How business can help politics

A modus vivendi between the two must be found quickly

Written by Vikram S Mehta | Published: July 2, 2012 3:11 am

A modus vivendi between the two must be found quickly

Our politicians know what needs to be done to arrest the declining rate of economic growth. What they do not know is how to get re-elected thereafter. Big business should help politicians break out of this conundrum not because of concern for their political future,but because of the wider ramifications of continuing economic drift on their business prospects. An environment of falling demand,rising under- and unemployment and disappointed aspirations portends eroded margins,reduced profitability,restive labour and social unrest.

The question is,what can business do? They cannot push through the spate of economic reforms required to return the economy on to a growth trajectory. That is and must always remain the responsibility of the government. They cannot also be expected to spur the economy by investing in conditions of policy uncertainty and paralysis. So what,if anything,can business do to break the current political-economic reform logjam?

There is no straight answer. Indeed,given that politics and business operate in separate domains one may well ask whether the above question is fair. After all,business does not have a responsibility to help politicians secure their future. Nor should it seek to tread on political turf. That said,the reality is that in today’s connected world,there are no impermeable compartments. Politics and business occupy different spaces,but the walls separating them are perforated. They have interlocking relationships and as the corruption scandals of the past several years have shown,this relationship is often unhealthy. The point is that the above line of questioning has relevance because of this reality and the fact that business and politicians have common agendas and interests. Both recognise that if sensible economics continues to be relegated to the sidelines for fear of an electoral backlash,both will suffer. Hence,even if there is no straight answer,the questions deserve a probe.

Politicians talk a great deal about inclusive development. When required to explain their flip-flops on economic reforms,they peg it on inclusiveness. The turnaround on multi-brand retailing was hung on the potential plight of the kirana shop-keepers; the rollback of the price of petroleum products on the inflationary implications for the lower middle class and straitened farmers; the silence on labour market flexibility on the rights of workers. All of the measures listed as essentials of the second generation reform programme have been aborted because of the politician’s view that the economic logic of reforms is not compatible with the political compulsions of inclusiveness. One way for business to help politicians would be to give a new shape to corporate social responsibility and public-private partnerships. It could help cast economic reform in a more inclusive light.

Businesses are not unfamiliar with the notion of social responsibility. Most have long accepted that the business of business cannot be only business. They know that they need to look beyond the interests of their shareholders and take into account the demands of the wider stakeholder community. And that if they do not do this they risk losing their licence to grow and maybe even their licence to operate. Most businesses have,therefore,a fairly well-structured programme of corporate social responsibility. The problem — or rather the shortcoming — is that these programmes are driven essentially by financial philanthropy — the issuance of a cheque to support a worthwhile project or a public welfare foundation. Financial support is important and should be continued,but it does tend to limit businesses’ involvement. It does not make business accountable for the productivity of their contribution; nor does it engage them in the life cycle of the project. In short,it does not bring business into the social and public arena on a sustainable basis.

Public-private partnerships as currently conceived have also a dominant economic focus. They are structured to combine the complementary strengths of the government and the private sector to catalyse investments into infrastructural sectors of public significance like power generation,roads and highways and airports. The government provides a conducive regulatory and fiscal structure; the private sector brings finance,technology,project management and operational capability. The partnership is arms length and the parties retain their mutually distinct identities.

Business now needs to develop an alternative and more inclusive framework of corporate social responsibility and public-private partnership — a framework that enables it to engage more deeply and sustainably with social development. Businesses should extend their contribution beyond financial philanthropy and look to bringing to the table the totality of their financial and non-financial assets (such as technology,management,marketing,distribution,etc). The intent should be to forge a seamless partnership with the government for the creation of social infrastructure and the mitigation of the disruptive consequences of economic change. The principles underpinning the partnership should be those of the market; the principles determining the outcome should,however,be based on social equity and inclusiveness.

It is now almost cliched to say that sensible economics and feasible politics make for uneasy bedfellows and that when push comes to shove economics is almost always knocked off the mattress. This cannot,however,disguise the fact that our polity is now on the edge and that a modus vivendi between politics and economics needs to be found quickly,else we will tip over. We cannot push the reality that the public has become wary of economic reform under the carpet. This is not because they do not appreciate its need,but because they perceive it as a front for market manipulation. They also feel that economic reforms have enabled the privatisation of power for the benefit of the few and the privileged. This is the outcome of an unending cascade of corruption scandals. A deeper engagement in social matters leading to what one might call inclusive capitalism could help achieve this and thereby hopefully embolden politicians to acknowledge that the price of doing the right thing need not be electoral defeat.

The writer is chairman of the Shell Group in India.
Views expressed are personal

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