Two years ago, the CEOs of nearly 200 large companies in the United States issued a statement with a new definition of “a company’s purpose.” These CEOs, who make up the Business Roundtable and understand the who’s who of America Inc, said it’s not enough for companies to focus solely on maximizing shareholder value. We must ensure the well-being of all stakeholders, they said. This includes not only employees, suppliers and customers, but entire communities within which we operate. In addition, “.. Companies must demonstrate their commitment to … the issues that are at the heart of the future prosperity of the world.” Thus, the stakeholders also include the unborn generations. This is a major shift from shareholder capitalism to shareholder capitalism. Milton Friedman’s famous saying that the only social responsibility of a business is to maximize profits is now practically buried. Businesses need to act with empathy and earn the trust of communities. They must act as if they are the custodians of this trust. This comes closest to the model of guardianship advocated by Mohandas Gandhi over 100 years ago. The word âtrustâ precedes the words âfiduciaryâ and âguardianshipâ and is at the very heart of economic and social life. This recognition may have come late to the profession of economist. The term âconfidence deficitâ is something we hear a lot in the context of bad governance. Gandhi anticipated that trust is an axiomatic precondition of economic life. The work of Nobel laureate in economics Elinor Ostrom on the rational management of the commons through cooperative trusts echoes this Gandhian vision in some ways. Communities act as if they were the stewards of natural resources like lakes and forests for future generations. This and many other fundamental ideas, such as the economics of identity and the centrality of human capital to economic prosperity, are covered in a delicious and well-researched new book called Economist Gandhi, by Jaitirth Rao. In his preface, Gandhi’s great scholar and grandson and biographer Rajmohan Gandhi writes that Rao captured “aspects of Gandhi’s thought which are generally lacking in those who are sure they know their Gandhi.” For a writer who has primarily straddled the world of business and entrepreneurship, this book displays careful scholarship and well-researched arguments. It’s almost like a labor of love. The author aims to establish Gandhi as an original thinker in the field of economics, an intellectual colossus on par with the great Scottish moral philosopher The Enlightenment, Adam Smith, considered the father of modern economics. Indeed, Smith’s greatest work is his Theory of Moral Sentiments, which preceded his most famous The Wealth of Nations by 17 years. Rao finds the similarity between Smith’s “impartial viewer” and Gandhi’s “again, little voice within himself strange. Smith’s rather agnostic approach is that the moral worth of our actions is judged by the impersonal spectator, while for Gandhi it is closely linked to his religion, ethics and identity as a Hindu. For Gandhi, all economic actions should be judged on the basis of how they improve well-being of all beings, not just his own. And this approach naturally relates to the notion of guardianship. It should not be seen as a narrow concept of fiduciary duty (which can be abused), but rather as an ethical imperative for behave altruistically.As Rao points out, Gandhi not only focused on the illegality of neglected fiduciary responsibilities, which can be imperfectly addressed through sanctions and regulation, but on his i memory. And what is the source of Gandhi’s ideas on the guardianship and ownership of wealth? It is the Isavasya Upanishad. Everything is pervaded, enveloped and possessed by the Lord (Isa), and our offer is to enjoy the universe without âcoveting anyone’s wealthâ. An interesting rephrasing is “do not covet, for whom is wealth?” “. If you don’t own the wealth but simply hold it in trust (for others or for future generations), it provides an almost scientific basis for the trusteeship model as the foundation of market capitalism. It’s a big step forward, and probably complicated if not inconsistent, but Rao makes a pretty compelling argument for the claim that this is Gandhi’s unique and fundamental contribution. This is certainly an alternative hypothesis to conventional economic theory, which treats every human (Homo economicus) as a purely selfish utility maximizer. The recent work of George Akerlof and Rachel Kranton on the economics of identity also echoes Gandhi’s reflections on identity. The fact that humans are inherently empathic and not selfish bullies is shown in the results of neuroscience experiments conducted by scientists such as VS Ramachandran. They postulate the existence of empathy neurons, aptly named “Gandhi neurons,” which are triggered to make humans sympathize with others. Such a validation of the basis of a model of guardianship of capitalism would be remarkable. Rao’s book also has a chapter on Gandhi’s views on human capital development and his âNai Taleemâ approach to education. Here too, Rao maintains that Gandhi’s contributions are fundamental.
Gandhi’s ideas on economics were summed up in a speech he gave at Allahabad University in 1916. He frequently referred to the Gospels and this line says, “If God give us power and richness… [it is] so that we can use it for the good of mankind. âbe surprised by the synthetic glow in Gandhi’s thoughts as an original economist thinker.
Ajit Ranade is Chief Economist at Aditya Birla Group.
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