Sunday, February 19, 2006

Why Indians became cynical and corrupt ?

India achieved freedom in 1947 after intense struggle
and sacrifice by a dedicated and idealistic people. We
have slowly lost the high ideals and honesty since

The main culprit is the socialistic economic model
followed since 1950, coupled with population
explosion. Socialistic polices, in the name of
egalitarianism, created crony capitalism (license,
permit, quota raj), along with confiscatory tax regime
and double digit inflation.

The government printed enormous quantity of money to
finance its huge programs and investments. It resulted
in double digit inflation. Additional resources were
raised through very high taxation (upto 95 % income
tax rate). The triple attacks of inflation, license
raj and high taxation eroded our values and morals. A
bloated bureaucracy was created to administer the
economy, which was a breeding ground for corruption
and cronyism. Tight controls and regulations strangled
economic growth with high unemployment.

Industrialists and traders began to evade taxes which
were perceived to be unfair. The tax administration
became increasingly corrupt. Respect for the rule of
law slowly decreased. The cynicism spread slowly and
political parties promised the heaven for the people
and began to purchase votes. Subsidies and propaganda
of government machinery changed the values and outlook
of common man, who began to look upon the government
to for all his wants. When the voters began to sell
their votes for money and other considerations,
corruption set in. Irresponsible trade unionism
(especially of government sector employees) eroded
work ethics of the organized sector, while the
unorganized sector (who are the majority) were
helpless and squeezed.

Black economy is as large as the 'official economy'.

Individual initiative and enterprise were discouraged
and a whole generation of Indians became job-seekers
instead of job creators. There were isolated pockets
of excellence where enterprising attitude of locals
resulted in prosperity for the region. For example
textile industry grew in Coimbatore district while
trucking industry in Namakkal.

Reckless borrowing of governments, which were living
beyond their limits, resulted in a debt trap and high
inflation. All this took our nation to near bankruptcy
in 1990-91. And since liberalization began in 1991,
economic growth is high and the hidden potential of
our economy has been unleashed.

We are a living proof of the prediction of Lord
Keyenes who said '..there is no surer way of
undermining a nation's character than by undermining
her currency..'

'High taxation leads to evasion, which makes people
cynical ; and this cynicism is a slow poison which
ultimately destroys democracies' says Peter Drucker
in his book, The New Realities. (1999)

Our cynical attitude is highlighted in the way vested
interests and apathy have distorted, reservation
policy, trade unionism, subsidies and environmental
issues.Economic health can be restored, but morals of
a people, once lost, is difficult to repair. It may
take many decades for full restoration.

Wednesday, February 01, 2006

Peter Drucker : tax evasion leads to cynicism

Dear Sir,

While chatting you had mentioned about the connectionbetween tax evasion and cynicism. The following is from P.Drucker's 'The New Realities " (pp69-70)'....once the govt take, especially if collected thru taxes, exceeds a certain percentage of gross national productor personal incomes - the fiqure seems to be around35-40 percent or so - a silent but highly effective'tax revolt' starts. People stop working ; what is the point if the additional income is being taxed anyway ?Worse, people begin to cheat. A 'grey economy'develops. In the US there was almost no tax cheating before 1960...

'...Attempts to stamp out or even to curtail the graye conomy are ineffectual as long as tax rates remainhigh.In fact, while everyone loudly condemns the greayeconomy, most people not only participate in it but consider it morally justified and, in fact, 'clever'.But this undermines the moral cohesion of scoiety, Itproduces a dangerous political poison, cynicism.'

Seventy years ago Schumpeter warned that inflationwould destroy free society. After WW 1 , the inflations in Europe, esp in Germany amply bore out Schumpeter's warning...'