own small workshops that repair bicycles and motorcycles, recycle scrap metal, make furniture and metal parts, tan leather and stitch shoes, weave, dye, and print cloth, polish diamonds and other gems, make and embroider garments, sort and sell cloth, paper, and metal waste... and more.

    - Many of them remain "invisible" and produce and sell from their homes/shanties (mostly women) as garment makers, embroiderers, incense stick rollers, bidi-rollers, paper bag makers, kite makers, hair band makers, pickle and papad-makers, and others.

    - Back in one's home, they work as maids, domestic servants, chauffeurs, gardners... the person who comes to wash the car, to deliver newspaper, milk...

    Irrespective of their trade, however, they share a few things in common:

  • they work without a secure contract,
  • they have no or minimal worker/employment benefits, and
  • they have no access to social, or even legal, security.

    ... And they comprise of 93% of India's 370mn strong economically active workforce.

    Even in the urban centers of India (Delhi, Mumbai, Bangalore, Chennai, etc.) - which cluster most of the employment opportunities - this "unorganised workforce" accounts for about 60-67% of total employment.

    ...As a collective entity they are quite productive as well. These "India's most privatised citizens" contribute to:

  • 60% of Net Domestic Product
  • 68% of income
  • 60% of savings
  • 31% of agricultural exports
  • 41% of manufactured exports

    They perform one other very "useful" function in the society, which is least acknowledged:
    They subsidise life-styles of their "more organised" fellow citizens!!!

    One of the hopes/dreams (/fantasy/delusion/hallucination?) of the middle-class Indians is that, with the liberalisation of economy, the wealth will "trickle down", and these boats will also rise with the tide...

    Somehow, this has not happened (in fact, it has not happened anywhere in the world either). In fact, if anything, - though there are more formal enterprises in India than 15 years back - the proportion of the "unorganised" in the workforce has risen from 89% in 1989 to 93% today .

    ...and their numbers will perhaps keep on rising... as India's formal enterprises increasingly become "leaner" and more "competitive", increase their "labour/manpower productivity", and achieve the "least-cost producer" status, etc.,....

    After all, where else do all those down-sized/right-sized people disappear and become "invisible"??!!!