Kautilya and Modern Economics by Balbir S Sihag

Introduction to Kautilya and his Arthashastra 

Kautilya was a learned, ethical, wise, experienced, secular, progressive, independent and original thinker. He believed that poverty was death while living. His Arthashastra is a manual on promoting Yogakshema—peaceful enjoyment of prosperity—for all the people. It is shown that his approach is more suitable to our economy than the currently adopted western approach. He understood the economic system as an organic whole with interdependent parts. He undertook an in-depth and detailed analysis of each part at the micro level without losing sight of the macro goal of engineering shared prosperity. He believed in the power of persuasion, moral and material incentives and not in coercion or force to elicit effort. He designed material incentives in such a way that no crowding-out occurred, that is without weakening the moral incentives. He advanced a holistic yet logical and comprehensive approach to bring shared prosperity. 

In fact, a stakeholders-model in which the businessmen, workers and consumers share prosperity, is discernible in his Arthashastra. He relied both on the invisible hand (the market) and the direct hand (principles, policies and procedures) to enrich the people. Kautilya was deeply influenced by the Mahabharata (3102 BCE) and it appears as if it had happened in not too distant a past. Secondly, Rao (1973) points out that the measurements used in the Arthashastra are very similar to those prevalent during the Sindhu-Sarasvati Civilization (2600 BCE-1800 BCE).1 

 According to the new research, Chandragupta Maurya ruled around 1534 BCE and not during the 4th century BCE. The preponderance of emerging evidence indicates that Kautilya wrote his Arthashastra—science of wealth and welfare—several centuries earlier than the fourth century BCE which has been advanced by the Western Indologists. They had taken upon themselves the selfless and tortuous task of dating, without any margin of error, all the historical events, such as the Aryan Invasion Theory and providing authentic interpretations of our ancient texts. They really need their well-deserved retirement from this demanding responsibility and leave it to the native amateurs. 

Kautilya was far-sighted, foresighted, ethical but not very religious, believed in designing an efficient organizational structure but was not a bureaucrat. Kautilya: The True Founder of Economics The following table lists some of the concepts innovated and used by Kautilya. It also provides the time-periods of their re-emergence. 

Table 1: Concepts Developed and Used by Kautilya 

On the other hand, Adam Smith did not innovate a single concept in economics. Barber (1967, p17) observes, “Little of the content of The Wealth of Nations can be regarded as original to Smith himself. Most of the book’s arguments had in one form or another been in circulation for some time.” 

Kautilya as a One-Man Planning Commission and More 

Kautilya's Arthashastra is comprehensive, coherent, concise and consistent. It consists of three fully developed but inter-dependent parts. 

(a) Principles and policies related to economic growth, taxation, international trade, efficient, clean and caring governance, moral and material incentives to elicit effort and preventive and remedial measures to deal with famines. 

(b) Administration of justice, minimization of legal errors, formulation of ethical and efficient laws, labour theory of property, regulation of monopolies and monopsonies, protection of privacy, laws against sexual harassment and child labour. 

(c) All aspects of national security: energetic, enthusiastic, well trained and equipped soldiers, most qualified and loyal advisers, strong public support, setting-up an intelligence and analysis wing, negotiating a favourable treaty, military tactics and strategy, and diet of soldiers to enhance their endurance. 

II Kautilya’s Ethics-based economics Versus Modern Self-interest based Economics 

Modern Economics Based on Self-interest: Complex contracts are written to safeguard against potential harm that might be caused by the partners’ opportunism. It seems that propensity for opportunism is the dominant phenomenon everywhere. Economists and organizational scholars believe that it is not possible ex ante to differentiate a trustworthy person from an untrustworthy one, so it is prudent to adopt a ‘calculative’ approach to trust, that is, treat trust as a risk and suggest taking necessary protective measures. 

Kautilya’s Ethics-based Economics: Ancient sages realized that genuine trust was an ethics-intensive concept since non-violence, truthfulness, honesty and benevolence were the foundation for trust. Kautilya accepted that insight wholeheartedly. That is, trust flourished only in an ethical environment. How to make sure that children grow-up to be ethical adults? Kautilya suggested teaching ethical values at an early age. Kautilya believed that dharmic (ethical) conduct paved the way to bliss and also to prosperity. That is, according to Kautilya, a society based on contracts alone is less productive and more anxiety prone than the one based on conscience and compassion. If the social environment is predominantly ethical, there is less of a need to take defensive measures to protect against opportunism. He emphasized ethical anchoring of the children for replacing the ‘culture of suspicion’ with a harmonious and trusting one. 

Critical Role of Trust in a Knowledge-based Economy: Trust may be an intangible asset/good but has the most tangible role in creating and sustaining the social, economic, cultural and political structures. It is the brick and mortar to the building of inter-personal relationships. In an industrial economy, trust (a) reduces transaction costs by reducing opportunism, enhances a feeling of wellness by reducing anxiety and (b) also might increase GDP by reducing the demand for lawyers and turning them into engineers. 

Trust is the most valuable asset in a knowledge-based economy. Both creation and sharing of ideas depend on trust. The distinguishing characteristic of a knowledge-based economy is a frequent sharing of tacit knowledge and exchange of information among the cognitive labor. As soon as a person codifies his/her tacit knowledge everyone has access to it. Knowing this fact a person will share tacit knowledge only if s/he is sure of not getting fired. Creating ethical-based trust is the key to realizing all the potential gains from creating and sharing of knowledge. 

Adam Smith focused only on invisible hand. But economists now deal with cases II and III also. Kautilya was the only one discussed all four cases. 

Table 1: Interests and Incentives 

Dharma and Prosperity 

Since the mid-90s, a considerable amount of intellectual effort has been devoted to study the nature of relationship between institutions, good governance and economic growth. One group of economists argues that institutions are the most important determinant of economic growth. In fact these economists call institutions as the ‘deep determinants’ of growth. For example, Dani Rodrik, Arvind Subramanian, and Francesco Trebbi (2004) (2004) claim, “This exercise yields some sharp and striking results. Most importantly, we find that the quality of institutions trumps everything else.” 

The other group of economists gives primary importance to good governance and only secondary to institutions. Edward Glaeser, Rafael La Porta, Florencio lopez-de-Silanes and Andrei Shleifer (2004, p 298) conclude, “But institutional outcomes also get better as the society grows richer, because institutional opportunities improve. Importantly, in that framework, institutions have only a second-order effect on economic performance. The first order effect comes from human and social capital, which shape both institutional and productive capacities of a society.” 

Apparently, economists, even now in 21st century, are debating about the relative importance of institutions versus to that of good governance. Kautilya settled this debate more than two thousand years ago. He argued that good governance created opportunities and institutions allowed them to be availed of implying that both were essential to prosperity and it was futile to compare them. However, according to Kautilya, most important was the ethical environment, which improved the quality of both. 

Kautilya on Importance of Institutions: Kautilya believed that poverty was a living death and also not conducive to the practicing of ethical values. He argued that maintenance of law and order was a prerequisite to economic prosperity. He (p 108) observed, “By maintaining order, the king can preserve what he already has, acquire new possessions, augment his wealth and power, and share the benefits of improvement with those worthy of such gifts. The progress of this world depends on the maintenance of order and the [proper functioning of] government (1.4). 

Importance of Good Governance: Similarly, according to Kautilya, good governance was needed for prosperity. He (p 149) suggested, “Hence the king shall be ever active in the management of the economy. The root of wealth is economic activity and lack of it brings material distress. In the absence of fruitful economic activity, both current prosperity and future growth are in danger of destruction. A king can achieve the desired objectives and abundance of riches by undertaking productive economic activity (1.19).” 

Kautilya’s ideas if expressed in today’s language imply that quality of institutions reduced risk and good governance increased return on investments. This may be captured by the following figure. 

The risk-return possibility frontier, AB shifts to A'B' and also becomes more concave. That makes it possible for an investor to move from point E to point E'. U1 and U2 are the indifference curves. Two points may be noted. Kautilya’s insights may be expressed not only as a shift in the feasibility frontier but also as a change in its curvature.

Table 8.1: Conceptual Framework on Dharma and Prosperity 

Conduct and Prosperity: Kautilya argued that a king, whether he fulfilled his moral duty or followed his enlightened self-interest, had to enrich his subjects. However, he understood the major differences between them: according to the moral duty, the king wanted to enrich the public whereas according to the enlightened self-interest, the king had to enrich the public. He preferred an ethical king rather than a king motivated by his enlightened self-interest. The following figure may be used to express his ideas on comparing the relative consequences of following moral duty to those of enlightened self-interest. 

