It is stated as one of the objectives of planned economy in India that there should be “reduction of inequalities in income and wealth and more even distribution of economic power.”
We are told again and again that we should prevent the concentration of economic power in the hands of a few individuals. What do the critics of private enterprise mean to convey? Do they contend that too much power is already concentrated in the hands of private enterprise and it should, therefore, be broken up? Or is it their view that there is the danger of such power being concentrated in the hands of the private sector and all possible steps should, therefore, be taken to stop such concentration? Let us, therefore, examine what has happened hitherto and what is being done now and ascertain where economic power is being concentrated in recent years.
It may be argued that individuals acquire economic power (1) by building up industries, (2) by widening their trade activities, (3) by regulating production, (4) by keeping the distribution of important and vital commodities in their hands, (5) by determining the price policy of products which are largely in demand, and (6) by acquiring and building up monopolies in industries, trade and in the distribution of vital products.
At the same time, it is admitted on all hands, that if a nation has to develop its economic life, it must have the spirit of enterprise; it must have the private sector. No nation can become prosperous without the existence of a vigorous private sector which plays its vital role in the development of trade, commerce and industry of the country.
I, therefore, felt very happy when I heard the Prime Minister telling us recently that he welcomed enterprise in individuals, enterprise to take risks, to climb the Mount Everest. We all realise the hazards, dangers and risks of going to the top of the greatest mountain in the world. I was, therefore, glad to find that here at last was the Prime Minister who appreciates and is anxious to encourage the spirit of enterprise in the private sector. But when I went on reading his speech further, I felt a sense of keen disappointment. After welcoming the spirit of enterprise in individuals in his characteristic manner, I wonder whether the Prime Minister was giving expression to his deep conviction when he added:
“Free enterprise means creation of monopoly which prevents others from progressing, unless they come under the shadow of that monopoly.”
When such a serious charge is made by the Prime Minister of the country, it is bound to have serious repercussions on the fortunes of private enterprise.
The question before us, therefore, is: “Does free enterprise create monopoly?” It is the private enterprise that built up a number of industries during the last few decades. It is responsible for the present position of the textile, the jute, the silk, the rayon, the cement, the sugar, the shipping, the automobile and such other industries. Whichever industry we take, we find that private enterprise has made a remarkable contribution to its development. It had to struggle hard for the establishment of these industries against heavy odds. It had to make heavy sacrifices in putting them on a sound economic basis. No attempt has been made or can be made under such circumstances, to establish monopoly in any of these industrial fields.
Whether the monopoly is acquired or not in any industrial field can be determined by the application of two important tests. Can you prevent the entry of a new entrepreneur to run the industry in which you are engaged? Can a single illustration be given to prove that if anybody wanted to start the textile industry or the jute industry, or the sugar mill, etc., he was prevented from doing so?
The second test is whether any industrialist created such conditions in any industry as helped him in continuously exploiting the consumers of the products of that industry, or in raising the price of his products to such high levels as would hold the public to ransom. The critics have not adduced any evidence to justify their charge. We must, therefore, discard the theory that enormous economic power was concentrated in the hands of a few individuals before Independence, particularly when we know that some of these industries had actually to struggle for their very existence. I do not, therefore, for one moment believe that free enterprise creates monopoly. On the contrary, competition of free enterprise is the best guarantee against formation of monopolies.
Coming to recent times, let us see if any radical change has taken place in the situation. Is such a monopoly being secured by a few individuals since India attained independence? With the enormous powers which the Government has taken to itself for the licensing of industries, for regulating production and distribution, for fixing the prices of commodities and for appointing the managing agents or the managing director of the industries concerned, it is unthinkable that private enterprise can establish monopoly in any industry either by preventing a fresh entrepreneur from coming into his field or by fixing such a price of his products as would lead to the complete exploitation of the consumer.
We, therefore, regret we cannot agree with the view of the Prime Minister that free enterprise means the creation of monopoly. With the vigorous manner in which the industrial activities of the individuals and of the joint stock companies are controlled under the various provisions of the Industrial Development and Regulation Act, from pre-birth to after-death, it would not be possible for individuals and companies now to build up monopolies in any industries in which they may have been working.
There are a number of controls which are imposed under the different provisions of the Industrial Development and Regulation Act. I do not wish to deal with all the controls which the Government is exercising today. There is one control which, however, merits special attention because it cuts at the very root of the economic power which one might like to acquire. Suppose my friend, Mr. A. D. Shroff, wants to start an industry. Suppose he has acquired the licence to do so and has also obtained the permission to raise the necessary capital from the Controller of Capital Issues.
He then invites the public to go in for the shares of the company he may have floated. You and I will run to buy the shares of that industry. The capital may even be oversubscribed. The response of the public to his invitation to subscribe to the shares of his company will show that they have got full confidence in his integrity and ability to run the industry in question. But the crucial question is—and it is a serious “but”—will he be able to run the industry if the Gods at Delhi are not favourably inclined towards him? In spite of the unanimous decision of the shareholders of the company, the Government may not appoint him as the managing director or the managing agent. Who has got the economic power – the industrialist who wants to run the industry or the powers-that-be at Delhi, who accuse private enterprise in season and out of season, that vast economic power is being concentrated in the hands of a few individuals?
Let us, therefore, remain under no delusion that private enterprise will come into its own because the Prime Minister wants competition between the public and the private sectors. There can be no competition in a field which is the monopoly of the State. Moreover, even in the fields which are open to private enterprise, the basic and large-scale industries are to be directly developed by the State. No competition worth the name can, therefore, find its place in those industries. Moreover, competition can only be possible and can be carried on healthy lines, if both the sectors are given uniform and encouraging treatment.
We have been told repeatedly from the Prime Minister downwards that we are living under democracy. But actual power and responsibility, as remarked by Acharya Vinoba Bhave, has got concentrated in the hands of a very few at the apex. As rightly remarked by him:
“Government has power over the entire life of the people. There is hardly a sphere of life which is absolutely private and personal. This is a dangerous state of affairs.”
Both political authority and economic power are being now concentrated more and more in the hands of the ministers and the bureaucracy. Democracy is bound, under such circumstances, to degenerate into dictatorship. Private sector, as remarked by Mr. J.R.D. Tata, is not against “the general objectives of a Welfare State.”
If the true values of real democracy are, therefore, to be maintained and if the real salvation of the Indian people is to be attained; the Government will have to radically revise its present policy and will have to create a new atmosphere of hope, confidence and cheer where, as remarked by Mr. Tata, private enterprise will get the fullest encouragement and inspiration “to contribute to the fullest extent to the industrial development of the country and in the process to earn and pay a reasonable return on the monies entrusted to it. It asks no special favour but claims the right to live and serve the country in dignity and in peace and to be afforded some relief from the surfeit of Government control and interference.”
This essay is part of a series from the Indian Liberals archive, a project of the Centre for Civil Society. This essay first appeared as a monograph titled “Where is Economic Power Being Concentrated?” published by the Forum of Free Enterprise on 8 August 1960. The original version can be accessed on this link.