Confucius and Kautilya on Establishing Moral Order for Prevention of Government and Market Failures - Balbir S Sihag

Abstract: 

The main objectives of this paper are of two kinds: first one may be described as historical in the sense of correcting more than two thousand years of misinterpretations of the ideas of Confucius and Kautilya on establishing a moral order and the nature of its relationship to the legalistic approach; the second one is to highlight the relevance of moral order not only to create peace and harmony but also enhance the creation and sharing of knowledge and lowering of transaction costs. 

Since both creation and sharing of knowledge depend on genuine trust, which flourishes only in an ethical environment, and not in a “culture of suspicion”. It is indicated that their insights or pearls of wisdom are actually more relevant to today’s knowledge-based economies than they were to economies during their own times. They would have emphasized the warming of hearts to each other to solve the problem of global warming. 

1. Introduction: Confucius (551-479 BCE) was a humble, ethical, foresighted, wise and religious person. He might have briefly served as a minister of justice and also as a Prime Minister but essentially he was a teacher. He believed in ethical education of the young. 

Kautilya was simple, foresighted, ethical, secular and wise. According to Indologists, he wrote his Arthashastra, a manual on engineering shared prosperity, during the 4th century BCE. However, new research has challenged the view and claims that he lived many centuries earlier than the fourth century BCE.

Both Confucius and Kautilya were original thinkers and advocated establishment of a moral order. They did not reject the legalist approach rather considered it as complementary, but definitely not a substitute, to the ethics-based approach. They firmly believed that legalist approach alone could not bring peace and prosperity for all the people. 

Confucius, Kautilya and Kautilya’s predecessors wanted to create a peaceful and harmonious society. They assigned a foundational role to moral order. Although Confucius primarily focused on the ethical approach but he was not naïve to ignore the relevance of laws. Kautilya, however, along with the ethical approach, also developed cardinal principles of justice, and suggested contract laws, property rules and tort laws (see Sihag, 2014, Chapters 6, 15, 16 and 17, [1]). Both Confucius and Kautilya believed that law and order, to a large extent, depended on good ethical conduct. They understood the limitations of a legalist-approach that it did not emphasize or promote self-discipline, which could be acquired only through ethical anchoring, implying that it could never help in controlling excessive greed, the major source of corruption. They essentially linked market failure to government failure and government failure to moral failure. They not only had similar views on the need to establish a moral order but also had similar views on other topics. These are presented in Section 2. 

Establishment of a moral order is essential to the creation and sharing of knowledge and also to the reduction of transaction costs. An opportunistic environment is not very conducive to knowledge creation and its sharing, which are the main characteristics of a knowledge-based economy. 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. Complex contracts requiring expensive legal advice are written to safeguard against the potential harm that might be caused by the partners’ opportunism. 

Section 3 presents the need for establishing a moral order for a creative economy. Adam Smith (1723-1790) lived at least two thousand years later than Confucius and Kautilya. He wrote two books: Theory of Moral Sentiments and The Wealth of Nations. He, just like Han Feitzu, rejected the possibility of establishing a moral order and advocated a legalist approach. He could not introduce the benevolent man of The Theory of Moral Sentiments to the commercial man of The Wealth of Nations, although some prominent economists have been trying hard to perform a civil marriage between these two unwilling adults. Recently, Carsten Herrmann-Pillath (2011) [2] compares Confucian thinking to that of Adam Smith and finds “a number of conceptual family resemblances between the two”. 

Section 4 shows that their conceptual thinking is as much apart as the North Pole from the South Pole. Transaction cost economics (TCE) approach to trust is actually a statistical approach to the building or destroying of confidence. Repeated games or familiarity breeds confidence but not necessarily trust. The common definition of trust as a person’s vulnerability to the competence and benevolence of another person or party is valid only in the current amoral or legalistic environment but not in an ethical environment. Genuine trust is an ethics-intensive concept since non-violence, truthfulness, honesty and benevolence are the foundation for trust. That is, trust flourishes only in an ethical environment. How to make sure that children grow-up to be ethical adults? 

Ideas of Confucius and Kautilya on ethical anchoring of children are presented in Section 5. 

Final section contains concluding observations. 

2. Confucius and Kautilya on Moral Order to Prevent Government Failure :Western countries’ legalistic approach has not prevented insider trading, back-dating options, regulatory arbitrage, such as shadow banking, lobbyists influencing tax laws, environment laws, trade policies and many other policies. In other words, both the formulation and implementation of laws get compromised and thus adversely affecting the common good. That is, legalistic approach alone could not prevent government failure. There are instances where the government officers themselves participated in committing economic crimes. Additionally, legalistic approach is almost totally ineffective in preventing crimes resulting from anger or lust. 

Kautilya [3] observed a long time ago that ‘greed clouds the mind’ and similarly lust and anger, the other destructive passions, overpower the reasoning faculty. Confucius’s List of Virtues: “Speak the truth, do not yield to anger; give, if thou art asked for little; by these three steps thou wilt go near the gods. To practice five things under all circumstances constitutes perfect virtue; these five are gravity, generosity of soul, sincerity, earnestness, and kindness. Virtue is more to man than either water or fire. I have seen men die from treading on water and fire, but I have never seen a man die from treading the course of virtue.” 

Kautilya’s List of Virtues: 

Kautilya [4] (p. 107) listed ethical values as: “Ahimsa [abstaining from injury to all living creatures]; satyam [truthfulness]; cleanliness; freedom from malice; compassion and tolerance.”2 Foundational Role of Ethics: Both Confucius and Kautilya are unique in assigning a foundational role to ethics but were not naïve to ignore the importance of legalistic approach.3 They wanted the legalistic approach to complement the ethics-based approach not substitute it. For example, Kautilya argued that ethical environment was essential to the maintenance of law and order. He [4] (p. 142) wrote, “Government by Rule of Law, which alone can guarantee security of life and welfare of the people, is, in turn, dependent on the self-discipline of the king (1.5).” He (p. 106) wrote, “[The observance of] one’s own dharma leads to heaven and eternal bliss. When dharma is transgressed, the resulting chaos leads to the extermination of this world.” He further expanded the role of ethics. He argued that ethics was the most effective catalyst in attaining salvation from poverty. He (pp. 107-108) asserted, “For the world, when maintained in accordance with the Vedas, will ever prosper and not perish. Therefore, the king shall never allow the people to swerve from their dharma.” 

