'MBA or ABM?', 10 May, 2004.

n India today the MBA (Master of Business Administration) degree has finally come to command the sort of respect that a medical qualification had in the first half of the twentieth century. While the western, and often indeed imperial, base of some of the rhetoric of medicine as a discipline have by now been pointed out by the philosophers of science the bonafides of the MBA are treated as self evident and beyond reasonable doubt. However, far from being a neutral body of knowledge it mostly serves as a vehicle for the spread of what is triumphantly called the American Way. And the latter is no more than a reflection of the American Business Model (ABM).

What is the ABM then? It is a vision of society. Those to whom it may sound surprising that a social arrangement is being spoken of in the same breath as business is would want to recall the slogan "What’s good for General Motors is good for America."! The ABM is a blueprint for prosperity based on four premises presented as universally true. They are: self interest rules, markets know best, the state needs be minimised, and, low taxation is crucial. The first is treated as axiomatic, and promotes the idea that a self-regarding materialism governs our lives. The second is an assertion that markets are advisedly best left to operate on their own, with any regulation leading to inferior outcomes. The prescription of a minimal state is based on the premise that the economic function of the state does not extend beyond the enforcement of contracts and private property rights. Government should not itself provide goods and services or own productive assets. Finally, while some taxation is necessary to finance the night watchman’s role of the state, taxation rates must be as low as possible. Nor should the tax system be used to redistribute income or wealth. These serve as a disincentive to the creation of wealth.

 

The ABM has by now reached centre stage in discussions of economic arrangements the world over, rather like socialism had done in the developing countries for four decades or so after the Second World War. Now any blueprint for an economy must define itself in relation to it. The international business, financial and consulting community relentlessly pushes the ABM. It is a little more surprising though that the Marxist government of West Bengal prefers to pay crores of rupees for advice to McKinsey, a mere business consultancy with no credentials to propose plans for an economy, an entity more complex than a business.

It is not rocket science to see that the ABM is far from a universal blueprint for prosperity. We can learn this from the recent history of Russia. Nowhere has the ABM been given such a free rein as in post-communist Soviet Union. And nowhere has it come a cropper to such an extent as it did there. In Russia the government of Bill Clinton masterminded a gargantuan privatisation plan based on a central precept of the ABM, that government should not own productive assets. It only resulted in large-scale theft, the rise of a mafia, and a collapse of the economy. GDP shrunk by over a third within a matter of years and a proud people had had their livelihoods destroyed by the democratically elected leaders of the west. Not even the fact that among the new oligarchs of Russia are former honchos of the dreaded Soviet state apparatus can take away from the fact that the ABM has been revealed to be no more than a mere ideological appendage of western capital. The truth about markets is that they are embedded within a society. Thus institutions and norms are at least as important as property rights in governing economic outcomes. What the Russian experience tells us is that while it has been shown that a market economy is superior to a centrally planned one, there are yet various ways in which to arrange the market economy itself.

None of the richness of a functioning market economy enters into the curriculum for an MBA in India. Instead the verities that constitute the ABM are fed to eager future fund managers who believe that they further history by seeking arbitrage opportunities for American capital. It is a sad commentary on us as a people that the flower of India’s youth are led to enter into the mill that is the MBA programme in the many management institutes that dot the country, some even in the venerable public sector. It would burden our poor a little less if the parents of these youths were paying for their indoctrination. But they do not, and the government of the day appears to be saying that the consumption of ABM should be subsidised even further. More’s the pity!