Thinkers/Thinkers 50: Jagdish Seth says India is endowed with four very bad economy crippling habits

In an interaction between Amit Kapoor, Chairman of the Indian Institute of Competitiveness and Jagdish Sheth, Charles H. Kellstadt Chair of Marketing in the Goizueta Business School at Emory University, the latter talks about his idea of India, weaving in his expertise in behavioral economics and management.

Congratulations for being on the T50 list! Could you share the broad ideas behind your academic work over the years?
My academic journey was accidental. I went to America to do my MBA in production management. There I was exposed to the theory of hierarchy of needs. M academic career primarily began in studying psychology of consumers and also physiological aspects, which is called behavioral economics. I began with this concept 50 years ago and it has evolved with time. The most definitive theory called the “Harvard shift theory of consumer behaviour” became the foundation in the marketing discipline. It actually became a paradigm shift because rather than taking a market perspective; the customer’s perspective was taken. In economics, the consumer must make choices and maximize the utility for the price they pay. This theory also says that consumers become loyal to a brand and this becomes a habit rather than a result of cognitive thinking. So this model is very much based on several factors of psychology that are integrated into a common frame
work.

What propelled you to move from consumer behaviour to economics?
In 1968, I was a visiting professor at IIM Kolkata and taught international marketing in addition to consumer psychology. While teaching international marketing I was exposed to managerial issues as compared to consumer issues. So, the principles of economics in marketing began to shift towards managerial marketing. Immediately after that followed managerial economics. In my thesis work, beside behavioral, I also expanded into multimedia statistics and created a whole wave. In a mutual economy, we began to understand that in large organizations customer reaches were more important than customer acquisition. So I started looking at the whole notion of relationship marketing. My theory was again parallel to the theory of hierarchy but more on behavioral perspective. As transition economies were becoming a dominant domain, relationship became more critical.

What was the idea when you moved into working on Chindia?
My giving into Chindia rising was almost at the nation level and also more policy oriented as compared to behavioral. The book “Commanding Heights” which talks about future of emerging markets inspired me and then I went into the Chindia rising state. Even today I believe that resource advantage is a very cheap theory, instead we have to look at resource advantage that the nation can create.

What was the biggest challenge that you faced?
My main challenge was to motivate the academic community to shift their thinking as academics tend to be lot more orthodox – they are the orthodoxy of thoughts. The tectonic shift about how a discipline would shift its paradigm is not a linear model, not even an exponential model, but a curvilinear model wherein new ideas are born and there are bunch of people who challenge the thoughts. If we challenge the new classical economics towards behavioral economics, the editors of the journals don’t accept the thinking as the reviewers are all trained with the previous thinking. So this is one of the major challenges that I found as to how to push the traditional journal to accept this framework. Right now emerging markets is one, which I am propagating heavily and very well accepted by known universities. Overall, I would say, the challenges have not been as many as the opportunities that I have got. I became an administrator in 1971 -72. Because of lack of leadership I learnt quite a lot of administrative aspects. In the academic study I became like a director - more like a department head.

There are two things that are hugely affecting academics. One as you say is orthodoxy of thought and the other is how to manage the faculty or resources. How do you react to this in the Indian context?
I would make comments at three levels. At the macro level I was an advisor to the ministry of education, to bring about higher education reforms from a policy perspective. We all agree that there is a need for a perfect system but there was the AICTE. Apparently there was a policy document that went to Sam Pitroda, Chairman of the National Knowledge Commission and the PMO. So, from this you can see that you cannot change the orthodoxy. The private universities, the deemed universities and all educational institutes register with AICTE. The second loophole was that the AICTE, in the legislative process, anchored everything to the management process. So for instance, a one-year program was there instead of a two year program and there was nobody in charge of regulation. The third issue is Section 25 company wherein the dividends are not distributed and this is a huge loophole in AICTE legislation. At the university level I find there are four approaches. The first approach is to start something fresh new and try to break the traditional legacy of an IIM or IIT. It’s hard to change the faculty and which is also mentioned in my book “The Self Destructive Habits of Good Companies”. This book came out on a one to one meeting with the CEO when he asked the question – “why good companies fail?” It took me 10 years of research to come out with this book. The most common is denial of new realities, arrogance, and compliance. In many ways traditional, well-respected universities will probably become self-destructive. The dramatic transformation is already taking place. The faculty is becoming competitive, as they don’t need an institution anymore. They do independent work and come out with enormous research whether in science, technology, medical and now in management.

How would you look at India on the aspect of denial, arrogance and complacency? And how would you really define the India growth story?
If we have to map India into those seven bad habits, it is endowed with four of them. The first and biggest one is internal thought wars. In other words, one ministry against the other ministry. We are not aligned amongst ourselves towards a common goal or a common approach. Internal thought wars always happen within larger institutions. Second one is denial of new realities. I think India as a nation is in a denial stage. I also believe that India after the quick success of 1991 transformation became very arrogant. They thought they were bigger than life and the media unfortunately amplified this idea. India went through an accidental success and was not able to rationalize its success. Most success happens accidentally. People are at the right place at the right time, but you can’t say to the world I am just a lucky guy – nobody would bet their money on you then. He has to rationalize – why he succeeded – he has to have an explanation why he succeeded. I think India went through that. The last one is complacency. There is no sense of urgency in India at all. I think all that I can map is competitive myopia. We are always comparing ourselves to China all the time without being aware of other competitors which may even be coming from advanced countries. The last one is competence dependence. I found that whatever one is very good at, when that becomes irrelevant we are already trapped into that, and our competency itself becomes our liability. So that’s the one bad habit I am watching about India. Whatever we are competent in now is keeping us behind to go where we need to go.