Similarly, Confucius believed, "The perfecting of one’s self is the fundamental base of all progress and all moral development. He who exercises government by means of his virtue may be compared to the north polar star, which keeps its place and all the stars turn towards it. If the people be led by laws, and uniformity sought to be given them by punishments, they will try to avoid the punishment, but have no sense of shame. If they be led by virtue, and uniformity sought to be given them by the rules of propriety, they will have the sense of shame, and moreover will become good.” On the other hand, both Han Feitzu and Adam Smith rejected the ethics-based approach and advanced only the legalistic approach. 

Confucius on Controlling Vices: "When anger rises, think of the consequences. There are three things which the superior man guards against. In youth, when the physical powers are not yet settled, he guards against lust. When he is strong and the physical powers are full of vigor, he guards against quarrelsomeness. When he is old, and the animal powers are decayed, he guards against covetousness.” 

Kautilya on Controlling Vices: Kautilya [4] (p. 137) explained, “Vices are due to ignorance and indiscipline; an unlearned man does not perceive the injurious consequences of his vices (8.3).” He (p. 144) stated, “The sole aim of all branches of knowledge is to inculcate restraint over the senses (1.6.3). Self-control, which is the basis of knowledge and discipline, is acquired by giving up lust, anger, greed, conceit, arrogance and foolhardiness. Living in accordance with the shastras means avoiding over-indulgence in all pleasures of [the senses, i.e.,] hearing, touch, sight, taste and smell (1.6.1, 2).” Confucius on Good Governance: “When a country is well governed, poverty and a mean condition are something to be ashamed of. When a country is ill governed, riches and honors are something to be ashamed of. There is good government when those who are near are made happy, and when those who are afar are attracted. To rule a country of a thousand chariots, there must be reverent attention to business, and sincerity; economy in expenditure, and love for men; and the employment of the people at the proper seasons. An oppressive government is more to be feared than a tiger.” 

Kautilya on Good Governance: Kautilya emphasized the provision of infrastructure, fair, clean and caring administration (see Sihag (2014: Chapter 8) for details [1]). Kautilya (4th century BCE/2000, p. 88) [3] observed, “The ruler’s duties are stated to be five: punishment of the wicked, rewarding the righteous, development of state revenues by just means, impartiality in granting favours and protection of the state.” He emphasized clean administration. He (4th century BCE/1992, pp. 493-494) asserted, “Thus, the king shall first reform the administration, by punishing appropriately those officers who deal in wealth; they, duly corrected, shall use the right punishments to ensure the good conduct of the people of the towns and the countryside (4.9).” 

Confucius on Role Model: “By the ruler’s cultivation of his own character there is set up the example of the 2 Dhar (2003: pp. 156-157) [14] observes, “Our tradition recognizes certain eternal values including love, compassion and non-injury. It underscores the importance of means being right to achieve right ends.” On the other hand, Staveren (2001: p. 153) [15] asserts, “Central to Aristotle’s Nicomachean Ethics is that virtue can only be found by trial and error as a mean between efficiency and excess: virtue depends on deliberation, as I argued in chapter one. It is important to repeat Aristotle’s view that virtues are not pre-given, they are not universals, nor subjectively prescribed in individual objective functions.” 3 Richard Kraut (2010) [16] observes, “What Aristotle has in mind when he makes this complaint is that ethical activities are remedial: they are needed when something has gone wrong, or threatens to do so. Courage, for example, is exercised in war, and war remedies an evil; it is not something we should wish for.” course which all should pursue. When superiors are fond of showing their humanity, inferiors try to outstrip one another in their practice of it. When rulers love to observe the rules of propriety, the people respond readily to the calls on them for service. If a minister make his own conduct correct, what difficulty will he have in assisting in government? If he cannot rectify himself, what has he to do with rectifying others?” 

Kautilya on Role Model: He (p. 147) wrote, “If the king is energetic, his subjects will be equally energetic. If he is slack and lazy in performing his duties the subjects will also be lax and, thereby, eat into his wealth. Besides, a lazy king will easily fall into the hands of his enemies. Hence, the king should himself always be energetic (1.19).” He (p. 121) stated, “A king endowed with the ideal personal qualities enriches the other elements when they are less than perfect (6.1).” He (p. 123) added, “Whatever character the king has, the other elements also come to have the same (8.1).” 

Confucius on Bounded Rationality: “Ability will never catch up with the demand for it. To know what you know and what you do not know, that is true knowledge. Real knowledge is to know the extent of one’s ignorance. The superior man is distressed by his want of ability. He is not distressed by men’s not knowing him.” 

Kautilya on Bounded Rationality: “A king can reign only with the help of others; one wheel alone does not move a chariot. Therefore, a king should appoint advisers (as councilors and ministers) and listen to their advice.” Kautilya (p. 177). 

Confucius on the Role of Foresightedness: “If a man takes no thought about what is distant, he will find sorrow near at hand. He who does not anticipate attempts to deceive him, nor think beforehand of his not being believed, and yet apprehends these things readily (when they occur);—is he not a man of superior worth?” 

Kautilya on the Role of Foresightedness: “In the interests of the prosperity of the country, a king should be diligent in foreseeing the possibility of calamities, try to avert them before they arise, overcome those which happen, remove all obstructions to economic activity and prevent loss of revenue to the state (8.4).” Kautilya (4th Century BCE, p. 116) [4]. 3. Relevance of a Moral Order to a Creative Economy Trust Key to Creation and Sharing of Knowledge: Lukasz Hardt (2009) [5] discusses the transaction cost economics (TCE) in a knowledge-based economy, which he labels as a second cognitive turn. He (p. 44) remarks, “Therefore, when problems are non-decomposable, searching best takes place within the firm, and when they are decomposable the market will be a more efficient machine for organizing searching. In this approach the firm is able to produce valuable knowledge (or, in other words, to solve problems).” Note, the above statement explains the efficiency gains in ‘organizing searching’ and producing knowledge by a firm. However, the level of positive gains from creation and sharing of knowledge depend on the level of trust since it is the mutual trust which binds the knowledge workers together. 

Characteristics of a Knowledge-based Economy: First, a knowledge-based economy may be characterized as one in which intangibles are more valuable than the tangibles. Innovation is the source of survival and sustainable economic growth, that is, innovate or perish. Knowledge-intensity in almost every product/service is relatively higher and rising. Knowledge has characteristics of a public good and usually there exists more tacit knowledge than explicit knowledge. Second, a creative economy is very different from an industrial economy. Knowledge workers need flexibility and the old assembly line approach, which was labeled as Fordism, does not work. Third, the market for ideas is, at best, imperfect. The buyer does not know what s/he is buying and the seller does not know what s/he is selling. Since the potential of an idea is never known with certainty. 

