Tuesday, December 29, 2009

Incredible India, From 2010 to 2020: The Vision of a Welfare State


As India bids good bye to the first decade of the twenty first century it does so with a new confidence and commitment, looking forward to an even more eventful second decade. During the decade that went by Indian software engineers helped the world handle the Y2K bug seamlessly and smoothly, India surprised the world by becoming a space power on its own, Indian corporations acquired some of the most expensive global marquees, from steel to automobiles, and India as a country caught the fancy of global investors as the emerging economic powerhouse. For those whose lives are intimately woven with India, however, only a few small steps have been taken, and giant strides remain to be taken.

There are several potholes in India’s journey towards sustainable progress. Individual prosperity needs to be channeled for public good. Economic growth needs to be combined with social equity. Urban might need to be balanced with rural delight. Industrial development needs to be powered by innovative spark. India’s global dominance in pharmaceuticals needs to be reflected in healthcare for all in the country. Universal education needs to be sharpened with leading edge competencies. Public services have to be truly utilitarian fulfilling the needs of the teeming millions. Corporations need to hold economic wealth as trustees for the society. The list of the heights yet to be conquered in India’s quest for progress is endless.

It is easy to be despondent that the images of Incredible India are as yet not so credible. India has, however, demonstrated in patches that it can be world class when it plans with diligence and executes with commitment. India has the world’s largest number of US FDA approved pharmaceutical plants. With the largest count of drug master files and abbreviated new drug applications, India has become global generic pharmaceuticals powerhouse. India has become the home to the world’s cheapest 4-seater small car that was indigenously designed and manufactured. Indian information technology firms have continued to dominate the global software industry. The question, however, remains as to why progress in India has to be so tardy and patchy.

Mahatma Gandhi, the Father of the Nation envisaged that India would be a country where the downtrodden would be genuinely cared for. Successive governments since the independence have sought to alleviate poverty by focusing on economic growth, building dams and establishing industries. As a result, India achieved a measure of self-reliance although introverted socialistic dogmas substantially sub-optimized growth. Having achieved a notable level of industrialization the time has now come to shape India as a truly Welfare State. This article advocates a bold paradigm that targets social security, connectivity, energy assurance and innovative agro-industrial development as a strategy to build India into an ideal Welfare State.

Billion homes

Security of shelter, food, education and healthcare are the four pillars of social infrastructure, on which a true welfare state can emerge. Several of India’s problems, both from civility and sanitation purposes, can be traced to widespread homelessness across the country, which is an occurrence without any urban-rural divide. The Governments, Central and State, must target building of a billion homes by 2020 to be able to provide the security of shelter to the billion population which could increase by around 25% by 2020. While a proportion of the billion homes, say around 20%, could be left to a totally private initiative to meet the needs of the middle and upper income groups, around 50% could be in a mix of public-private partnership to build affordable, homes on ‘pay to own’ concept while another 30% would need to be entirely in public ownership to meet the needs of the downtrodden who cannot pay to own any home. The public participation could be in terms of the land that the governments would lease or transfer to the home building corporations and eventually to the owners.

A massive home construction initiative such as the ‘billion homes’ program would not only protect the massive population from the ravages of nature but also provide an influential pan-Indian trigger for employment generation. In a creative manner, the homeless and the jobless themselves can be involved in the construction activity providing them with a steady income even as they participate in the building of their homes with passion and commitment. The entire industrial sector, from cement and steel to design and construction majors would benefit enormously from this initiative, given the widespread upstream and downstream linkages of such residential construction activity. In fact, the ‘billion homes’ initiative would need to be conceptualized in terms of several thousands of environmentally harmonious townships all across India, in and around the established urban and rural habitats, with requisite rail and road connectivity.

Food security

India being a largely agrarian nation, setbacks to food production due to monsoon failures and floods on one hand and lack of incomes to secure daily food on the other hand are the two major handicaps of the economy. Certain State Governments have attempted to mitigate the adverse impact by cheap rice schemes, supported by public distribution system. Leakages in the public distribution system as well as inadequate quantities and quality of supplies to the system, together with the accompanied budgetary subsidy impact have curtailed the positive impact of these measures.