AB is the income possibility frontier. Point M denotes the combination (high public income, low king’s income) if the king follows his moral duty. Point F denotes the combination (very low income for the public, very high income for the income) when the king is immoral. Point S denotes the combination (somewhere in between points M and F) when the king is amoral, that is, follows his enlightened self-interest 

Kautilya specified three possibilities. (i) His argument based on moral duty implied that a rajarishi (king, wise like a sage) would take a very modest amount for his own consumption, that is, point M would not be too far away from point A on the vertical axis.8 Such a king would promote ethical behavior, use almost all the tax revenue on the provision of public goods and welfare programmes and follow judicious polices to encourage economic growth. As a consequence there would be both spiritual and economic (i.e. over time the income possibility frontier would shift outwards) enrichment of his subjects. 

(ii) A king motivated by his enlightened self-interest would promote public interest to the extent that it promoted his own interest, that is, promotion of public interest was merely a means to the promotion of his own interest (whereas in the above-mentioned case (i) promotion of public interest was an end in itself). Kautilya’s argument based on enlightened self-interest implied that the king might choose a point like, S. 

(iii) According to Kautilya, a myopic and unethical king would try to grab almost all the resources for himself. This is indicated by point F on the possibility frontier. Such a king would ruin himself as well as the economy. This is comparable to Olson’s ‘roving bandit’. Since such a king would leave very little for the public, that is, point F would be very close to point B on the horizontal axis. Such extortion and myopic behavior would adversely affect future economic growth (i.e., most likely, the income possibility frontier would shift inwards). 

Minimal and Maximal Economic Growth: Thus two types of growth models are discernible from The Arthashastra: one based on moral duty and the other based on enlightened self-interest. Kautilya preferred the one based on moral duty since that would lead to the highest possible growth in income of the people. Whereas the growth rate based on enlightened self interest was the minimum required of a king to stay in power. That is, so long as the king managed to keep income above the poverty line, y > yPl, (the poverty level of income) and judicial fairness, J > JR at a reasonable level of fairness (that is, punishment somewhat proportionate to the crime and low probability of judicial errors), there would be law and order and the king could stay in power. However, the king had to provide some infrastructure and have pro-growth policies to promote economic growth. Thus, even in this model, both institutions and governance were needed for generating economic growth and institutions alone could not be labelled as the ‘deep determinant’ of growth. 

III Ethical Anchoring of Children 

According to Kautilya, it is better to pass on good values rather than ill-gotten wealth to the younger generation. If we insist on labeling reforms as the ‘first generation’ reforms and ‘second generation’ reforms, Kautilya might suggest a more appropriate distinction: to undertake reforms of the ‘old generation,’ which is running the country at the moment and whose unethical behavior could be casting a long shadow on the character building of the younger generation. Kautilya (pp 155-156) wrote, “‘There can be no greater crime or sin’, says Kautilya, ‘than making wicked impressions on an innocent mind. Just as a clean object is stained with whatever is smeared on it, so a prince, with a fresh mind, understands as the truth whatever is taught to him. Therefore, a prince should be taught what is dharma and artha, not what is unrighteous and materially harmful (1.17).” In a democratic country every child is a prince. Moreover, he (p 123) pointed out, “Whatever character the king has, the other elements also come to have the same (8.1).” 

IV Kautilya’s Insights 

(a) An ounce of ethics was better than a ton of laws. Ethical anchoring could be more effective in preventing systemic risk than a heap of rules and regulations. (b) Principles were only as good as the people who practiced them, and policies were only as good as the people who formulate and implement them. (c) Material incentives should complement and not substitute moral incentives so that there is no crowding- out. (d) Education should include ethical education also. Secular values, such as non-violence, honesty, truthfulness, compassion and tolerance do not violate the separation between religion and state. (e) Market failure is bad, government failure is worse but moral failure is the worst since moral failure is true cause for other failures. (f) Ethics and foresightedness could improve governance and bring sustainable prosperity for the whole of humanity. (g) Sound organizational design could complement the ethics-based approach by enhancing specialization and reducing the scope for conflict of interest situations. (h) Wisdom is the most valuable asset and knowledge-management is a subset of management by wisdom. References: Kautilya: The True Founder of Economics, 2014, Vitasta Publications, New Delhi, India

Article courtesy: https://ignca.gov.in/invitations/About_the_lecture.pdf

Stakeholders' Welfare and Arthashastra: Learning for Modern Business Management - Rishi Manrai & Utkarsh Goel

 Abstract

The ancient scriptures of our civilization are sources of immense knowledge and Kautilya's Arthashastra is no exception. Teachings of Arthashastra which explains the politics and economics of governance was primarily written for the rulers and kings. Today's modern business can be compared to the ancient empires and the managers have to play a role similar to the kings. This study tries to highlight the learnings for modern business organization from the teachings of Arthashastra to ensure welfare of all stakeholders. The study specifically focuses on corporate governance, training and group dynamics, corporate social responsibility and value base management. The study further proposes a new SHASTRA model which models the teachings of Arthashastra and acts as a guideline for effective business management based on ancient wisdom. The proposed model if adopted by a business organization is expected to improve its performance without reducing its obligation towards the society.

1. Introduction

Deriving management principles and learning from ancient Indian texts specifically history, philosophy and culture are increasing (Kale and Shrivastava, 2003). However contemporary research in the domain is generic and has not been conducted in details which leave room or lot of research. Most of the researchers in the area have worked more on the philosophies and managements thoughts of the western part of the world as compared to the eastern part. Therefore, management theories from the west have a greater influence on management thinking and decision making from over the last two centuries.

The investigation into the Eastern perspective of management learning for decision makers started with in depth understanding of the Japanese management several years ago (Maruyama, 1994).

On the other hand the research based on ancient management dissertations in China, from this perspective accelerated in the last few years.

Literature from Confucianism and Sun Tzu Art of War had a very important role to play in this. Not only China, a significant portion of tradition and culture of several South East Asian nations derive their management lessons from heritage emerging from Confucian philosophy. Indian management also, following the other parts of the world has a strong philosophical convention which is continuing to sustain the cross cultural philosophies in Indian organizations (Chatterjee,2007).

Indians and Indian literature have an enormous contribution in various fields of knowledge, arts and literature. The Indian civilization which dates back to several thousand years, with recorded history, is perhaps one of the ancient civilizations in the world. Indian epics like Valmiki Ramayana, Mahabharata, Puranas, etc offers significant knowledge and lessons which in several contexts are highly relevant to present times. Using the literature which is more than 5000 years ago the paper discusses the principles of ethical profit making in Arthashastra by Kautilya, with reference to business decision making.

2. Literature Review

Research papers analyzing the ancient works of Indian sub-continent, for example Kautilya's Arthashastra in the perspective of modern day management practices are indeed limited. Due to the extensive amount of concepts of management literatures and concepts available on papers, Asians in particular, continue to use the theories and models of the western world. Another reason to substantiate this is that the modern day managers receiving there management degrees from western

Business schools follow their tradition (Muniapan,2006). The relationship between companies' financial and social performance has been an important area of research for many years. Waddock and Graves (1997) and Preston and O'Bannon (1997) provided several evidences of research in the domain, testing and verifying the relationship between corporate social performance (CSP) and financial performance. Through their research they advocated a strong support for the hypothesis that perceived high quality of management. The researcher further explained corporate performance with reference to the various stakeholders like consumers, suppliers etc.

Preston in his research tested different hypotheses to explore the relationship between corporate social and financial performance and found significantly negative lead lag relationship. Earlier studies did not attempt to express any causation.

Cochran and Wood (1984), on the other hand found a positive relationship between the two factors in question. However, Aupperle et al. (1985), found either no relationship or insignificant results due to the method used to measure CSP has been varied and contentious.

Specifically, researchers like Brown and Perry (1995) demonstrated the presence of a "financial halo" in the fortune data, declaring the same as Inappropriate measure of social performance.

Their research used publicly-reported information for both financial performance data and confirmation of a broad concern for stakeholder interests.

Another study by Hofstede in the year 1983 on “National Cultures in Four Dimension” and studies conducted by researchers like Deresky (2006) show that eastern nations are high in power distance.It was delineated by the studies that Indian employees recognize and accept the top manager's authority. The basis of the same is that they seldom bypass the chain of command.

Besides the above mentioned factor, Indian markets are highly volatile, which means managers have a tendency for safer decisions. India also has low eccentricity, which implies that country, society as well as peer groups, are more important than individuals.

Suresh and Janki (2012) from their research said that the current business scenario is highly volatile because of several causes like unethical practices, declining values and shortage of value-based leaders at decision making level. In their research the authors explored value-based principles adapted from Holy Scriptures especially Bhagavad

Gita, the teachings of which remains valid even in the present day. Incorporating these value based principles with modern management theories may lead to good Corporate Governance. The fruits of which can be realized only when ethical means are adapted as policy and are practiced in an organization.

