Friday, October 12, 2012

The crony capitalism management theory

Reams of paper have been spent writing management theories for companies in growth markets.

I remember in one of my early lectures in management school, I asked the professor, “While we talk of core competence, how is it that groups like Tata, Reliance, Birlas diversify and continue make money in places like India. According to the definition of core competence, they should not be in these markets”. The professor quasi-dismissed my question – and this was a question asked post 1991 reforms (the real ones).

But later on I read that in growth markets Core competence may not be a great strategy to work with as newer markets and opportunities open up. For example, in India when the telecom sector opened up, a bunch of our erstwhile conglomerates stepped in with their mobile phone service offering. And a similar trend happened in the infrastructure sector. And when retail FDI happens, you will see a similar story there as well.

But then again, as the goings on the last couple of years have shown us, any company following any established management theory is sure to come cropper in the face of the newest of all management theories. And it works. Especially in India. Especially with the UPA in power.

It can cock a snook at core competence. Monopolize and capture markets better than any marketing campaign, check. It can dance on the five forces model of Michael Porter. It can get exclusive licenses, first mover advantages and deliver better results than Business Process Re-engineering. It is far more accurate than Lean Six Sigma. It is even more just-in-time than JIT. It can arrange finance at your door step when Accounting Standards tell you that you are not eligible for finance. It can win contracts when you are not even in the industry.

It is, in short, the baap of all management theories. A theory management theorists and consultants has never quite managed to put on paper: The theory of crony capitalism. It works on a simple tenet.

As Ogden Nash said,

Heights by great men reached and kept,
were not attained by exertion,
but they while their companions slept,
were busy contacting the right person.

Indeed, the theory of crony capitalism works on a simple model. The number of influential people, who have your number on their phone is a good indicator. If they are movers and shakers in the government who decide policies, float and award tenders it means you can easily grow to stratospheric heights. If it is a minister who is deciding to give off coal blocks or spectrum on the cheap, you are in the league to become a billionaire. If you cannot fulfill this first step, then sorry – the crony capitalism theory may not work for you. You will have to make it on your own. Tough luck. Don’t forget to pay taxes, though.

Second. Have you heard of the word ethics? If your answer is yes, then please stand aside. If you think ethics is for everybody else, crony capitalism is for you.

Fourth: You need to pull strings. In the olden days of license distribution, some companies always got licenses no matter what. They set up all possible industries and made money. In these new days of liberalization it is not that easy. You may have to find a foreign partner especially when all you do is own land and you know a license to build a metro railway is up for grabs. But foreign partners are not too difficult to find – after all, India was a growth market, before it fell like a ton of brics (pun intended). Or you may be asked to submit a tender in 15 minutes – but this is the information age – it can be done. Sometimes, you have to create a need, like all you do is sell metal, while the tender is for building a hospital. That, has to be arranged. Meaning, if the chap who floats the tender can add the golf course expertise as a pre-requisite to acquire land for a hospital, all you need to do is find a real estate firm which has built a golf course in its prospectus. It also helps to know lobbyists. These days lobbyists can be anybody – they are in disguise after the rather infamous expose of a lobbyist. The best disguise for them is journalists for example. Ministers can also double up as loyalists – like, if a tourism minister can vouch for your howitzers.

Third : You need to have a penchant for shells. Shell companies. Especially in Mauritius. Or Maldives. Or Cayman Islands. Some smart guys have shell companies in India itself. You can even sell shell companies.

So, how do they make money? Oh simple. You get spectrum for cheap, you sell it at a fortune. You get coalblocks for cheap, you sell it for something. You get land on the cheap and then you get some ultra luxury penthouses in return. Return on investment, you see. Some kickback is involved, but usually it is lesser than the taxes you would pay if you are a normal income tax paying geek.

Prerequisites: Some knowledge in creating trusts, NGO’s and a basic course in money laundering and tax planning. A penchant for throwing parties is appreciated. Attendance at big bashes is a must.

As you can see, many (shell) companies in India have made their fortunes this way.

Now, what if you are not an industrialist. You can still use crony capitalism. All you do is write bad things about BJP, Hindus or Gujarat 2002 (though this is fast approaching its sell by date) – and you will get funds. Another great option is to rant about persecution in Kashmir by the Indian authorities and somebody (related to a friendly neighbour's spy agency) will sooner or later invite you for all expenses paid conferences and some free shopping. If you are lucky, the government itself may put you on a plane and give you an all expenses paid holiday to Kashmir while you get to write a report nobody reads. And if you are a leftist, that works too. Sooner or later, you will be invited for a corporate funded junket to spew leftist speeches on an unsuspecting audience.

As for me, I know this column just ended my chances…

(Weblished yesterday on Niticentral, slightly edited)

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