May 28, 2009 — drsubrotoroy
A lawyer friend tells me she thinks it a “technicality” that there is no Lok Sabha or Parliament in India today despite eleven long days and nights having passed since the 15th Lok Sabha came to be elected by the people of India. “At least we did not get Advani and Modi to rule”, is how she sought to justify the current circumstance. I am afraid I think she has produced a non sequitur, and also forgotten the constitutional law she would have read as a student.
The best argument that I think the Government of India shall be able to give justifying their legal error in not having the 15th Lok Sabha up and running yet 11 days after India’s people have spoken would run something like this:
(1) The President of India invites a Council of Ministers led by a PM to form the government and has done so.
(2) The President must be satisfied that the PM commands a majority in the Lok Sabha, and the President has been satisfied by the 322 “letters of support” that the PM produced.
(3) The Government of the day calls parliamentary sessions and does so at its discretion, and the Government of the day headed by this PM has announced when it shall call the 15th Lok Sabha which will be in a few days yet.
Any such argument, I am afraid, would be specious because it simply puts the cart before the horse.
Parliament is sovereign in India, to repeat what I have said several times before.
Parliament is sovereign in India — not even the President who is the symbol of that sovereignty. We do not follow the British quite exactly in this because we are a republic and not a monarchy. In Britain sovereignty rests with “The King in Parliament”. With us, Parliament is sovereign and the President is the symbol of that sovereignty. In all matters of state, our President must act in a manner that Parliament and parliamentary law says.
Parliament is sovereign in India — not the Executive Government, certainly not its largest political party or its leader.
Parliament is sovereign in India because the people of India have chosen it to be so within the Constitution of India.
Parliament is sovereign in India and the people of India have elected the 15th Lok Sabha which has still not been allowed to meet eleven days later.
To the contrary, as noted days ago, the purported “Cabinet” of the 14th Lok Sabha, a dead institution, met on May 18 2009, some 48 hours after the 15th Lok Sabha had already been declared! The 14th Lok Sabha in fact stood automatically dissolved in law when General Elections came to be announced.
Is all this merely a “technicality” as my friend believes? I think not.
Executive Government in India derives its political legitimacy from being elected by Parliament, i.e., from holding the confidence of Parliament, and that means the Lok Sabha.
The Government of the day might for sake of convenience have a prerogative of calling sessions of the 15th Lok Sabha once it has been constituted but the Government of the day cannot logically constitute a Lok Sabha after a General Election because it itself receives legitimacy from such a Lok Sabha.
If the 15th Lok Sabha has not met, confidence in any Executive has yet to be recorded, and hence any such Government has yet to receive legitimacy.
Do “322 letters of support” suffice? Hardly. They are signed after all by persons who have yet to take their seats in the Lok Sabha! (Let us leave aside the fact that the PM, not being a member of the Lok Sabha, is in this case unable to be one of those 322 himself!)
Yet we have 79 “Ministers” of this new “Government” holding press-conferences and giving out free-bees and favours etc already. As I have said before, Ambedkar, Nehru and others of their generation, plus Indira and Rajiv too, would all have been appalled.
Because the incompetence of the fascists and communists in the Opposition may continue to be expected, it will be up to ordinary citizens and voters of India to point out such simple truths whenever the Emperor is found to be naked. (Our docile juvenile ingratiating media may well remain mostly hopeless.)
January 8, 2009 — drsubrotoroy
Corporate Governance & the Principal-Agent Problem
for a conference on corporate governance
I am most grateful for this opportunity to speak at this distinguished gathering. I have to say I have had just a day to collect my thoughts on the subject of our discussion, so I may be less precise than I would wish to be. But I am delighted I have a mere 7 minutes to speak, and I will not plan to speak for a second more!
I would like to ask you to consider the following pairings:
SHAREHOLDER: DIRECTORS & MANAGERS
You will recognize something in common to all of these pairings I am sure. A patient goes to a doctor with a problem, like a swelling or a stomach ache or a fever, and expects the doctor to do his/her best to treat it successfully. A client goes to a lawyer with a problem, of a contract or a tort or a criminal charge, and expects the lawyer to represent him to the best of his ability. A student attends a University or higher educational Institute, and expects the professors there to impart some necessary knowledge, to explain some difficult or complex natural or social phenomena, to share some well-defined expertise, so the student too may aspire to becoming an expert.
