Indian Journal of Human Development - Super Capitalism and the Indian Corporate Economy (Krichewsky)

8/7/2019 Indian Journal of Human Development - Super Capitalism and the Indian Corporate Economy (Krichewsky)

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Review ARticle

Supercapitalism and

The Indian Corporate Economy

Damien Krichewsky*

This review article o Robert Reich's book SupercapitalismThe Transormation o Business,Democracy and Everyday Lie, brings orth the debate on corporate social responsibility (CSR).The book, while discussing CSR, also refects on the relationships between private capital and thestate. Ater a presentation o the main arguments o Supercapitalism and a brie review o its

shortcomings, the present article conronts Reich's analytical ramework with the Indian case, inorder to assess its relevance.

From Democratic capitalism to supercapitalism

The author starts with a rather common observation: from the 1940s to the 1970s,capitalism and democracy seemed to go almost hand in hand. Large corporations suchas General Motors in the United States controlled major shares of the national marketand were able to generate comfortable prots thanks to a rising middle class, withoutbeing pressurized by any erce competition. In order to reduce uncertainties andstabilize their manpower, these companies were keen on negotiating with powerfultrade unions, which were able to secure a fair share of benets for the workers.

Thanks to a scenario of rising productivity and limited competition, the companiescould transfer the burden of rising wages on to their consumers, thus maintainingreasonable prots. As a result, American consumers were not provided with cheapand innovative products. However, their living standards were improving steadilyand income disparities within the nation were shrinking, with the result that the vastmajority of households were actually beneting from this system. Regarding thegovernment, it was playing a major role in framing the negotiations between variousgroups of interests, be it manufacturers associations, farmers federations, the retailindustry, shareholders, trade unions, consumer associations, political parties, etc.Moreover, the State was sustaining the national economy through Keynesian policies,and major investments in the defence sector, wherein technological innovations werepercolating down to the private sector, as well as by granting access to new markets

abroad in the framework of its foreign policy, be it in Europe or in Japan. Finally,in an oligopolistic conguration, corporate leaders could afford to look after thenational interest, responding positively to some of the governments requests. Manyof what Reich calls the industrial statesmen had had the chance to serve in the publicadministration, and thus they were readyand could affordto pay attention to thegeneral interest, beyond the immediate interest of their companies.

Indian Journal of Human Development, Vol. 2, No. 2, 2008

* Centre for Sociology of Organization-Science - Po, Paris.


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484 Indian Journal of Human Development

In the 1970s, however, democratic capitalism started crumbling. Firstly, hugeinvestments made by the State in R&D to improve the technology of its defence

sector progressively percolated down to the private sector, thus enabling smallerrms to compete with the existing oligopolies, thereby forcing them to innovate anddiversify their production. Thus, economies of scale were not sufcient any longer,with successful business being increasingly achieved through exibility, constantinnovation of products, and marketing. Secondly, the large logistics networks, whichwere put in place to provide supplies to the American army in Vietnam, contributed tothe development of international trade and the ow of Asian products into the domesticmarket. Finally, the progress of technologies created new business opportunities inkey sectors such as telecommunications, nance services and civil airlines. In order tograsp those opportunities, private companies lobbied with the State and succeeded inbringing about both deregulation and the dismantling of state monopolies.

The combination of those three phenomena resulted in the end of the golden

age of democratic capitalism and gave birth to what Reich calls supercapitalism, aglobalized system based on erce competition and an unhealthy inuence of marketinterests on the State. Under the reign of supercapitalism, consumers and investorshave denitely won the lions share. Markets are fuelled with innovative products,and global retail industries such as Wal Mart safeguard the interests of millions ofconsumers, thus pressurizing their suppliers for cheaper goods and services. Similarly,the nancial sector has become one of the most lucrative ones, and mutual fundsand pension funds promote the interests of millions of shareholders to pressurizecompanies for higher nancial returns.

However, the high economic performance of supercapitalism has been achieved atthe cost of employees and citizens. While increasing the exibility of labour markets to cutcosts and attract new consumers and investors, companies have weakened trade unions:in the 1990s, one out of four trade union elections triggered illegal retrenchments in theUS. Thus, unions lost their ability to protect the employees from deteriorating workingconditions, higher working hours, increased pressures on productivity, and higher jobinsecurity. The author takes the example of Wal Mart, which he describes as a giantsteamroller moving across the global economy, pushing down the costs of everything inits pathincluding wages and benetsas it squeezes the entire production system.Moreover, the quest of companies for new competitive advantages has not stopped at thedoors of democratic institutions, and the pervasive inuence of private business interestson political decision-making has harmed, to a signicant extent, the good health of theAmerican democracy. Reich explains this phenomenon with a classical demand andsupply theory: while demand in corporate funding by political parties has increased,so as to keep pace with the development of mass media communication, the supply hasfollowed the same trendcompanies push the limits of lobbying relentlessly, in orderto improve their position in the race for market shares.

is there any Way out oF the Faustian pact?

