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Business power

Print edition : Jul 15, 2011 T+T-

The book is a concise, carefully focussed and elegantly presented economic history of the world.

WHETHER it is in India or around the globe, the close connection between business and polity is one of the distinguishing features of public life now. To be sure, there is no set pattern here. While business influences and subtly manoeuvres the polity, the latter occasionally succeeds in demonstrating that it can also be assertive. Another interesting aspect of this relationship is the attempt by business, and more so its apologists in academia, to put forward the view that the two belong to different realms altogether: business adhering to the immutable laws of the market and the polity having self-prescribed laws of its own.

It is this fascinating, if controversial, theme that D.N. Ghosh deals with in Business and Polity: Dynamics of a Changing Relationship. As chairman and director of many companies, Ghosh belongs to the world of business. But his past writings and this volume show that that there is a scholar too in him. For, the volume deals with the history and dynamics of the changing relationships between the two realms in the past two and a half millennia. Ghosh does not pretend to be a historian who has studied original sources. But he has a 30-page Reference List and Select Bibliography and makes frequent references to them in the text, which is proof of his academic inclination. He has also been a contributor to Economic and Political Weekly on a wide range of policy issues.

The major part of the book is devoted to the more recent period in history roughly from A.D. 1000. But Ghosh starts with antiquity, where he draws on the histories of India, China and Greece to show that in these principally self-sufficient agrarian communities there was not much business or external authority. The seeds of the business-polity relationship can be seen in the not very steady or stable contacts between traders and those in authority. Traders were the first to create wealth from sources other than land. Interestingly, Ghosh shows a connection between trade and religion in the early days. Buddhism, he says, did not view commercial activity negatively, as did the Hindu tradition; Jainism spread rapidly among the trading community. This link reached its zenith in what Ghosh designates as The Arab Miracle. Arab Muslims established a huge common market stretching from Central Asia to the Indian Ocean, from Sudan to the west and the Russian rivers. This region came to have a unified currency system as well. In the beginning, the relationship between business and polity was mutually supportive, but soon rich merchants started to nurse political ambitions.

The merchants needed support from those who exercised authority, while those in authority frequently turned to the merchant for funds. When cities developed, merchants got their chance to become the governing class as others in the cities wage workers, small-scale artisans, shopkeepers were dependent on them. The cities, in turn, became financial centres, and the prominent ones such as Flanders and Antwerp claimed to be global financial centres. In the powerful Popes of the period, finance and financial centres found religious support as well.

The collaboration between business and polity began during the era of transition from many small city states (effectively ruled by patricians with business interests) to one of nation states ruled by monarchs, spread over a period from the 14th to the 16th century. And the reason was quite clearly the need to finance wars. Raising resources for warfare, notes Ghosh, became the axis round which business-polity relations started moving. With the introduction of guns and other forms of modern weapons, as also dependence on mercenaries, wars became financially quite demanding, and the organisers of wars became in effect organisers of big business. Princes and monarchs started outsourcing war to them. Simultaneously, wars opened up new avenues of business, trading in copper and bronze, for instance. Wars, therefore, could have been an early instance of PPP public-private partnership. In order to raise funds, rulers started issuing bonds whose acceptability led to public debt becoming a long-term, if not permanent, phenomenon. Banks took up the business of dealing in public debt.

But when wars became recurring affairs, there had to be economic activity to support them, and thus emerged mercantilism as an economic order, not as an ideology as is often interpreted. Its essence was to maximise export earnings (to finance wars) and to set up high tariff walls to prevent the inflow of imports and to raise revenue. It was an era of economic nationalism.

A consequence of this was the intensification of the connection between war and traders. Traders were given encouragement and support by the monarchs to move to regions far and wide with companies being established to extend trade and to conduct wars if they were necessary.

What followed next indicated global spread and connections. Portugal became the pioneer of the modern colonial system, controlling far-flung trading establishments reaching to India and beyond. Towards the West, following Christopher Columbus's first accidental landing in America (in search of a westward route to India), the aim was to grab land and start plantations. It was followed by the flow of silver and, more significantly, the pledging of the expected arrival of precious metals to set up credit. Adventurers, monarchs and bankers were thus partners in the new enterprise. In turn, the flow of precious metals strengthened trade with the then wealthy Asia, which had plenty of goods to sell to the West but was not in need of any from that part. The gold and silver from the Americas was the link between Atlantic and Indian Ocean trading systems, observes Ghosh, adding that Western economic powers soon came to dominate the progressively globalising economy.

