Should we trust the political instincts of businessmen?

This is a battle between liberalisers and liberals, one businessman told me recently. The liberalisers, he said, are for economic reforms; reforms that will push growth, create jobs and lead to overall development. The liberals are for secularism and ‘other hobbies of the elites and intellectuals.’

He is not alone in holding such a view. Gurucharan Das made a similar pitch in Times of India, arguing that ‘those who place secularism above demographic dividend are wrong and elitist.’ In fact, the predominant debate is framed in terms of development vs secularism.

The businessman I spoke to had no doubt as to where he stood. “My answer would have been different about 20 years ago. But today, it’s pretty clear that Congress and AAP are leaning towards socialism. BJP under Modi is for free markets,” he said.

Again, he was not alone. Just a day earlier, Business Standard had published a report  that found, in a survey of CEOs 77% chose Modi as the best PM to push economic growth. What we need today, the businessman told me over Skype, is such pragmatism. “Let’s follow the business leaders, let’s reform the economy, and the rest will fall in place.”

What struck me most about the conversation was this: it seemed to reflect the way businessmen, in general, lay claims over the idea of free market, and also thrust that on their favorite politicians. The big danger in taking such statements at their face value is to confuse being pro-business with being pro-market.

Adam Smith, the foremost champion of free markets, was well aware of that danger. He didn’t have a good opinion about businessmen.  “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices….,” he wrote in The Wealth of Nations.

Thomas Sowell, a free market champion, who has taught at Cornell and Standford, used “to offer to give an A to any student who could find a favorable reference to businessmen in The Wealth of Nations. None ever did.”

When businessmen get along with politicians, the result can be even more toxic than ‘some contrivance to raise prices’. Raghuram Rajan, another champion of free markets and now Reserve Bank of India governor, writes (in a book he co-authored with Luigi Zingales): “markets need rules to flourish. Rules are set by the politically powerful. Even in democracies, these do not always represent the common man. Instead, they often serve special interests such as dominant industrialists and well-connected bankers. The common belief is that these people want markets to be free. The truth, however, .. is that in many countries the dominant business elites have created rules that prevent markets from becoming truly free, thus keeping their peoples mired in poverty.”  The name of the book by itself is telling: Saving Capitalism from Capitalists.

My point is simple. If we believe that free market is good for the economy (as I do), and if we are looking for some guidance from businessmen, we shouldn’t be.

Like the businessmen in Wealth of Nations and Saving Capitalism, businessmen in India are also driven by self interest, and not by a desire to keep the flag of free markets flying.

Today, a part of that self interest is making some of them run away from Congress. As Sanjoy Narayan pointed out   in his Hindustan Times piece, “A list of the companies that have been subjected to probes or court summons or government censure could read like the power-list of India’s business groups, including formidable names such as Tata, Reliance, Birla, Mittal, Jindal and so on. Some of those charges and investigations have come to naught; some are still underway; but the fact is Indian business has rarely experienced anything nearly as unpleasant as this. It is this that has made Big Business pin its hopes on Mr Modi. Not policies or concessions; but the hope that the nightmarish experience of being put on the spot would not be repeated”

And part of that self interest is driving them towards Modi. As Siddharth Varadarajan points out: “And if environmental rules, livelihoods, farmsteads or community interests intervene, they must perforce make way with the vigorous backing and assistance of the government. It is this promise of ‘decisiveness’ that has made Modi such an attractive proposition for Indian – and global — big business today.”  They have shown scant interest in issues beyond profits as my former colleague Dinesh Narayan pointed out here and here

If we believe that free market is good for the economy it would be far better to rely on our own instincts on what is good for free markets at this point, and which party is most likely to provide it. Free market is not just about keeping businessmen happy. It is also about providing safety nets to those who are not in a position to benefit from the market, it is also about all the players adhering to rules, among others.

If we believe investment in social sector is the key – MIT economist Yasheng Huang has argued that China’s growth is a result of the state investment in education and healthcare rather than more recent investments in infrastructure – that would perhaps make us lean towards Congress. Or we might think that transparency and adherence to rules are key for capitalism today – which might push us towards AAP. Or after all we might believe capitalism needs exactly what Modi is offering.

The decision should be ours.