Value-based management is a source of providing a strong foundation to quality systems and such organizations are very active in CSR initiatives.

Ethical leadership of the organization is like a parenting a child, infuse the value systems, beliefs, culture in the organization to shape a good corporate governance. This will help organizations to achieve their prime objective of enhancing stake-holder's value while protecting the environment. Though a corporation is a single/ small entity but definitely its governance, policies etc. make an impact on the whole corporate world.

Muniapan and Dass (2008) also explored the philosophy of corporate social responsibility (CSR) from an ancient Indian viewpoint. Previous studies in the domain shows that there are very few references mentioned in the literature in the form of articles which discusses the concept of CSR as derived from the philosophical, historical and from the ancient perspectives. The study, discussed the subject area with reference to India by tracing the origin of CSR from the Vedic literatures such as the Valmiki Ramayana and Mahabharata including the Bhagavad-Gita and the ancient Puranas.

By using the appropriate methodology, the authors in their research discusses some corporate teachings on CSR, providing lessons to corporate leaders/ decision makers of today. It was further concluded that Arthasastra provided an inclusive approach to CSR, i.e expansion of the individual leader's self conscience, as compared to American and European perspective that talks about only outside-in aspect. The roles of decision makers in corporations are very critical as these are the people who ensure transparency, good conduct and governance leading to CSR.

Muniapan and Satpathy (2010) through their study praised Valmiki Ramayana as one of a masterpiece discussing the different dimensions of Ramayana ranging from philosophy, spirituality, economics, technology and others have been explored by researchers over the centuries. However, the researchers were of the view that the epic had not been studied from management perspective despite Valmiki Ramayana having several lessons for managers. The researchers tried to explore the consequences of Valmiki Ramayana for growth of present day managers by employing a technique called hermeneutics. This is a qualitative methodology, where the researchers deduced dharmic organization, decision taking, humanism and equanimity from Valmiki Ramayana. The same principles are applicable to managers for enhancing managerial effectiveness. Valmiki Ramayana can further be explored in other areas of management such as strategic management, people management to derive more corporate lesson.

3. Kautilya's Arthashastra

The Arthashastra an ancient text written in several hundred years ago by Kautilya (believed to be written in 4th Century B.C.) in the ancient India is atreatise on political economics. Kautilya also known as Chanakya was the chief adviser and one of the significant ministers for a very powerfulnEmperor Chandragupta Maurya, the first ruler of Mauryan empire. Kautilya is believed to be instrumental in finishing the Nanda Empire in Magadha. He helped establish the Maurya empire which is believed to be larger than the Mughal empire and even British empire in India (Singh, 2016). Arthasharta was written by Kautilya as a guide for those who govern and deal withneconomics and politics. In the text the great master discusses three important aspects namely national security, administration of justice and economic growth policies. It is clearly evident that although the text was written for King Chandragupta Maurya but the author had acknowledged in its introduction that it has been written as a rulebook for “those who govern” or in simple words for decision makers.

The study specially focuses on the teachings of Arthashastra which lay special emphasis on stakeholder benefits and development. The study divides the learnings into four parts viz. corporate social responsibility, training and group dynamics, corporate governance and value based management.

4. Corporate Social Responsibility

CSR can be understood as the responsibility or obligation of an organization to take care of all its stakeholders which includes its employees, suppliers, customers, shareholders and also the community and society. From modern business perspective, CSR may be defined as the commitments of any business to contribute to economic development for improving the quality of life of the all stakeholders and the society in an ethical way. It can be said that CSR requires that organization not only thinks about its profits but also about the welfare of shareholders and society as a whole. Right from Rig Veda, CSR has always been stressed in ancient Indian wisdom as a king is expected to work towards welfare of his subjects and not just concentrate on wealth accumulation.

The Arthashastra by Kautiliya focuses on running the empire/state efficiently and covers all the aspects of administration and governance. It stresses that a ruler or king (in organizational context CEO) should not care about his own self interest but rather but work towards the happiness and well being of all the people of his kingdom i.e. Bahujana sukhaya bahujana hitayacha (stake holders of organization). The king should find happiness in the happiness of his people i.e. Praja Sukhe Sukham Rajy) and similarly the CEO and management should work towards maximization of shareholders wealth and welfare of all stakeholders.

Kautilya write that there are three prime responsibilities of a king viz. raksha, palan and yogakshma (Muniapan, 2008) which mean security of people, sustainability/growth and welfare of people. This is very much aligned to today's corporate world where an organization need to look after the security, growth and welfare of its employees and other people who are part of its ecosystem. Arthashastra says that only a king with strength and wealth can protect the interest of its subjects and similarly a financially strong firm with good profits can only think about and in practice protect the interest of its stakeholders.

Indian rules mandate the firms to spending 2% of net profit on CSR related activities and this money by organization is spent on health, education, environment protection etc. Thus the activities of organization closely resemble the responsibilities of welfare state in olden times. Kautilya had “stressed the importance of happiness to all stakeholders of an organization as in the stakeholders' theory” which suggests that organization should not only work for benefit of themselves but also towards betterment of all (Singh, 2016; Muniapan and Raj, 2014).

5. Training, Development and Group Dynamics

In modern management the critical role of training and development cannot be denied. Most organization spends a substantial amount of money in training and enrichment of its employees which include even the top management. Kautilya has also stressed the importance of learning and suggests that the king should keep an open mind, despise nobody and listen to everyone.

Arthashastra says that wise men make sense of even child's words. This is very much applicable in business today as new business ideas come from listening and learning from others.

The Arthashastra lays emphasis on the training, learning and discipline of king. Even the learning and training of crown price has been greatly emphasized in Arthashastra. This has been stressed so that the prince is able to gain the necessary skills that are required to become a good king whenever the time comes. The prince was supposed to take Veda education from gurus, had to practice celibacy till 16 years and devote most of their time in education and skill development. This concept is very much aligned to the idea of training which is given to junior employees so that they gain the skills required for higher positions.

In today' organization there is emphasis on  continuous training and development of employees specially the management. This has been even stressed in Arthashastra which says that a king should learn new things and revise already learnt things during the free time in day and also in night. Business organizations too expect their managers to continually strive for learning whenever they get time.

Moreover, group learning and group dynamics are being attached high importance in modern business firms and important decisions related to product development, future planning et are taken at group level. Focus group discussion and brainstorming are being emphasized so that diverse thinking from different points of view can achieve better solutions to business problems.

Arthashastra too has laid the importance of discussion with councilors and ministers. It points out that “just as a single wheel cannot move a cart, the king alone cannot ensure the welfare of the State” and thus a king should consult advisors and experts of respective fields before taking decisions. Thus, the advices of Kautilya in Arthashastra to kings regarding learning, continuous development and collaborative decision making are very much applicable to managers of modern businesses.

6. Corporate Governance

Corporate Governance is an ancient concept and is relevant in contemporary business as development of welfare concept. Kautilya in his work took a holistic and integrated approach to governance and provided an innovative dimension to corporate governance, which unfortunately remains neglected in pursuit of profit maximization. Manjula and Ramalingam (2015) recently described that welfare of business means not only growth and advancement of business in terms of holistic growth of the society. There is a requirement of lot of answerability and commitment among the various authorities within the organization in this process. The history of effective Corporate Governance can be traced back to Ancient period. They state “Arthashastra advises never to forget the two pillars of the art of governance: Nyay, the justice and Dharma, the ethics”.

Lot of archeological evidences, scriptures and religious text give indication to the existence of efficient Corporate Governance practiced in the past times. The contemporary approach of Corporate Governance is talked is more concerned with business as compared to over all administration of state in Ancient India. Research focused on concept of Corporate Governance which existed during Ancient times had focus on administration and management of policy.

Chanakya's Arthashastra also explores the lessons in corporate governance, signifying his contribution towards organizational science in ancient India.

Another significant study recently conducted by Hassan (2015) delineated that major research and practices in the domain and its sustainability have been largely dependent on the West and its concepts and models of governance, versus good governance as well as global governance. On the other hand Indians claim these concepts and models of governance as well as its patterns and indicators are of Indian origin. Not only this, the area of governance had found prominence in Asian scholastic works and government in the ancient times. For an in-depth understanding of the eastern concepts Kautilya's Arthashastra is an essential reference. Kautilya teaches that the internal enemies should be conquered first in order to be successful. The internal enemies in an organization are those managers who are not working towards benefit of the organization but are pursuing their own goals. To keep a tab on such managers by putting proper check practices is termed as corporate governance in the modern world.