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. 

Emphasis on the Power of Pooling Knowledge and Information: Kautilya’s predecessors understood the importance of sharing information and knowledge to arrive at the most efficient decision However, 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. It is indicated in section IV below that creating ethical-based trust is the key to realizing all the potential gains from creating and sharing of knowledge. B. S. Sihag 24 Williamson (1985: p. 47) [6] characterizes the potential behavior of the other firm as: “calculated efforts to mislead, disguise, obfuscate, or otherwise confuse” and “seeking self-interest, but they do so with guile”. In the prevailing opportunistic and legalistic environment it would be naïve or even foolish to trust anyone since that would be too risky. Interestingly, Machiavelli had very similar views. He (1513: p. 52) [7] wrote, “For of men one can, in general, say this: They are ungrateful, fickle, deceptive and deceiving, avoiders of danger, eager to gain.” He continues, “Men are less nervous of offending someone who makes himself lovable, than someone who makes himself frightening. For love attaches men by ties of obligation, which, since men are wicked, they break whenever their interests are at stake.” He (p. 73) adds, “This is how it has to be, for you will find men are always wicked, unless you give them no alternative but to be good.” 

Trust and Transaction Costs: Compared to a moral society an amoral or immoral society would incur increasingly burdensome transaction costs. Since a prudent person or firm could not afford not to undertake protective measures. Consequently, each firm ends up devoting a considerable amount of resources to protect itself against opportunism. Everyone tries to outsmart the other party to the contract by negotiating and writing a good contract, which leaves no room for conscience or compassion. The increasing share of transaction sector, the rising number of tort cases, increasing cost of defensive medical practice, rising cost of enforcement indicate that, may be in the long run, such rising transaction costs would make the purely contract-based economies lose their competitive edge. In sum, 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. It may also be noted that the relational contracts are experience-based and are not based on any ethical foundation implying they may not create any trust and thus the possibility of opportune behavior is not precluded. Secondly, relational contract may lead to poor quality as one party may too readily accommodate the requests of the other party. For example, Ford Motors and Firestone Tires Company had almost 100 years of business relationship and consequently Firestone Tires Company was not strict on requiring Ford Motors to maintain the desired air pressure in the tires and thus compromising safety, that is, their relationship had become too cozy. Both companies were sued and the costs of litigation and compensation to the consumers were huge. Additionally, reliance on contracts alone might cause an erosion of ethical values (called crowding out). 4. 

Adam Smith on Infeasibility of Moral Order: Adam Smith’s The Theory of Moral Sentiments has over 400 pages but does not explain the concept of virtue and did not assign any foundational role to virtue ethics.4 Adam Smith ([1790] 1982: VII. 1.2, p. 265) [8] states, “In treating of the principles of morals there are two questions to be considered. First, wherein does virtue consist of? Or what is the tone of temper, and tenour of conduct, which constitutes the excellent and praise-worthy character, the character which is the natural object of esteem, honour, and approbation?5 And secondly, by what power or faculty in the mind is it, that this character, whatever it be, is recommended to us? Or in other words, how and by what means does it come to pass, that the mind prefers one tenour of conduct to another, denominates the one right and the other wrong; considers the one as the object of approbation, honour, and reward, and the other of blame, censure, and punishment.” Raphael (2007: pp. 71-72) [9] comments, “Smith gives us a full and clear account of the content of virtue, that is, the cardinal virtues and the relation between them, but fails to provide an enlightening explanation of the concept itself, as he does with the topic of moral judgement. Such an explanation would show how the concept of moral virtue arises and how it distinguishes moral excellence from other forms of human excellence.” Apparently, according to Raphael, Adam Smith’s The theory of Moral Sentiments has essentially no theory implying that the controversy over “Adam Smith’s problem” is a futile one. Also, lack of a theory, perhaps has been one big reason that only economists have shown such an interest in it. 

Adam Smith assigned no Foundational Role to Virtue Ethics: Adam Smith ([1790] 1982: II. ii. 3, pp. 3-4) believes, “Beneficence, therefore, is less essential to the existence of society than justice. Society may subsist, though not in the most comfortable state, without beneficence; but the prevalence of injustice must utterly de4 Adam Smith could not borrow from the Greek philosophers since they also did not define virtue. Jim Holt (2006) [17] points out, “Aristotle defined virtue as a quality of character that makes for a life well lived. Then he characterized the good life as a life lived in accordance with virtue. Circular?” 5 Confucius: “In ancient times, men learned with a view to their own improvement. Now-a-days, men learn with a view to the approbation of others.” On the other hand Adam Smith puts too much emphasis on approbation. B. S. Sihag 25 stroy it.” He adds, “It is the ornament which embellishes, not the foundation which supports the building, and which it was, therefore, sufficient to recommend, but by no means necessary to impose.” 

Adam Smith ([1790] 1982: II. ii., 3.4) argued, “Justice, on the contrary, is the main pillar that upholds the whole edifice, if it is removed, the great, the immense fabric of human society must in a moment crumble into atoms.” According to Adam Smith, ‘prevalence of injustice’ would destroy the edifice. However, he does not realize that lack of ethics was the sole source of injustice, discrimination, infringement, slavery and suppression. Adam Smith gives justice a foundational status but does not explain how to construct it and what upholds this pillar. A few remarks are in order. First, the pillar must be standing on the solid rock of dharma, (ethics) otherwise it would be unstable. That is, justice in an unethical society is unattainable. Second, if justice has to serve as the main pillar, then it must be strong enough to support the edifice. 

However, it will not be strong unless it is constructed with the bricks and mortar of dharmic (ethical) values. Finally, it appears as if the pillar and the edifice are two separate entities and not components of one system. Every society decides both the pillar and the edifice together, but Adam Smith’s approach does not allow any possible interaction or interdependence between them. James Halteman and Edd Noell (2012) [10] explore Adam Smith’s ideas on ethics. They (p 76) remark, “The social passions are generosity, compassion, and esteem. They are inherently good and bring forth virtuous behavior, but they are also scarce and not prevalent enough in everyday life to serve as the foundation of a successful social order.” Clearly, Smith did not have a positive view of people and did not suggest any ethical education to make them ethical. His approach essentially was legalistic and very similar to that of Han Feitzu (280-233 BCE) another thinker from ancient China. Chang (1987) [11] explores the contributions of Confucius (551-479 BCE), a moral philosopher and Han Feitzu (280-233 BCE), a legalist. 

