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Re: Reputation as a major check on malpractices



Hello People:  I guess just when you were happy that I have faded out,
here I am back!!  After reading with interest your postings for three
weeks, I can confidently report that things are cloudier on this list
and people are still going round and round in circles!

Those of you who have experince working with the GOI (government of
India) are so badly "burnt" that you cannot envision ever a time in
the distant future when government in India will be corruption free
and will do what it was meant to do in the first place.
Sanjeev, please accept my thanks for what you have done on and for
this disucussion.  
However, I was perturbed by two things in your write up.   First, 
Alan Greenspan has not single-handedly done anything so spectacular
that you are worshipping him just as people worship ministers in
India.  I pointed out in my earlier posts that it is time that we
start seeing the importance of INSTITUTIONS in a democracy.  Looks
like that you are still more focused on the INDIVIDUAL.  It is
institutions such as the Federal Reserve that make the individual look
good,  even the best in the field.  However, without the backing of
the INSTITUION the individual is useless.   I have no doubt Alan
Greenspan will whole heartedly agree with me.    However, that does
not mean that Alan Greenspan is not a "hero" of some sort.  Yes,
individual talent and leadership matters.  Mr. Greenspan is doing a
great job.  But so is his "TEAM" of analysts and other governors and
board members. 

The central point raised in your post that reputation is a check on
business malpractice is true -- but, once again, let us put that into
proper context.  Most of the time this will only apply to businesses
who have made a name for themselves in the eye of the consumer. In
India also you can trust reputed companies.  For example, while buying
a cold drink, I am far better off buying Thumbsup or Fanta rather than
a drink bottled by a "local" bottler. But not all businesses deal
directly with the cosumer. That is why despite what Mr. Greenspan
says, public is demanding MORE meat inspectors in the USA.  Why? 
Because many meat packers work in the backwaters and supply meat to
large buyers.  Yes, they have everything to lose if meat is
contaminated -- but THAT DOES NOT GUARANTEE THE SAFETY OF MEAT. 
Neither can more inspectors.  However, it does minimize the risk,
provided the inspectors are doing what they are supposed to.
In short, as we have already talked about that government always has a
crucial role in development as it does in public safety and public
health.  ONCE AGAIN THE PROBLEM IS NOT WITH INSPECTORS but with the
system.
It is no use creating more inspectors in a system where they can be
bought by businesses or misuse there positions.  THAT IS WHAT I MEANT
THAT WE ARE STILL GOING AROUND IN CIRCLES.  At the beginning of this
debate I had pointed out that CORRUPTION IS NUMBER ONE PROBLEM IN
INDIA.   The BDP group on this list wants to avoid tackling this
problem.  Instead, they keep going off on tangents.
I had pointed out that corruption exists because basic democractic
norms about individual and governmental authority are ignored or
flouted  (please see my earlier postings).
Second, corruption exists becuase the "system" allows both parties
(bribe giver and bribe taker) to hide assets.  The bribe giver gets
away because there are no internal audit prinicples that are being
adhered too.
The bribe taker gets away because the system allows him to HIDE
ILLEGALY ACQUIRED ASSETS.(something which is impossible in the US, for
example)

I HAD ALSO POINTED OUT THAT THE 0NLY WAY YOU CAN CHANGE THIS SYSTEM OF
PROTECTION IS THROUGH TECHNOLOGY AND PROFESSIONLISM.   Technology
means introduction of fool proof method of records, change of
ownership in assests, and transactions related to these assests.  
Because most systems are manual (bank records for example) the bribe
taker can easily hide his/her identity and transact business with
impunity.  Without technology you cannot have systems such as national
id numbers for businesses as well as individuals (as was proposed on
this list).
But for some reason the power of technology and professionalism (I
think I have defined that before) you will have a continuance of the
status quo.   Do not expect business to perform as long as there is
corruption all around.

More later,

Kush Khatri


Sanjeev Sabhlok <sabhlok@almaak.usc.edu> wrote:
>
> 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.
> 
> Sanjeev
> 
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