Mahatma Gandhi Was Wrong

Lawyer, teacher, and civic leader, whose initiative is greatly valued here and abroad, LELAND HAZARD was invited by the Ford Foundation in early 1963 to go to India to counsel the Minister of Steel, Mines, and Heavy Engineering on ways and means to extricate the state-owned steel and fertilizer plants from governmental red tape. Since that time, Mr. Hazard has made two additional visits to India and has spent more than five months there.


AFTER three trips to India in the past year and a half and almost six months as a consultant there to India’s Minister of Steel, Mines, and Heavy Engineering, I venture to discuss the question, Can a socialistic type of economy in India have good management in its public-sector plants? To keep the record straight, we must remember that India’s economy is mixed. Private enterprise on a large scale exists alongside government-owned enterprise. For example, steel has been produced in India for fifty years by a unit of the huge Tata industrial complex. This company and another privately owned iron and steel company account for about one third of India’s six-million-ton capacity today.

There is no serious talk of nationalizing India’s private-sector steel plants. Rather, the planning calls for expansion of both sectors with a target total production of eighteen million tons by 1971. Herein lies an index to the relative economies of India, Russia, and Red China. Today Russia’s steelmaking capacity is ten times, and Red China’s more than three times, that of India. The disparity in favor of Russia, with less than half the population of India, will remain great for a long time. And in the case of Red China, even with the disadvantage of its population (estimated soon to reach 750 million to India’s 500 million), India will have difficulty in closing the per capita gap which so preponderantly favors the Chinese.

In these figures also lies the explanation of India’s effort to accelerate her rate of economic growth by governmental investment in some key industries. The stakes are very high. The Chinese threat of invasion continues. India, which is the largest democracy in the world and the most influential free nation in Southeast Asia, intends to remain a democracy. Its economy is incredibly poor. Per capita income is a bare $70 a year. A recent World Bank report estimated per capita consumption expenditure at $1 a week. It is said that 65 percent of the Indian people go to sleep hungry every night. Agricultural methods are primitive. With very few exceptions, the bullockdrawn plow is wooden, of centuries-old design. Cow dung, gathered and formed into thin, platesized cakes by female hands, is dried for use as fertilizer or fuel. The 550,000 villages are still divided by the castes of the ages, despite the Indian Constitution, which makes a gesture against castes but, anomalously, to an American mind, protects the cow. The government-owned Ashoka Hotel in New Delhi, sometimes called the finest hotel in the East, serves no beef, and cows do wander imperiously in the busiest streets of Calcutta.

India contains one seventh of the world’s population. All hope for improving their lot lies in industrialization. That means, among other basics, steel for everything from plows to ships, and fertilizers to increase the food supply for a growing industrial population. A comparison will tell the story: in America one farmer produces food for himself and about twenty-five people; in India the village agrarian population is four times the city industrial population. Thus it takes four farmers to support themselves and one nonfarmer.

There have been great agrarian societies, but in modern times, in which one century produces more population than was produced in all the millennia before Pasteur, the great societies are industrial. It is a modern axiom: industrialize or die. Steel, machine tools, more energy, heavy electrical equipment, fertilizers are absolutely essential, whether they are procured through capitalism, Communism, or Mr. Nehru’s somewhat preciously differentiated “socialistic pattern” of democratic economy.

But the road to industrialization for India will be long and hard. Today India’s installed-power capacity is but one percent of that in America. I have taken some long nighttime drives in India, disputing the precarious roads with bullock carts, their drivers asleep. If any of the innumerable villages on our route had electricity, it would be only because a power line chanced to pass that way on its path to some industrial plant, and then but a single bulb, at once proud and pitiful, faintly illuminating bits of the ancient mud walls. Ironically, a Chinese proverb fits India’s case: “A journey of a thousand miles begins with one step.”

IT TAKES more than resources and energy to make an industrial economy. Management is a prime requirement. And, like the professions of law, medicine, engineering, and others, management ensues from decades of experience, training, technical writings, and scholarly attention to the scope and confines of the managerial discipline. Such decades were missing from India’s history when in 1948 Nehru’s Congress Party decided that India should industrialize in large part by the government-ownership route. There were no schools of management education worth mentioning, and there was no class of practicing managers. No Indian Henry Ford had ever tooled up to make a poor man’s automobile.

Curiously enough, one of the roadblocks to industrialization in India is its internationally respected Civil Service. This elite cadre of welleducated men, experienced in governmental administration, is, with notable exceptions, imbued with the conviction that administration is an end in itself and that the administrator is competent to practice administration on whatever comes to hand, whether it be steelmaking, tax-collecting, or keeping the peace. Because of the absence of a management class, the Indian Civil Service was a boon in the crash industrialization programs of a decade ago. But for continuing management of steel or any other industry it is far from adequate. Some of the reasons are inherent in the Indian parliamentary system.

