Few captains of industry in emerging economies would confess that protectionism was a factor in the growth of their businesses. And they rarely acknowledge the role that such systems have played in the growth of corruption as bureaucrats and politicians sell favors.
In India, many prominent business houses benefited from the notorious system of protectionism known as the License Raj. The License Raj was simply one example of the import substitution policies long followed by many emerging economies.
But while many prominent Indian business leaders have begun begun complaining about the extent of government corruption that is a byproduct of the the License Raj, they conveniently fail to mention that the same skewed system played a vital role in squelching competition, fixing prices and helping them grow.
At a recent World Economic Forum gathering of business leaders and government officials in New Delhi a policy conversation ventured into this sensitive territory.
“We decided many years ago, decades ago, we will not do business where we have to deal with the government…We do not want to have anything to do with their bidding process,” said Rahul Bajaj, chairman of the Indian conglomerate Bajaj Auto, reportedly said at the forum. “I want to sleep well at night.”
Mr. Ashwani Kumar, India’s new Minister for Law and Justice, was on stage to remind the industrialist of reality.
“It seems that Mr Bajaj believes that his company is working independent of the policies of the government. As if the labor policy, the manufacturing policy, the fiscal and economic policies do not apply to his company,” Mr. Kumar reportedly said.
Mr. Kumar, a distinguished senior Supreme Court counsel who has promised to pursue anti-corruption measures in his new post, has a point.
Bajaj Auto was a long-time beneficiary of the License Raj, and had near- monopoly rights to manufacture vehicles in India for more than twenty years. At one point, there was a decade-long waitlist to purchase one of his modestly powered scooters.
But a generation of government-granted monopoly rights was not enough for the holier-than-thou Mr. Bajaj. While he has changed his tune lately, Mr. Bajaj was one of the leaders of the notorious Bombay Club in the 1990s that successfully advocated a go-slow approach to liberalizing the Indian economy.
Business leaders such as Mr. Bajaj seem happy to blame the government for the downside of the very system that made them rich. While it may be too much to expect them to help deal with the fallout, they could at least say thank you.
Russell A. Stamets is a contributing editor of the FCPA Blog.