In each case, there is a Principal – namely the patient, the client, the student, — and there is an Agent, namely, the doctor, the lawyer, the professor. The Agent is not acting out of charity but is someone who receives payment from the Principal either directly through fees or indirectly through taxes.
The Agent is also someone who necessarily knows more than the Principal about the answer to the Principal’s problem. I.e. there is an asymmetry in the information between the two sides. The Agent has the relevant information or expertise — the Principal needs this information or expertise and wishes to purchase it from him one way or another.
A company’s Board of Directors and the management that reports to it, may be similarly assumed to have far greater specific knowledge than the company’s shareholders (and other stakeholders) about the state of a company’s operations, its finances, its organisation, its position in various input and output markets, its potential for growth in the industry it is a part of, and so on. Yet the shareholders are the Principal and the directors and managers are their Agents.
And indeed the Government of a country, i.e. its political leadership and the bureaucracy and military that are reporting to it, also have much more relevant decision-making information available to them than does the individual citizen as to the economic and political direction the country should be taking and why, and again the body of the ordinary citizenry of any country may have a reasonable expectation that politicians, bureaucrats and military generals are acting on their behalf.
In each of these cases, the Principal, having less information than the Agent, must necessarily trust that the Agent is going to be acting in good faith on the Principal’s behalf. There is a corporate governance problem in each case simply because the Agent can abuse this derived power that he acquires over the Principal, and breach the contract he has entered into with the Principal. Doctors or lawyers can practise improperly, professors can cheat their students of their money and teach them nothing or less than nothing, boards of directors and managers can cheat their shareholders and other “stakeholders” (including their workers who have expectations about the company) of value that should be rightfully theirs — and of course politicians, bureaucrats and military men are all too easily able to misuse the public purse in a way that the public will not even begin to know how to rectify.
In such situations, the only real checks against abuse can come from within the professions themselves. It is only doctors who can control medical malpractice, and only a doctor can certify that another doctor has behaved badly. It is only lawyers who can control legal malpractice, and testify that yes a client has been cheated of his money by some unscrupulous attorney. It is only good professors and good teachers who can do what they can to stand out as contrasting examples against corrupt professors or incompetent teachers.
In case of managerial malpractice, it is only fellow-managers who may be able to comprehend the scam that a particular CEO has been part of, in stealing money from his shareholders. And in case of political malpractice, similarly, it is only rival political parties and when even those fail, rival political institutions like the courts or the press and media, who can expose the shenanigans of a Government, and tell an electorate to throw the rascals out in the next election.
In other words, self-policing, and professional self-discipline are the only ultimate checks and balances that any society has. The ancient Greeks asked the question “Who guards the guardians”, and the answer has to be that the guardians themselves have to guard themselves. We ultimately must police ourselves . I think it was William Humboldt who said that a people get the government they deserve.
In India today, indeed in India in the last thirty or forty years, perhaps ever since 1966 after the passing away of Lal Bahadur Shastri, we may be facing a universal problem of the breach of good faith especially so perhaps in the Government and the organised corporate sector. Such breaches occur in other countries too, but when an American court sends the top management of Enron to jail for many years or a Korean court sends the top management of Daewoo to jail for many years, we know that there are processes in these countries which are at least making a show of trying to rectify the breaches of good faith that may have occurred there. That is regrettably not the situation in India. And the main responsibility for that rests with our Government simply because our Government is by far the largest organised entity in the country and dwarfs everyone else.
As an economist, I have been personally intrigued to realise that Government corruption is closely caused by the complete absence of serious accounting and audit norms being followed in Government organisations and institutions. Get control of as big a budget as you can, is the aim of every Government department, then spend as little of it as is absolutely necessary on the publicly declared social or national aim that the department is supposed to have, and instead spend as much as possible on the travel or personal lifestyles of those in charge, or better still transform as much as possible into the personal property of those in charge – for example, through kickbacks on equipment purchases or building contracts. For example, it is not unknown for the head of some or other government institution to receive an apartment off-site from a builder who may have been chosen for a major construction project on site. This kind of thing has unfortunately become the implicit goal of almost all departments of the Government of India as well as the Governments of our more than two dozen States. I have no doubt it is a state of affairs ultimately being caused by the macroeconomic processes of continuous deficit-financing and unlimited printing of paper-money over decades. For the first two decades or so after Independence, our institutions still had enough self-discipline, integrity, competence and optimism to correct for the natural human instincts of greed and domination. The next four decades — roughly, as I have said, from the death of Shastriji — there has been increasing social and political rot. I have to wonder if and when a monetary collapse will follow.