In the United States if we were to embark upon vast government-owned industrial works (a violent assumption), we would create an appropriate Cabinet post, man it with an experienced industrialist, assure him a free hand, and leave him in charge as long as he would stay or until he began to fail. In India only members of parliament can hold cabinet posts. Thus an industrial post in the cabinet cannot be manned by an industrialist except in the rare case in which an industrialist has also practiced politics and has been elected to parliament.

Even so, he will not have a wholly free hand because other cabinet members, the Minister of Finance particularly, have jurisdictions which cut across the functions of the industrial ministry. Compounding this situation there may be a complex of political rivalries and ancient feuds among the participating ministries. For example: A given minister charged with an industrial responsibility must have entire cabinet agreement in the appointment of even a single plant general manager. There are well-known cases in which the right man could not be appointed to an industrial post because a single cabinet minister, only collaterally involved, objected, and on irrelevant grounds.

Then there is widespread distrust which beclouds many public figures and organizations in India and which significantly influences administrative behavior. Whether it is a promotion, however minor, or a purchase, however insignificant, procedures exist which are supposed to prevent nepotism or favoritism or corruption. For the most part these excessive precautions delay and frustrate executive action. When an organization knows that a plant executive is hedged about with regulations grounded in distrust, it cannot afford him the respect, loyalty, and discipline so essential to industrial production. Yet the same politician who piously insists that there must be elaborate safeguards for the public rupees invested in industrial enterprise will himself intervene to secure a job for a member of his family, caste, community, or party, or demand an explanation of why a certain worker was hired or promoted, or why the purchase order was placed here rather than there. A certain amount of this sort of nonsense goes on in any country where government touches enterprise — America not excepted — but in India, political interference at the worst or inordinate bureaucratic surveillance at the best infiltrates every nook and cranny of industrial administration.

Two errors of ideology account in large part for the blighting bureaucracy in India’s governmentowned enterprise. First, there is the delusion that the government is not in business for profit. Second, there is the delusion that the taxpayers’ rupees are more sacred than private funds and therefore that decisions in public-sector enterprise must be impeccable. Both errors lead to administrative confusion and frustration.

Take the attitude toward profit first. It is argued in India that because profit is not an objective in public-sector enterprise, correctness in decisionmaking and efficiency in management must be assured by a multiplicity of checks and balances, called, for short, pre-audit and post-audit. “But,” I would say, time and time again when that argument was raised, “you are in business for profit. Unless you get back your costs of operation, plus enough to return your capital in a reasonable time, plus enough to expand the enterprise to meet, in part, increasing demands, you are not in enterprise; you are merely using the taxing power to produce goods.” Even such a good and tolerant friend of India as John Kenneth Galbraith called the Indian pretense at enterprise without profit “post-office socialism.”

Of course there are always special considerations, such as national defense, even national prestige, which may temporarily justify uneconomic production. But in general, a nation which produces goods and services at costs higher than the world’s lowest costs (due allowance being made for availability of raw materials, equipment, skills, and transportation) will waste and finally exhaust its resources. To put it another way, a nation which seeks to industrialize must set for itself those standards of efficiency and productivity which are global, or fail. No nation can be an industrial island.

But how do you determine profitability? In a free market economy, such as the American, prices are determined inexorably by competition. The enterprise must survive within such prices, keeping its costs low enough to return an excess over operating costs sufficient to recover capital, renew facilities, expand, and pay the rent of the capital, called dividends. If this does not happen, the enterprise fails. In Indian governmental enterprises the fundamentals are the same, but many factors are different. Take steel as a case in point. Prices on basic items are fixed by government. If the price is kept low, then a large user of steel like the government-owned railways will profit more and the steel industry will profit less. But even if no prices were fixed by government there would still be a problem of determining profitability. The public-sector plants must, whenever feasible, acquire their iron ore, coal, and power from government-owned suppliers. Each of these public-sector suppliers is interested in showing a profit. (This is a fact about both Communism and socialism. Regardless of theory, in practice the profit quickly becomes the measure of achievement.) Hence the price at which one governmental producer sells to another becomes a matter of political logrolling.

I now come to the second major Indian error: the idea that taxpayers’ funds invested in productive enterprise call for special protections. Why? Is not the widow’s mite, invested in some private enterprise, as inviolable as the taxpayer’s rupee invested in an Indian steel plant? I think so. Enterprise involves all kinds of risks: errors in technology, failures in sources or quality of raw materials. failures in managerial calculations, occasionally managerial stupidity or corruption. But India believes that there can be bureaucratic procedures for completely avoiding these risks.