The answer to the financial constraint lies probably in taxing those segments of the food processing industry that cater to affluent sections (eg., fast foods, functional foods, aerated drinks, spirits and beverages) and recycle the money to beef up the public food procurement and distribution systems. Expansion of the subsidized rice or wheat scheme and supplementation with another essential nutrient such as lentil or egg would need to be taken up as a national food security program with adequate budgetary provision.

Universal education

Universal education needs to be a fundamental right as well as a basic obligation for the entire population. Eradication of child labor, with the provision of durable shelter and food security, should hopefully curb the practice of keeping poor children occupied in hard labor denying them the vital time for, and access to, education. Significant increases in the availability and quality of public school system, covering nursery, primary, secondary and vocational schools are urgently called for to support the objective of universal education.

Non-governmental organizations (NGOs) and socially responsible organizations can support this initiative through supply of qualified and committed teachers, which alone can enhance the real utility of the schooling system. Apart from budgetary support, encouraging private or public sector corporations to adopt and fund public schools for better quality of education as part of their corporate social responsibility also would go a long way in supporting universal education. Simultaneously, all higher education institutions should be mandated to reserve at least ten percent of their intake for economically handicapped but meritorious students. Food security offers direct benefit for education. The mid-day meal scheme pioneered by the Government of  Tamil Nadu for school going children, for example, led to a sharp increase in enrolment in schools. Reinforcement of such programs with more hygienic and nutritious food can help the objective of universal education even more significantly.

Healthcare for all

Reference has been made in one of the author’s earliest posts to a pioneering initiative undertaken by the Government of Andhra Pradesh to provide access to healthcare to the needy. The program called ‘Arogya Sri’ provides free treatment to the needy not only in government hospitals but also in corporate hospitals. This coupled with an emergency ambulance service which covers the nook and corner of the State has had a positive impact on the health security of the general population. Though initially it was feared that such schemes would impose an unmanageable subsidy element it has been established that the State’s financial system, though by no means healthy, has adequate resilience to absorb the impact of this noble endeavor.

The Western model of health insurance which is based on ‘pay and benefit as per affordability’ is not appropriate for the large number of ‘low income’ and ‘no income’ group of population in India. Direct intervention by the governments, NGOs and private sector in terms of providing quality hospital facilities and nursing services is a more relevant model for India. Given the fact that the direct healthcare system can be managed if the subsidy element is absorbed by a wider range of public-private partnerships, it is appropriate to extend the ‘Arogya Sri’ scheme nationally across all the states with relevant reinforcement.

Multi-modal connectivity

An efficient multi-modal transportation infrastructure comprising rail, road, air and waterways is a vital superstructure which can nurture a welfare state with productive work-life balance. These four transportation sectors are completely national and intrinsically geographic in any country. Absence of capital goods, consumer goods or food products can be made up through imports or barter mechanisms. Transportation infrastructure, however, has to be developed only within a country. India needs to take great strides for upgrading its transportation structure. While transportation systems call for massive outlays, various advanced nations would be willing to support futuristic transportation systems as evidenced by the India-Japan cooperation on industrial freight corridors that has been recently cemented. A multi-modal transport plan needs to be firmed up and global collaboration arrangements established on an urgent basis by the Indian Government.

Introduction of high speed bullet trains connecting all the State capitals would be a fundamental pre-requisite for enhancing the efficiency and productivity in the Indian transportation system. An entirely new rail network needs to be built across the length and breadth of the country to support the introduction of the bullet trains. Similarly, governments have to move away from archaic concepts of flyovers and take up construction of elevated highways for providing total solutions to intra-city transportation. The golden quadrilateral highways program needs to be expanded into a golden multi-lateral highways program connecting all Tier 1 and Tier 2 cities. The need for modern air transport may be less obvious as it is seen to cater to higher income segments, with an adverse impact on overall fuel consumption. However, air transport has also demonstrated how it can dramatically alter the mobility equation of a country, both in respect of personal and cargo movement. Waterways, in contrast, have been largely ignored in the country despite their being an environmentally clean and fuel-efficient option. Cleaning up of inland waterways and development of new coastal shipping pathways will be helpful to introduce an additional element of productivity in the overall transport system.