7. Value based Management

With the augmented growth in corruption level in business organizations there is a necessity of value based management in organizations. Every now and then one sees irregularities and cases of cheating in the Indian stock market, clearly points out to the worsening tendency in the ethical attitude of people in the decision making authorities of big organizations. Kumar and Rao (1996) through their research delineated that there is a burning requirement for guidelines for promoting moral behavior among these decision makers. The relevance of Kautilya's framework is that it offers a scaffold for the practice of value based management. A prominent feature of Kautilya's Management philosophy as compared to other modern management thinkers is that it has a high degree of similarity with the accessible models of ideal behavior of manager. Following the Kautilya's approach the contemporary models researchers recognizes the significance of various components like organization philosophy, for the effective practice of value based management.

Arthashastra uniquely defines that this value based framework is an elevated order of an organization. This is further explained in terms of YOGAKSHEMA also known as social interests leading to the foundation of the value based management framework. Social progress, development and welfare are the principals based on which an organization strives a sense of self fulfillment to the employees.

Kautilya's framework would be most useful to such a business corporations which are of the thought or mindset that the objective of business must be to keep society in attaining progress and welfare. The decision makers of such firms would realize a sense of personal fulfillment through contributing to welfare of the society. The integrated framework developed in Arthashastra would be a guide lines as a holistic approach towards the practice of value based management.

According to Kautilya the organization's philosophy should be clearly defined and the leadership should be such that it complements the organization philosophy. Kumar and Rao (1996) state that Arthashastra suggests development of a corporate culture based on organization philosophy and leadership and this culture should imbibe the values that are supposed to guide the organization's members and should be able to check unethical practices. All this should then be supplemented with general value guidelines such as truthfulness, uprightness and compassion. It is also suggested the leaders should take continuous feedback of the system. The organization philosophy, value based leadership, organization culture and the general value guidelines will help the organization in achieving its objectives.

Arthashastra thus has provided a comprehensive framework for value based management of an organization which was valid in ancient times and is still relevant for business organizations in modern times.

8. The SHASTRA Model

The above discussion clearly indicates that even hundreds of years ago Kautilya through his shastra which is known as Arthashastra had given critical principles of management which are valid even today. These philosophies are being applied to modern business as they strive for shareholders' wealth maximization. These principles of Arthashastra can be modeled and abbreviated as SHASTRA.

S stands for Social and society development

H stands for Higher propose

A stands for Authority and administration

S stands for Standards and values

T stands for Training and development

R stands for Reliability and transparency

A stands for Association and group dynamics

The proposed SHASTRA model is self explanatory. 'S' highlights that the purpose of all business organizations is social development of all stakeholders of the firm and not just profit maximization. 'H' stresses that top management should not just concentrate on self development but must be devoted for higher purpose which is maximization of shareholders wealth and growth of all stakeholders. 'A' signifies the importance of good administration and authority which stresses the principles of effective corporate governance as suggested by Kautilya. The next 'S' lays emphasis on the importance of having higher standards and values in management. This derives from the principles of value based management. 'T' signifies the importance of continuous training and development of all employees including top management to increase their skill and knowledge level. 'R' lays high emphasis on reliability and transparency of the system. This is achieved if the business follows effective corporate governance practices. Finally, 'A' highlights the importance of association and group dynamics i.e. it stresses on significance of group discussion, consultation with area experts and brainstorming. Thus the

SHASTRA model derived from teaching of Arthashastra is able to act as a guideline for effective business management.

Conclusion

Indians look into ancient study based models from cultural roots, and Kautilya's Arthashastra is one of such text which is testimony to the same. On studying the various aspects of Kautilya's Arthashastra the existence of Kautilya's Arthashastra and its management relevance on the foundations of management in organizations can easily be gauged. It is important to look at this ancient management text, from time to time as they provide intelligent interpretation to apply effectively in the context of modern day

management.

There are several lessons that can be learned from Kautilya's Arthashastra but still not many managers are aware that the lessons of Kautilya's Arthashastra are relevant to the corporate world.

This study tries to relate the teachings of Arthashastra on stakeholders' welfare to the modern business management by discussing corporate governance, corporate social responsibility, training and value based management. The principles of Arthashastra and Chanakya Neeti can directly be applied to present day corporate world to achieve profits from multinational corporations without following any unhealthy/unethical business practices. This concept is called as Shubh Labh i.e. auspicious profit.

State and Statecraft in Kautilya's Arthasastra by Dr Aseem Prakash

Abstract

Kautilya's Arthasastra (4th century B.C.) is one of the most influential treatise in

Political Science in the Indian Civilization. This work deals with virtually all aspects

of governance in a monarchical state. In the Indian philosophy, the objective of

every being is the pursuit of dharma. State, a human artifact, is constituted to get

the human race out of the state of nature. State enables the citizens to follow their

respective dharma and to enjoy private property rights. King is viewed as a protector

of dharma, but not the sole interpreter of it. There is separation between secular and

ecclesiastical power. State has many autonomous associations and guilds in its

jurisdiction and the ensuing polycentric arrangements checks the rise of absolute

power. Arthasastra visualizes a huge bureaucratic structure, a complex tax structure,

and an intricate intelligence system.

Introduction

Republican form of governments were well established in ancient India. At the time

of the invasion of Alexander of Macedonia (4th century B.C.), there existed a large

number of independent Ganas (republics) like Agrasrenies in the Indus valley,

Kamboj in the west, Panchals in the north etc (Sen, 1920:Ch.3; Ghoshal, 1923:2).2

Kautilya, the author of Arthasastra, was a product of this era.3 He played the main

role in defeating the forces of Alexander. Kautilya believed that the Alexander's

successful conquest of (a part of) India was due to the absence of a strong

centralized Indian empire. He was determined not to let history repeat itself. Hence

the Mauryan empire, which he was instrumental in founding, was (relatively)

centralized and very different from the then prevailing republican systems. His

treatise - Arthasastra, therefore, deals only with the governance in a monarchical

state.

I am indebted to Prof. Thrainn Eggertsson for reading through the script and giving useful suggestions.

2 A typical republic had a representative assembly for deliberation and decision making. There were elaborate codified rules on how to conduct the proceedings, move resolutions, and oppose resolutions in the assembly. The size of the assembly varied across republics - Sakas had an assembly of five hundred representatives while Yaudheyas had an assembly of five thousand representatives (Rao, 1958:29).

3 Kautilya was a professor of Political Science in the famous Gurukul (university) of Takshashila (now in Afghanistan). He was also the teacher (and subsequently the Chief Minister) of Chandragupta Maurya, the founder of the Mauryan Empire.

Many Occidental scholars have argued that the Hindu4 philosophy is anti-thetical to

the concept of a state. Max Muller (1859:31) has observed that

" the Hindus were a nation of philosophers. Their struggles were the struggles of thought, their past, the problem of creation, their future, the problem of existence It might therefore be justly said that India has no place in the political history of the world ".

Prof. Bloomfield has also argued in the same vein :

" from the beginning of India's history, religious institutions controlled the character and development of its people to an extent unknown elsewhere ... there is no provision in such a scheme for the interests of the state and the development of the race ".5

Max Weber saw an absence of 'rational practical ethic' in Hinduism. He believed that the rational natural science could not develop in India since the Hindu civilization devalued the empirical world (Chaturvedi, 1984:49).6

The term 'Hindu' is not found in the ancient Indian texts - what is mentioned is 'Aryan'. 'Hindu' came into use with the invasion of the Muslims (8th century A.D.) who described the people living on the east of the river Sindhu (Indus) as 'Hindus'. Hence in this paper I shall us the term 'Vedic Civilization' (the Vedas were the accepted basis of knowledge) or the 'Dharmic Civilization' (the main governing principle in a life of an Aryan was the pursuit of dharma) instead of 'Hindu Civilization'. I am not using the term 'Aryan Civilization' because of the negative connotations associated with it in

the Occident.

Chaturvedi (1984:52-3) has argued that a Dharmic civilization is a secular civilization. This is because dharma is a secular (non-religious) concept - its view of man and the world is not derived from anything outside the world but from the inherent nature of the man.

5 Willoughby draws a contrast between the Hindus and Jews on one hand and the Greeks on the other :

" Instead of projecting themselves in the sphere of religion, like the people of India

and Judea, Greeks took their stand in the realm of thought ...they attempted to conceive the world in the light of reason ".

6 Max Weber's inquiry was directed towards exploring the role of religion in preventing the capitalist development to take place in India. He believed that the central objective of the Hindu religion is towards salvation. Thus knowledge was focussed towards understanding the 'significance' of the world and the life. Such knowledge cannot be established by means of empirical science.

Hence natural science based on empirical world was devalued and this resulted in the lack of the spirit of Capitalism (Weber, 1958:330-31).

For a rebuttal to Max Weber's thesis on Hinduism, see Chaturvedi (1984).