Where do you see India becoming complacent?
The complacency is happening because of the sudden success of the educated class. There is a new generational shift and the young educated class do not work as hard as their fathers did and do not work on weekends as they have to maintain work-life balance. The instinct for survival for livelihood is moving away, except in the poor class. Today a young person is not bothered even if he leaves his job in four days. Though his father might have worked in a company with a very clear sense of obligation since he would be the only breadwinner of the family. So that’s a part of complacency coming in. Complacency also comes in terms of energy. If I feel good - like with success, I would splurge and be focused about what I want to do. So there are components of complacency.

As an academic, people do not want to hear criticism in this country. How would you overcome that?
It is very painful to see that we as a nation are very judgmental as people. We can make a comment on somebody with a political correctness. But if somebody else makes a comment on us we get very angry and agitated. How would you look at India going through the whole idea of social inclusion and the idea of societal value? I think that this is a worldwide movement wherein the senior most management is convinced that if we don’t have a healthy society we cannot have a healthy corporation. I think the shared value article that Michael Porter wrote has become the way of thinking now. I am very grateful because you do need leaders like Michael Porter who have the credibility and access to government leaders. I think you need people like Ram Charan to validate, legitimate and propagate ideas. My book in 2007 called the “Sense of Endearment” with Raj Sisodia has now transformed into a second book called “Conscious Capitalism”. This whole movement of conscious capitalism very much matches Porter’s idea of the shared value.

So you do agree that societal value would have to be created by companies across the board?
Absolutely. The reason is the government is the enterprise and does not allow the private sector to nationalize. So government enterprise provide economic livelihood through employment in rail roads, the telephone companies and telegraph which are all government enterprises. Second thing was social investment, which means wherever I get my income from I need to subsidize the poor. Third measure was economic development in other words how do I lift people from poverty through government policy/resources/budget and the fourth measure is defence – i.e how do I protect my nation. Most governments are finding that they cannot do all four anymore because of the bandwidth / resources etc. Defence is non-negotiable so we begin to exit other endeavours. So, NGO’s were created to do the social service. The charitable activities done by the government like subsidizing education etc were given to the foundations. The industry people know how to leverage it and they are passing on their wealth to society and doing a social contribution. Government does not know how to leverage it. Lot of foundations has given billion of dollars to education and health. The third thing is to privatize everything. There are two roles that the government would have in near future - defence and domestic security. Government needs to be a policy maker rather than a political model. The current policy is one of compliance, one of watchdog. This changes the notion of policy in the govt thinking, as most of them are trained in the traditional economic thinking. To nurture capitalism in the positive way the governance mechanism should be inclined towards the citizens; otherwise revolts would be there. Though people want to participate in government, the politicians have not allowed them to participate, instead they have allowed them to represent them. After representation, the citizen feels that he is not participating. So Government should encourage citizen participation and this would make the government look very different 50 years from now.

How will principles of capitalism change?
The principles of capitalism will change and it will happen either through external compliance; reservation; or internal self-enlightenment as capitalism becomes self enlightened eventually. Self-enlightenment is a better theory of capitalism rather than self-interest. The self-enlightenment is that the huge disparity of wages/salaries in organizations is in our hands to control. From the lowest paid category - from the managerial class to the help line supervisor to the highest paid person CEO or Chairman the whole range should no more than 20 times. Similarly, in the factory, the person who works in the factory from the plant manager level the range should not be more than 10 times. We will learn to establish our own jurisdiction to say that if we increase the range of salaries / compensations it would be creating immediate revolt within the organizations. The people will sense lack of equity. The rich are getting richer within the company and the poor are getting poorer. So that’s one-way capitalism won’t respond when one company does it quite often. I believe that this kind of imitative behaviour created by outside consultants on how you should compensate is one way in which capitalism would become self enlightened. Also the shareholder would hold the corporation responsible to do good for the community/ suppliers who are involved in value creation. It’s a shared value kind of concept. We encourage corporations not to give out as charity but whenever we create any value, x% only goes to the shareholder of 100% and y% will be redistributed value. It is basically the same as value redistribution; what governments do with taxes and the monetary policy system. But here it is done by corporations through its own distribution mechanisms.

What is your idea of India and how do you think we can achieve it?
I can tell you one punch line, “The rest of the world needs India in many ways more than India even thinks.” rest of the world thinks that India is a very strategic nation. Not from the traditional view or the colonial view of resource rich continent in agriculture, animals, human, natural resources. I don’t think they are looking at India from a resource exploitation/ access point of view. India is a market and as a market it is so important in the global architecture of competitors that they have to focus on it whether they like it or not.

(Jagdish N. Sheth is the Charles H. Kellstadt Professor of Marketing at the Goizueta Business School of Emory University. Thinkers, a quarterly thought leadership magazine features the brightest thinkers in the areas of economics and governance, philosophy and literature, science and technology, and management. To learn more about the magazine, please visit: www.thinkers.in Learn journalism at Indias largest media house - The Times of India Group. Visit www.tcms.in for details. Last date April 30, 2015.)