There is the assumption that there is some sort of omniscience in the Ministry of Finance which entitles even the lowliest clerks in that ministry to pass upon the propriety of the expenditures of some other ministry. The fact that parliament has approved a budget for the public-sector steel industry, for example, matters not at all. There are many absurd cases. One, known all over India, is the case of a requisition for four stopwatches, a requirement which any industrial engineer would understand instantly. But in India, before the order could even be placed, thirteen months and eightynine procedural steps were required. At one point some clerk in Finance inquired of the factory, “Why a stopwatch? Why don’t you use an ordinary watch?” Such a procedure is called prior financial concurrence. One director of a research laboratory told me, “When we conceive an experiment which requires special equipment we order it, but after the delays in Finance it will be two to three years before we get it. By that time we are so engaged in something else that we can’t do the experiment, even if we could remember what it was to be.”

Another procedure, abortively intended to produce infallibility in public-sector management, is the post-audit. This is conducted under the auspices of the Indian Auditor-General, who maintains a corps of his representatives right in the plants. This audit is not confined to financial accounting. (The financial audit is done by chartered public accountants selected by the Auditor-General.) Rather, it is a device for secondguessing management. The resident auditors snoop through files or cock their ears for corridor gossip hoping to find some fancied mistake of management, the report of which will justify their existence. These auditors are usually ignorant of the industrial processes they audit; otherwise they would be drafted, in a management-scarce society, to manage. They ask some absurd questions, which would be highly amusing except for the drain they make on precious executive time. There is the case of an audit clerk who noticed what he thought was excessive consumption of gasoline on a given Indian airline run. In response to his inquiry, the pilot replied cryptically, “I lost my bearings.” Whereupon the auditor triumphantly demanded, “What action have you taken to write off the loss of your bearings?” The real irony of the story is that in the audit clerk’s zeal to uncover some infraction, he could not pause long enough to remember that the word “bearings” is not only one which describes a physical part in an internal combustion engine but is also a navigational term.

There is one other poignant factor which makes for bad management in India: overeducation. There is a blind faith which drives young Indians to seek release from the poverty and misery of the Indian ages by education. But in a still relatively stagnant economy, job opportunities are not available to match the aspirations of the ever-mounting surge of graduates who find their diplomas no open sesame. This means that selections and promotions in industry are keenly watched and are hedged about with a complex of selection boards, appeals, and delays.

In India this is called equity. As a result, a given manager has little to do with the composition of his organization. Higher governmental authority may promote a man away from a manager without prior consultation or may impose upon a manager a person he does not need or want. Now, a manager of any industrial unit, whether it be a gang of a dozen or a factory of thousands, who does not have a high measure of authority in the selection, promotion, and discharge of the personnel under his jurisdiction cannot have the discipline necessary to efficient production. Professor Max Millikan of M.I.T., speaking before the Federation of Indian Chambers of Commerce and Industry last August, put it bluntly, “At this stage of the Indian economy production must come ahead of equity.” I put it to my Indian friends another way: “You have to make steel before you can make a perfect world.” But such homilies are really useless.

Most Indians, whether those at the top of the system or those who are its grievously put-upon victims, will agree with even the most critical analysis. Indeed, India is full of devastating commission reports which “greatly pleased” Mr. Nehru or some minister but which produced no action. Some highly placed Indians will say dejectedly that the system is too deeply rooted for change.

IT MUST be apparent by now that even if the members of the Indian Civil Service or of the several other governmental Services were equipped by experience, specific training, and temperament to manage industrial enterprise — and, in general, they are not — the system would defeat them. And there are two more factors which would defeat them even if the system were not enough.

First, the gentlemen of the Services are deputed for specific management tasks. This word “deputed” is significant. It means to appoint one as a substitute, agent, or representative. So, when a Service deputes a plant general manager, it means that the Service, not the general manager, is running the plant. It follows that a deputy can never fail. He knows, and, worse yet, his whole organization knows, that although presumptively he has authority and responsibility, he is not committed to his plant enterprise for better or for worse. No one in his organization owes him loyalty for the good and sufficient reason that he himself has burned no bridges. He can always retreat into the womb of the Service from which he emerged. One plant which I know well had seven general managers in about that number of years.

There is one more fatal defect in the system. If the Service is to be, indeed, the managing agency for India’s public-sector industry, there will be a high degree of centralization. Steel plants, for example, hundreds of miles from Delhi, will be, in the last analysis, managed from Delhi, where the senior civil servants are located. In fairness I should say that Delhi has tried to make broad delegations of authority, but the logic is inevitably the other way. A junior civil servant at a steel plant in the provinces expects some day to be a senior at Delhi. He therefore makes sure, despite his authority, to remain deferential and above all to keep his record free from criticism. The best way to do that is to make as few decisions as possible. Let someone else make them. The system makes mice of managers.