Chang remarks, “The Confucian state is established on a set of ethical norms and rites—rules, ceremonies, and manners codified by legendry sages—and governed by men through moral influence, rather than law, coercion, or by divine spirits.” Chang adds, “Another outstanding legalist was Han-fei-tsu (280-233 BC), a theoretician and a disciple of Hsun-tzu. Following his teacher, Han-fei-tzu believed that basically people were motivated largely by self-interest. For the sake of social order and economic progress, Han-fei-tzu proposed strict and uniform application of rewards and punishments and rejected Confucian egalitarianism. In his view, chances for success under Confucianism were far less than under Legalism. In his assessment, the former would function well only if individuals are guided by morality and rulers are sage kings, but in reality, individuals are guided overwhelmingly by self-interest and rulers are mostly average kings. 

On the contrary, Legalism, along with its laws and regulations designed for the good of the whole society headed by an average ruler, offers a greater chance of success.” Similarly, Choi (1989) [12] points out, “Han Feitzu repeatedly argued against Confucians (moralists) and showed that proposals based on moral grounds, though eloquent, inevitably resulted in absurdity if not outright undesirability”. 

5. Confucius and Kautilya on Ethical Anchoring of the Young: Both Confucius and Kautilya were optimistic and believed that an ethical environment could be created. There was rampant corruption during their times and they were aware of the existing conditions. Their ultimate objective was to establish a moral order, may be in a generation or two, which ensured a richer and fuller life to everyone in the society. They argued that was possible only through ethical grounding of the young. As mentioned earlier, they were not against the legalistic approach for handling the existing situations. Confucius on Ethical Anchoring: “The mechanic that would perfect his work must first sharpen his tools. A youth, when at home, should be filial and, abroad, respectful to his elders. He should be earnest and truthful. He should overflow in love to all and cultivate the friendship of the good. When he has time and opportunity, after the performance of these things, he should employ them in polite studies.” Kautilya on Ethical Anchoring: Kautilya (pp. 155-156) suggested, “‘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).” 

Strengthening and Sustaining Ethical Values: Company of disciplined individuals, particularly of elders was considered important in strengthening ethical values and conduct. Kautilya (p. 143) suggested, “With a view to B. S. Sihag 26 improving his self-discipline, he should always associate with learned elders, for in them alone has discipline its firm roots (1.5).” Similarly, Confucius suggested, “He who aims to be a man of complete virtue in his food does not seek to gratify his appetite, nor in his dwelling place does he seek the appliances of ease; he is earnest in what he is doing, and careful in his speech; he frequents the company of men of principle that he may be rectified- such a person may be said indeed to love to learn.” 

6. Concluding Observations: Ethical environment encourages both trust and transparency, which help in changing the “culture of suspicion” and thus in reducing the need to take defensive measures. In recent years the words transparency and accountability have taken hold of our imagination. Transparency is understood as the full and accurate disclosure of relevant information in a simple format and timely fashion. Almost exclusively, the emphasis has been on rulebased transparency, such as legislations regarding shareholders right to know how much a CEO gets paid and consumers right to know the calories or fat content in the meals restaurants serve. Similarly, many regulatory agencies have been created to protect against the trust deficit rather than to eliminate the trust-deficit. There has been very little if any emphasis or effort on the ethics-based transparency or trust. 

Honest, truthful and fair-minded individuals do not see the need to hide any information from any one. Similarly, ethical corporations do not engage in the practices of cooking the books for defrauding the stakeholders. Ethics-based transparency provides two types of benefits: it allows consumers and investors in allocating their resources in an optimal way and governments need not spend any time writing disclosure rules and devoting resources in enforcing them (i.e. it improves efficiency and lowers transaction costs). Rules-based transparency should be considered only as a complement to the ethics-based transparency. Finally, according to both Confucius and Kautilya, creation of ethical environment may be essential to improving the environment. They would have strongly recommended holding conferences in New Delhi or Beijing, like the one just concluded in Paris, on creating ethical environment for solving problem of global warming fairly and quickly. 

Article Courtesy: https://www.scirp.org/pdf/TEL_2016012913220025.pdf

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

CSR as Mandatory Trusteeship is an Oxymoron by Prof Satish Y Deodhar

Corporate social responsibility or CSR as we know it today, has always been a part of Indian culture and history.  Traditionally, business communities have always supported construction of dharmashalas, panjrapols, ghats, and pathshalas.  In one of the earliest printed books in India published in 1863, the author Govid Madgaokar makes a mention of annachhatras patronized by the rich in the nineteenth century Mumbai.  In modern day equivalents, these can be termed as holiday inns, animal-health clinics, river-fronts, primary schools, and charity dining halls.  Today, of course, from food to fundamental research, the spectrum of CSR activities is very wide.  This includes provision of mid-day meals through Akshay Patra foundation to patronizing fundamental research since the early years of independence through institutions such as Tata Institute of Fundamental Research (TIFR).

Why would businesses undertake such CSR activities?  It turns out that society understands that free market fails to deliver right quantity and quality of merit goods such as education, health, and environmental sustainability.  For example, social benefit of educating poor young girls is much higher than the private benefit that accrues to those girls.  Economist and evangelical supporter of free enterprise, late Milton Friedman had said that a corporate executive’s responsibility is to make as much money as possible, provided he confirms to the basic rules of law and ethical system.  The qualification he makes about ethical system is important, for profits are inextricably linked to communities and environment without which a firm cannot operate effectively.  Though it is not obvious, CSR efforts help a firm improve the Triple Bottom Line (TBL) of profit, people and planet.  Two centuries prior to Friedman, father of modern economics, Adam Smith had also echoed this social responsibility aspect of business in his treatise, The Theory of Moral Sentiments.  And, in the Indian subcontinent, it was father of the nation, Mahatma Gandhi who invoked the notion of Voluntary Trusteeship through individual philanthropy.  Industrialist G.D. Birla, for example, was always very liberal in donating money to Gandhi if any of his projects were held back due to want of money.

