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BCG India Chairman Arun Maira explains ways to drive large-scale changes in the Economy



GGI Business Review is a new business series, capturing snapshots of the GGI Harvard Case Style Masterclass by CEOs and Industry Leaders.


This particular piece is a snapshot from Arun Maira's GGI Liberal Arts Masterclass.


 

The Greek Philosopher Heraclitus very rightly said that - “Change is the only Constant” because ‘Change’ is essentially the nature of everything around us. If we look closely at nature then we can observe all the things around the world are constantly changing, be it climate, be it the nations or their policies or their people, everyone is changing constantly.


This rate of change has increased significantly since the pandemic because it forced people to adapt to new ways of living. A similar change can be observed in the economies around the world, and this change is forcing people to reimagine how the economies have been running till now. Now, since most of the economies around the world are Capitalistic economies, hence it becomes essential to Reimagine Capitalism to adapt to the changes.


Arun Maira, former Chairman of BCG India and former Member of the Planning Commission of India, helps us Reimagine Capitalism by providing insights to the cohort of the Global Governance Initiative on ways to drive large-scale changes in the economy by understanding the ECG (Economics, Capitalism, Governance) of the Economy.


GOVERNANCE


Good Governance is of fundamental importance when talking about driving success in an economy. Good Governance in an organization helps in improving its competency and capabilities. To understand the importance of governance let’s look at the example of the Indian Economy after 1991. The Indian government in 1991, implemented liberalization policies that opened the gates for foreign capital to flow into the Indian Economy which led to a massive boom in the wealth of the economy. But this wealth got concentrated amongst a few Indians who already possessed great wealth and were able to get hold of even more wealth after the new inflow of cash in the economy. Now, here even though there was an increase in the size of the pie through which many people could have shared, it was only the rich that got hold of major chunks of the newly created pie. This led to increasing inequalities among the rich and poor of the Indian economy. Now, there are four ways of producing large-scale changes in an economy and the Indian Government decided to use the first method to tackle this situation, i.e., Buffaloes Wallowing.

The first way of producing large-scale change- Buffaloes Wallowing


Here, the term ‘Buffaloes’ is used for the big policymakers and big leaders who are put together and are in charge to figure out ways to build the economy and find solutions for the different problems that prevail in the economy. These buffaloes keep on wallowing in their thoughts and arguments about the economy, while the people are left hoping that these buffaloes would make decisions that would benefit them. When India opened its economy in 1991, a lot of wealth was created, but still, the inequalities of income kept on rising which led to extreme malnutrition amongst the poor of the country. These poor people kept on hoping for things to change, but the buffaloes were wallowing in their own waters.

The second way of producing large-scale change- Peacocks Strutting


When you open up the market, you hope for more opportunities for all the people, but eventually, the organizations/people with existing power/resources take advantage of this and get a larger share. For example, when you enter a courtyard to give grains to small birds, but as soon you throw the grain on the ground, those grains are consumed by the existing birds that are much more powerful than the smaller ones and the smaller birds are kept waiting once again. This example shows that Capitalism progresses through Cumulative Procession, which means that- When there is more, those who already have power/resources take the advantage to procure more and this eventually leads to inequalities of income.


The third way of producing large-scale change- Tigers Growling


Change can also be brought in by using violence for making your voice heard, which was a technique used by the Naxals from 1991 to 2000. This led to violence in the cities by young people who could not get their voices heard by using traditional methods so they resorted to violence because the lack of fair opportunities makes people angry. These three ways of bringing about change in the economy follow a top-down approach where everybody hopes that those in power would help them, but that help never arrives. This is where the fourth and final way of bringing large-scale change comes into play.


The fourth way of producing large-scale change- Fireflies Arising


These are people who make change happen in their local systems because they truly care for everyone around them. They emerge slowly, but when their numbers increase, true change can be witnessed in the economy. Examples of such people include the likes of small farmers, teachers, small entrepreneurs, and self-help groups.

DIAGNOSIS OF CAPITALISM


After identifying the fundamentals of Governance, the second component in ECG of the economy is CAPITALISM.


