THE CORPORATION

VIOXX controversy - Merk

Milton Friedman "profit max" with in the rules of the game is CSR

Joel Balkan "rise to power. so obliged to do CSR". Legitimize ur power by doing CSR.
People mistrust corporations. They are capable of doing evil. They can monopolise and corrupt.
CSR is just a mask to promote self interest.

Dodd: appear to care about the society.

Ian Davis Social Contract between business and society to mutually benefit each other

porter n kramer – do strategic CSR

jeffrey hollender-firms are under the microscope constantly. So do CSR to survive.

David vogel: CSR is not that imp or influential. It is a niche rather than generic strategy.It is not
powerful enough to force companies to take unprofitable but socially beneficial decisions.

Global Compact initiative : The Global Compact is a voluntary initiative that seeks to advance
universal principles on human rights, labour, environment and anti-corruption through the active
engagement of the corporate community, in cooperation with civil society and representatives of
organized labour.

The Equator Principles: project financing only to those who are environmentally responsible

REGULATION:

Andrei Shleifer: Regulation is needed in case of

a. market failure

b. prevent monopoly (utility pricing)

c. setting stds (health care related areas)

d. redistribution and equity(min wages etc)

Pigou’s Public interest theory: govt has to interfere in case of market failure and it is benign
and competent enuf to solve it.

Critics : The theory fails to realize the ability of competition to self regulate a market. Govt is
Ineffectual.

Coase’s contracting theory: when both competition and private orderings fail, impartial courts
can regulate by enforcing contracts and common law at some transaction cost..
Critics: too much leeway to courts

Stigler’s capture theory (economic analysis of regulation): Regulated seeks regulation eg: Oil
import quota. Regulatory bodies got CAPTURED.

Wilson is a critic of stigler: says numerous reg bodies in the world are harsh to the regulated.
The weak bodies got eliminated.

Enforcement theory All strategies for social control of business are imperfect and hence we
have to devise an Optimal institutional design that involves a choice among these imperfect
alternatives. It recognizes a trade-off between market disorder and govt dictatorship. This
tradeoff is called the Institutional Possibility Frontier.

 As we move from private orderings to private litigation to regulation to public ownership,

the powers of the government rise, and those of private agents fall

regulations have to be different for different countries(rich, poor). Regulations didn’t change at
the same pace as technology.. alt viewpoint of deregulation gained ground.

SALDANHA MICHAEL (HC Judge)

Judicial activism as a catalyst of institutional reform.

There are instances where Indian courts innovated new concepts inorder to prevent
environmental degradation.

Eg: ganga pollution case, irrigation projects, save the coastal ecosystem etc.

But very less rate of compliance to the court order is observed mainly in the public sector. Since
legal actions usually come up once the project is done, anticipatory action is the best thing .

Green(conservation) n brown(preservation) activism : chipko movement, narmada bachao

Non-compliance to judiciary should be met with rigorous action.

Reinventing Indian Legal System for Achieving Double Digit Economic Growth –
Rajendra Babu

How?

 Technological progress: intellectual property rights -> RnD

 Investment: good legal n judicial system, property rights will increase investment
 Efficiency: good property rights-> firms have a chance to specialize n get economies of
scale

Public policy making in india: O P Agrawal and T V Somanathan

Issues: excessive fragmentation, lack of insight into the policy, overlap between policy making
n implementation->delay, the inhouse specialists are not competent
Good process: involve expert opinion, have info abt the adj sectors, identigy the gonna be
effected ppl, quickly implementable. Trade-off between specialization and fragmentation.

Swaminathan S Anklesaria Aiyar’s List of Culprits for US sub-prime crisis:

 Alan Greenspan & Fed

 US politicians
 Fannie Mae and Freddie Mac
 Financial innovators
 Regulators

Dr. Doom:” Nouriel Roubini of New York University

India escaped as our banking system is regulated and 70% public controlled..

Regulations that protected banks n FIs from getting exposed to risky fin products

Paul Krugman : crony capitalism

“The Enron debacle is not just the story of a company that failed; it is the story of a system that
failed. And the system didn’t fail through carelessness or laziness; it was corrupted”. The Enron
scandal caused the dissolution of Arthur Andersen

Hence Sarbanes-Oxley law which is strict on accountants and makes corporate heads criminally
liable(if they fake the accounts) is introduced. Public Company Accounting Oversight Board is
also introduced.