Of course, CSR is not the main activity of corporates and there is no denying that one of the very raison d'être for the existence of a government is to provide merit goods.  After India’s independence, the statist model advocated by the first prime minister Jawaharlal Nehru, characterized social responsibility as an overarching state-driven endeavor.  However, following the Soviet model, state started dictating terms in each and every sphere of economic life.  This came at a heavy price – gross neglect of provision of merit goods.  Experience of seven decades since independence and the low levels of human development indices show a glaring state failure on this front.  Perhaps the abject failure on the part of government has now forced it to co-opt private sector in CSR activities through the new Companies Act of 2013.  In quite a few countries such as Australia, Denmark, France, Holland, Norway, and Sweden, while CSR reporting is mandatory, CSR spending remains a voluntary act.  India is the only country in the world, where both reporting and spending on CSR is mandatory for a certain section of the firms.  The Gandhian principle of voluntary trusteeship has been trapped in the legal net, reformulating it in what I call as the Mandatory Trusteeship!

It is true that government has the coercive power to impose mandatory trusteeship and corporates cannot wish it away.  However, the perception of various stakeholders in the economy can be gauged from a spectrum of opinions – Arguing from the left of the centre, the opinion would be that the government has abdicated its own responsibility.  Instead of asking firms to spend two per cent on CSR activities, government could have raised corporate tax by two per cent, prioritized the socially beneficial activities, and spent the tax collection in its own right.  On the other hand, arguing from the right of the centre, forcing a mandatory spending of two per cent of profits on CSR amounts to increasing corporate tax-rate by two per cent.  Already a 34.6 per cent corporate tax-rate in India is higher than the global average of just about 24 per cent.  Mandatory two per cent spending on CSR makes Indian corporates less competitive globally.  Moreover, arguing from a centrist perspective, it seems absurd to force CSR spending on corporates.  CSR is viewed as an inspirational activity which comes voluntarily from within.  Therefore, voluntary CSR mandated by law, a sort of mandatory trusteeship, is an oxymoron.

The new CSR norms apply to firms with a net profit of Rs. 5 crore and more, and/or a net worth of Rs. 500 crore and more, and/or a turnover of Rs. 1000 crore and more.  These firms must spend two per cent of their average net profits made during three immediately preceding financial years.  For this, firms have to form CSR Committees and their boards must mandatorily report the CSR activities.  Moreover, the spending has to be on about dozen eligible activities as per the law, which includes spending on items such as healthcare, education, poverty eradication, gender equity, as also contribution to Prime Minister's National Relief Fund.  The spending cannot be related to the firms’ own business activities.  These norms and processes are indicative of potentially inordinate administrative burden imposed by the act, both on the government and the firms.  In fact, studies have shown that the potential mandatory CSR spending was expected to be much more than Rs. 25,000 crore a year.  However, the actual spending has turned out to be only about Rs.5,000 crore.  Moreover, a survey conducted in December 2015 showed that among top 84 firms by market capitalization, only 38 per cent of them had spent two per cent of profits on CSR.   Furthermore, if we are to go by the experience of many decades of License Raj, the coercive policies of the government may create perverse and obfuscating reactions from stakeholders.  This may happen at all three stages – implementation, monitoring, and punitive actions.

The eligible list of CSR activities as laid down in CSR norms seems broad but not broader enough.  Almost all the eligible activities prescribed by the CSR norms come under the category of philanthropy through donations or running CSR foundations.  However, there are two other channels of CSR activities that do not get covered under the norms.  First,when firms improve their operational efficiency, say by developing smart-building solutions that contribute to reduced energy consumption, and/or they convert their food waste into biogas, and/or they ensure that mercury from the used CFL bulbs and tube-lights is recycled using a special crusher; these activities improve the triple bottom line of profits, people and planet.  Second, transformational business models by firms such as say drip irrigation initiative may also contribute to triple bottom line.  Selling drip irrigation system may increase firm’s profit, increase farmers’ land productivity and income, improve resource sustainability by lowering salinity ingress, and, importantly, conserve water for the society.  In its own interest firm may give loans to and buy-back produce from farmers for this initiative to succeed.  Such activities do not fall under the CSR activities specified under the companies act.  Now, to fulfill the straight-jacketed mandatory requirements, firms may anchor their CSR efforts away from such activities.  Clearly there will be a qualitative anchoring away from efforts, which in fact, improve the triple bottom line of profits, people, and planet.

The two per cent mandatory norm may create another kind of anchoring effect, this time a quantitative anchoring effect, which also may adversely affect CSR initiatives.  Experimental studies (including one at IIMA) suggest that quantitative anchoring effect may lower CSR spending by firms that are already voluntarily spending more than two per cent or were planning to spend more than two per cent.  Once a legal yardstick of two per cent is created, firms may reassess their CSR activities and anchor their spendings down to match the bare minimum new legal yardstick.

All in all, therefore, government may want to do a rethink on the mandatory trusteeship.  A reconsideration of Friedman, Smith, and Gandhi’s ideas of rules of ethics, moral sentiments, and voluntary trusteeship could be a step towards saving the firms’ CSR from getting trapped in the legal net.

Courtesy: http://profsatishdeodhar.blogspot.com/2017/01/csr-as-mandatory-trusteeship-is-oxymoron.html

Indian Business Models: Business in Ancient India - Prof P. Kanagasabapthi

 Commerce played a great role in making India the universal exporting centre of the economic world in ancient times. Not only was the corporate form used for business enterprises in Ancient India, but also for political and social purposes and went by variety of names-gana, samgha, sabha, sreni and others too.

As India is an ancient nation with a proud economic background, businesses must have existed and flourished since the earlier times. It is relevant to remember that India was well-known in the international business since the ancient times. Agarwala writes: “Commerce played a great role in making India the universal exporting centre of the economic world in ancient times.” He notes that there were commercial cities and trade centres dominated by the merchant class more than five thousand years ago. To quote: “Commercial cities like Harappa and Mohenjodaro were founded in the fourth and third millennium BC. Trade centres had also come up in western India in the fourth and third millennium BC resulting in the domination of Indian society by merchants; these commercial people were instrumental in bringing about the first mercantile revolution. India thus became a great exporting country”.

Apart from the individual and family-based businesses, different forms of organizations seemed to have functioned since the earlier times. Khanna notes: “The earliest Indian writings do make references to organizational forms. The Rig Veda makes reference to the pani (akin to a partnership amongst traders for trade caravans) and the Mahabharata to the sreni.” Evidences indicate that these forms of organizations were known to have existed at least about 2800 years ago. Based on sources, Khanna writes: “… if one uses the most recent dating for the earliest written materials (1500 BC to 1000 BC) then by 1000 BC to 800 BC the sreni and pani were known to Indians.” He notes further that ‘the sreni predates the earliest Roman prototype corporations by centuries’ and it is ‘considerably more complex and detailed than the Roman entities’

It is important to note that the ancient sreni and the modern corporate form of organization exhibit similarities, though they are separated by many centuries. Table 6.1 compares the select characteristics of the modern US corporate and the ancient Indian sreni forms of organizations.

