Dhirubhai Ambani: The Heathcliffe of Indian business

This is an excellent introspection. Hope to read more!

For Ayn Rand enthusiasts:

http://www.nytimes.com/2002/07/21/weekinreview/21WORD.html

Greenspan Shrugged

By BILL GOLDSTEIN

IN 1996, he questioned the ``irrational exuberance`` of the American investor. Last Tuesday, Alan Greenspan, chairman of the Federal Reserve, brought that era to a definitive end with his diagnosis that ``an infectious greed seemed to grip much of our business community.``

Acknowledging he was wrong in his long-held belief that the government should not regulate the accounting industry, Mr. Greenspan also said: ``It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously.``

Mr. Greenspan`s embrace of greater regulation is a remarkable turnaround for an economist who for many years was a close friend and colleague of Ayn Rand, the high priestess of unfettered capitalism, who fulminated against the ideas Mr. Greenspan now espouses. In the early 1950`s, while in his 20`s, Mr. Greenspan was a member of Rand`s inner circle (they called themselves the Collective), and was among those who read her influential 1957 novel, ``Atlas Shrugged,`` in manuscript. It was written, Rand once said, ``to glorify the real kind of productive, free-enterprise businessman in a way he has never been glorified before.`` But, she added, ``I make mincemeat out of the kind of businessman . . . that runs to government for assistance, subsidies, legislation and regulation.``

Forty-five years after the publication of her magnum opus, which Rand herself compared to the Bible, greed apparently represents a greater danger to capitalism than government bureaucrats. But back then neither Mr. Greenspan nor Rand seemed to have envisioned the unethical behavior of some of today`s captains of industry. Excerpts follow from Rand`s work and from a 1963 essay written by Mr. Greenspan for The Objectivist Newsletter, which was devoted to Rand`s philosophy...``

(Let me know if you want the whole article posted)

Dear Nagnatheshwar,

Merci for the calculations. Ambani had one huge fortune. And as my prime source on Ambani tells me, it all started with Yemeni coins!!

Hi H,

Lovely analysis. I think you hit the nail on the head on the shareholder issue. My uncle was talking about it the other day-- how he invested in 400 shares of Reliance in the late 70s when nobody knew about them, how he then used the gains to fund his first motorcycle, and so on. It was quite touching. Maybe the spontaneous outpourings in the street were a response to the simple principle that Dhirubhai followed-- never screw your shareholders. Our new-economy scamsters could learn a lot from them!

Truth be told, it was little annoying to see the barrage of sympathy and tributes-- everyone from pesky socialities to film icons to politicians weeping copious tears at the big man`s demise-- but this is the first piece about him that reads like a genuine tribute, warts and all. Well done.

The comparisons (or non-comparisons) to Murthy and Premji were also spot-on. It would be interesting to see how these squeaky-clean outfits operate in increasingly non-mainstream markets where they will now be forced to look for business oportunities to expand. Good luck to them.

About the nation`s new-found morality - or lack thereof- well, that`s something to be debated over large quantities of Old Monk and Thums Up :))-- can`t say that Bombay Times Pg. 3 stardom is all that worth aspiring to.

(And yes-- you HAD to get that dig in about smart-aleck MBAs didn`t you? Typical!)

Cheers,

N

Sadna

Outstanding. Yes post the whole thing. Self reliance, a level economic playing field, the individual versus the collective. How even method has been replaced - elements of the origins of totalitarian democracy.

Re: samina

``...i’m curious as to know to what extent this will curtail journalistic capabilities/freedom, if at all...``

That decision to allow partial foreign ownership of media in India is a non-event because (i) foreign media is already well represented -- there are no import duties in India on importation of books, journals, publication (ii) Cable/satellite TV and the Internat have changed the rules on distribution of content, and (iii) if there are many sources of consumption of information, then it matters less who owns what.

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sadna #18

What would Ayn Rand say ... an attack on the ``Virtue of Selfishness`` !