Although the economic performance of capitalism has improved in the short run,supercapitalism has also increased the social and environmental negative externalities


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of business. But because of the pervasive inuence of private companies on theproduction of public policies, the State does not effectively regulate companies, nor

does it force them to internalize those externalities. Hence, the American democracyseems unable to tackle the issues of social injustice, environmental degradation, climatechange and business-related human rights violations, though these issues appear tobe a major concern for citizens. In order to explain this paradox, Reich underlinesthe inherent schizophrenia of the contemporary common man, who has contracteda kind of Faustian pact: as an employee and a citizen, he is well-informed about theevils of super-capitalism, but as a consumer and a shareholder, he accepts the trade-off. In other words, while the market has improved its efciency in satisfying ourindividual economic needs, democratic institutions such as trade unions and electedrepresentatives, have lost their ability to satisfy our collective social aspirations.

In order to avoid the hardening of public regulation, and to maintain their sociallicence to operate, companies have come up with a new mantra: corporate social

responsibility (CSR). Under this vast umbrella, companies claim that they are aboutto become good citizens and take the general interest of the public into account. Thisis what the notion of triple bottom line is all about: on a voluntary basis, addingsocial and environmental indicators to the existing nancial evaluation of a companysperformance. While governments tend to encourage the development of CSR, whichlightens their burden and prevents social protest, Reich thoroughly deconstructs themyth of CSR. His rst argument is powerful: in a context of supercapitalism, companiescannot be socially responsible on a voluntary basis. Quoting several studies, he showsthat apart from a few market niches, consumers and investors do not reward goodcompanies, nor do they effectively sanction those companies which perform poorlyin terms of social and environmental practices. Hence, communication and gimmicksapart, no CEO can afford to truly defend the interests of citizens and employees if this

hampers the short-term business prospects of the company. Secondly, the author showsthat when companies make commitments under the pressure of public campaigners,the commitments which imply higher production costs and less nancial returns arenot put into practice. Hence, according to Reich, CSR is as meaningful as cottoncandy. The more you bite, the faster it dissolves.

Moreover, CSR is politically dangerous, insofar as it diverts the focus of citizensfrom the real problem. According to Reich, CSR creates the illusion that the root ofthe problem lies in the companies, which refuse to safeguard the public interest out ofgreed and selshness. But the root of the problem lies elsewhere, in the inability of theState to effectively set up the rules of the economic game so as to promote social justice,fairness, and real sustainable development. As long as providing cheap products andhigh nancial returns at the expense of what we value as citizens is not made illegal,companies will continue to provide it. Thus, Reich takes a stand similar to that ofMilton Friedman, arguing that the provision of public goods is not the companiesbusiness but the governments business (Friedman, 1970).

Drawing on this analysis, Reich concludes with a citizens guide tosupercapitalism. According to him, the only way out of the Faustian pact is thatcitizens and campaigners target their government and ask for stringent laws and


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regulationsstarting with measures to drain the corporate money out of theirdemocratic institutions. However, such a movement would need to clarify the

respective responsibilities of the market and the State. Thus, Reich warns citizensabout the fallacy of business and political discourses, which claim that companies canand should promote the collective interest beyond their own business interest. Thenotion of corporate citizenship, and more broadly of CSR, is part of such discourses.Defending the denition of companies as impersonal bundles of contracts, Reichoutlines the dangers of the personication of companiescompanies as moral subjects,which entitles them to be represented as such in the democratic institutions. In sucha case, companies would be in a position to downplay the political representation ofcitizens while promoting the economic interests of consumers and investors. On thecontrary, according to Reich, only women and men should be entitled to participate aslegitimate citizens in the democratic decision-making process.