Table 6.1 shows that the ancient Indian sreni form of organization possessed characteristics similar to the modern US corporations. It only shows the capacity of ancient Indians to establish different types of enterprises suited to the growth of businesses much ahead of the times. Besides business, the corporate form of organization was used for other purposes also in the ancient days. “Not only was the corporate form used for business enterprises in Ancient India, but also for political and social purposes and went by variety of names-gana, samgha, sabha, sreni and others too”.

During the period of Indus Civilization from about 4000 BCE to 1900 BCE, there was trade within and outside the country. Khanna mentions that even during this period, “… it does appear that some of the basic pre-conditions for the development of organizational forms were present….” Around 700 BCE, two Indian religions, namely Buddhism and Jainism were founded. Different sources suggest that during this period, “the sreni were numerous, in varied fields, and indeed could be mobile from one place to another. The sreni were clearly important in the society as they were often invited for official state functions. They were also actively involved in trading, production (crafts), and rudimentary banking services by this time. Their importance is further highlighted by the fact that the Bhandagarika (an arbitrator for inter-sreni disputes) became established as a government official” Later during the times of the Mauryan Empire, the state played an important role in regulating the economic activities and “the sreni were a large and growing sector of Indian life”

The Gupta Empire roughly dating from 240 to 550 CE is referred to as “India’s Golden Age.” Efficient administration, scientific and technological developments and contacts of the rulers with the other countries helped the growth of the economy and resulted in a vibrant domestic and foreign trade during this period. “Some estimate that there were at least 150 sreni by this time”. It is reported that the written sources during this period provide detailed accounts of sreni, “… the importance and enforceability of sreni dharma, the mobility of the sreni, the multi-profession sreni, and the expansion of the sreni into various other aspects of life!”. During the post-Gupta period, a number of kingdoms ruled parts of India for around 400 years, and there were wars resulting in the general decline of trade. Around 1000 CE, different parts of North India was subjected to Islamic invasions and about two centuries later South India was invaded. During that time onwards, there were frequent wars within the country to obtain control of different regions. As a result the business suffered and the sreni form of organization continued to weaken.

Agarwala notes that “During the period of Delhi Sultanate, which extended from the closing years of the twelfth century to the founding of the Mughal Empire in 1526, the economic activities in cities continued to flourish despite the decay of the ancient self governing village assemblies. Ibn Battutah, during his travels from 1333 to 1346, found great cities with rich markets in the Upper Gangetic valley, in Malwa and Gujarat, in the Deccan and in Bengal as well as in the Malabar region in the extreme south. He found the ports of Quilon and Calicut in Malabar comparable with Alexandria in Egypt, Sudak in the Crimea and Zaytun in China in terms of their magnificence and the quantum of trade handled by them.”

Bibliography:

Indian Models of Economy, Business and Management (3rd Edition) by P. Kanagasabapathi 

Article courtesy: https://cisindus.org/2022/07/12/indian-business-models-business-in-ancient-india/

Perspective of Mahatma Gandhi and Modern State - Archna Sharma

RRIJM 2015, All Rights Reserved

ABSTRACT

Mahatma Gandhi was the most important political figure of 20th Century. His principles inspired million of people all over World. In Gandhi's assessment the State (Western type) was the symbol of violence in a concentrated form. He learned from his experience in South Africa that excessive power with the State meant more violence or greater amount of coercion. In the name of maintenance of law and order, the South African white government acquired enormous power and this led to the ruthless administration, exploitation and end of individual's liberty. So his philosophy was „anti modernist‟ and opposed the idea of Modern State. Gandhi's critique of the Modern State was central to his political thinking. The case of Gandhiji theory of politics is to show that the citizen is the true political subject and not the State. Gandhi's book „Hind Swaraj‟ give us an idea of Gandhian vision of a modern Indian State. He believed that in the „Ideal State‟ there will be no political state therefore there will be no political Institution and political power. He said in his classical statement "That government is the best which governs least"

1. Introduction

The middle of the 19th century had seen the British become, in effect, the rulers of India. Their control was organised in a bureaucracy that boasted of a tradition of justice and fair dealing in the matters concerning the State and its subject. From the standpoint of administrative theories, there had emerged a Modern State with claims to democracy in India. The basic framework of this modern State was provided by a Rule of Law for the maintenance of public order and a political arrangement, the real motive of which were, however, commercial in nature. A workable basis for this State was provided by a taxation method that was essentially a combination of a tax assessment and tax collection.

Mahatma Gandhi‟s perspective on the theory of the State questions, at the theoretical plane, the very basis of the Modern State. It reflects a growing dissatisfaction with the working of the State and contents its unsuitability for India. Gandhi ji found in the Modern State a System considerably nonadjustable with the socio-economic characteristics of the Indian Society. His study of the functioning of British State in England and in the colonial territory of South Africa seemed to have given him a deep understanding of the theoretical framework of the Modern State and its actual working in a variety of situation. Consequently, he developed an understanding of the Modern State that was profoundly original in its approach and refreshingly analytical in its assessment. These features made possible a model of polity whose guiding principles and functional doctrine constitute an innovative system known as "Swaraj". Gandhiji talks about "Swaraj" in the framework of a code that should determine the constitutional formulation of Indian Home rule. Hind Swaraj signals the need for an alternative approach to civil society beyond Modernism. This approach combines 'Swaraj' with the practical tenents of a non-violent, self contained, grass roots level society. He clearly said “To me political power is not an end but one of the means of enabling people to better their condition in every department of life. In such a state everyone in his own master. He rules himself in such a manner that he is never a hindrance to his neighboure”1 This paper attempt to understand the vision of Mahatma Gandhi on Modern State and some of the principles concerning the theory of the State in consonance with the Gandhiji perspective. It is a clear exposition can be found in Hind Swaraj written in 1909, with its succinct on the Wetern ideals of techno-modernism and its expression of the elements of “Swaraj”. The first section briefly analysis the perspective of Gandhi and the Modern State. Second section discusses the difference between Modern State and India. The third section about the model of polity “Swaraj” with functional Doctrine and understanding of swaraj. The fourth section briefly outlines Liberalism and Trusteeship as Gandhi's novel contribution in the sphere of Political Philosophy.