Following more or less the same pattern, Spain, Portugal, Holland and Britain, not very big countries or economies by any standard, became imperial powers moving westward and eastward mainly because of their naval superiority and the strategies of combining trade and political power. In this process they succeeded in establishing a flourishing trade with Africa, taking its people as slaves to the New World and bringing about a triangular Atlantic system exchanging British manufactures for African slaves; African slaves for American tropical products, chiefly cotton; and these products being exchanged for British manufactures.

This triangular trade created a vast reservoir of mobile capital. Soon, the American slave economy, cotton production in America and mechanisation in Britain, and the forced impoverishment of the Indian economy would all become linked. The British strategy was to give freedom to business to explore new avenues of trade and acquire and control territorial possession with full assurance of support from the state, especially strong naval power.

Military rivalries were continuing in Europe, but Britain, after its decisive defeat of its rivals and through the 1815 Treaty of Vienna, finally established its supremacy and then for a whole century became the hegemonic power over the world mainly because it was successful in combining its political power and business interests. London became the hub of global finance, and the British pound a globally accepted currency. And, of course, as widely acknowledged, Britain also became the workshop of the world as a result of technological innovations that revolutionised industrial production and transportation. However, little of it was achieved automatically; the achievements were made through conscious efforts.

For instance, the gold standard that was effective for international trade for almost a century was not a matter of natural evolution. It was brought about by the British control of the resources of India, which helped the chronic British trade deficit and, in particular, by Britain insisting that Indian surplus was invested in London. When gold came to be mined in South Africa, it was also cleverly commercialised in London.

If the 19th century was dominated by the British, the 20th century was The American Century, in terms of its wealth, power and standing in the world from the end of the First World War and its global dominance from the end of the Second World War. America did not have to join the 19th century European craze for territorial domination in other parts of the world because it could conquer the vast expanse of territory of North America, first from the natives and then from neighbours such as Mexico. With land available for cultivation by anyone who cared for it, the United States converted independent private enterprise into its economic creed, with the problem of scarce labour being solved by the migration of white Europeans and the flourishing flow of slaves.

The collapse of the gold standard in the period between the World Wars and the weakness of the national economies in Europe helped the U.S. play a dominant role in international trade and pile up an export surplus and convert it into a flow of gold into the country. Though the Great Depression of the late 1920s and early 1930s shook up the U.S. economy, Franklin D. Roosevelt's economic policies and the stimulus given by the production of armaments for the Second World War revived it.

At the end of the war, when practically all countries of the world, especially Japan and those in Europe, lay in ruins, the U.S. emerged as the most powerful economic nation. The U.S. administration made use of the opportunity to promote its private business concerns not only to dominate markets abroad but also to set up their production units in different parts of the globe. The close link between business and polity that had always existed in the U.S., therefore, became stronger, resulting in the decades of the 1950s and 1960s becoming the golden age of capitalism. Thus also started the era of transnational corporations and multinational corporations (MNCs). And American business became the bearer of U.S. hegemony.

Ghosh's chapter dealing with the 20th century of U.S. hegemony is rather brief 20 pages. However, it can be argued that in a volume covering a span of 25 centuries it is not too short. What is disappointing is that Ghosh somewhat loses track of the main theme, the dynamics of the business-polity relationship, and becomes more concerned with globalisation and American hegemony per se. For instance, there is no discussion of the role that was given to multinationals in the many global discussions that went on, such as the Uruguay Rounds that preceded the setting up of the World Trade Organisation, and the many country negotiations (polity) into which MNCs found access. Also missing is the nature of the interaction between MNCs from dominant economies and the many developing countries of the world. Greatly rewarding would have been an analysis of the business (MNC)-polity relationship in a country such as China and a typical less developed country in Africa or a comparison of the relationship between the MNC-polity relationship in China on the one hand and India on the other. It looks as though the scholar-business leader of the 21st century decided to be just a historian dealing with the past.

In that role, Ghosh's performance is praiseworthy. His work is a concise, carefully focussed and elegantly presented economic history of the world no mean task. His own summary is worth reproducing:

Our odyssey has now come to an end. We have sailed through several civilisational complexes over the past 2,500 years in which were embedded a variety of political and economic formations. We have watched out for the behaviour of two power networks: those who control the levers of political power and those who engage themselves in wealth generating activities, how they have been found interacting between themselves and how the forces released through such interaction have impacted historical change. The dynamics of the two powerful networks that constitute business and politics take us from one historical epoch to another. It does not follow any immutable law. The transition is basically path dependent, where change is transmitted through a series of flashbacks that give momentum to the system, pushing forward in a direction set by the past and carrying it into the future.

I hope that many readers will find the book as interesting and helpful as I did. I hope too that Ghosh will now turn his attention to the business-polity relationship in India, which is quite familiar territory for him.