Have you also read the analysis on how how the average CEO used to make a FAR less multiple of the lowest wage earners salary in Ayn Rands time ? ... and the assertion in The Bell Curve that now that education is more uniform there is an increasing corelation between IQ and earning power ? ... makes you think what sort of world it is going to be a few centuries from now ...

roohi#26

Selfishness is not self-correcting, no surprise! :)

``Have you also read the analysis on how how the average CEO used to make a FAR less multiple of the lowest wage earners salary in Ayn Rands time ?``

Did they indeed? Paradoxically, perhaps there are more `ordinary` individuals as small investors these days than in those days and so there is more money available ?


hobbyt#21
You seem to be reaching an opposite conclusion to mine, but that said:



Greenspan Shrugged

By BILL GOLDSTEIN

contd from #18
---
In Mr. Greenspan`s essay, titled ``The Assault on Integrity,`` he wrote at length about the functioning of a healthy free-enterprise system and the perils of regulation. (Years later, however, in a profile in The New Yorker, a colleague recounted his warning ``to distinguish carefully between what he believes personally and how he acts as chairman of the Fed.``)
--

Protection of the consumer against ``dishonest and so-called unscrupulous business practices`` has become a cardinal ingredient of welfare statism. Left to their own devices, it is alleged, businessmen would attempt to sell unsafe food and drugs, fraudulent securities, and shoddy buildings. Thus, it is argued, the Pure Food and Drug Administration, the Securities and Exchange Commission and the numerous building regulatory agencies are indispensable if the consumer is to be protected from the ``greed`` of the businessman.

But it is precisely the ``greed`` of the businessman or, more appropriately, his profit-seeking, which is the unexcelled protector of the consumer. . .
.

What collectivists refuse to recognize is that it is in the self-interest of every businessman to have a reputation for honest dealings and a quality
product. . . . Thus the incentive to scrupulous performance operates on all levels of a given field of production. It is a built-in safeguard of a free enterprise system and the only real protection of consumers against business dishonesty.


---
Actually, Mr. Greenspan wrote, a greater threat to a free-market economy with no barriers to ambition or achievement was posed by the government.
---

Government regulation is not an alternative means of protecting the consumer. It does not build quality into goods, or accuracy into information. Its sole ``contribution`` is to substitute force and fear for incentive as the ``protector`` of the consumer. The euphemism of government press releases to the contrary notwithstanding, the basis of regulation is armed force. At the bottom of the endless pile of paper work which characterizes all regulation lies a gun. . . .

Protective legislation falls into the category of preventive law. Businessmen are being subjected to governmental coercion prior to the commission of any crime. In a free economy, the government may step in only when a fraud has been perpetrated, or a demonstrable damage has been done to a consumer; in such cases the only protection required is that of criminal law.

---
Mr. Greenspan`s essay was reprinted in 1966 in ``Capitalism: The Unknown Ideal,`` together with Rand`s operatic articulation of some of her views, titled ``America`s Persecuted Minority: Big Business``:
---

If a small group of men were always regarded as guilty, in any clash with any other group, regardless of the issues or circumstances involved, would you call it persecution? If this group were always made to pay for the sins, errors, or failures of any other group, would you call that persecution? If this group had to live under a silent reign of terror, under special laws, from which all other people were immune, laws which the accused could not grasp or define in advance and which the accuser could interpret in any way he pleased — would you call that persecution? If this group were penalized, not for its faults, but for its virtues, not for its incompetence, but for its ability, not for its failures, but for its achievements, and the greater the achievement, the greater the penalty — would you call that persecution?

If your answer is ``yes`` — then ask yourself what sort of monstrous injustice you are condoning, supporting, or perpetuating. That group is the American businessman. . . .

Every movement that seeks to enslave a country, every dictatorship or potential dictatorship, needs some minority group as a scapegoat which it can blame for the nation`s troubles and use as a justification of its own demands for dictatorial powers. In Soviet Russia, the scapegoat was the bourgeoisie; in Nazi Germany, it was the Jewish people; in America, it is the businessman.

--
The hero of ``Atlas Shrugged,`` John Galt, maintained that executives who commit fraud betray their own highest values:
--

Honesty is the recognition of the fact that the unreal is unreal and can have no value, that neither love nor fame nor cash is a value if obtained by fraud — that an attempt to gain a value by deceiving the mind of others is an act of raising your victim to a position higher than reality, where you become a pawn of their blindness, a slave of their nonthinking and their evasions, while their intelligence, their rationality, their perceptiveness become the enemies you have to dread and flee.

