Tuesday, May 24, 2011

Should Ratan Tata advise Mukesh Ambani about how to use his wealth?

A couple of days ago famous industrialist Ratan Tata commented about the lavish life style of another billionaire business tycoon Mukesh Ambani quoting his 27 storied Mumbai house viz., Antilla. Tata said that Mukesh Ambani's house Antilla represents the rich Indian's lack of empathy for the poor. His remarks: "The person who lives in there should be concerned about what he sees around him and [asking] can he make a difference. If he is not, then it's sad because this country needs people to allocate some of their enormous wealth to finding ways of mitigating the hardship that people have." 

Is Ratan Tata right in his remarks or is he misguided in his judgements? Is he aware about the role of an entrepreneur in an economy or is he ignorant of this basic economic fact? Or is his remarks has some underlying assumptions which make those remarks perfectly apt for Mukesh's lifestyle? Let me deal with these questions one by one. I take two scenarios to carry out my analysis. In first scenario we assume that Mukesh Ambani is an honest entrepreneur and his profit comes from the market competition. In second scenario we assume that, Mukesh is not an honest entrepreneur and his profit comes from his business ties with government officials and his manipulation of the system of State. We see the implications of Ratan Tata's remarks under both these scenarios.

Scene 1: Mukesh is an honest entrepreneur
I first make an assertion and then go onto prove it. If Mukesh is an honest entrepreneur then his profit - which he earned in the market competition - is absolutely legitimate, and if he don't desire to do a philanthropist work then that is his voluntary choice. Ratan Tata has no right whatsoever to advise Mukesh about allocating his honestly hard earned wealth amongst the poor people or to comment on his lavish lifestyle.

As Ludwig von Mises explained, the only way in which an entrepreneur can make profit in the market competition is by serving and fulfilling the most urgent wants of his customers in the best possible way, and that best possible way is of providing top quality goods at the lowest possible price. Only those entrepreneurs succeed and make profit in the market process who can ascertain and fulfill the subjective wants of customers in the best way compared to his counterparts. 

By producing and selling top quality goods at a lowest possible price successful entrepreneurs allow even the very poor people to buy his products. By allowing them to buy his products he lifts their standard of living; he lifts them out of their poverty even without raising their nominal meager income. That happens because with the falling prices in the market with the same amount of nominal income people can now buy more goods and services i.e., their real income rises. And no sane person will deny that this is the real way of increasing prosperity in the society; this is the true way of eliminating poverty and lifting the standard of living of millions of poor people. 

Philanthropy, about which Ratan Tata is advising Mukesh, will only help poor people in a very short run i.e., for the urgent immediate consumption purposes. Such help to poor people will actually harm them in the long run by making them dependent on such easy free money. It will not cultivate any habit of hard work and independent living in those people. Redistributing the income will only exacerbate the problem of poverty because human nature is such that most people will always prefer the free goods. Such allocation of rich peoples' income will make everyone of us poor too because rich people play an important role of providing essential savings for the economy. And without savings it is impossible to sustain a labor population in present time which is involved in production of intermediate capital goods. And without capital goods it is impossible to increase the future production of final consumption goods, and without that progress (so-called growth) is not possible. Capitalist class - which includes people coming from all strata of society, and not just rich - plays a pivotal role of supplying this saving. If they are forced to allocate their saving to poor people, who will mostly use it for immediate consumption, then society and economy cannot progress and without progress everyone of us will be poor one day for sure.

And people should not forget another vital economic truth that, honest entrepreneur do not become rich by exploiting the public, but they are made rich by their consumers i.e., the same public. Consumers voluntarily buy the products sold by such sellers because they prefer their products over other sellers. And in this process they give their portion of income to these entrepreneurs making them rich in turn. Profit is a signal that the businessman is fulfilling the most urgent wants of his consumers in a best possible way, and that's why he is rich. On the other hand those entrepreneurs who make losses are not fulfilling consumers' wants properly and so they remain poor in turn by going broke! (to deeply understand the beautiful system of profit & loss I will advise my readers to read Mises' wonderful book, Profit and Loss).     
So, if Mukesh is an honest entrepreneur then he has all the rights to keep and use his profit in whatever way he wants to. 

