It is a great misfortune that we are more concerned with symptoms rather than the diseases. We feel self-complacent by treating the symptoms by palliatives. If there is a shortage of sugar, we think more in terms of distribution channels, controls and price fixations. But we do not think in terms of increasing the supply and thereby respecting the law of supply and demand.
We think seriously that controls, price fixation and distribution of commodities through co-operative stores and fair price shops will solve the problem. We do not think in terms of allowing the prices to rise according to the law of supply and demand and thereby induce entrepreneurs to expand their productive capacities or to set up new plants. The thinking in those terms requires the firm determination to enlighten and educate the public that this is the only effective way to hold the level of prices. The determination is not there. During the intervening period, prices are bound to rise. But, that being a passing phase, should not cause unusual concern. If the policy of competitive economy and free markets is allowed to operate, the prices are bound to register a permanent and substantial fall in the long run. We are not prepared to think in terms of shifting emphasis from heavy capital industries to agricultural produce and consumer products industries, nor are we taking effective measures against the rate of population growth, which substantially offsets the rate of economic growth.
What holds good in the matter of holding the level of prices, holds good equally in respect of other fields of economic activities and the fiscal policy pursued by the government.
Instead of being moved by the stark poverty of millions of people in the direction of encouraging higher and higher volume of economic activities, which will ensure higher employment; fall in prices, adequate supply of commodities and even larger amount of taxes, we feel more concerned with the concentration of economic power in the hands of a few individuals and avoidance of monopolistic trends. An unwise policy aimed at mitigating the fear of concentration of economic power in a few hands is pursued; the fear is only imaginary. But in following such a policy, economic development is slowed down. One wonders and feels indignant whether our concept of socialism is one of the distribution of poverty.
The concept of monopoly conveys the existence of one or a few large concerns that have acquired such a dominant control over the production of a commodity that they are in a position, if they so desire, to manipulate the supply and price of that commodity in their own interest, with the full awareness that there is a large demand for the same in the country. In such a monopoly, there is no effective competition from other parties and this is the source of the strength of the monopolists. In our country, the monopoly so defined does not really exist. But in fact, a situation similar to that is allowed to persist not because of the entrepreneurs having joined hands for the purpose, but because of the government’s unwise policy of imposing controls in the name of planned economy and avoidance of wastage of scarce resources.
The policy, apart from encouraging, really discourages the growth of a competitive economy, which is the only antidote to monopoly. This gives a very curious picture of self-contradiction that though the Government, on the one hand, is anxious to prevent the growth of monopolistic trends, it pursues a policy which leads to the opposite result. The position becomes still more aggravated when judged in the context of the facts that while the imports are curtailed in advance, in very many cases the targets of production are not hit in time which creates scarcity conditions and provides a sellers’ market. It gives suppliers an opportunity to dictate prices, ultimately leading to inflation. The very fact that such a policy of the government itself creates a sellers’ market does not make the manufacturer think seriously in terms of reducing costs.
People in authority have wrong notions about profit. Profit is not being hailed as an index of efficiency but is being condemned as a sin against society by labelling it as profiteering. It is high time that a firm line of demarcation is drawn between profit and profiteering. Profit is not only an index of efficiency but is also a must for the continuance and growth of all economic activities. Profit is a legitimate return on funds employed in the business and a reward for the efforts put in by the managerial personnel. One fails to understand how any economy can ever progress without its entrepreneurs making adequate profits from the economic activities carried on by them.
Also read: Without free enterprise in economic life, we cannot maintain democracy: Minoo Masani
The word profiteering needs to be correctly understood and well defined. Simply because certain industrial managements happen to be competent and make more profits compared with others even in the same industry, those who make more profits cannot be labelled as profiteers. If the entrepreneurs join hands either in curtailing production and thereby creating an artificial shortage leading to soaring prices or if they jointly decide not to charge prices below a certain level, and if in this way they make huge profits they can be accused of profiteering. If an entrepreneur happens to be inefficient and does not make any profit, he is not by any means serving society. In fact, he does a greater amount of disservice by not avoiding waste, raising efficiency and reducing costs. Such a level of performance deserves to be branded as anti-social.
Of the latter class, undertakings in the public sector provide overwhelming evidence. Many a time, the workings of the undertakings in the public sector have been analysed by the application of various management accountancy ratios, which really provide a very sad and disappointing reading. In spite of this painful realisation, the government is thinking more and more in terms of setting up undertakings in the public sector. All these ideological obsessions make them forget the fundamental that the super-structure of a socialist pattern of society cannot rest on the mud foundations of waste and inefficiency, but only on the solid foundation of prosperity.
This essay is part of a series from the Indian Liberals archive, a project of the Centre for Civil Society. This essay is an excerpt from a monograph published by the Forum of Free Enterprise titled “Are there monopolies and concentration of economic power in India?” in July 1964. The original version can be accessed on this link.