Capitalism consists of a circular economy where material or energy in an industrial system gets converted into something else. This continuous utilization of material can choke the systems if excess resources are not reused and redistributed in the economy. These excess resources form the basis of surplus in an economy. But how is this surplus created? Well, to create this surplus the work is done by small people and they use their own resources to create a surplus. This surplus is then ultimately transferred to the investors who invested their money in the economy.


In this manner money being made out of money in the financial systems has significantly increased the wealth of the rich as compared to small people. These structures of Capitalism are creating inequalities and congesting the world’s resources. The question now arises how do we circulate the money into the economy? It can be done by charging taxes to improve the public systems. But when the taxes are high, the rich people find ways to avoid getting taxed. This ultimately leaves the government with no option but to tax the normal citizens to maintain the public systems that are in place. Rich people, on the other hand, use methods of performing CSR activities or setting up philanthropic organizations to contribute to society.


There is a need for a New Model of Capitalism where small people who make profits should be able to keep their profits to ultimately increase their wealth. This increased wealth would enable them to make their own choices and ultimately give them more freedom and power. Finally, the capitalists should remember that they are just the trustees of the surplus created by small people and not the owners of that surplus, so they should not decide what to happen with this surplus.

REDEFINING ECONOMIES


Economies around the world follow different systems that define them and their ways of operation. One such system is the Mechanistic Engineerable System, which follows an engineer’s approach to solving a complex problem. Such a model aims to tackle real problems by finding solutions to them directly. All big organizations are created in the same manner using these methods of change, where people in the top positions of the organization are designing solutions for the people, but this ultimately does not materialize as expected because the people at the top tend to become buffaloes and cause a delay in decision making.

The next system is the Complex Self Adapting System, where the economists use a model of physics to understand social systems. In physics, we can see that nature is composed of small parts/components which are trying to figure out the configuration of each part and its role in forming nature. 100 Years ago, Physics came to a point where Newton’s Mechanistic Model was not able to explain nature adequately and that is why people like Albert Einstein, Werner Heisenberg and Max Planck took matters into their own hands and changed the paradigm of physics after realizing that we cannot be certain about all the things around ourselves. The more accurately you try to measure the world, the less certain you will be about what the world is.


Nature is a self-adapting system and whatever action you take in it, ends up affecting yourself. This is why Nature is the most complex machine. Whenever there is a crisis in nature, something appears by itself to resolve that crisis, and this is how Nature is a self-adapting system. Similarly, societies are also a self-adapting system, where if people are uncomfortable around anything then they take action and do something about that. Furthermore, Economies are classified as a part of society.


All this is the Science Of Systems and we have already discussed two types of systems.

The third and the final system is the Chaotic System where things get so complicated that people tend to leave them on their own while hoping they would automatically get resolved India’s economy has been jumping between the Mechanist system and Chaotic system, and therefore it is important to understand that we need to adopt the second system of self-adaptation to succeed.

NEW STRUCTURE FOR DRIVING CHANGE


Any significant change that needs to be done in a system or economy, needs to begin in villages because that is where most of the Indian diaspora resides, especially after the pandemic. Amul is the best example of such change, the organization built its foundation based on the well-being of its community while putting profits second. It has been able to achieve massive success because the people involved in the governance of Amul are connected to the ground and are aware of the on-ground realities, which is why they can make correct decisions that ensure the overall well-being of everyone around them. This type of system of governance ensures the development of any organization in an economy because it takes input from the people who are putting in the most effort in the creation of such institutions.


Such people are also the most efficient users of the available resources and if provided the correct platform, can scale things up significantly.


This is why a New Theory of Management is needed which, emphasizes people learn from experienced people engaged in the particular activities.

But the world runs in a different manner, where those who have more money must call the shots and not those who know what needs to be done in a particular situation.


 

Arun Maira was a Member of India's Planning Commission from 2009-14, prior to which he was Chairman of the Boston Consulting Group, India. Earlier, he had worked with the Tata Group in India for 25 years, and for another 10 years with Arthur D Little Inc and Innovation Associates in the USA.

Presently, he is Chairman of Helpage International and an Advisor to several civil society

networks.


 

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