POGA for energy assurance

If the wheels of society, industry and economy are to move uninterrupted, and with increasing speed, to fulfill higher economic aspirations, the engines of the growth have to be adequately powered. Power, Oil, Gas and Alternative energy (POGA) sectors are the four vital sectors that require major attention to ensure energy security for a nation that is hungry for growth. Fortunately, unlike other infrastructural sectors, most advanced nations are equally interested in achieving energy security and are willing to provide their technologies and resources to exploit and commercialize sources of energy in countries such as India. India also must treat energy security as a global business that needs to be secured through access to, and control of, energy sources across the globe. Indian Government would need to draw up a strategic global energy plan that meets India’s long term energy requirements.

Over the last few years, despite liberalization the POGA sectors have not received the sustained policy thrust that these complex sectors deserve. Polices for super-mega power projects as well micro-mino power projects need to be put in place along with policies for efficient energy distribution and viable energy pricing. Oil and Gas sectors need to be strengthened by providing the ability for state run ONGC and GAIL corporations to aggressively explore and exploit global energy sources. Integration by oil refining companies into energy exploitation and generation on the models of western oil companies will also need to be considered. Importantly, new corporations have to be established to invent and / or assimilate technologies for exploitation of alternative energy sources such as solar, wind, thermal and bio-energy modes. Grants and subsidies as well as long term tax breaks for private and public sector corporations operating in the alternative energy field also need to be considered. The POGA sector, in terms of generation, distribution and usage of energy will play a critical role in reducing the carbon footprint of the country.

Digital workshop for the world

Over the last few years, the global view that India would only be the world’s back office while China would ideally be the world’s workshop has been changing in India’s favor. Global companies have started to recognize that India could be a high quality-low cost manufacturing base for several consumer and industrial products. India has certainly made such a mark in automobile and component sector and is, in fact, ahead of China in these domains. However, in respect of electronics-driven product categories, India lags behind China in a significant manner.

Digitalization and electronics have been the core of most new product development. Multinational corporations who possess such technologies are unwilling to establish such development and manufacturing bases in India unless majority or total ownership of such enterprises is assured in their hands. India’s restrictive policies on joint ventures and foreign investments in high technology areas and the propensity of Indian partners to hold on the majority voting rights and / or management control have limited the flow of foreign investments and induction of advanced technologies into the electronics sector in the country. Taking a cue from China, Indian industry and government would need to create helpful conditions for overseas corporations developing India as their preferred manufacturing destination, even for the most advanced electronics goods.

‘Re-farming’ the nation

While reforms has been the most popular buzzword of the Indian economy for the last two decades (1990-2009), the new decade of 2010-2019 requires a new buzzword that strengthens India’s agrarian roots to provide total food sufficiency and even achieve exportable surplus to meet the needs of the less privileged nations. This requires construction of new dams, inter-connection of rivers, desert and dry farming technologies and massive afforestation to counter the dwindling green belt in the country. Even as the economy and industry would directly benefit from economic reforms, the economy, industry and the society as the whole would benefit from a massive drive to ‘re-farm’ the nation.

‘Re-farming’ of the nation requires a cultural shift away from endless and chaotic urbanization to a more modern and balanced rural thrust which preserves the natural fundamentals of a rural economy while integrating the amenities of an urban economy. Several other initiatives discussed earlier such as social security, infrastructure stability, energy assurance and transport connectivity would go a long way in reversing the flow of men and materials from rural to urban economies. It is not uncommon to witness in Japan, environmentally clean factories situated in close vicinity of lush farm fields signifying a harmonious blend of the agrarian and industrial sectors. There is no reason why industrial development in India should be at the cost of agricultural development. Rather than convert huge tracts of land expansively into sparsely used industrial or service zones, ways and means must be found to promote co-existence of agricultural, industrial and service economies.

Reaching global scale

A few industrial houses as well as a few first generation enterprises have understood and executed with perspicacity plans to achieve global scale and scope. Global scale with comprehensive scope enables companies access the best technologies, resources and customer bases, internationally. That said, a vast majority of industrial and business enterprises which have potential to reach global scale are content to remain fragmented and sub-optimal in scale for fear of loss of identity. The typically Indian emotional bonds of growing and staying together have inhibited companies from seeking synergies from mergers and acquisitions, nationally or internationally.

