Don't Leave it to the Government

In a recent speech Narayana Murthy suggested that capitalism is the only way to alleviate poverty, however it should be 'compassionate' capitalism rather than a hard nosed approach.He even went on to suggest increasing the corporate tax from 30% to 50% to fund the development of the poor.And even though the intentions are to lessen to reduce the suffering of the poor, the results may not be the same.We have always seen how the government inefficiently utilizes tax-payers money.

An excerpt from Milton Friedman's speech so appropriately conveys this:

The difference between the government sector and private sector is not in the people; it is not in the incentives.It is in what it is in the self interest for different people to do.In the private economy, so long as we keep a free private market, one party to a deal can only benefit if the other party also benefits.There is no way in which you can satisfy your needs at the expense of somebody else.

In the government market, there is another recourse.If you start a program that is a failure and you are in the private market, the only way you can keep it going is by digging into your own pocket.That is your bottom line.However, if you are in the government, you have another recourse. With perfectly good intentions and good will nobody likes to say "I was wrong" you can say, "Oh, the only reason it is a failure is because we haven't done enough.The only reason the program is a failure is because we haven't spent enough money on it."

And it does not have to be your own money.You have a very different bottom line. If you are persuasive enough, or if you have enough control over power, you can increase spending on your program at the expense of the taxpayer.

That is why a private project that is a failure is closed down while a government project that is a failure is expanded.

On the same day I saw a typical government ad (with ministers, party etc boldly mentioned) covering generous ad-space, proudly announcing the "resurgence" of a sick chemical fertilizers public company at the cost of some 400 crores.What one does not know whether the reasons for its failure have been thoroughly ascertained before revival.The large amount of fund lying underutilized by the BMC are signs of their inefficiency.

And so i think industrial philanthropy (and taxes - though they are mandatory) through government wont have equivalent results.A much better method would be education, training and employment of the poor by the corporates themselves i.e. training poor kids with a view to employing them in the same company for future.

"Empowerment" through opportunity and not "Empathy" through donations is what is required.