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Mall Road

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Unethical business is an enemy of economic growth


Sociologist Dipankar Gupta writes in today's Indian Express:


Banks are burdened by non-performing assets that amount to tens of thousands of crores of rupees, but major defaulters have not yet been charged for not honouring the loan agreements. A bank is a public institution that must abide by public norms and rules. There are clear laws in this regard, not to mention the codes of transparency and corporate governance that are much talked about these days. Even so the big fish get away because, well, they are big. Non-performing assets are not a private matter between friends, or between a loan shark and an errant defaulter. In this case the amounts are mind-boggling, regular banks are involved (some of them are even in the public sector), and, what is more, ordinary people and humble citizens are the ones paying for waywardness of the rich. This being the case it would be quite natural to expect that these major defaulters who have built business empires should be brought to book. At the very least, their names should be made known to the public whose money these business tycoons are playing around with. It is often said that should these names be known the edifice of the private sector would be shaken at the foundations. When there are thousands of crores lying as non-performing assets with banks, imagine the incalculable damage that is being done to the public. But only last week, India’s finance minister went on record saying that it would be incorrect to reveal the names of these defaulters as business would be affected.


Unethical business paralyses the economy and hinders economic growth, and yet, the only reason why the anarcho-capitalist-libertarian blogger Yazad Jal thinks there's so much poverty in India is insufficient liberalisation:

I'd like to see more people leaving poverty and getting into the large middle class morass. The best way of doing so, is to let people be. That means getting the government out of our lives as much as possible. One reason Dilip and others see liberalisation not having any effect on poverty is that the occupations of the poor have not really been liberalised. How easy is it to run a small shop or practice a small trade? On the streets of India's cities, that's amongst the most difficult things to do. True liberalisation is making life easier for the poorest of the poor -- by getting out of the way. Leaving them free to do what they want (as long as they don't impinge on the freedom of others). That's what a free economy, nay, what freedom itself is all about.

I don't mean the two are mutually exclusive; but our just obsession with free economy should allow us space to find faults with those who misuse this freedom.

But I know what Yazad is going to say: get the state out of the banking sector and you won't have any NPA's!









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-- Blogger Yazad Jal, 5/06/2005 01:59:00 PM

Shivam,

I struggle to see the connection. Regarding NPA's (or bad loans), the reason why things aren't moving is the government's ham handed blundering. Some of it is clearly fraud. Nothing in libertarianism that says "don't prosecute cheats". I say go after them and get the money out.    



-- Blogger shaun, 5/06/2005 02:04:00 PM

Right Yazad, you say that when I point it out. But what I mean to say is that a lot of businesses indulge in all sorts of unethical practices, which is obviously detrimental to the economy, and therefore to economic growth.

That's the connection: it isn't just state control but even unethical business practices that can hurt economic growth.

And a libertarian should be as bothered about that as about entrepreneurial freedom.    



-- Blogger Yazad Jal, 5/06/2005 02:07:00 PM

You're making the asumption here that libertarians don't care about the rule of law. Quite wrong. The rule of law is essential to protect freedoms.    



-- Blogger shaun, 5/06/2005 02:15:00 PM

Then why aren't the persuasive attacks on anti-free market ideas on your blog matched by an attack on unethicaal business practices? This isn't just about you but about too many pro-market ideologues. This is ultimately detrimental to free markets themselves.    



-- Blogger Yazad Jal, 5/06/2005 02:20:00 PM

Shivam,

I can't possibly write on everything that everybody expects me to write on. Just because I haven't expressed myself on a topic doesn't mean that you can choose the position I stand on that issue.

The argument you make sounds very similar to that made by fundamentalists. Let me give you a simple gist -- "Hey, you only attack my religion and you haven't said anything about the other religion's crooks. Therefore you support them"

Be careful of the (logical) company you keep!    



-- Blogger MadMan, 5/06/2005 02:33:00 PM

This reminds me of debates in which some nut always argues something like "you are talking about XYZ, while millions are dying of starvation in Africa."

Sorry to say it, but as Yazad has pointed out, you're nowhere close to being logical. You could of course try finding some post by Yazad where he says "law is not important". (Even his anarchist world is not without any laws. It just has a different implementation.)    



-- Blogger Dilip D'Souza, 5/07/2005 12:31:00 AM

Then why aren't the persuasive attacks on anti-free market ideas on your blog matched by an attack on unethicaal business practices?

Despite MadMan's unnecessarily rude "you're nowhere close to being logical", I think this is a reasonable question.

Not that Yazad himself need write about it -- for indeed Yazad cannot be expected to write on every subject under the sun.

Nevertheless, unethical business practices are profoundly detrimental to free markets. Which is why, in the discussion on Yazad's site, I mentioned my discussion with a free-marketer about how the very beneficiaries of free markets invariably undermine them. This deserves exploration.    



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