A new mindset that subordinates professional aspirations to corporate potentialities and derives individual prosperity from national wealth could lead to a sea change in the traditionally ambivalent approach of the Indian businessmen towards individual business identity versus global business standing. Banking industry, automobile industry, pharmaceutical industry, software industry and FMCG industry are some of the industrial sectors which would benefit from selective India-centric or cross-border amalgamations based on product and market complementarily as well as synergy of capabilities. Industry associations as well as individual corporate honchos and entrepreneurs are well-placed to initiate this process. The Central Government, by setting up a ministry similar to Japan’s famous Ministry of International Trade and Industry (MITI), now Ministry of Economy, Trade and Industry (METI) can help such orderly industrial progression with strategic oversight and guidance (and not necessarily, control!).

Innovating a generic mindset

India had centuries ago, through its brilliant scholars, made phenomenal discoveries and contributions in the fields of astrology, astronomy, healthcare, architecture, civil engineering, administration and financial management. Over the last few centuries, however, India has become a follower rather than a leader in several domains, being content with replicating products, duplicating technologies and recycling business models, either from the West or the East. In doing so, however, India did find a new niche in reverse engineering, technological adaptation, follow-on product development, generic manufacture and cost-competitive global integration. In order to become a leading and vibrant nation, India, however needs to combine its acknowledged “generic follower” skills with innovative pioneer capabilities.

Any generic-follower model has inherent limitations of operating in the tail end of a product life cycle where the price-cost equations leave uncomfortably thin profit margins. Time and again, even in an industry such as the software industry where Indian talent is globally recognized, break-through product concepts continue to emanate from the West. Industrial sectors which have high intellectual potential in terms of the human resource base should make specific and sustained efforts to incubate new products by investing in special development laboratories. Several of the sectors listed earlier as well as additional ones including automobile, pharmaceutical, information technology, watch, gems and jewels, food processing, automotive components, and design, development and engineering services, have the potential to add a significant innovation edge to their broader generic portfolio and emerge as unassailable global players of multiple facets.

Epilogue: Incredible India, from 2010 to 2020

The journey from 2010 to 2020 can be exciting and fascinating for India if the vision, strategies and execution are aligned to build a truly Welfare State with robust social and industrial infrastructure and high productivity. With the vision and strategy outlined in this article, India can be a self-assured nation where complete social security is ensured through universal housing, food, education and healthcare; an upwardly mobile nation in which multi-modal transportation enhances connectivity; a powerful nation which has the energy sufficiency to turn wheels of progress faster: an advanced nation which houses a futuristic digital workshop for the world, a bountiful nation which ‘re-farms’ itself industrially and a creative nation which adds an innovative edge to all the generic competitiveness that it possesses. This ambitious blue print does require massive financing. As with micro-enterprise formation, a worthy and genuine concept, even at a daunting national scale as outlined herein, will not be found wanting for national and international funding support. The India Welfare Plan, 2010-2020 outlined in this article has the potential to transform India into a truly global power bringing cheer and pride to all the Indians as never before.

Goodbye 2009, and Welcome 2010!

Posted by Dr CB Rao on December 29, 2009

Sunday, December 27, 2009

Corporation as a Totalitarian State: Reasons and Remedies

Over the centuries of industrial and economic development, the corporation has grown as the most powerful and pervasive form of human organization for achieving economic goals. There has, however, been significant debate over the last few decades as to whether the typical corporation is run with the most optimal objectives and outcomes, which are appropriate in a broader economic and social context. The debate has become shriller with the emergence of individual corporate malfeasance such as Enron and Satyam or collective corporate misdemeanor as that found in recent collapse in the Wall Street. Concepts of exchange regulations, corporate governance, corporate social responsibility, board independence or CEO accountability have provided certain ameliorative measures but have not altered the way the typical corporation is fundamentally run.

