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Reputation as a major check on malpractices

Since we were discussing the role of government in monitoring, regulating
and standardizing, I wanted to mention a few counter-points, before we
rush headlong into making another "inspector raj." The small but
intelligent government concept gets even more force in such a case. 

Ask Alan Greenspan, a person I know that all of you respect, for having
provided the USA with the lowest unemployment in 30 years, and very low
inflation, coupled with enormous economic growth.

a) Please read Alan Greenspan's article in the Objectivist Newsletter,
Aug. 1963 (also reprinted in Ayn Rand's "Capitalism, an Unknown ideal")
which is entitled, "The Assault on Integrity." It speaks clearly of the
role of reputation and good will in keeping unscrupulous practices in
check. Economists have today realized the immense importance of this
aspect in the economy and the latest literature on game theory studies
these things in intricate detail. Basically, the point being made is that
if markets are allowed to operate properly, and transparently, then
problems such as mixing kerosene oil with petrol, mixing sand with cement,
mixing water with milk, mixing useless powder with fertilizers, etc., will
automatically come down drastically.

Today, because of virtually 90% of the government functionaries (taken as
a whole) and virtually 100% of our Ministers are busy dabbling with money
below the table, grabbing "rents"  left, right and center, therefore every
businessman cheats given the slightest opportunity, since he/ she is in
strong collusion with the "authorities."  Reputation has lost its meaning
because the officials are corrupt, and even the courts are often corrupt. 
Therefore it is easy to get out of the system, and the businessman can
make good money out of selling sand as cement, and giving part of the
"cut" to "authorities" around him. He is assured of no one being able to
"touch" him. I can assure you that even God Himself cannot keep the
unscrupulous in jail for long in India: these guys have angelic wings
which enable them to slither out of jail in a short while. 

On the other hand, take the case of a fully capitalist system (pl. read
the definition on the web page, in case of a doubt about what this word
means), if a businessman knew that nobody in the government would protect
him (if we had a small, well paid, and intelligent government), and that
he had to compete with other businessmen for survival, then pure merit
would once again start to count, and the businessman would be forced to
stop cheating since his reputation would be ruined if he cheated, and he
would be out of business in no time, and probably in jail, too.

Today, only cheaters prosper (or at least, mostly cheaters prosper), since
our incentives are clearly in their favor. Who else will do the "puja" of
the Ministers (as my Minister of Rural Development told the businessmen
who submitted sealed tenders for a huge contract)? You do Puja of the
Minister and you are safe. 

The only person who is not safe is the young and sincere Director of Rural
Development who wants to control the corruption that he sees his Minister
trying to engage in. That officer is immediately transferred into a place
where he cannot interfere with any of the money-making process. Making the
honest officers impotent is very easy today. And how many of them care to
bother about these corrupt businessmen or Policemen in the end, after
being kicked about all over the place? So, who will monitor the corrupt in
this system? I can guarantee you - NONE. 

Therefore, free markets, transparent competition, and small government is
vital in many more senses than appears at first glance.

b) Standardization: I mentioned about the role of govt. in this, but even
this is possible purely in the private sector. Take the case of the
standardization of various protocols in the computer industry. The
government in USA had very little, if anything at all, to do with such
standardization. Qualified professional bodies can do their own
standardization and we do not need ill-qualified and disinterested
government organizations to do that, in most cases.