“Kenneth Lay “: CEO of Enron (Houston Kingmaker)

Regulation: can be defined as government intervention in markets to influence those decisions

of private agents that would otherwise not fully consider public interest.

Techniques of regulation: control of price, quantity and quality

Regulatory enforcement in India: Eg: BT Cotton (Monsanto mahico) – regulatory process failure.

New trends in regulation

Deepening distrust of business

Stronger links between interests of biz & society

Decreasing control across national borders

SOCIAL CAPITAL

Deborah stone’s “market and the polis” – differences.

Ashutosh Varshney’s ethnic conflicts (associational vs quotidian).

Bourdieu: Upper layers of society have higher levels of social capital, especially through
associational networks.

Robert Putnam:

1. how responsible people in a community feel for each other.

2. how closely people in the community are interconnected

Wayne Baker: Myth of Individualism

coleman: Like other forms of capital, social capital is productive, making possible the
achievement of certain ends that in its absence would not be possible

ROLE OF GOVERNMENT

Hobbes: supported monarchy. The king. Because by promoting cooperation, he acts

towards the welfare of the people

John Locke: Consent of the governed is the key, Otherwise revolutions. French n American
followed.

Rousseau: People form a social contract. They give up their natural rights to civil rights to get
freedom, justice, welfare and equality for all. They submit their personal interests for the public
welfare.

Mercantilists believe that govt. should promote trade and industry.

a. Adam Smith:

He asked for very limited role of govt.

He proposed Division of Labor: Specialization to maximize profit.

Duties of a Sovereign:

1. protect its citizens from attack.(defense)

2. Protect people who are oppressed within the society
3. Undertake public works

Invisible hand: put forth by Adam smith- suggested that competition among individuals
for pursuing their personal interest (profits), will indirectly serve public interest too.

Adam smith was of the opinion that there was no need to rely on the govt. People in the process
of doing their own good will do the benefit for the society.

b. Keynes - He felt that govt should try to create employment and remove economic
disparity. Govt shud take up an activist role
c. Third alternative:
 Government should concern itself with designing the right market rules, rather than
trying to dictate the right market results.

According to HAYEK, govts can stifle freedom (cartoon)

Pareto efficient resources: Those resources when distributed in a competitive market can
make someone better off without making someone else worse off.

Four major reasons for systematic failure of Govt:

1. Limited Info (who is actually disabled and who is pretending)

2. Limited control over private market response
3. Limited control over bureaucracy
4. Limits of political process

Markets are inefficient when externalities occur, so govt intervention.

Macroeconomic Externality: Great Depression

The role of the govt(Normative) of developing nation’s right after colonial rule:

 Nation building and social transformation(involves redistribution)

Positive Economics: what is done by govt thru its policies

Normative Economics: what shud a govt do?

Competitive Capitalism:

TWO more forms of capitalism exist:

1. Democratic Capitalism:
2. State Capitalism

According to Milton Friedman To protect freedom: 1. Scope of govt must be limited. 2. Govt
role has to be decentralized and dispersed.

18th century liberalism: limited role of govt. Individual supreme. Laissez faire.

19th century liberalism: in the name of equality and welfare, the society started favouring the
centralized govt and revival of those policies opposed by classical liberalism.

Parkinsons Law: Omitting technicalities, there are two motive forces which govern the law:

 An official wants to multiply subordinates, not rivals

 Officials make work for each other

Interest Groups
1.pluralism: diff IGs promoting Diff things.

2. But oslon says : few grps are more powerful than others.

Mancur Olson: The Logic

Small grps are better. No freeriding, more accountability, positive incentives can be
given to few ppl if they work well

Larger grps: ppl will be anonymous, incentives giving not possible.

Eg: lobbies(small)

Business Interest grps:

NASSCOM, CII etc.

