‘War machine props up the market'

D. Murali | Updated on April 08, 2011

Chennai: 05/04/2011: The Hindu: Business Line: Book Review Coloum: Title: The Music of Business, Corporate Social Responsibiliity and the Transformative Approach. Author: John Alexander and S. Venkatraman.

Chennai: 31/03/2011: The Hindu: Business Line: Book Value Column: Title: Eco Yatra, treavversing the Path of India's Economic Change for the Last Six Decades. Author: Prosenjit Das Gupta.

super boom

The short message of Super Boom: Why the Dow will hit 38,820 and how you can profit from it by Jeffrey A. Hirsch ( is that the peak will be reached by 2025, following a decade of wars in Iraq and Afghanistan.

The author takes up the question, ‘What makes the market range-bound during wartime and rise during peacetime?' and says the answer is inflation. “The government empties the treasury during a war. It also focuses on foreign issues rather than domestic concerns and the economy. The result is a sustained rise in inflation. Only after the economy settles down and Washington refocuses on domestic issues will the stock market soar to new highs,” he reasons.

One of the four tenets of wartime markets that Hirsch lays down is, ‘The war machine props up the market.' After the initial shock of a new war, the market forms a floor near the pre-war low, he explains. “The combination of government spending, investor bargain hunting, and good old American pride help insulate the market from breaching that pre-war low.”

BRIC boom

The next boom may actually be sparked in the BRIC nations, viz. Brazil, Russia, India, and China, as they have the money, the young and ambitious populations, and the inflation necessary to spark invention, the author foresees. The rest of Asia and the Middle East, Latin America, as well as Africa are fountains of growth as well, he adds. Stating, for instance, that as government initiatives make investments in alternative energy and off-the-grid solutions become more cost-effective, innovation is bound to materialise, Hirsch predicts that outfitting the planet could generate a boom. “

As for biotech, his view is optimistic because of all the health issues and enormous costs that exist. ““Cures as opposed to treatments for diseases such as cancer, AIDS, heart disease, or diabetes would change the lives of countless people around the world, create jobs, and generate commerce.”Bullish read, though 2025 may seem far away.

Economic growth model

Incremental capital-output ratio or ICOR has been one of the persistent preoccupations and subjects of debate among economists in India for nearly forty years, observes Prosenjit Das Gupta in Eco-Yatra: Traversing the path of India's economic change for the last six decades ( For starters, ICOR, calculated as annual investment upon annual increase in GDP, is used predominantly in determining a country's level of production efficiency, as instructs.

This basically comes down to a choice whether it would be better for the country to invest Rs 1 lakh and get an additional output stream of Rs 50,000 per annum for 10 years, or would it be better to go for a yield of Rs 35,000 per year for 15 years, the author illustrates. He is not happy, however, that the decision-making in the country often failed to examine and identify the operational mechanisms by which the investment turns quite fruitless. “From the Olympian heights at which the planners often worked, these operational details seemed insignificant, or worse, irrelevant. The devil was in the detail.”

Fruitless investment

The book cites Dr Sukhamoy Chakravarty, who highlighted the relatively high level of ICOR in practically every sector in India, be it agriculture (where it ranged from 2.18 during 1951 to 1960, to 3.17 by 1983-84) or manufacture (where the range was from 4.47 in the 1950s to an unacceptable 14.36 in 1983-84). “In other words, it would take Rs 3.17 investment in agriculture in 1983-84 to get an additional output of just Re 1; or Rs 14.36 investment in the 1980s in manufacture to derive an additional output of Re 1.” It was as if the country had to run faster to stay in the same place, the author frets. In spite of the heavy public investment for three decades, the sectoral rates of GDP growth remained what may politely be termed modest, he notes.

Newer benchmarks

Thankfully, with a liberalised thinking came to the fore newer benchmarks such as return on capital employed, earnings per share and so on. “More people were realising that economic decisions were not risk-free, and the old practice of pointing the finger at government for every error or judgment, and expecting government to bail out for every such error, was no longer applicable…”

Suggested study for the finance professionals.

Transformative CSR

It is wrong for managers to pit the interests of a company's shareholders against the interests of other stakeholders such as employees, customers, and community, and to think of successful management as making skilful trade-offs between the two. Thus write John Alexander and S. Venkataraman in The Music of Business: Corporate social responsibility and the transformative approach (

They remind that a good manager is one who thinks of fiduciary responsibility not just in terms of maximising profits for shareholders only, but as one who can take care of the interests of various stakeholders, including the development of the community and environment.

“This implies that sometimes managers must be prepared to turn down profitable offers and lose money in the short run when such offers fail to pass responsibility tests.”

‘Strategic CSR'

What causes anguish to the authors is the malaise of viewing ‘corporate responsibility' from a profit perspective. “For some time now, many managers and executives have cultivated the habit of asking, ‘What is the cash value of CSR?' ‘To what degree can CSR engagement contribute to the bottom line of my business? So much so, some leading management thinkers have been encouraging companies to engage in what is called the ‘strategic CSR.'

Such an approach, as the authors caution, is the result of an instrumentalist mindset which assumes that what is fundamental to a business organisation is profit maximisation, and ethics and responsible behaviour is instrumentally useful inasmuch as it contributes to this goal.

They, therefore, urge companies to grow out of this instrumentalist mindset and embrace ‘the transformative approach.' Educative reference.

Published on April 07, 2011

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