Scene 2: Mukesh is a dishonest entrepreneur
But, if Mukesh Ambani is a dishonest entrepreneur and his profit comes solely from his friendships with the government bureaucrats and politicians then he has no right whatsoever on his wealth. Profit generated by such dishonest political maneuvering is immoral. In a system of government such businessmen are working not to serve their consumers but only to serve the politicians and bureaucrats who help them in restricting the market competition. They actively lobby government so to establish their monopolies in the market. Through these monopolies then they fleece the consumers. And because their profit depends on exploiting the political system they don't care about their consumers. In fact they go to any length to harm their consumers for making such illegitimate and immoral profits. 

This type of system is historically known as 'fascism' and sadly in today's world most of the businessmen, especially the big business houses are making their fat profits by this way only.

If Mukesh Ambani (also Ratan Tata and all others) is doing his business in cahoot with the government officials then his profit is illegitimate. If one day India becomes truly a free country then he should be stripped of his illegal profits (property) and should be convicted and punished for his crimes against the people. He and all such dishonest business tycoons should be incarcerated, may be hanged.       

Looking at these economic facts, if Tata and Mukesh both are honest businessmen and they really want to help people of this country then instead of  allocating their profit to the poor people they should use that capital in producing top quality goods at the lowest possible price. They should try to provide as many economic goods as possible to people of India through market competition. Tata and Mukesh both can profit by serving the needs of poor people. There exists a thriving market even in remotest rural poor areas of the world as C. K. Prahalad has shown. All capable entrepreneurs (existing and new ones) should provide top quality private schools, hospitals, private roads, electricity, water works, sanitation, home etc. goods in these areas at the lowest possible price. That will be the best possible moral way of making a difference in poor peoples' lives; that is the only way in which these entrepreneurs can help the poor in mitigating their hardships. Allocation/redistribution of wealth will only result in misery for all of us.   

Wednesday, May 18, 2011

The Dangers of Indian Government Interventions in Afghanistan

Recently prime minister Manmohan Singh visited Afghanistan government to meet president Hamid Karzai. This visit was in the wake of recent event of the murder of Osama-bin-Laden by the US government. During this visit he pledged to donate US$ 500 million to the Afghanistan government for the said rebuilding infrastructure works. He announced that the total commitment from the Indian government to transfer the funds to Afghan government is approximately US$ 1.5 billion. In this region Indian government is the biggest funding institution for the Afghan government.

This whole transfer of funds by the Indian government raises many questions in my mind, and should raise in every Indian citizens' mind too. First, what is the real motive - and not just stated - of giving this large sum of money to the Afghan government? Second, who actually is going to pay for it and in what form? Is it morally and legally right to give this money to Karzai government? Third, who will actually benefit from this government transfer of money? And fourth, what are the possible consequences of this act of prime minister Manmohan Singh? In the following section I will investigate these questions one by one.

The stated motive of this foreign aid is, as usual, helping Afghan government rebuild the country. This money is suppose to be used for developing roads, schools and the agriculture sector of the country; India is already building a new parliament building in Kabul at the cost of US$ 19 million. But, as the same BBC news report stated, the real motive of this foreign aid is to tilt the Afghanistan government on India's side to corner the Taliban and Pakistan government. Just like America, Indian prime minister wants to install a stable peaceful democratic government in Afghanistan! Indian government is worrying that if American troops pull out of Afghanistan as promised by Obama government then Taliban and Pakistan will again have a big influence in Afghanistan, which they see as a threat. There is an animosity between Indian and Pakistani government and Indian government thinks that Pakistan and Taliban will use the Afghan territory again for terrorism purposes. But, the basic question here is, why there is animosity between these two country governments whose result is this terrorism? The answer is, the Kashmir issue. The root cause of conflict (and terrorism) between Pakistan and India is Kashmir. That means going after the terrorists in Afghanistan without solving the problem of Kashmir will never end the terrorist activities. As long as the root cause of terrorism is in tact it is impossible to remove it.  So then the solution of terrorism is not in installing India friendly government in Afghanistan but to find a solution of Kashmir issue. Elsewhere I have discussed this solution so I won't discuss it here again. Suffice it to say that Kashmir belongs to Kashmiri people who have the property rights of their land where they are living since centuries. Kashmiri land should be given back to the Kashmiri people. 