a FeW shortcomings oF reichs supercapitalism

While Reich ends his arguments on a positive note, namely the possibility for citizensto hold their governments accountable in order to restore the balance between privatecapital and the fullment of their collective aspirations, he overlooks a decisivephenomenon: States are competing to secure competitive advantages for their nationaleconomies and for attracting investment. Hence, if American citizens, or Europeancitizens, put pressure on their governments to adopt reforms that hurt the investorsinterests, companies tend to delocalize their activity in more investor-friendly economies.Therefore, only a supranational regulating agency would be in a position to counter thisrace to the bottom, and while preventing any State from adopting a free-rider strategy(Olson, 1971), protect public interest and democracy from the ills of supercapitalism.Many attempts have been made in this regard in the past, but they have all failed to

come up with a constraining regulatory framework for private companies (Utting andClapp, 2008). Moreover, if we follow Reich in saying that the only solution can comefrom a citizens movement, such movement would have to be a global one. But as wehave witnessed in the case of the anti-globalization movement, it is highly divided, andonly educated elites have the know-how, as well as the social, technical and nancialresources to organize such movements. Thus, though various citizens movements andpublic campaigns do make a difference, they do not seem in a position to counter theinuence of private capital on democratic states at a global level.

Another controversial point in Reichs argumentation is the way he advocates theisolation between capitalism and democracyprivate companies should limit themselvesto economic activities, and democratic institutions should limit themselves to embodythe collective aspirations of citizens. Although Reich is quite convincing when he argues

that the inuence of private capital on democratic institutions has gone too far and harmsthe realization of collective aspirations, the idea of separating the economic domain fromthe political domain seems both impossible and problematic. It is impossible insofar aseconomic activities and markets are invariably embedded in society and socio-politicalinstitutions. Hence, the socio-political implications of economic decisions, as well as theeconomic implications of public policies and social movements, are de facto discussedand looked after in negotiations, which are based on the balance of power among the


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various participants involved. Secondly, as argued by Polanyi, the disembeddedness of theeconomic sphere from the non-economic spheres of societies would, in certain contexts, increase

the risks of fascism and of the collapse of social organization (Polanyi, 1944).Finally, though Reich explicitly looks at the case of American capitalism, he

suggests that because of globalization, the model of supercapitalism has been exportedto most of the worlds market economies. However, social and political institutionsvary signicantly from one country to another. Those institutional differences accountfor the great variety of capitalisms across the world (Hall and Soskice, 2001). Hence,it is not obvious that the processes of globalization induce similar transformations ofcapitalism and its relationship with democratic institutions in different countries. Ifwe take the case of India, for instance, has the liberalization and deregulation of itseconomy from the mid-1980s onwards brought Indian corporate capitalism closer tothe American model of supercapitalism?

applying the notion oF supercapitalism in the inDian context

Applying the notion of supercapitalism to the Indian case rst necessitates ananalysis of the similarities and differences between the structures and evolutions ofAmerican capitalism, and those of Indian corporate capitalism. A comparison of theUS democratic capitalism and Indian corporate capitalism under the interventionistarea (from Independence to the era of economic reforms starting in the mid-1980s)reveals two striking similarities. First, the Indian industry was also dominated bylarge oligopolies, which were operating in a context of limited competition, thanksto the strategy of import-substitution and the severe limitations imposed on foreigninvestment. However, whereas American companies were operating in single butexpanding markets, the growth of Indian business houses was limited in each marketby the licence raj. Thus, encouraged by the structure of joint Hindu families, Indiancompanies grew in the form of conglomerates. Secondly, both the American State andthe Indian State supported their national industries in the framework of their respectivesocio-economic development strategies. Moreover, as it appears in the Bombay Planof 1944, both Indian industrialists and the State shared the vision of an industry-leddevelopment with strong intervention of the State. However, whereas in the US, theindustrial activity was contributing efciently to the rise of a middle class and theprosperity of the masses, Indian industry under the interventionist area failed to fullthe development objectives of the Nehruvian state, that is, uplifting the masses out ofpoverty and modernizing the Indian economy (Mukherjee-Reed, 2001, pp. 94-129).

As outlined by Reich, the model of democratic capitalism started giving way tosupercapitalism in the mid-1970s, resulting in a erce competition between companies,

as well as high economic performance at the expense of democracy. In India, thedismantling of the interventionist model, which started cautiously by the end of the 1970sand took off in the mid-1980s (Panagariya, 2008, pp. 78-109), induced major changes asfar as Indian corporate capitalism is concerned. Exposed to both foreign competition andnew business opportunities, large companies modernized their machinery, restructuredtheir activities and reorganized internally (Luce, 2006, p. 51). Moreover, the nancialsector and the pattern of corporate investment have somehow reinforced the power of


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private investors over companies. However, though major sectors such as the automobileindustry, private airlines, or the IT sector, are operating under a supercapitalist scenario,

Indian corporate capitalism seems to be far from the American model of supercapitalism.First of all, the overall level of competition between companies remains limited, andapart from a few sectors, it has decreased since the early 1990s (Banerjee, 2005, pp. 70-72). Secondly, though Indian large companies rely increasingly on private foreign anddomestic investors and stock markets, the structure of corporate governance and theloopholes of the Companies (Amendment) Act, 1999, have contained the inuence ofshareholders. Thus, the managerial control over companies still remains largely in thehands of the business families (Mukherjee-Reed, 2001, p. 159).