Whether the overall context of the country is democratic or autocratic, the corporation itself has surprising global commonality in its primary characteristics, across countries and cultures. In essence, provocative though the statement may appear, the corporation continues to be set up and managed as a totalitarian entity. As one is aware, a totalitarian state is one where a government subordinates the individual to the state and strictly controls all aspects of life by coercive means. In the initial years of the corporation when Theory X management was the dominant practice, a typical corporation was completely exploitative. Emergence of Theory Y management and understanding of organizational behavior, no doubt, brought in individual motivation as a key anchor of modern management. Yet, it cannot be disputed that the corporation continues to be run as a totalitarian entity where the employee has to be subordinate to the Corporation.

Corporate totalitarianism would not be an issue but for the paradoxical convergence in the mindsets of employees and the leadership to be run in a totalitarian manner. The leadership of a corporation is charged with the task of wealth maximization. More specifically, it has to maximize the corporation’s revenues, profits and market capitalization at all times. So long as a corporation is in a legally approved domain it has to do, and will do, all it can to maximize its financial parameters. A corporation in the tobacco or spirits industry, for example, seeks to maximize the consumption of the tobacco products or liquor products despite the harm such goals may cause to the society and environment. In an analogous manner, employees are increasingly tuned to concepts of variable pay and stock options which link their compensation structure and career growth to business maximization. The individual in today’s material world is completely subordinate because of either individual volition or leadership compulsion to a paradigm of corporate totalitarianism.

Defining (and defying) corporate totalitarianism

Definition of corporate totalitarianism is a complex subject. In a democratic state the ruling political party and its government secure a mandate, however imperfect the democratic processes are. They, therefore claim some transparency and legitimacy in translating a mandate into action, recognizing that a gross travesty could vote them out of power the next time. In an autocratic state, where a single monolithic party dominates the governance, as in the case of China, the government can claim the backing of a well articulated party ideology in seeking to govern in a totalitarian way. In a corporation, however, despite the existence of shareholder mechanisms it is the corporate leadership that determines how a corporation should be run. As long as a corporation remains in legal and regulatory confines, and in addition delivers reasonable investor returns, the manner in which a corporation is run never begets a question. As a result, what a corporation should have, and would have, achieved with better corporate democracy or ideology, as the case may be, is never understood.

Difficult though it is to define, corporate totalitarianism lends itself to certain markers. A corporation which remains rooted in businesses that are socially less desirable or in markets that are prone to questionable practices is often blinkered from exploring better but more challenging options due to lack of free thought and open ideology in the corporation. A corporation where leadership positions are filled through nepotism or crony capitalism is able to do so due to the abject surrender of employee merit to leadership muscle. A corporation which always maximizes short run profits to the detriment of long term value does so because it is more expedient to run a generic business than create an innovative business. In all such cases, and more, lack of enduring values that optimally bind the corporation and the society is a key cause.

Progressive and intelligent corporations mitigate the temptations of totalitarian behavior by enabling free intellectual thought in their organizations, which in turn helps them move into better product-market segments, subscribe to corporate meritocracy and embrace science and technology in a big way. The case of ITC Ltd in India is a case in point in respect of product-market segments. Once completely confined to the socially inimical domain of cigarette manufacture ITC, the corporation became a socially responsive conglomerate by diversifying into paper, stationery, hotels, hospitality, food processing, agri-business and information technology as well as e-choupals (rural electronic marketplaces). The case of Hindustan Unilever is a case in point in respect of corporate meritocracy. Though traditionally in simple product lines like soaps and oils, HUL became a pioneer in nurturing highly competent organizational talent that introduced several innovative concepts of business growth and inclusive marketing in India, offering in the process its leadership talent to the parent Unilever’s global operations. The case of Tata Motors is a compelling case study of an Indian corporation becoming a global leader by acquiring leading edge scientific and technological capabilities in design and manufacture of automobiles.

Corporate leadership that is intellectually driven as much as it is financially driven has a better chance of resisting totalitarianism and instead promoting inclusive, yet competitive business growth. Such corporations institutionalize the anti-totalitarian DNA in the organization by recruiting the brightest talent through open recruitment practices from educational campuses, establishing intensive on-the-job and off-the-job training programs, providing challenging professional environment and undertaking objective assessment of performance for differentiation. This, however, is easier said than done because of the way corporations are organized to concentrate power in its leadership and the manner in which the university system turns out talent of varying levels. There is a four-way grid that combines two dimensions of leadership with two dimensions of talent pool.