And, Indian politicians also forget that it is impossible to install a democratic government anywhere in the world (and democracy is devil in any case). India don't even have internal democracy (I won't go to prove my this thesis here; I will do it in some other post) then how they can think of installing democracy in other countries? Any attempt to do so will fail in Afghanistan. Afghanistan is known as  a 'graveyard of empire' and Indian government will meet the same fate if they interfere in that country's affairs.

Second question is whose money is Indian government lavishly spending in Afghanistan? We don't have to go far to find the answer of this question. The answer: of course it is Indian tax payers' money. Governments don't earn any income. They get their money from tax payers' loot. Second source is printing money which also is an inflation tax on the citizens. Now, do they have any moral or legal right to spend tax payers' hard earned money in Afghanistan? No they don't have such rights. In fact governments don't have any moral or legal rights to do anything because it is a criminal organization which loot and kill people while violating people's private property rights. And murderers and looters don't have any rights. When in India millions of people are dying everyday because of hunger how can the Indian politicians give away US$ 500 million to Afghanistan government? When Indian cities and villages are lacking even a basic infrastructure then how can prime minister Singh think of developing such infrastructure in Afghanistan? When everyday we hear news of some farmer committing suicide in rural remote areas of India then how Mr. Singh can give such huge amount to Afghani agriculture sector which mainly produces opium and hashish!!! It is advisable that the prime minister give Indian people priority in his spending list instead of influencing Afghani government through such kickbacks.

And, as history shows such money transfers in the form of foreign aid from one government to other government only benefits the government of other country. Such money never reaches the poor citizens of those countries (for evidence see, here, here, here, here, here, here, here, and here). The whole failure of foreign aid is a lesson and guide in this matter for Mr. Singh. But is he ready to learn? His actions says, No. And the person to whom India's prime minister is giving such huge amount of money i.e., Afghan president Mr. Hamid Karzai, is famous for his corrupt Afghan government (See evidence here, here, here, and here). What do we make out of this help looking at these evidences? One corrupt government helping his other corrupt brother government? 

Finally, what will be the repercussions of this act of prime minister of bribing the Afghan government to help corner Taliban and Pakistan. Again history gives the answer. The only consequence of this politically stupid maneuver will be a blow-back from Taliban and Pakistan. As it is happening with American empire it will also happen with India. American involvement in Afghanistan and middle eastern countries have created big hatred for American government in these places. According to Prof. Robert Pape's intense research, the chief reason for suicide terrorist attacks is American government's involvement and occupation of these countries (for evidence, see his book - cutting the fuse). This move of Indian government will only increase the hatred of Taliban and Pakistan for India. This act of prime minister will be one more excuse for the terrorist organizations to recruit more terrorists to carry out attacks against innocent Indian public. 

Indian government should stop poking its nose in foreign government affairs. It should stop dreaming becoming another world empire. History tells us that whenever governments become super powerful they always ruin the country and its citizens. Indian prime minister should stop putting the lives of innocent Indian people in jeopardy through such absurd acts.

UPDATE (5 October, 2011): I think my warning to Indian government of not intervening in foreign affairs is going unheeded. Not stopping at financial intervention, Manmohan Singh government has decided to completely ruin this country now by deciding to send Indian military forces in Afghanistan to train Afghan army to fight against Al-Qaida and Taliban. This means direct military intervention of India in Afghanistan. Indian government just committed suicide by taking this highly irresponsible decision. This is going to cost the innocent Indian public dearly. Indian government has invited more terrorist attacks through this decision. Get ready people for more blow-backs!