---
For his part, Mr. Greenspan argued in 1963 that moral values ``are the motive power of capitalism``:
--

Capitalism is based on self-interest and self esteem; it holds integrity and trustworthiness as cardinal virtues and makes them pay off in the marketplace, thus demanding that men survive by means of virtues, not of vices. It is this superlatively moral system that the welfare statists propose to improve upon by means of preventative law, snooping bureaucrats, and the chronic goad of fear.

---
Rand, of course, also had plenty to say about virtue and integrity, as in this 1944 letter to a friend who asked for advice on how to meet ``a worthwhile woman``:
--

One finds worthwhile men and women among people who work. Follow me here very carefully, forgetting the cheap generalities which all our modern minds have been stuffed with. I do not mean LABOR. I do not mean people who have to earn their living. I do not mean proletarians. . .. I mean what you and I understand by the term ``competent people.`` People who love to work, who are good at it, serious about it and concerned primarily with it. Bright, creative, productive, ambitious people. People who get money for their work, but who do not work primarily for the money — whether it`s a weekly pay envelope or a thousand dollar bonus. People who are ambitious — not to climb socially, not to get wealth and titles — but ambitious to do more and more work of a better and better kind. . . .

In a general way, that is the advice I`d give you: look for places where sincere people are working hard — and go there. Choose by the nature of the work. Going incognito into a convention of ditch diggers would do you as little good as going to the swankiest Wall Street party.

There have been several articles/news items in the media recently on the

wealth gap. Some figures:

?More than 40 percent of total income in America now goes to the highest 10

percent of earners, about the same level as in the 1920s and well up from 30

or so percent between the early 1940s and the late 1970s. The average income

of the highest-earning 5 percent of families was nineteen times that of the

lowest 20 percent in 1999; in 1979, it was a little more than eleven times.

The wealthiest 1 percent of households now own more than 40 percent of all

assets, including homes and financial investments (after deducting

debt)?higher than in any year since 1929.?

?The average income of the top 20 percent of families rose to thirteen times

the income earned by the bottom 20 percent by the late 1990s; in the late

1970s, it was only ten and a half times greater?

In 1999, The United Nations` Human Development Report said:

``In 1960, the 20% of the world`s people in the richest countries had 30

times the income of the poorest 20%. In 1997, 74 times as much. This

continues the trend of nearly two centuries. Some have predicted

convergence, but the past decade has shown increasing concentration of

income among people, corporations and countries``

A recent article (an analysis of a paper by Mr Sala-i-Martin) in the

economist (July 18th edition) (if anyone wishes to see the complete article,

.

While the paper agrees that

1)inequality has worsened within countries.

2)inequality has worsened across countries.

it claims that it does not follow, as you might suppose, that global

inequality itself is rising. Why not?

Mr Sala-i-Martin explains. Imagine that five-sixths of the world`s

population live in poor and stagnant economies, and one-sixth in rich

fast-growing ones. Now imagine that one poor but very populous economy

starts to grow very quickly. At the same time, inequality within this

country worsens somewhat. Despite its size, this country is only one

data-point in the across-country comparisons: its rapid growth is not enough

to make any difference to divergence. So you have rising within-country

inequality and rising across-country inequality. Yet one-sixth of the

world`s population, by assumption, is seeing its incomes rise rapidly

towards those of the rich. Inequality measured across all the people of the

world, therefore, may very well be falling.

A far-fetched case? No, Mr Sala-i-Martin points out, this is exactly what

has been happening. The big poor country growing very fast is China. (India

has also been doing pretty well.) If you simply weight the across-country

measures of divergence by population, you see not a rising trend of

inequality, but the opposite: as the author puts it, not ?divergence, big

time? but ?convergence, period?.

...................

The only bad news is that, after the respite provided recently by surging

globalisation, inequality may well resume its long-term historical trend and

start rising again in due course. The reason is that China and India will no

longer be poor?and if the world`s poorest countries, mainly in Africa,

continue to stagnate, the global dispersion of incomes will widen. Whether

the main problem here is African poverty or global inequality (caused by

China and India leaving poverty behind) is one for the UN`s economists to

think about.

Is the picture really as rosy as this article claims? Can countries like

India/China sometime in the future be classified as not longer poor purely

based on the fact that they are highly populous, no matter that there are

huge gaps between rich and poor within the country (which everyone appears

to agree is not going away). Any insights/pointers from sawnettors on

inequality, global or otherwise?