Private enterprise, no panacea for scams

A massive fraud in a public sector bank has ignited a call to privatise all Indian banks. However, the many scams in private hospitals and medical colleges in the country should challenge the presumption that private owners would do the right things in the public interest. Nor should one forget that huge frauds in the financial sectors of other countries, which caused grave public harm, were in institutions of the private sector. And, in India, the counterparts in the banking frauds are corrupt private sector business organisations.

It is unlikely that the conversion of publicly owned enterprises into privately owned ones will, by itself, reduce the rot and create enterprises that serve the public good. The fundamental problem is in the design of the enterprise, regardless of who the owner is.

A question of value

Ideologies of public versus private cloud the clarity required to design a good enterprise. Moreover, the design of a good enterprise must be based on ethical considerations, not merely concerns of efficiency. An enterprise that serves public purposes best may not be the one that produces the most profits or increases its shareholders’ wealth the most. However, these are the yardsticks universally applied to compare enterprises and to measure their worthiness.

The most financially valuable enterprises in the world today are technology stars—Alphabet, Amazon, Facebook, and Apple. Questions about ideology and ethics are being raised to assess the impacts of these enterprises. Technology is expected to be value neutral. However, it has great power to change the world. Should this technology be controlled by private owners? What will they use it for? Should not the public have an over-riding voice in the application of technologies that can profoundly change the nature of societies? These issues, about the design and governance of institutions, whether privately or publicly owned, require ethical solutions. Indeed, such are the issues that require urgent solutions for the governance of the internet, the regulation of social media and artificial intelligence. And, in India, the spread of Aadhaar and the digitisation of public services. Technology, by itself, cannot be the answer.

Computers powered with AI are becoming capable of doing anything that humans can do. They have defeated human champions in games of chess and Go, among the most complex competitive games human beings play, which require immense brain power. They can also drive cars through traffic. Moreover, the most evolved AI systems even have the ability to learn by themselves how to become smarter. Researchers find that, nevertheless, machines need human guidance to tell them what the purpose of the game is. Intelligent machines can go berserk.

Right and wrong

A story in The New York Times , ‘When Robots Have Minds of Their Own’, by Cade Metz reports a conversation with a researcher at AIOpen, an artificial intelligence (AI) lab in San Francisco founded by Elon Musk. Metz says, “The (researcher) showed off an autonomous system that taught itself to play Coast Runners, an old boat-racing video game. The winner is the boat with the most points that also crosses the finish line. The result was surprising: the boat was far too interested in the little widgets that popped up on the screen. Catching these widgets meant scoring points. Rather than trying to finish the race, the boat went point-crazy.”

“In some ways, what these scientists are doing is a bit like a parent teaching a child right from wrong,” says Metz.

Trust in business leaders (in both, the public and private sectors) has been declining, according to the Edelman Trust Barometer, an annual survey of citizens’ level of trust in institutions and their leaders. Some leaders in the business world have realised that businesses cannot carry on the way they have, taking shelter behind the ideology that the business of business must be only business. Laurence D Fink, founder and chief executive of the world’s largest investment firm, BlackRock, has spoken up. BlackRock manages more than $6 trillion in investments. Fink has written to the leaders of all the firms BlackRock is invested in, that their companies need to do more than make profits — they need to contribute to society as well if they want to receive the support of BlackRock.

In his letter to them, he says, “Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”

The design of anything — a building or an institution — begins with clarifying the purpose it must serve. A building to serve the purpose of a museum should have a different design from a building whose purpose is to provide comfortable living spaces for families. Similarly, an enterprise whose purpose is to produce public good must have a different design from an enterprise whose principal, and perhaps only, purpose, is to produce profit and wealth for its owners.

Owning responsibility

Owners and managers of enterprises must take responsibility for the impact of their enterprise’s conduct on the conditions of societies and the environment. Enterprises and institutions are not merely buildings. They are combinations of capabilities, processes, and norms that enable them to fulfil the purpose of the enterprise. A popular management dictum is, ‘You can only manage what you measure’. Therefore, business enterprises must measure, and be accountable for, the all-round contribution they make to society, and not merely the shareholder wealth they create and the profits they make, which are the predominant, if not the only measures by which they are judged in the business media.

Finally, as Mahatma Gandhi, who supported private business, said: to earn society’s trust, businesses must behave like trustees of a society’s wealth, and not as owners of it.

The writer is a former member of the Planning Commission. Via The Billion Press

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