The Hindu Business Line : SEZs – dream or nightmare?

Special economic zones are sparking opposition because they leave the vast majority of people out in the cold. Here are some ways to make them achieve inclusive development, socially and economically, says P.V. INDIRESAN.

In previous three articles, I pointed out several limitations in the manner in which special economic zones (SEZs) are being implemented. Over-emphasis of the bottom line is the main reason for such flaws.

Treating the bottom line as the sole measure of business success is similar to the way we measure poverty by a poverty line. Just as poor people are identified as those who are Below Poverty Line, only those businesses that are below the Below Profit Line are deemed unviable.

When I started this series eight years ago, I suggested that prosperity and poverty should be measured not in terms of income but by the extent to whichMaslow Needs are satisfied. On the same analogy, the health of a business should be measured not simply by the Bottom Line but by a series of lines that correspond to Maslow Needs of business — the Safety Line, the Goodwill Line, the Freedom Line, the Environmental Line and the Innovation Line. No business that is below any one of these lines is truly viable.

No inclusive development

Wherever disparities are intolerable, the Bottom Line does not guarantee security. Conversely, insecurity is inevitable where disparities are high, particularly when they emerge suddenly. People do get inured to slow deterioration — the way we accept gradual urban congestion — but not its sudden imposition.

SEZs commit both these mistakes: They increase intra-rural disparity; they increase it suddenly. They make some landowners suddenly very, very rich and leave others in the cold. They do so overnight and not gradually over several years. That is why they have invited as much violent opposition as they have.

SEZs are flawed because theirs is not inclusive development. SEZs stop at offering monetary compensation to the directly affected. Unfortunately, offering monetary compensation to the indirectly affected opens up a Pandora’s Box: It creates insatiable demands from millions of others for similar benefits.

Suppose compensation was more in the form of social/ municipal goods (education, healthcare, protected water supply, sanitation, connectivity, recreation), suppose they are made accessible to all, and at affordable prices rather than lots of money for the select few. In such a case, would there have been any public outcry against SEZs? Would SEZs not have been warmly welcomed?

Businessmen may ask the question, ‘am I my brother’s keeper?’ They will say ‘my core competence is running my specialist business, not establishing or managing schools, hospitals, buses, municipal services and the like.’ The shrewd businessman will add, ‘I pay my taxes (even if it is as little as possible!) it is for the government to look after social welfare.’

Another angle to argument

Let us look at the issue in a different way. The same businessman will expend a lot of his resources in developing his vendors. Whatever that may cost will be treated as investment, which will yield not direct but indirect dividends. If that argument applies to vendors of physical materials, should it not apply also to schools who are vendors of human materials?

Businessmen complain that the education system has gone moribund, that it does not produce usable material. Those that are usable are so few that they have to be paid astronomical wages. Even then they have no loyalty.

In the matter of labour loyalty and mobility, experience all over the country has demonstrated that employers who ensure quality social/municipal services for their employees enjoy a high degree of employee loyalty. Employees who reside in company towns hardly ever skip one job for another. On the face of it, company towns are outside core competence; they should damage the bottom line. Apparently, social/municipal services can be managed, and managed without hurting the bottom line.

SEZs would do well to consider extending the facilities company townships offer to their employees, to neighbouring villagers. Then, the supply of high-quality human material increases. By the law of supply and demand, the price of human talent decreases — wages become more reasonable.

Considering how expensive it is to find and recruit talent, organising quality social/municipal services should, therefore, be valuable, even if indirectly. Therefore, extending social and municipal services to neighbours is an investment, not expenditure.

Taking the cue from hospitals

However, the question remains whether that investment is affordable, particularly when the beneficiaries may not repay the investment made in them. The problem will not arise if the desired services are operated on a no-loss, no-profit basis. In that case, extending the facilities becomes merely a management problem, not a money problem. Several hospitals in India have demonstrated how the poor can be included in high-quality services on a no-loss-no profit basis. They do so by operating the way railways do — providing multiple classes of service. Basically, three types: cost-plus, cost-equal and cost-minus. The rich get luxury services and pay more than what it costs to provide the luxuries; the poor get the basic essentials and are charged less that what that costs, at times even enjoy services free. In the case of hospitals, such a plan is simple to devise; the rich stay in special wards and the poor in general wards.

In the case of schools, we can think of a morning shift where fees are full cost-plus and evening shifts where only marginal costs are charged. The surplus from the cost-plus charges can be used to provide scholarships for those who cannot afford even the marginal costs.

To sweeten the higher charges for cost-plus students, the excess may be credited to a recognised charity eligible for tax rebates. That arrangement has two benefits: tax rebates are always welcome; it guarantees that the excess is not misapplied and will surely reach the poor.

Similar arrangements may be made for bus services too: Have a ‘cost-plus sitting-only section’ in front and ‘marginal cost-equal standing-only’ section at the back. Further, during off-peak hours, the fares may be lower still; may even be free for standing passengers. Similar schemes can be devised for municipal services too for including the poor.

Company towns are run by the employers directly. When neighbours are included, it is best to outsource services the same way supply of physical materials is outsourced to vendors. Just as businessmen support vendors by guaranteeing them an assured market, in this case, employers guarantee an assured market to schools, hospitals, dwellings and transport services. They do so simply by treating all those services as employee perquisites, as part of the wage package.

Considering what a hassle it is to secure admission even to nursery schools, how difficult it is to secure residential accommodation, and how unsatisfactory medical services are, employees will welcome a guaranteed supply of such services. IITs have never had any problem with employee turnover even though the salaries are modest. That is because IITs provide all these services.

Amendments to system

Inclusive development, including neighbouring villagers in the scheme of SEZ, requires a few amendments to the well-established system of company towns: (a) social and municipal services are outsourced to specialist vendors; (b) vendors extend their services to non-employees on a no-loss, no-profit basis, (c) employers guarantee service vendors a minimum customer base by treating their services as employee perquisites, and (d) preferably, employers operate co-operatively and not in isolation.

The SEZ was expected to be a businessman’s dream. It is turning out to be a nightmare. It would have remained a dream if only businessmen had cultivated people as much as they cultivated politicians.

SEZs concentrate on money. Unfortunately, money is no good for buying peace.

(Concluded)

This is 206th in the Vision 2020 series. The previous article was published on July 23.
(The author is a former Director of IIT Madras. Response may be sent to: indiresan@gmail.com)

More Stories on : Infrastructure | Vision 2020

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Aspects of the 123 accord

Survival tactics

SEZs – dream or nightmare?

Leadership lessons from ‘Dear Bapu’

Know the organisation you head

Playing the capitalist game

Capital punishment for corruption?

SEZs: Removing misconceptions

Disposal of plastics