2. Perspective of Gandhi ji and Modern State

Mahatma Gandhi is widely recognized as one of the most original and influential political thinker and activist of the 20th Century. His perspective on the theory of the state questions, at the theoretical plane, the very basis of the Modern State. The basic framework of this Modern State was provided by a Rule of Law for the maintenance of public order which defined the State as "necessary evil", but welfare promoter. According to Gandhi, the „Western State‟ was the symbol of violence. He strongly believed that the state or the system like democracy can not be final ideal. These institutions are based on political power, therefore, they can only be the means of improving the conditions of people at different level walks of life, but it cannot lead human welfare.

A western state runs on the foundation of the taxation method that is essentially a combination of tax calculation and tax collection. The State, with its stress on commerce and industry, and its emphasis on demonstrable competence, projected a contradictory picture in which the privileged class was favored and the needy ignored. His had a deep understanding of the theoretical frame work of the modern state and its actual working in a variety of situations. Therefore, the State to the „Rule of law‟ and its impact on the society were matters that were very disquieting to Gandhi. Consequently, he presented an original approach to the Modern State.

3. Gandhi's critique of the Modern State

At a basic level, the model of the Modern State was linked to his concepts of non-violence. According to Gandhiji democracy can not be ideal in the form of Institution like State. Institution which are based on political power are only a means to make people comfortable in their daily life but not success to achieve the goal of human beings. An individual cannot be forced to do any work against his will or spontaneous desire. In the other word according to him the progress of society can be achieved only when the individuals perform willingly i.e in autonomy. The concept of autonomy was the key element in his critique. According to him individuality means two things – one that citizens should neither be dominated by others members of the society nor by the State and other idea that individuals should be „self governed‟. He believed that modernity was an obstacle to autonomy since it introduced and justified new forms of domination based on a predetermined, external process of economic productivity. He stated that since „autonomy‟ is absent in the Modern State, hence the objective of self governance also missing in it.

He found that the character of Modern State is too rigid. Another noteworthy feature of Gandhi's critique was related to the intrinsic homogenising tendency of the Modern State. The uniform rules and bureaucratic management were the two principle tools of the State with the help of which a society was governed. In a write up Mahatma Gandhi said “The State represents violence in a concentrated and organised form. The individual has a soul, but as the State is a soulless machine, it can never be weaned from violence to which it owes its very existence”. 2

4. Modern State and India

Modern State and India was an important issue in Gandhi's thought. A close understanding of Modern State and its allied institutions during Gandhi's South Africa days had opened his mind to various questions. Gandhi's case for the incongruity of Modern State in India can be understood by following comparative study:

 Indian civilization is spiritual in essence.

o State is a product of materialistic civilization.

 In Indian culture „Non-violence‟ is deeply ingrained.

o The State is violent character.

 India has a rich diversity of customs, religions and social norms.o The Modern State promotes homogeneity in nature.

 Basically India is a rural country.

o Promotion of urban civilization is the base of Modern State.

 Stratified Indian Society has autonomous and self governing castes, sects and ethnic groups as its constituent units which require a variegated system of governance.

 A uniform system of laws and a set of rules and procedures that ironed out variations was Modern State's unequivocal commitment.

 Indian Society values and is based on direct and unmediated relations between human beings.

 The Modern State is a highly abstract institution.

 Decentralised power structure that could take care of India‟s diversity was needed for Independent India.

 Based on these differences Gandhiji rejected the Modern State as a suitable for independent India.

5. Mahatma Gandhi’s Model of Polity: "SWARAJ"

The concept of Swaraj has received a very prominent place in Gandhi's spiritual, political, social and economic ideas and has been expressed in his writings and speeches. Swaraj generally mean self governance or 'Self rule' and is used as the concept of „home-rule‟ by Mahatma Gandhi. But the world usually refers to Gandhiji concept for India freedom from foreign rules. Swaraj lays stress on governance not by a hierarchical government, but self governance through individuals and community building. Swaraj- the main elements of swaraj autonomy of individual, self-governing, self responsibility and self respect. Gandhi ji strongly argued for the abolition of Modern state which was the English rule. It is swaraj when we learn to rule ourselves, it is therefore in the palm of our hand, but such swaraj has to be experienced by each one for himself. One drowing man will never save another.Formulation of the idea of „Swaraj‟ can be seen in his other writings from young India, Hind swaraj, Harijan and published elsewhere.

Gandhi had envisioned for independent India a polity that would be based on the principle of democratic self - government or self rule. Gandhi opted for “'Ordered Anarchy' under which citizen enjoyed maximum freedom consistent with minimum necessary order.”3 Self governance or Self-rule at a general level carried the meaning of „Swaraj‟. Thus, „Swaraj‟ was a collective goal of the Indians as well as their individual goal and it did not necessarily mean an alternative State or a reformed structure of the Modern State. 'Hind Swaraj is a text where a clear sighted formulation of the idea of 'Swaraj can be seen. This has to be supplemented by Gandhiji‟s views in Young India and Harijan and those published elsewhere.

The main principles of 'Swaraj'

 Non violence was the bedrock of Gandhian ideology, it was obvious that polity was firmly rooted in it.

 Second was the individual‟s autonomy which was equally required for Swaraj

 Self- realization of power to build up courage among its people.

 It was also required in the new polity to respect the Indian society diversity which boost-up Indians.

 Establishment of national unity and end of those things which create differences among people.

 New polity would be in favour of self- governing local communities.

 The importance and requirement regeneration of Indian culture could not be neglected in this new policy.

Gandhi‟s thought that the real foundation of the new polity was co-operation amongst the people. He firmly believed that co-operation of the people, whether active or passive, would lay the foundation of the new polity.He said “ I belive that you want the millions of Indian to be happy, not that you want the reins of government in your hands. If that be so, we have to consider only one thing: how can the million obtain self rule” 4 According to Gandhiji real India lived in village. The functional doctrine of new polity was therefore provided by the famous 'Village republics' of Gandhian conception. The village communities were supposed to manage their affairs through panchayats elected annually by every literate adult. The village panchayat in the model of republic were to have legislative, executive and judicial powers. He believed in strong sense of local strength and solidarity by village panchayat which provide meaning full interpersonal relationship, encourage a sense of social responsibility and the spirit of cooperation and act as a 'nursery of civil virtues'.