3

Vedic philosophy gives emphasis to both the material and the spiritual aspects of

the human being. The path of pravriti (enjoyment) and that of nivriti (renunciation)

are seen to complement each other (Ghoshal, 1923:7). 'Rational sciences' such as

Mathematics were well developed in ancient India - the concept of 'shunya' (zero)

and the decimal system were invented by the 'buddhijivi (those who make a living

from the use of brain power - intellectuals) of the Vedic civilization.

The rationality ethic is the basis of many ancient dharmic texts. Treatise like the

Arthasastra advocate the application of reason to statecraft to such an extent that

many Occidental scholars have called Kautilya as the "Machiavelli of India". 8

I am indebted to Prof. Audun Sandberg for encouraging me to consider the work of Max Weber for the purpose of this paper.

A provoking account of 'East through the eyes of the West' is found in Arthur Koestler's The Lotus and the Robot. Koestler (1960:281) has observed that

" our cherished habit of contrasting the contemplative and spiritual East with the

crude materialism of the West is based on a fallacy. The contrast is not between

spirituality and materialism, but between two basically different philosophies

7 In Manusamhita II (224) (the text given by the law giver - Manu) it is observed that

" (some declare that) the chief good consists in (the acquisition of) spiritual merit and

wealth, (others place it) in (the gratification of) desire and (the acquisition of) wealth,

(others) in (the acquisition of) spiritual merit alone, and (others say that the

acquisition of) wealth alone is the chief good here (below); but the (correct) decision

is that it is the aggregate of (these) three ".

Kautilya emphasized the 'Doctrine of Trivarga' (three goals). According to him

" Every man was required to strive to satisfy his spiritual needs by fulfilling his

religious and moral duties (Dharma); his material needs by acquiring the necessities

of life, property, wealth and power (Artha); his instinctive desires by following the

dictates of love (Kama). In later times, Moksha (deliverance from the cycle of death -

rebirth) was added as a fourth and highest aim of life " (Rao, 1958:112).

In a period prior to that of Kautilya, the doctrine of Trivarga, came under severe intellectual attack from the Charvaka school of materialistic thinkers who belittled the Vedic moral code and preached hedonism. However, the renunciation doctrines like Buddhism and Jainism as well as the Vedic counter-attack did manage to intellectually subdue this school (Verma, [1954] 1974:66).

8 Rao (1958:15-18) has argued that Kautilya's contribution is similar to that of Aristotle's than of Machiavelli's. Both Aristotle (in Politics) and Kautilya (in Arthasastra) have outlined their respective conceptions of a 'state'. Interestingly, both the masters belong to the same era and both were teachers of the two clashing titans - Aristotle of Alexander and Kautilya of Chandragupta.

4

Origin of Arthasastra

Kautilya was from 'kutil gotra'9, hence the name Kautilya. Since he was born at

Chanaka and his father's name was also Chanaka, he came to be known as

Chanakya (Rao, 1958:3).10 Kautilya's Arthasastra is a compendium of and

commentary on the then existing texts on polity and statecraft.11 Kautilya

presented them in a coherent and systematic manner and refined them on the basis

of his enormous experience as the Chief Minister in the court of Chandragupta

Maurya.1 2

There is a controversy regarding the authorship of Arthasastra. Many Occidental

scholars have argued that Kautilya could not have authored it as many of the

concepts in the treatise were practiced only in the later epochs. It has been

suggested that Kautilya is merely a pseudo name for a later author(s) who belonged

to the school of thought associated with Kautilya.13 These contentions are

disputed by Indian scholars who point out that many of the concepts used by

Kautilya are infact associated with only the fourth century B.C. (Shamasastry, [1915]

9 Gotra is a sub division of a varna. It signifies a common ancestry - in case of Brahmins, many a times the gotra is associated with an ancient sage. Weber (1958:10) has defined gotra as "members of an ancient well-known Brahmin sib ".

1 0 Kautilya/ Chanakya is also known by the name of Vishnugupta.

11 In the opening lines of Arthasastra, Kautilya (Book 1, Ch. 1) notes that

" this Arthasastra is made as a compendium of almost all the Arthasastra, which, in

view of acquisition and maintenance of earth, have been composed by ancient

teachers ".

1 2 Chandragupta Maurya founded the Mauryan empire in 321 B.C. He had defeated the two greatest powers of the era - Alexander of Macedonia and King Nanda of Magadh - the largest Indian empire. Chandragupta's son, Bindusar, and grandson, Ashoka, are well known for their huge and benign empires. Ashoka's empire was probably the truest manifestation of Kautilya's conception of an

ideal empire.

1 3 Traumann (1971) has used mathematical programming to study the authorship of Arthasistra.

His proposition (validated by previous research) is that the basic style (e.g. the average length of the sentence, the frequency of occurrence of compound words, the frequency of use of simple participles etc) of an author remains constant throughout the text even if the author has spent years to write the text. On the basis of intricate mathematical analysis, Traumann has concluded that Arthasastra has

been authored by at least three persons.

1967:viii-xiv; Rao, 1958:14-15).

Framework of Arthasastra

Arthasastra means the science (sastra) of wealth/earth/polity (artha). This treatise is

divided into sixteen books dealing with virtually every topic concerned with the

running of a state - taxation, law, diplomacy, military strategy, economics,

bureaucracy etc. Arthasastra advocates rational ethic to the conduct of the affairs of

the state. The emphasis is on codification of law and uniformity of law throughout

the empire.

The basis of good governance is knowledge and Arthasastra classifies knowledge

into four categories (Kautilya: Book 1, Ch. 2,3 & 4; Ghoshal, 1923:128-31).

1. Anvikasi (philosophy). This is considered to be the "lamp of all sciences".

2. Trayi (the three Vedas - Sama, Rig and Yajur). These texts establish the four

classes (varnas) 15 and the four orders (ashrams). 16

14 For example, the use of yukta to refer to a period of five years ; characterizing the month of Sravana rather than Ashada as the start of the rainy season (Jaiswal).

15 The Vedic society, as conceived by Manu, is divided horizontally into four varnas - Brahmin(intellectual), Kshatriya (warrior), Vaishya (trader and agriculturist), and Shudra (artisan and the worker). Varna system constitutes a division of labor at the societal level. The membership to the varna is not fixed. In case a person changes his/her occupation, his/her varna can change. For example, Chandragupta Maurya was not a Kshatriya by birth. He was a herdsman which in contemporary India would be classified as a 'backward caste'. He became a Kshatriya subsequent to his ascendancy to the throne.

Over the course of time, since professions became hereditary, varna system became ossified and degenerated into a caste system. However castes could move upwards in the varna hierarchy. In contemporary India, there have been many cases where lower castes have moved up in the social hierarchy by adopting customs of the upper castes, although the professions of these castes have remained the same. This has been termed as the process of 'sanskritization' (Srinivas, 1966:1-46).

For example, many castes belonging to farming communities are now considered to be brahmins as they have adopted customs like vegetarianism which are identified with the brahmins.

Though the Brahmin occupied the top rung of the social hierarchy, the monarch belonged to the Kshatriya caste. This is an interesting example of social engineering where polycentricity in power relationship is created to keep a check on the emergence of absolutism. The varna system institutionalized the separation of the ecclesiastical power from the secular power - a phenomenon which took place in Western Europe only with the Papal Revolution (1075 -1122 A.D.) (Berman,

1983:83).

3. Varta (economics, specifically agriculture, cattle breeding, and trade).

4. Dandanfti (science of government and politics).

Concept of the State

The institution of state is created to enable the individual to practise his/her dharma

17 and thus move towards the emancipation from the cycle of death-rebirth. The

condition of arajat (lawlessness) was viewed with distaste as it militated against the

practicing of dharma. There is reference in many ancient Vedic texts to Matsya-

Nyaya (Law of the Fish) which prevails in the state of nature.18 Such a state is

characterized by the absence of dharma and mamatava (private property rights).19

The four ashrams (orders) are Brahmacharya (studenthood, emphasis is on abstinence and on acquiring knowledge), Grihastya (married life, emphasis is on bhog (enjoyment) of material pleasures), Vanaprastha (retiring to woods for meditation), and Sanyas (asceticism).

Vedic philosophy does not encourage asceticism for anyone of any age. Kautilya, a firm believer in the ashram system, was opposed to such pseudo-asceticism. Arthasastra prescribes strict penalties for citizens who take up sanyas (asceticism) without sufficiently providing for their families. Kautilya's

distaste for Buddhism was for the same reason - Buddhism encouraged asceticism for people of all ages. Kautilya believed that this was socially destabilizing as if every one became a monk then who shall run the society (Rao, 1958:21-22).