Two other indicators need to be looked at in order to assess the transformation ofIndian corporate capitalism towards a supercapitalist model. The rst is the impact ofthe economic reforms on the labour market. On this account, it seems that though thewhite-collar employees have beneted from the rapid development of the private sector

in India, the situation of the workers has clearly deteriorated: employment growth inthe non-agricultural sector has decreased, the ratio of casual labour/permanent workershas substantially increased, permanent workers have been massively retrenchedthrough voluntary retirement schemes, labour departments and the judiciary have shiftedfrom a pro-employee to pro-employer stand, trade unions are weakened, etc. (Banerjee,2005; Roy, 2008; Thakur, 2008). The other indicator is about the inuence of businessinterests on the political decision-making. As Mazumdar has shown recently, thoughthe intertwining of business, on the one hand, and administrative and political decision-making, on the other, have been constant features of Indian corporate capitalism, thepost-interventionist area has witnessed an increasing inuence of industrial and nancialprivate capital on the State, and more largely on the path and strategies of national socio-economic development (Mazumdar, 2008).

In other words, though most of the Indian companies are not as exposed to pressuresfrom consumers and investors as are their American counterparts, they have adoptedsimilar practices of pressurizing the employees and inuencing the State in order tomaximize their prots. This could be explained by the proximity between the biginvestors and the managers, both of whom have an interest in doing so. Other factors dofacilitate such practices, such as the weak level of State governance, the high prevalenceof corruption at all levels of the State apparatus, the parochial and clientelist natureof the Indian electoral democracy, as well as the lack of economic, socio-political andknowledge-based resources of those who are directly affected by such practices. It isthus difcult for them to protest or to defend their rights in the courts.

Beyond the analysis of corporate capitalism and its relation with democratic

institutions per se, Reich underlines the schizophrenic position of American individualstowards supercapitalism: most of them both benet from supercapitalism asconsumers and investors, but suffer from supercapitalism as employees and citizens.An assessment of the Indian context reveals a fundamental difference between thedeveloped countries and emerging countries. The benets and costs of the economicactivity seem to be far more polarized in India, so that we can speak of a social dividerather than an individual schizophrenia. While about 10 per cent of the population


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directly benets from the transformations of Indian capitalism through higher salaries,better products and new investment opportunities, almost 70 per cent of the people

still have insufcient incomes to access essential goods and do not directly benet, asworkers, consumers, or investors, from the transformations of the Indian corporateeconomy (Guruswamy and Abraham, 2006). Moreover, in a context of decient socialand environmental regulation of companies by the State, those who bear the social andenvironmental costs of the booming private sector are part of the weakest sections ofsociety and do not obtain signicant benets from Indian corporate capitalism: migrantand casual workers, displaced farmers and adivasis, victims of industrial pollution,and rural populations in terms of the impacts of climate change, among others.

Considering the above-mentioned major differences between the American andthe Indian scenarios, how does the critical analysis offered by Reich on CSR applyto India? Exploring such a question necessitates drawing back on a brief reviewof the historical features of Indian CSR. As underlined by Sundar, big business

houses have had a long tradition of philanthropy, community development, andpaternalistic management (Sundar, 2000). Thus, CSR has for long been consideredas a positive contribution of business to national development. However, for thepast ten years or so, the Indian CSR agenda has undergone tremendous changes.While traditional patterns of CSR still dominate companies practices, new issues(including environmental management, climate change, employment of disabledpersons, etc.), new strategies (such as a shift from charity to participative andsustainable development initiatives, public-private partnerships, etc.), and practices(such as publication of annual CSR reports, social and environmental certication,participation in international initiatives such as the Global Compact, etc.) haveemerged and tend to spread among companies.