4Q leadership-talent grid

Essentially there exist two types of leadership, autocratic and participative, and two types of talent systems, meritocracy and mediocracy. These are, of course, representative of two extremes in each case, identified for conceptually illustrative purposes. There could be shades of grey in each case as well as multiple combinations. Autocratic leadership implies top-down administration of vision, strategy and execution, together with controlled employee management. Participative leadership, on the other hand, represents a consultative evolution of vision, strategy and execution, together with facilitative employee management. Meritocracy implies presence of, and reward for, high levels of skills across the organization. Mediocracy represents middling, average skill levels across the organization, and are rewarded uniformly regardless of performance.

These four combinations may be viewed simplistically as autocratic mediocracy, autocratic meritocracy, participative mediocracy and participative meritocracy. Autocratic mediocracy represents the face of a completely totalitarian corporation where the leadership’s writ is total and unquestioned not because of its strength but because of the inability of the organization to engage in constructive intellectual debate. Autocratic meritocracy represents a paradigm where the ability of the organization to chalk out and execute creative strategies is often stymied by the insistence of the leadership to conduct the affairs in its own way, thus eliminating grassroots ownership and participation. Participative mediocracy reflects an enlightened leadership relying on a pliant organization to develop consensual approaches that fail to be competitive in the marketplace. Participative meritocracy is the only optimal combination that brings out the synergy of progressive leadership and competent talent pool.

Leadership teams and organizations need to realize the importance of participative meritocracy as a means to eliminate totalitarian trends from the corporation and promote healthy internal debate in the corporation. Participative meritocracy helps in the development of economically sustainable and socially responsive corporate ethos and establishment of a process and systems driven organizational eco- system. Comprehensive and thorough planning, focused and speedy execution, and differentiated and rewarded performance are the hallmarks of participative meritocracy. Each corporation can then develop its unique identity which unequivocally reflects the value system that it subscribes to, with customized reference to the business domain it operates in.

Totality of purpose, the true anti-totalitarian marker

Willy-nilly, corporations and leadership teams become prisoners of their own history and legacy. In today’s fast changing world product lifecycles and even business lifecycles are becoming shorter than ever. A company committed to the paper and publishing business, for example, cannot support all of its growth plans only through the conventional paper medium, given the pervasive impact of the digital age. A manufacturing industry can no longer conduct its operations oblivious to its carbon footprint and in ignorance of clean technologies. The inability of organizations and leadership teams to recognize such trends of inflection makes them all the more defensive, getting increasingly rooted in a past which has no connect with a dramatically different future. Such corporations attempt to survive by totalitarianism only to wither by that.

Corporations and leadership teams, on the other hand, must keep an open mind on the totality of purpose of their existence and identify the right motive force for growth. This requires the leadership teams to challenge the very domains that provide today’s revenues. One may hypothesize that had the global automobile industry been more proactive in bringing out clean motive power it would have made a more proactive and positive contribution to the phenomenon of climate change. Novo Nordisk derives all of its billions of dollars of turnover from injectable insulin products. It requires a great openness of mind on the part of its leadership team to develop an insulin pill, as it is presently doing, which if successful could not only change the face of anti-diabetes treatment but also threaten its own established investments in the injectables domain.

Lack of intellect, competence and free thought in organizations promotes corporate totalitarianism to the detriment of a corporation’s broader economic and social purpose. Progressive leadership teams must assiduously seek the totality of the corporation’s purpose by upgrading their own competencies from time to time and nurturing a climate of open intellectual thought in their organizations. Those corporations and leadership teams which provide the due importance to free and creative thought, and eliminate undue emphasis on executive compliance and conformity would be providing the right incentives foe knowledge driven transformation. This approach would help the corporations to lead change, and leverage change for achieving a totality of sustainable purpose, with reference to the economy and society.

Posted by Dr CB Rao on December 27, 2009