17 Texts have highlighted five different aspects of dharma. These are a) religion, a category of theology, b) virtue, a category of ethics, c) law, a category of jurisprudence, d) justice, and e) duty. In political texts, especially the Arthasastra, dharma has been interpreted in terms of law, justice and duty. Thus according to the doctrine of dharma, state is a law giving, justice dispensing,and duty enforcing institution (Sarkar, 1922:206).

The ancient text of Mahabharata speaks of ten embodiment of dharma : yasa (fame), satya (truth), dama (self-control), shaucha (cleanliness), arjava (simplicity), hri (endurance), acapalam (resoluteness of character), dana (giving and sharing), tapas (austerities), brahmacharya (continence)

(Chaturvedi, 1984:54-5).

18 There is a reference to 'matsya ny'aya' in many ancient texts including the Mahabharata (6th century B.C.), the Ramanaya (predates Mahabharata), and Manusamhita (predates Ramanaya).

Confucius civilization , in contrast to the Vedic Civilization, views law and order to be an intrinsic part of nature and not a creation of the human entity. Thus if anarchy exists, it is attributed to violation of filial piety (a natural law) by human beings (Yang, 1987:16).

1 9 Vedic civilization sanctified individual property rights. The King was not even the notional owner of land. He was a protector of land for which he had the right to levy taxes. This conceptualization of the relationship between the King and the citizen is in contrast to the belief system in the Confucius civilization where the emperor was the notional owner of the land. Hence in the Confucius civilization, the tillers of land didn't pay tax - they paid a rent to the King (Yang,1987:11).

7

State, which wields the instruments of coercion (danda), is constituted to get the

society out of this quagmire 20 Thus the state enables two things - the practice of

dharma and the bhog (enjoyment) of private property rights.21

The Vedic state can be viewed as "qualified monism" in which the autonomy and the

diversity of the various social groups residing within the boundaries of the state was

recognized (Rao 1958:75) 22 Citizens had multiple loyalties - to the state as well as

Manu has observed -" Durlabho hi suchirnarah ", that is, rare is a man pure or sinless". The famous philosopher Kamandanka argued for the necessity of danda as " men are by nature subject to passions and are covetous of another's wealth and wives " (Sarkar, 1922:199).

Hobbes ([1651] 62:3) has also emphasized the importance of coercive power in the establishment of and for proper functioning of a society -" for covenants without swords are but words and no strength to secure man at all ". The question is, do we always need an external authority to wield the 'sword' or are the human communities capable of evolving and sustaining such capabilities themselves ? Kautilya would have argued for the necessity of both the internal and the external sword - to be used for different purposes. The legitimacy for both the swords, in the Vedic conception, would come from the same principle - the pursuit of dharma.

The Vedic civilization sought to tackle the free rider problem through the institution of 'danda'. Kautilya realized that the moral imperative - dharma, alone could not prevent free riding. Hence a system of coercion and sanctions -danda, needs to be in operation. The Weberian concept of a state as a seat of legitimized violence matches well with the Vedic conception - the seat of legitimized danda.

21 The causal nexus between the state of nature (matsya nyaya) and breakdown of a social order, as described in the ancient epic of Mahabharata, is as follows :

" then foolishness or stupidity (moha) seized their minds. Their intelligence thus being

eclipsed, the sense of justice (dharma) was lost. Cupidity or temptation (lobha)

overpowered them next. Thus arose the desire (kama) for possessing things not

possessed. And this led to their being subjugated by an affection (raga) under which

they began to ignore the distinction between what should and what should not be

done. Consequently there appeared sexual license, libertinism in speech and diet,

and indifference to morals. When such a revolution set in among men, Brahman (the

idea of Godhead) disappeared, and with it, law (dharma)" (Sarkar, 1922:197).

Dharma and not religion, was the basis of legitimization of the state. Vedic religion (if it can be called a religion) advocates pantheism. It is not uncommon to find that X is worshipped as a deity in area #1, but X is viewed as an asura (man/woman pursuing wrong goals; this not equivalent to a devil) in area #2. When the deities are not only numerous but also in opposition to each other, it becomes difficult to mobilize people in the name of religion. Dharma, on the other hand, has an appeal across

deities. Its non-contestable character therefore served as an useful attribute for the legitimization of the state.

22 Guild have been referred to by various names in the Arthasastra. Some of these are Sreni, Kula, Puga, Gana, and Sangha (Rao, 1958:60).

8 to the guild/association These associations were knit together on the basis of two

principles - military imperative (strength in unity) and the principle of dharma (Rao,

1958:58). These bodies had well specified rules of governance and a code of

conduct. They zealously guarded their autonomy and the King could not trample on

their customs and traditions. To ensure that the King and the associations do not

overstep their respective limits, the Superintendent of Accounts had to codify the

history, the customs, and the traditions of every association (Rao, 1958:66).

However, the relationship between the individual body and the state was not of

competition or of turf protection. Both the bodies had a role to play in enabling the

citizen to follow his dharma.24 Interestingly, there was a Department of

Commissioners (Pradeshtarah) to protect the interest of the individual in the

association (Rao, 1958:74). Thus there was a mechanism to protect the individual

from the larger association (tyranny of the majority) and the association from the

State (tyranny of the Leviathan).

The King was looked upon an embodiment of virtue, a protector of dharma. He too

was governed by his dharma as any other citizen was. Thus if any actions of the

King went against the prevailing notion of dharma, associations and/or the individual

citizens were free to question him. King was not the sole interpreter of dharma.

Infact there was no specific institution (like the ecclesiastical courts) vested with the

authority of interpreting dharma. Every individual was deemed competent to interpret

Tocqueville ([1848] 1969:287-301) has viewed religion to be the first political institution of the United States. I would view the guilds and associations to be the first political institutions of the Vedic society.

23 Ostrom's (1991:Ch. 9) concept of 'polycentricity' is similar to this arrangement. Ostrom rightly underlines the role of a polycentric order in preserving self-governance and therefore checking absolutism and centralization. Both Ostrom and the Vedic school believe that polycentricity is a human artifact. The main philosophical difference between Ostrom approach and the Vedic approach

is that for Ostrom individual is the basic unit of analysis (ibid:227). In the Vedic philosophy there exists no clash between the individual and the cosmos - every living entity is a part of the 'universal spirit - Brahman. Hence 'methodological individualism' in not critical for polycentric political arrangements in the Vedic philosophy.

However, reliance on dharma assumes away co-ordination costs and transaction costs - somewhat in the spirit of the Walrasian model of general equilibrium ! (I owe this point to Prof. Thrainn Eggertsson).

24 It is difficult to characterize the Vedic state as being a federation or a confederation of guilds/associations (I am using these terms as per Ostrom, 1991:72). Guilds were a social entity and not merely a professional or political entity. An individual citizen could be a member of more than one of such associations. Hence I am not inclined to interpret that the Vedic state came into being as a consequence of these associations entering into a covenantal relationship with each other and with

the central authority. This was an important factor in ensuring the non-religious character of the Vedic state.

Elements of the State and the Role of the King

Arthasastra conceptualizes the state to have seven elements

(saptanga,)(Kautilya: Book 6, Ch. 1; Sarkar, 1922:167-9; Verma, [1954] 74:80; Rao,

1958:82).

1. Swami (Monarch)

2. Amatya (Officials)

3. Janapada (Population and Territory)

4. Durga (Fort)

5. Kosa (Treasury)

6. Bala (Military)26

7. Surhit (Ally)

King derived his power from three sources - Prabhushakti (the power of the army

and the treasury), Mantashakti (advice of wise men, specifically the Council of

Ministers) and Utsahshakti (charisma). Mantashakti was rated as the most potent

source followed by the prabhushakti and utsahshakti. Clearly Kautilya believed in

the importance of institutions (Council of Ministers) and not of an individual (King) in

The Vedic conception of a King is different from the Hobbesian conception of a 'Leviathan'.

According to Hobbes

" men confer all their power and strength upon one man, or upon one assembly of

men, that may reduce all their wills, by plurality of voices, unto one will ... and the

multitude so united in one person is called the commonwealth ... this is the

generation of that great leviathan...of that mortal god, to which we owe under the

immortal god, our peace and defense" (Hobbes, [1651] 1962:132).

The Vedic King was not an absolute monarch - he was certainly not a 'mortal god'. He was a protector of dharma but not the sole interpreter of it. He governed on the basis of the advice of the Council of Ministers. Further, the numerous autonomous associations which constitute his kingdom,were also an effective check on his power.

Confucian tradition views the King in yet another light - the emperor heads a family - the society.

Thus emperor - citizen relationship is conceptualized by invoking filial piety (Yang, 1987:23).

Kautilya had organized a huge standing army financed directly by the treasury. I would argue that organization of a standing army is a major factor in centralizing the state apparatus. When the King is dependent of the subunits or the guilds for the army manpower, he has share power with them. Kautilya, a believer in centralization, realized that a strong standing army was a pre requisite

for a strong monarchial state.

