Greed and Economics - Part 1

I recently had an insightful and interesting discussion on “greed and morality of a person and his economic decision” with one of my learned friends. So that you are able to appreciate the story better, I need to give a little bit of background about my friend. We both have a high regard for each other’s education and experience. And when I refer to education it is Aristotle for me, “Educating the mind without educating the heart is no education at all.” I generally avoid going into discussions with anyone who lacks either an educated mind or an educated heart. My friend doesn’t lack either and is one of the successful leaders in the corporate world.

Now a little bit about my upbringing. My father was a trade union leader and a hardcore communist who never compromised on his values, morals and ethics no matter what the situation. My grandfather was a landlord and also a pioneer of Bengal Coal in British India. Both of them had an equal impact on my life. I along with my siblings grew up in an atmosphere where healthy and often heated debates took place on many things including capitalism vs communism.

Later in my life when I had a chance to study economic theories I read about the positives and negatives of all the ‘ism’s so that I could form my own view. One of the most interesting thing that caught my attention during college days was how Adam Smith described the model of economic system based on self-interest. This was in his path breaking work ‘The Wealth of Nations’. He showed capitalism goes very well with basic human nature wherein “We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” As I was studying the pros and cons in depth, what worried me was that capitalism proved to have largely concentrated money and property at the hands of a relatively small minority of the global human population (the Elite or The Power Elite), leading to very large and increasing wealth and income inequalities. Our study material had real time data to establish this fact. And as we see it every year through data presented before the World Economic Forum at Davos each year, this income inequality has assumed humongous proportion

Another criticism, which was written about but not evident during my college days, was about corporate capitalism as well as inverted totalitarianism. These are terms used by humanists and the critics of capitalism, to describe a capitalist marketplace and society, which is characterized by the dominance of hierarchical, bureaucratic as well as large corporations, which are legally required to pursue profit without concern for social welfare. Corporate capitalism has been criticized again and again for the amount of power and influence they wield over government policies, including the policies of regulatory agencies and influencing political campaigns.

After reading my books, I was really happy that India as a nation chose mixed economy and I am an ardent fan of socialism. The phrase “socialist, republic” in preamble of our constitution is very close to my heart. I firmly believe communism is a failure because of its very model that describes it as ‘dictatorship of proletariats’. Dictatorship of any kind, as history has shown time and again is fraught with the danger of becoming an anti-people rule, in one way or the other. I also think, communism goes against basic human nature by talking about “common ownership of all land and capital and withering away of the coercive power of the state. In such a society, social relations were to be regulated on the fairest of all principles: from each according to his ability, to each according to his needs. Differences between manual and intellectual labor and between rural and urban life were to disappear, opening up the way for unlimited development of human potential.”

I am personally scared of both - communism for its very word “dictatorship” that denies freedom to individuals. On the other hand, capitalism is equally disturbing since it’s based on self-interest i.e. greed.

On to the debate now. My friend was discussing land acquisition through one to one negotiation and how people change their stand regarding price with each passing day. I was happy to get this opportunity to understand how corporate leaders feel when people get into bargaining positions and bargain hard and do not compromise on the “premium price” that their land can fetch. I engaged deeply as I wanted to understand the core argument here from an industry’s point of view.

My friend felt it was highly immoral to change ones stand once a consensus had been reached and a price had been fixed for the land. My learned friend also stated 95% of landowners happily sold their land on the price that was negotiated. Some people however, created “trouble” resulting a delay in project. I wanted to understand the “trouble”. And as expected the trouble was that 5% researched hard and found out the actual price the land was going to yield when it changed hand. Therefore, they wanted to renegotiate. Well!

I wondered who needed the land at the first place! I asked, did the landowners come to the Industry to sell their land? And as you already know the answer I will not dwell on how much the land acquisition company needed the land! My friend stated that the company negotiated at first, people were glad to sell their lands since the prices paid by the company were greater than the then market rate. All of a sudden (according to my friend, you already know my opinion) people realized that they could probably earn much more from the property, given the desperate situation of the company. They then asked for 10 times more than the amount that was initially agreed on. Must had been a big surprise for a company which generally habituated giving the lesser amount than the agreed plan, isn’t it? And of course not a pleasant one. I could really understand how bad my friend must have felt but still did not appreciate the “morality” point that he used.

I asked him how come he was the person who could decide on the amount for which a farmer should have been happy? One can be happy with “x” amount and other may be at “10x”. The company was out there to make money on the basis of people’s greed! Why was he then getting flustered when people showed the character that is rewarded in capitalism? This is after all, what capitalism is based on!!!

And my knowledgeable friend got furious and stressed again and again that it was a question of morality and not economics. I was surprised by the fact that ‘my friend’ was not acknowledging the basic principles of capitalist economics. I politely suggested we should probably go back to our basic economics books again and let “morality” be in an economic negotiation based on market principles driven by profit.

As we decided to conclude on a note of respectful disagreement, I told my friend how I wish corporate bosses in my country actually felt land transactions aren’t about economics and buying and selling of land are not driven by maximizing profit but by the morals of what is good and what is bad and about being a good human being or a bad human being. I only wish!