In an interview given by Gandhi on 28th July 1946 in Harijan, he said “We must have a proper picture of what we want before we can have something approaching it. It there ever is to be a republic of every village in India, then I claim verify for my picture in which the last is equal to the first or, in other words, no one is to be the first and none the lost.

In this picture every religion has its full and equal place. We are all leaves of a majestic tree whose trunk cannot be shaken of its roots, which are deep down in the bowels of the earth. The mightiest wind cannot move it.”

A. Understanding, Swaraj

Swaraj is a more than basic concept of non-violence since non-violence is only a means to 'Swaraj' whereas 'Swaraj' is an individual's state of being. The concept of 'Swaraj' can be summarized as

 Independence of a country from alien rule.

 Political freedom of the individual.

 Economic freedom of the individual

 Attainment of spiritual freedom or autonomy of the individual.

Gandhiji said “Self government means continuous effort to be independent of government control, whether it is foreign government or whose it is national. Swaraj governance will be a sorry affair if people look up to it for the regulation of every detail of life.”4 He was unequivocal in his recommendation of the non-violent means. “Violent means will give violent Swaraj. That would be a menace to the world and India herself. ” 5

He dreamed of a “casteless and classless society in which there are no vertical division but only horizontal' no high no law, all service has equal status and carries equal wages......... women will enjoy the same right as men. Since we shall be at peace with all the rest of the world neither exploiting, nor being exploited, we should have the smallest army imaginable.”6 The national movement, which was organised in India before his (Gandhiji) entry in the movement suggested that principal objective of the movement was gaining an administrative control of the country. The picture of this movement was clear in his mind before he participated in it. He had written in Hind Swaraj, “In effect it means this: that we want English rule without the Englishman. you want the tiger's nature, but not the tiger; that is to say, you would make India English and when it becomes English. It will be called not Hindustan but Englistan. This is not the Swaraj that I want”7. The autonomy of the individual completes the Gandhian sketch of „Swaraj‟.

He said “The individual ceases to count, what is left of society ? His weariness of the Modern State was also on the count that in it the individual was completely replaced by an abstract complexity -the State, which was therefore impersonal to individual member of society. This autonomy, however, was not an unbridled license for individual will to prevail in all matters.”7 B. Liberalism and Trusteeship: After understang of „Swaraj‟ it become clear that Gandhian theory of the State holds a ground of Liberal perspective. In his view only a federally constituted polity based on vigorous and self governing local communities was truly democratic. The fundamental fact of democracy was the recognition that citizens were self-determining moral agents. The principal objective of democracy was to organise the conduct of collective affairs without any governmental domination.

According to Gandhiji Liberalism was a way of life. „Swaraj‟ describes „true democracy‟. According to Gandhiji, “True democracy cannot be worked by twenty men sitting at the centre. It has to be worked from below by the people of every village.”8

He had elaborated his concept “My notion of democracy is that under it the weakest should have the same opportunity as the strongest. That can never happen except through non-violence. No country in the world today show any but patronising regard for the weak....... western democracy, as it function today, is diluted Nazism or Facism - India is trying to evolve true democray, i.e. without violence . Our weapons are those of 'Satyagraha' expressed through the 'Charkha' the village industries removal of untouchability, communal harmony, prohibition, and non-violent organization of labor as in Ahemdabad. These means mass effort and mass education. We have big agencies for conducting these activities, they are purely voluntary, and their only sanction is service of the lowliest.”9

Gandhiji further wrote in a letter to Jawahar Lal Nehru “The village of my dreams is still in my mind. After all every man lives in the world of his dreams, My ideal village will contain intelligent human beings. They will not live in dirt and darkness as animals. Men and Women will be free and able to hold their own against anyone in the world. There will be neither plague, nor cholera nor smallpox, no one will be idle, no one will wallow in luxary. Everyone will have to contribute his quota of manual labour. I do not want to draw a large scale picture in detail.”10 In the sphere of political philosphy “Trusteeship” is the great and novel contribution of Gandhiji, and it was the economic extension of his political philosphy.

Gandhi ji had a view of „social trust‟ of all material property. The owner of property must not take more than what was needed for a moderately comfortable life. The other members of society who were associated with the property were jointly responsible with the owner for its management and were to provide welfare scheme to all. The owner and the rest of people should regard themselves as trustees of the property. He elaborated his concept about Trusteeship in his editorial saying, “Suppose I have come by a fair amount of wealth either by way of legacy, or by means of trade and industry, I must know that all that wealth does not belong to me, what belongs to me is the right to an honourable livelihood, no better than that enjoyed by millions of others. The rest of my wealth belongs to the community and must be used for the welfare of the community .. ...” He further wrote and opposed Zamindars and ruling Chief,… “ The labourer has to realise that the wealthy man is less owner of his wealth than the labourer is owner of his own, viz, the power to work.”11. The writing of a draft on Trusteeship was the result of long discussion with Gandhiji and a group of socialists. The final text of the draft said:

 Trusteeship provides a means of transforming the present capitalist order of society into an egalitarian one. Instead of the capitalist, it gives the owning class a chance of reforming itself.

 It does not support the right to private ownership of property.

 It does not exclude legislative regulation of the ownership and use of wealth.

 It calls for both a decent minimum living wages and the fixation of a maximum income that allowed to any person in society. The difference between such minimum and maximum income limit should be reasonable, equitable and variable over time.

 Economic production should be determined by social necessity and not by personal whim or greed. He said, “you may say that Trusteeship is a legal fiction. But if people mediate over it constantly and try to act up to it, then life on earth would be governed for more by love than it is at present.”12

6. Conclusion

Thus, we find that in Gandhian perspective state, democracy, Swaraj, non violence, liberalism and trusteeship all are closely connected. Gandhi ji was the great social activist who always make effort for the upliftment of weaker section of society. He believed India is a country of village‟s and its countrymen are economically poor as well as socially. So he advocated swaraj for self development but he believed swaraj- self governing should be come with self responsibility and for economically growth trusteeship is best option. He has deep understanding of theoretical and practical framework of modern state so he always denied its acceptance for the India and developed his theory for the build up a good nation-India. Gandhiji strongly advocated swaraj and trusteeship, for him the well being of every individual consists in swaraj and trusteeship is the west mean to attain the ends of capitalist which insure the autonomy and liberty of individual.

Author is Asstt. Professor, Economics, Sahu Ram Swaroop Mahila Mahavidyalaya, Bareilly Uttar Pradesh (India)