10

Next to the King came the Mantri Parishad (Council of Minister). King was enjoined

to discuss each and every matter with the Parishad as it represented the distilled

wisdom of the society. Parishad had two levels - the Inner cabinet and the Outer

cabinet. The Inner cabinet had four members - The Chief Minister, The Chief Priest,

the Military Commander and the Crown Prince. The Crown Prince was included to

ensure smooth succession and to maintain continuity in case of emergencies. The

membership of the Outer cabinet was not fixed in number. Invariably the heads of

the prominent guilds were co-opted in this body. This gave a representative

character of the Parishad (Rao: 1958:86-7).

Kautilya glorified the State and viewed the office Kingship to be the embodiment of

all legal and moral authority associated with the institution of the state (Rao,

1958:50). The King was an intrinsic part of the social order and by the nature of his

office, a defender of that order. However King was to regard himself as an agent of

the people and had to abide by his dharma as laid out in the Sastras. The institution

of the Kingship was sacred but not the person who happens to hold it (Sarkar,

1922:174). 2 8

Duties of the Kings

Kautilya did not subscribe to the theory of 'Divine Origin of the Monarch'. King was

not the vicar of the god.2 9 Monarchy, in his view, was a human institution and

therefore manned by a human being. However the king was expected to be more

than a mere human being since he was the protector of the dharma of the whole

I will also interpret this as a manifestation of the brahmin in Kautilya - emphasis on the power of the intellect (a brahmin quality) rather than on the charisma of the King (a kshatriya quality).

28 Kautilya (Book 1, 16) has described the following ideal for the King :

Prajasukhe sukham rajnah, Prajanam ca hite hitam

Natmapriyam hitam rajanah, Prajanam tu priyam hitam

" The monarch should seek happiness in the happiness of his

citizens, his welfare is in their welfare, his good is not in what pleases

him but in what pleases the citizens ".

2 9 Since Vedic belief system encourages pantheism, it was not possible for the King to claim to be the vicar of the millions of gods and goddesses, many of which are in conflict with each other.

This also implies that the King could not gain legitimacy by claiming to be the 'protector of the religion' - he could only make a claim to be a protector of the moral order - to enable the individual to follow his dharma.

11

He had to observe an exemplary conduct himself. 30 He had no private

life and all his actions were subject to public scrutiny (Rao, 1958:122).

The King had to follow a his rayja dharma. This included a thorough knowledge of

the four branches of knowledge (Ghoshal,1923:139). The King was expected to

display Atma vrata (self-control) and for this he had to abandon the 'six enemies -

kama (lust), krodha (anger), lobha (greed), mana (vanity), mada (haughtiness), and

harsha (overjoy) (Kautilya:Book 1, Ch. 7; Rao, 1958:56). Clearly Kautilya expected

very high standards from the rulers. This is in contrast to the realistic model of the

citizen on which he based so many of his laws.

The King had a fairly regimented daily routine. His day and night was divided into

eight nalikas (one and half hours) each. The King was assigned specific tasks for

the specific nalika.3 1

Taxation

Kautilya visualized a 'dharmic social contract' between the King and the citizens.

Taxes were levied for maintenance of the social order and for the state run welfare

apparatus. 32 In case of aggression by an outside agency, the janapads (districts)

could ask for tax remission as the King had failed in his duty to protect the citizens

(Rao, 1958:213).

Kautilya realized the critical role of the tax system for ensuring the economic wellbeing

The hallmark of his tax system was 'certainty' - of time, of rate

and of the mode of payment (Rao, 1958:213). Stability in the tax regime was an

important factor in ensuring active trade and commerce in the Mauryan empire. This

in turn strengthened the revenue base of the state and enabled it to maintain a huge

standing army and the welfare apparatus.

There is ancient Vedic saying -" Yatha Raja Thafa Praja " - the character of the King

determines the character of the citizens.

31 Schedule during the day : 1st Nalika - attend book of accounts, 2nd - attend to public grievances, 3rd - bathe & dine, 4th - oversee the bureaucracy, 5th - meet ministers, 6th - see the intelligence reports, 7th - inspect horses, elephants & chariots , 8th - military affairs.

Schedule during the night : 1st - receive spies, 2nd - bathe & dine, 3rd - harem, 4th & 5th - sleep, 6th- plan his day, 7th - administrative matters, 8th - consult the priest, astrologer and the Chief Minister

(Kautilya:Book 1, Ch. 19).

Sukra, the famous philosopher, viewed the King's position to be one of the dasyatva

(servitude) - "the ruler has been made by Brahma (the highest god) a servant of the people. His revenue is the remuneration for his services. He is sovereign or the master solely in order that he may protect" (Sarkar, 1922:175-6).

12

State was overzealous in collection of taxes and tapped virtually every source.

Citizens paid a toll-tax. Farmers (household as the unit of assessment) had to pay

one sixth of the produce as the land tax. There was a land census at periodic

intervals and land records were scrupulously maintained. This data base enabled

the assessment of the taxable capacity of the household. Traders had to pay one

tenth the value of the merchandize as tax. There was an entry tax to enter the fort,

tax on use of roads and waterways, and for getting a passport. Even the hermits

living in the forest had to part with one sixth of the grain gleaned by them as they

too needed the protection of the King (Ghoshal, 1923:133-4). Service industry was

also taxed - actors, dancers, soothsayers, prostitutes, and auctioneers were

subjected to taxation. Pilgrims had to pay a Yatra Vetna (pilgrimage tax). Citizens

had to pay a tax (Pranaya Kriya) for the acts of benevolence (Rao, 1958:209-210).

System of law

Kautilya did not view law to be an expression of the free will of the people. Thus

sovereignty - the authority to make laws, did not vest with citizens. Laws were

derived from four sources - dharma (scared law), vyavhara (evidence), charita

(history and custom), and rajasasana (edicts of the King). In case of conflict

amongst the various laws, dharma was supreme. The ordering of the other laws

was case specific (Kautilya:Book 3, Ch. 1). 33

Rajasasana ordered the relationship between the three major social groupings - the

citizen, the association, and the state. The constitutional rules at the state level were

specified in the rajasasana but the constitutional rules at the level of the association

were to be decided by the members of the association. The collective choice and

the operational level rules of the association were also decided by the members of

the association though the state did promulgate laws to safeguard the individual

member from the tyranny of the majority in the association.

Arthasastra outlines a system of civil, criminal, and mercantile law. For example the

following were codified : a procedure for interrogation, torture, and trial, the rights of

the accused, what constitutes permissible evidence, a procedure for autopsy in case

of death in suspicious circumstances, what constitutes defamation and procedure for

claiming damages, valid and invalid contracts (Kautilya, Book 4, Ch. 7 & 8).

What was supreme in the Vedic society - citizens or the state/king ? My answer would be neither. What was supreme was dharma.

Filial piety was the basis of ordering relationship in the Confucian society. I will argue that dharma played a similar role in the Vedic society.

3 4 I am using the concept of constitutional, collective, and operational rules as per Ostrom E

(1990:50-55).

13

Bureaucracy

Kautilya had organized a huge and intricate network of bureaucracy to manage the

Mauryan empire. This also reflected the centralized character of the state.

Bureaucracy had thirty divisions each headed by Adhyakshas (Chiefs). Reporting

relationships were clearly specified.

Kautilya had visualized the necessity of state provision of public goods which

strengthened trade and commerce. The bureaucracy was involved in the provision

of three of such goods - the 'quality control machinery', the system of currency, and

the system of 'weights and measures'. Quality control was a revolutionary concept

for that era. This suggests that Mauryan empire had an active trading sector and the

buyers (domestic and exports) were discerning. As a mark of quality, merchandise

had to be marked with the Abhigyan Mudra (state stamp) in sindura (vermillion).

Counterfeiting was strictly punished (Rao, 1958:218).

Bureaucrats received a fixed pay and were also eligible for state subsidized housing

(Rao, 1958:220). 35 This is an example of Kautilya's deep understanding of

statecraft as even in later centuries (in other empires), officials were expected to

compensate themselves by retaining a part of revenue extracted from the people (a

kind of ad-valorem compensation). The ad-valorem arrangement provided an

incentive for the official to squeeze the tax payer as much as possible (a short term

on the part of the bureaucrat) as the bureaucratic tenure was not hereditary.