Rent Seeking : Small grps trying to get some benefits like tax breaks. Tax from the larger grps
going to these smaller grps. Since small grps effectively engage in RentSeeking to gain benefits
over the larger population

TRADE UNIONS: ideally collaborative effort between owner n workers. But usually it becomes a
conflict.

State acts as a mediator. But sides with owners rather than workers.

Uncivilian IGs: Naxalism

Bhoodhan (vinobha bhave)

MEDIA

Baron – societal significance and audience interest graph

Edward S. Herman & Noam Chomsky “A Propaganda Model”:

a systematic propaganda is at work. Business, media and the government are the main players

This model portrays the media as a politically conservative force that is aligned to the interests
of economic and social elites and serves to promote compliance or political passivity amongst
the masses.

 Size, ownership and profit

 The Advertising License to do Business
 sourcing Mass-Media News (can’t go against ur sources)
 flak
 Anticommunism as a control mechanism
“Private Treaties”

How Do People Reason and React :

Gail Omvedt : statues are claim to pride. They motivate ppl for a common cause.

Synecdoche (one part representing a grp) : kalavati in case of Rahul Gandhi

Aristotle Rhetoric is the art of persuasion. He argued that good rhetoric involved:

Pathos: appeal to the emotion of the audience

Through passion of delivery or metaphor or story telling

Ethos: a sense of credibility and “moral competence”

Sense of weight of the argument and expertise of arguer

Logos: good logical structure

Well structured and based on sound data and evidence

Nozick: Process

 Whatever u do has to happen by a fair process. And fairness requires evidence.

Eg: Reservation (historical evidence that they were oppressed)

 Liberty is freedom to do what u want

John Rowls : True End state of an action is what matters. (veil of ignorance)

 When rules for some equitable distribution are laid, equality is bound to happen due to
ignorance. Inequality is OK as long as the neglected get fair opportunities.
 Direct distribution of resources who need them.
 Liberty is freedom from constraints

Herbert Simon : Bounded rationality.

Humans are quasi-rational. (Humans do not completely optimize, they just search till some
depth and then choose the option that gives them acceptable level of satisfaction).

Heuristics n biases that lead to error in judgements.

Cognitive psychology and Behavioral Decision Theory:

Daniel Kahneman and Tversky : (Prospect Theory) a decision maker considers prospects
using a function that values all prospects relative to a reference point.

 Losses have more emotional impact than an equivalent amount of gains

 Disposition Effect: selling good stocks and clinging on to bad ones
Where as, Normative theory assumes outcomes in terms of total wealth (absolute).

5 Biases: (how do u react and how do u decide)

 Availability: easily available info (eg: death due to accident vs diseases)

 Representativeness: (MBA and arts Question)
 Anchoring and adjustment: u tend to take a reference point and compare. Whereas u
shud take the abs info
 Confirmation biases: try to negate a hypothesis first before confirming to it.
 Hind sight and the curse of knowledge: you try to apply what u already know.

Daniel Bernouli: when ppl make decisions, they need not necessarily go by expected
value, they go by utility.

INNOVATION

A new way of doing things. Could be by combining existing things.

Joseph Schumpeter: entrepreneurs, innovation and creative destruction.

The new invention destroys old ideas or causes them to become obsolete.
Competitors should try to beat the competition not by only increasing margins, but by
innovating and destroying the competition.

There is an ever present threat of competition from innovation.

Eg: Kodak suddenly got destroyed by digital media.

Lawrence summers and De Long prediction:

 The future is Schumpeterian. Compete thru innovation.

There should be Govt RnD in public goods also.. as no other is there to do it. Firms would seek
only profit.

Stages of innovation:

 Science
 Basic Research… Eg: Neil’s Bohr
 Applied Research… Eg: Louis Pasteur
 Invention
 Prototype
 Development
 Commercialization
 Diffusion
Adoption of innovation phases:

Innovators-> early adopters->early majority-> late majority->laggards

Funding innovation:

Univ funds or firms collaborate

Japanese Vs US way of innovation:

 Japanese: govt and national Univs drive innovation

 US: private drive, govt may help.

Free vs permission culture:

Free: IPR is given to people. But there is no restriction on others using it to do further research.
Not using it for commercialization

Permission: We have to take permission from the innovator even for the research.