From Crony Socialism to Crony Capitalism

By Krishna Koundinya Mothukuru

Socialism is an industrial/post-industrial, totalitarian avatar of political and economic hegemony of the state. As John Acton’s famous saying goes, “Power tends to corrupt and absolute power corrupts absolutely.”

If this is applicable to individuals, it’s a folly to assume that the state somehow miraculously is immune to it. After all, the state is also a representation and reflection of individuals. Hence, crony socialism can also become a pleonasm of sorts, and India’s politico-economic history bears good testimony to this fact. Taking the public sector to the “commanding heights” of the economy, Nehruvian economics and its later derivatives may have done more harm than good in the long run, a historical blunder ostensible corrected only in 1991.

When US Government gave costly bailouts to the banks which were “too big to fail” without getting adequately penalized for their wrongdoings, that’s crony capitalism. When USSR gives a stream of bailouts for inefficient state owned companies, which manufactured unnecessary products when milllions starved to death, that’s crony socialism not just because USSR was socialist in character but most of the state owned companies in practice, belonged to elite nomenklatura high state officials and bureaucrats.

While crony socialism kills free enterprise by eliminating the very possibility of its existence (much like a contraceptive preventing unwanted children), crony capitalism kills the free enterprise by substituting the common interests with special vested interests by establishing their domination through undue interventions (like aborting an unwanted child).

Both are harmful for the socio-economic health of the country. Dr. Rajan also has raised this question in the recent past. A crooked politician requires the wicked businessman to provide him with surplus cash to fight elections, since the system is broken to such an extent that rarely does anyone capture power without money and muscle power. The wicked businessman now extorts undue favours from the crooked politician through various nefarious means like policies, laws, government tenders, contracts, allocation of natural resources etc and this completes the vicious cycle. Though this cycle is not new, Indian politics (right from Bombay Plan), in the recent past has shown a fundamental change in the way this cycle operates. Earlier, the support and kickbacks were covert & subaltern which in the recent past have become overt which is a sign of entrenchment of crony capitalism.

The Crony Capitalism Index by The Economist ranks India at 9th position in 2014. In spite of its apparent shortcomings, the index does show that crony capitalism in India is relatively high (on an average developing economies rank worse than developed economies).

One best example among scores of others we can quote is the king of “Acche Din”, (not a reference to PM Modi but the ‘king of good times’- the liquor baron, Shri Vijay Mallya, an MP in Rajya Sabha). A consortium of banks led by SBI has lent money to Kingfisher Airlines at unrealistic valuations and has now gone kaput. While banks are struggling with the non-performing assets (NPAs), he goes and buys a cricket team (Barbados franchise) with immunity, visits the Parliament a day before merrily waltzing out of the nation. Is it not an open challenge to the governance in India where Rule of Law is supposed to be supreme when a Member of Rajya Sabha, sworn to fulfil his duties to the Parliament and the people of India? The cronyism has come out of the closet, dusted itself, donned fancy costumes and is now sitting on the throne openly.

[su_pullquote align=”right”]Mallya’s case does have elements of crony socialism as well, but crony capitalism reeks out of every pore.[/su_pullquote]

Hence, we have to ask ourselves the questions – has India made the decisive shift from crony socialism to crony capitalism? If so, how big a Faustian bargain will this be? To what extent do we strike a balance between the both versions of cronyism, if at all we choose to have such a balance in first place?

In the end, it is not a choice between the good and the evil, but the lesser evil and the greater evil

Krishna Koundinya is an entrepreneur and the Co-Founder of two start-ups. He holds a PGDM from IMT–Ghaziabad, is a B.Tech gold medallist, an author, state level boxer, HCA league cricketer, amateur musician & graphologist (AP Judiciary).