Kautilya, given his experience as a Chief Minister, probably realized the peril of such

an (ad valorem) arrangement and created a fixed pay compensation structure for

the bureaucracy.36

Huge bureaucracy invariably result in a principal-agent problem. Kautilya sought to

tackle this issue through three means - elaborately monitored standard operating

Bureaucrats and other officials received fixed annual salaries in the following order (1$=28

panas approximately) : Ministers, Chief Priest, Crown Prince, Mother of the King, Queen,Commander-in-Chief - 48,000 panas, Collector General, Commanders 24,000 panas, Other Princes,Chief Constable 12, 000 panas, Commissioner of the city 12,000 panas, Superintendents of the

departments 9,000 panas, Accountants 500 panas etc. (Kautilya:Book 5, Ch. 3; Rao, 1958:221).

I am propounding a Douglass Northian (1981:16-17) argument that the structure of property rights determines what percentage of gains of innovation are retained by the innovator, hence influence the incentive to innovate, and hence influence economic growth of the society. The ad valorem compensation (given a short time frame of the bureaucrat and given the cost of tax collection for the bureaucrat equals the marginal tax extraction - bureaucrat's marginal revenue, only when the tax payer has reached the subsistence level) would encourage the 'rational' bureaucrat to squeeze the tax payer as much as possible. In such a situation, the tax payer (peasant; trader,

manufacturer etc) would have little incentive to innovate and generate a surplus as anything above subsistence would be mopped up by the bureaucrat.

14

procedures (SOPs), spies/intelligence organization, and decentralization of authority.

SOPs minimized the room for subjective interpretation of the rules by the

bureaucrats. The superiors carefully monitored the performance of the officials under

their control.37 However this system of close monitoring must have resulted in

enormous transaction costs. It was therefore supplemented by the intelligence

organization which kept a watch on the corrupt practices of the officials. The exploits

of the spies in catching corrupt officials were given wide publicity and this made the

officials careful in their dealings with the citizens. Another measure to keep a check

on the bureaucracy was decentralized-polycentric political arrangements which

resulted in empowering of the local guilds. Thus the bureaucrats had to reckon with

an effective local power center who were aware of the royal edicts and prevented

the bureaucrat from substituting his/her objective function for the royal edict. It is

interesting that Kautilya did not take recourse to ideology to discipline the

bureaucracy. Probably he realized that if a bureaucrat is violating the SOPs he/she

is already going against his dharma. If a socially sanctified belief system as that of a

dharma could not discipline the bureaucrat, how could a ruler given ideology (for the

glory of the Mauryan empire) work ? 38

System of Spies

Kautilya was a product of the age of intrigue. He defeated Alexander of Macedonia

and the Nanda king (most powerful Indian empire of that era) on the basis of military

prowess and political craft. According to Kautilya, the King has to guard against

intrigues from internal and external sources. Internal sources include the inner

cabinet, the autonomous associations/ guilds, religious orders and the personality of

the king himself (atma-dosa). External sources refers to hostile foreign powers.

The intelligence apparatus was very elaborate and had infiltrated virtually every

institution and profession - especially the institutions of mass participation like

religion. Spies could be under the following guises - kapatika chhatra (fraudulent

discipline), udasthita (recluse), grihapalka (householder), vaidehaka (merchant),

tapas (an ascetic practicing austerities), satri (a classmate), tikshna (a fireband),

rasada (a poisoner) and a bhikshuki (a mendicant woman) (Kautilya, Book 1, Ch.

11).

Kautilya lists forty kinds of misappropriation of funds by the bureaucrats. The informant giving information on corruption was entitled one sixth of the amount as a reward. There is also a fascinating description of how the departmental supervisors should check whether expenditures have been incurred for the desired end - including the heads (labor,capital and material) of the

expenditure. (Arthasastra: Book 2, Chapters 8 & 9).

38 A concise and interesting discussion on the agency problem in large bureaucracies is provided in Eggertsson (1990:333-340).

15

Monks and the sanghas (association of monks) were actively used for the purpose

of gathering intelligence. Kautilya even suggested that to assassinate a rival King,

weapons may be kept inside an idol and be used when the King comes for worship.

Thus Kautilya did not hesitate to use the institution of religion for the purpose of

statecraft. For him, the most important condition for the practice of dharma was not

the institution of religion but the institution of the state.

Intelligence operations were greatly aided by the maintenance of a 'national citizen

register' and a system of passport and visa. Register was updated by regularly

conducted censuses and by the compulsory registration of the births and deaths

(Rao, 1958:209).

Conclusion

Arthasastra is a very comprehensive treatise on the governance in a monarchical

Vedic state. Kautilya had a rational approach to governance and statecraft. He

conceptualized the state and the office of the kingship to be human artifacts. Also

his model of the human being was very realistic. However he expected super

human qualities from a 'human' King. Chandragupta, Bindusar and Ashoka

matched this ideal but their successors could not. Clearly the system of checks and

balances amongst the king, the associations and the citizens worked well as long as

the King wanted it to work.

The ideal society of the Arthasastra did last for a couple of centuries. However the

successful Muslims invasion in the 8th century indicated a serious (military)

deficiency in the 'Hindu' society. The vision of Kautilya was a creation of a strong

and prosperous Vedic order so the foreigner invasions (like that of Alexander) could

be repulsed. The success of the Muslim invasion suggested that either the

governance by the 'Hindu' Kings was not according to the tenets of the Arthasastra

or the Arthasastra philosophy itself had become antiquated. Probably both were

true. Kings had certainly deviated from the Vedic ideal of a 'dharmic king' - the

'servant' of the people and the protector of the dharmic order. Varna system had

degenerated into a caste system. The rational and dharmic order of the Arthasastra

had ben reduced to only a shadow of its past glory. Muslim invasion probably found

an easy target in a moribund order.

16

References

Berman Harold J (1983) : Law and Revolution - The Formation of the Western Legal

Tradition : London & Cambridge Mass. Harvard University Press.

Bloomfield : Religion of Vedas : In, Ghoshal (1923):4.

Chaturvedi Badrinath (1984) : Max Weber's Wrong Understanding of Indian

Civilization : In, Detlef Kantowsky ed. : Recent Research on Max Weber's Studies

on Hinduism : Munchen, Koln & London, Welforum Verlag :45-58.

Eggertsson Thrainn (1990) [Economic Behavior and Institutions : Cambridge

University Press.

Ghoshal Upendranatha (1923) :.A History of Hindu Political Theories : London,

Bombay .Madras & Calcutta, Oxford University Press.

Hobbes Thomas ([1651] 1962) : Leviathan or the Matter, Forme, and Power of a

Commonwealth Ecclesiasticall and Civil: Oakeshott Michael (ed.), New York &

London, Collier Books.

Jaiswal K P : Hindu Polity : In, Rao (1958) : 14-15.

Kautilya : Arthasastra : Translated by R Shamasastry ([1915] 1967), eighth ed.,

Mysore, India, Mysore Printing and Publishing House.

Koestler Arthur (1960) : The Lotus and the Robot : Hutchinson of London.

Manusamhita II, In, Ghoshal (1923) :7.

Muller Max (1859) : History of Ancient Sanskrit Literature : In, Ghoshal (1923):3.

North Douglass (1981) : Structure and Change in Economic History : New York and

London, W.W. Norton & Company.

Ostrom Elinor (1990): Governing the Commons - The Evolution of Institutions for

Collective Action : Cambridge University Press.

Ostrom Vincent (1991) : The Meaning of American Federalism - Constituting a Self-

Governing Society : San Francisco, California, ICS Press.

Rao M V Krishna (1958) : Studies in Kautilya : Delhi, Munshi Ram Manohar Lai.

17

Sarkar Benoy Kumar (1922) : The Political Institutions and the Theories of the

Hindus - A Study in Comparative Politics : Leipzig, Verlag Von Market & Petters.

Sen AK (1920) : Studies in Hindu Political Thought : Calcutta Review, Dec. 1926, In,

Rao(1958).

Shamasastry R : see Kautilya - Arthasastra.

Srinivas M N (1966) : Social Change in Modern India : Berkeley & Los Angles,

University of California Press.

Tocqueville Alexis de ([1848] 1969) : Democracy In America : Edited by J P Mayer,

Translated by George Lawrence, Garden City, New York, Anchor Books.

Trautmann Thomas R (1971) : Kautilya and the Arthasastra - A Statistical

Investigation of the Authorship and the Evolution of the Text: Leiden, E J Brill.

Varma Vishwanath Prasad ([1954] 74): Studies in Hindu Political Thought and its

Metaphysical Foundations : Delhi, Varanasi, & Patna, Motilal Banarsidass

Weber Max (1958) : The Religion Of India : Translated and Edited by Hans H Gert

& Don Martindale, New York, The Free Press.

Willoughby : Political Theories of the Ancient World : In, Barker : The Political

Thought of Plato and Aristotle : 1-2, In, Ghoshal (1923): 8.

Yang Tai-Shuenn (1987) : Property Rights and Constitutional Order in Imperial

China : Ph.D. dissertation, Indiana University, Bloomington