A highly centralized system of management can work if communications — telephone, telegraph, direct tie lines — are good. But communications in India are not good. A telephone call spanning a distance of a few hundred miles often takes several hours. I once tried six times in three days to reach Delhi from Srinagar, the summer capital of Kashmir. The connection failed completely four times, and twice when completed the line was so noisy that the conversation was unintelligible. Even the mails are uncertain. Once I received in Calcutta a letter mailed ten days previously from Delhi, only three air hours away. Under such conditions there is no choice but to give local management a high degree of autonomy. But this fundamental is not understood. Instead, mountainous files lumber back and forth, and decisions which should be made within hours or days require months.

What could be done with an Indian industrial tragedy in which, as in a Greek tragedy, all the conditions of failure are built into the situation ab initio? First, and again incongruously, the spiritual solution was contained in a Chinese proverb: “It is better to light a single candle than to curse the dark.” On my first trip in early 1963 I refused to write a report, which would have simply given Indians the satisfaction of agreeing with me — and then, in their curious masochistic psychology, an excuse for nonaction. Second, in the minister and some of his highly placed associates, I found men thinking outside the mainstream of Indian tradition. I outlined a program of action and invited all concerned not to ask me to return unless the program was to be launched.

I did go back for the hot, monsoon-drenched summer of 1963, and again last January. We did light a single candle: the minister, his associates and the senior Civil Service secretaries, who dealt apprehensively but tolerantly with my blunt prescriptions, and I. At Durgapur, one of the publicsector steel plants, the minister installed a British steelmaker who had twelve years of experience in India as a general manager. The minister issued to the Indian parliament a statement of a new management program which was editorialized by a leading Indian newspaper as “wise and bold.” In general the program for Durgapur emancipated that plant from the system. The authority to appoint, promote, and discharge was localized; authority to devise autonomous pay and bonus schemes was granted; purchases were freed from pre-audit; authority to go outside the Services for a commercial manager and other officers was granted; the functions of the financial adviser were reduced to a staff nature; approval for plant schemes to reduce excessive leave, absenteeism, and overmanning was granted: and a special officer was delegated to take the brunt of the Auditor-General’s inept and fruitless questions off the backs of operating executives of the plant.

My analysis has demonstrated the need for a class of managers committed exclusively to enterprise. But no such class for public-sector enterprise exists. The next question is how to get it. Better pay for public-sector managers and fringe benefits keyed to individual enterprises, not to the Services — these are the urgent needs.

The Ford Foundation, at the request of the Minister of Steel, Mines, and Heavy Engineering, will provide a team of persons experienced in top management and staff services, particularly in industrial accounting and personnel practices, pay scales, and retirement plans. This team will be available in India for an extended period.

A small group of determined and sophisticated Indian men is gathering around the minister. With liberal help from the Ford Foundation three of them have now been in the United States at advanced management schools: Carnegie Institute of Technology, M.I.T., and the University of Pittsburgh. They have had not only the benefit of the courses but also the experience of living for weeks in close association with American and international managers. High-level officers of American steel companies have been generous in receiving them for technical discussions at both headquarters and plant levels. These younger men make a hard core of managerial sophistication in India.

A parenthesis belongs here. There are some good managers in India. And there is rather widespread knowledge of management theory. But the good managers in the public sector must function despite the Indian system, and the theorists, for the most part, can but bewail a fate which dooms them to knowing better in a system which will not permit them to practice what they know. In the end the system of management by the Services must go.

Without industrialization India will sit in her changeless villages awaiting the next conqueror. I say this despite important public and private programs for improving agricultural productivity and village life. But improved agriculture and village life are not in themselves enough to save India. On the contrary, when industrialists drive the snakes out of the paddies and put up a steel, fertilizer, machine tool, or heavy electrical plant, a whole new community of twenty, fifty, a hundred thousand people is created in two or three years. The housing is all new; there is a spigot, a shower, and a “flush” in each dwelling (no more living behind mud walls and sharing the village well for bathing, washing, and drinking). There is a clinic, hospital, school, shopping center, and community center. Teachers, doctors, and social workers are recruited. The plant executives organize a club. After a while, a swimming pool is built. The wives organize plays, dancing, and the arts. In the plants, caste must yield in the end to merit, and by that process, and that only, will the caste system end.

It is industrialization which will drain enough people from the stagnant villages and build for India a new society. Mahatma Gandhi was wrong. The future of India is not in its villages, spinning. It is in the factories and the new communities around them. May the Indian gods permit.