Although a comprehensive assessment of the way in which these changes relateto the evolutions of Indian corporate capitalism would exceed the scope of this article,several points can be made.1 First, the rapid development of the CSR agenda can beunderstood as a direct response by companies to rising social discontent regarding thesocial and environmental impacts of their activities. Conversely, as in the US, there isa large discrepancy between the CSR strategies and practices of companies, on the onehand, which tend to focus on communication and brand-building, and the concretesocial and environmental impact of their activities, on the other hand. Secondly, thedevelopment strategy of the State, and most of its recent public policies, are clearlyin favour of industrialization and the growth of the private sector (Reed, 2004).Hence, CSR is used both by private companies and by the State to legitimize suchpro-investment public policies, in order to keep the social demand for stronger publicregulation of companies at bay. However, while CSR can effectively foster synergiesbetween the companies interests and the public interest, it appears to be inappropriatewhen business interests are conicting with public interests. This is all the more true inview of the weak enforcement of labour laws, environmental laws, and rehabilitationand resettlement policies. In other words, it seems difcult to conceive that companieswhich are not complying with the existing legal provisions, in order to reduce theirproduction costs and take advantage of a decient regulation by the State, will adoptand respect stringent social and environmental standards on a voluntary basis.


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This last argument brings us back to Reichs major criticism of CSR, which appearsto be perfectly relevant in the Indian context. Only a strong and independent State can

prevent, as much as possible, the private sector from harming the collective interest.And contrary to the claims made implicitly or explicitly by companies in the frameworkof their CSR policies, the elected government is the sole legitimate social body, whichcan dene the balance between economic growth, social justice, and the protection ofthe environment. This requires a well-functioning democracy, the autonomy of politicaldecision-makers and bureaucrats from private companies, an active civil society andeducated citizens, a functioning welfare State, as well as a strong judiciary and a state oflaw. In other words, though some forms of CSR can constitute a valuable contributionwhen both business interests and the collective interest happen to meet, the achievementof inclusive growth seems to require the Indian society to take up the challengesmentioned above. Otherwise, the widening gap between the beneciaries of the currentmodel of corporate capitalism, and those who bear the social and environmental costs of

economic growth, might lead to increased violence and social unrest.

note

1. MostofthestatmentsmadehereunderarebasedonanextensiveeldworkonCSRinIndia,withafocus

onthecementsector.Thiseldworkincludedmorethan150qualitativeinterviews,aeldsurveywith

180questionnaires,aswellasbothprimaryandsecondarydocumentation.Unfortunately,thendingsof

thiseldworkhavenotyetbeenpublishedinanyEnglishlanguagepublication.

reFerences

Banerjee, D. (2005). Globalization, Industrial Restructuring and Labour Standards, Sage Publications,New Delhi.

Friedman, M. (1970). The Social Responsibility of Business is to Increase Prots, New York Times.

Guruswamy, M. and R.J. Abraham (2006). Redening the Poverty Line in India, Public PolicyResearch, Vol. 13, No. 3, pp. 191-99.

Hall, P.A. and D. Soskice (2001). Varieties of Capitalism: The Institutional Foundations of ComparativeAdvantage, Oxford University Press, Oxford.

Luce, E. (2006). In Spite of the Gods, Little Brown, London.

Mazumdar, S. (2008). Crony Capitalism and India, Before and After Liberalization, ISID Working PaperNo. 2008/04. New Delhi.

Mukherjee-Reed, A. (2001). Perspectives on the Indian Corporate Economy, Palgrave, New York.

Olson, M. (1971). Logic of Collective Action, Harvard University Press, Cambridge.

Panagariya, A. (2008). IndiaThe Emerging Giant, Oxford University Press, New Delhi.

Polanyi, K. (1944). The Great Transformation, Beacon Press, Boston.

Sundar, P. (2000). Beyond Business: From Merchant Charity to Corporate Citizenship, Tata McGraw-Hill,New Delhi.

Reed, D. (2004). Corporate Governance Reforms in Developing Countries, in D. Reed and S.

Mukherjee (eds) Corporate Governance, Economic Reforms and Development, Oxford UniversityPress, New Delhi.

Roy, S. (2008). Structural Change in Employment in India since 1980s, ISID Working Paper No. 2008/05.New Delhi.

Thakur, C.P. (2008). Labour Policy and Legal Framework in India, in T.S. Papola (ed.) LabourRegulation in Indian Industry, No. 1, Bookwell, New Delhi.

Utting, P. and J. Clapp (2008). Corporate Accountability and Sustainable Development, Oxford UniversityPress, New Delhi.


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Indian Journal of Human Development - Super Capitalism and the Indian Corporate Economy (Krichewsky)