By Dewal Nath Tripathi, Vivekananda Institute of Professional Studies, New Delhi.
Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of state interventionism.
Depending on how this is described it surely means that such an economy is not the one which is so desired as it completely breaks the notion of competition between parties.
When we look into the history of our glorified nation, our government took a very social step towards it and totally took away the opportunity for new investors. When India got independence in the year 1947, we were not sure how to shape our future. Our plates were full with responsibilities and still we had to deal with some hostile nations surrounding us, this was the reason why we chose to make our military stronger but still a second opinion would has been to make the country economically stronger which might have proved fruitful. The reason behind telling the history was that from our very inception we did not inculcate the agenda of competition in the market. Since the government was busy investing in the military, all the other needs of society was very vaguely established. Everything was being taken care of by the government and even when some flexibility was shone it was towards the big investing people or we can say people who were economically rich. That could be said as a start towards crony capitalism. Crony capitalism is believed to arise when business cronyism and related self-serving behavior by businesses or businesspeople spills over into politics and government, or when self-serving friendships and family ties between businessmen and the government influence the economy and society to the extent that it corrupts public-serving economic and political ideals. It is present in a continuum everywhere.
It is generally used when these practices come to dominate the economy as a whole or to dominate the most valuable industries in an economy. More direct government involvement in a specific sector can also lead to specific areas of crony capitalism, even if the economy as a whole may be competitive. This is most common in natural resource sectors through the granting of mining or drilling concessions, but it is also possible through a process known as regulatory capture where the government agencies in charge of regulating an industry come to be controlled by that industry. Governments will often, in good faith, establish government agencies to regulate an industry. However, the members of an industry have a very strong interest in the actions of that regulatory body, while the rest of the citizenry are only lightly affected. As a result, it is not uncommon for current industry players to gain control of the “watchdog” and to use it against competitors. This typically takes the form of making it very expensive for a new entrant to enter the market.
There are many references that could be drawn from many different cases which talk about capitalism, its disadvantages and why it should be discouraged, the more recent one being the Petroleum and natural gas case which involves one of the very big industrial houses in India and their relation with big companies for their own good. The book Gas wars: crony capitalism and the Ambanis has become a hot topic today. The book talks about the manner in which India’s natural resources have been allocated and valued. These resources include land, telecommunications spectrum, coal, iron ore or natural gas extracted from the basin of the Bay of Bengal off the south-eastern coast of the country along the basin of two great rivers, the Krishna and the Godavari.
The non-transparent and often arbitrary manner in which natural resources have been given access to, and priced, has resulted in many allegations of corruption and cronyism being levelled against those in positions of power and authority in India over the recent past. The ongoing investigation into the theft of documents from the Ministry of Petroleum & Natural Gas reveals the ugly face of crony capitalism. Corporate conglomerates influencing key economic policy decisions and having a stranglehold on the corridors of power are widely acknowledged facts about the aftermath of economic liberalization. The involvement of the officials of the Ministry has raised serious questions about the manner in which confidential information relating to major policy decisions is handled in the Union Ministries. Going by the first information report (FIR) filed by the Delhi Police in the case, which lists out some of the documents that were leaked out, it is evident that the corporates were getting access to significant policy documents before they were finalised.
The spate of arrests following the corporate espionage case may suggest that the Central government is after all taking on corruption, and not sparing even employees of big business houses, and its sincerity in doing so must not be doubted. Most observers, however, do not want to read too much into this. In particular, it is pointed out that the government’s stance in the ongoing case between the Oil and Natural Gas Corporation (ONGC) and RIL in the Delhi High Court shows that the Modi government, like its predecessor, continues to befriend big business houses. The investigation into the corporate espionage case has amply demonstrated the extent of penetration of corporate malpractices in institutions of governance. It has brought out into the public domain what was until now in the realm of hearsay and conjecture. However, it is too early to say if this will translate into decisive action against crony capitalism and strike at the roots of power that corporates wield over decisions concerning the larger public interest, such as pricing and allocation of natural resources. The hold of corporates on the political class is deeply entrenched. This leakage of confidential documents from a Ministry is just the tip of the iceberg. The corporate espionage case is an eye opener as to how these corporates stepped in the corridor of governance for a long time with the sole intention of extracting benefits. The espionage, by all probabilities, was carried out in complicity of corporate giants with higher stratum of administrators and their political masters. This fatal failure of maintaining secrecy makes us stand to stark reality, how fragile is our iron gate of secrecy, how our wielders of public trust could compromise without being accountable to public, from whom, this power springs and exist. This investigation should be led to its zenith without fear and favour by the investigating authority.
The nexus between the State and business establishments has been around for a long time, existing across time and space, and instances of it are well documented. Be it the rail-road ‘robber barons’ in the US, the zaibatsu in Japan, the Russian oligarchs, or the Korean chaebols, they all exemplify smoky backroom dealings and patronage politics. While the setting might change, the script remains the same: the flow of favoritism from government to certain (usually large) business corporations in exchange for funds to important politicians and key bureaucrats. Yet, whenever such a nexus is unearthed, a huge public outcry follows – as if such things have never been heard of before.
However to end it by saying and painstaking research, a meticulous perusal of press reports, as well as a few surprising exclusives, Cases of crony capitalism that allowed the Reliance group and the Ministry of Petroleum and Natural Gas to blatantly exploit loopholes which were consciously retained in the system to benefit it. Even as the book tells the story of how the country’s largest corporate conglomerate has benefited from the way government policies are structured, it lays bare the alarming facts of a natural disaster waiting to happen due to the ruthless exploitation of the country’s natural resources in order to swell the fortunes of a few.
Raghuram Rajan, governor of the Reserve Bank of India, has said “One of the greatest dangers to the growth of developing countries is the middle income trap, where crony capitalism creates oligarchies that slow down growth. If the debate during the elections is any pointer, this is a very real concern of the public in India today.”