Vijay Mahajan 56, is one of the pioneers of microfinance in India. He is the founder of microfinance firm BASIX and the president of Microfinance Institutions Network. An electrical engineer from IIT-Delhi, he also holds an MBA from IIM-A and a post-graduate degree in public policy from Princeton University.
Alas, the 21st century does not represent “the end of history” that Fukuyama had so temptingly promised us, an era of linear progression on all desirable parameters, without any contradictions. Instead, we are faced with a triad of crises — on the social, environmental and the economic fronts.
On the social front, we see the spread of intolerance and fundamentalism among many, and anomie and callousness among the others, bringing to mind Yeats’ line, “The best lack all conviction, while the worst are full of passionate intensity...” On the environmental front (always there but rediscovered by Man), erratic weather, super-cyclones and persistent droughts bring home the spectre of climate change. An occasional act of nature, like the recent earthquake in Japan and the tsunami and the nuclear explosions in its aftermath, unnerve us even more deeply, as if signalling that Mother Earth has had enough of the Homo Sapiens. And when the US economy went into a downturn following the breakdown of the financial system in 2008, the global breakdown on the economic front became the peak of the triad of crises.
The consequences of this triad of crises are profound for humanity, and for our major institutions — governments, corporations, universities, civil society and the media. In this article, I dwell only on corporations. Apart from the fact that a downturn in the economy, any environmental degradation or social unrest lead to a decline in sales and profits for corporations, there is a bigger reason for concern. The modern corporation has become a pervasive force in all matters — going beyond its traditional realm of providing market goods and services to increasingly providing public goods and services like housing and utility services, and even health, education and social services. Corporations are also seen as unduly influencing government, in autocratic as well as democratic regimes. Finally, through their ownership of the media, corporations are seen as controlling information, influencing discourse and even impacting culture-in-the-making. Yet, for their legitimacy, for their markets and, most importantly, for their human resources, corporations have to depend on society.
What can be done to reconfigure the “ideal” corporation for the 21st century? Given that corporations (which are basically structures for profit maximisation) are deeply involved in the causes and the consequences of the triad of crises — environmental and social, they have to first change their ways. Interestingly, in the environmental field, there has been more progress in this regard. We have come a long way from the time when the world suffered silently through decades of industrial pollution, sometimes so severe as to cause acid rain, and later a big hole in the ozone layer.
Starting with a reluctant recognition of the negative externalities caused by certain firms, economists slowly began to accept that this could be corrected through the “polluter pay” principle. Eventually, widespread manifestations of global warming and consequent climate change led to crafting of the Kyoto Protocol under which developed economies agreed to impose limits on their emissions, by imposing penalties on pollution emitters within their sovereign jurisdictions.
To escape penalty, the polluter corporations had to either cut down emissions, or if that was not feasible or economic, buy a certain amount of “carbon credits”, net of which, their overall emission would be below the penalty limit. These carbon credits were made available by other corporations who had undertaken emission reductions, which are certified by a designated national authority. These certified emission reductions (CERs) are traded on an exchange, so that the demand and supply is matched by the price mechanism. This “cap and trade” system, though not perfect, is a huge innovation by humanity to correct some of its bad old ways.
The biggest criticism of corporations has been that with a few exceptions, they cause “jobless growth”. What is thus needed is to come up with a mechanism for “employment credits”. For example, a company which is maximising profits by employing little labour and much more capital equipment, below the optimum capital-labour ratio of its host economy, should be required to either pay a penalty for having a higher than specified capital labour ratio, or failing that, buy “employment credits” from another company which is managing with a lower capital/labour ratio. A serious try of this system can significantly address the problem of “jobless growth”, even though sceptics will have arguments on how an appropriate level of