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A <keyword id="21030120" type="General" weightage="20" keywordseo="woman-passenger" source="keywords">woman passenger</keyword> travelling from Hong Kong to Delhi flight was intercepted on Tuesday by <keyword id="20001359" type="General" weightage="20" keywordseo="Customs-officials" source="keywords">Customs officials</keyword> at Indira Gandhi International (IGI) Airport with 26 <keyword id="20746828" type="General" weightage="20" keywordseo="iPhone-16-Pro-Max" source="keywords">iPhone 16 Pro Max</keyword>, the department reported. The customs department at Delhi's <keyword id="20219207" type="General" weightage="20" keywordseo="IGI-Airport" source="keywords">IGI Airport</keyword> arrested the woman passenger for smuggling the devices concealed in a vanity bag, said officials. The arrest was made on the basis of specific intelligence input received by the Customs Department, according to officials. "Based on intelligence, Delhi Airport Customs intercepted a lady passenger travelling from Hong Kong to Delhi carrying 26 <keyword id="6354606" type="General" weightage="20" keywordseo="iphone" source="Orion">iPhone</keyword> 16 Pro Max concealed inside her vanity bag (wrapped in tissue paper)," said customs. Further investigation is underway. Earlier on Monday, a passenger travelling on a Dammam to Delhi flight was intercepted on Monday by Customs officials at IGI Airport for concealing two gold bars inside the battery compartment of his mobile phone. Acting on intelligence, the Customs department at IGI Airport, Delhi, recovered the two gold bars, weighing approximately 200 grams, hidden inside the traveller's phone. In a separate operation on September 28, Customs officials at IGI Airport seized 2,739 grams of gold, valued at Rs 1.80 crore, from seven Uzbek passengers, including a juvenile, who were travelling from Almaty. Six passengers were arrested under the Customs Act, 1962, and the juvenile was apprehended under the Juvenile Justice Act, 2015.

Woman arrested for attempting to smuggle 26 iPhone 16 Pro Max into India at Delhi's IGI Airport

The Delhi High Court has said that custom duties and charges will not be applied to medicines, drugs, and therapies used for treating rare diseases. This decision comes as a relief to patients suffering from conditions such as <keyword id="20052826" type="General" weightage="20" keywordseo="duchenne-muscular-dystrophy" source="keywords">Duchenne Muscular Dystrophy</keyword> and Hunter's syndrome, amongst others. Justice Prathiba M Singh, addressing the issue, referred to a gazette notification by the <keyword id="20398467" type="General" weightage="20" keywordseo="union-ministry-of-finance" source="keywords">Union Ministry of Finance</keyword> issued on March 29 of the previous year, which included drugs and medicines for rare diseases under the <keyword id="19962640" type="General" weightage="20" keywordseo="customs" source="keywords">Customs</keyword> Act, 1962. This clarification ensures that patients and hospitals can access necessary treatments without the burden of additional costs. The court has directed customs authorities to prioritise and expedite the clearance of such medical imports, ensuring that treatments reach patients without delay. This order is to be communicated to the Central Board of Indirect Taxes and Customs (CBIC) for immediate compliance. The ruling was part of a hearing concerning petitions for free-of-cost treatment for children with rare diseases, which has been under deliberation since 2020. These treatments, often prohibitively expensive, are crucial for the patient's survival and quality of life. Previously, the court had also directed AIIMS to begin procurement of medicines for these conditions, backed by a fund allocation of Rs 50 lakhs per patient, in accordance with the Rare Diseases Policy. Efforts have been made to negotiate with pharmaceutical companies for reasonable pricing of these essential drugs. The establishment of a five-member committee by Justice Singh in May of the previous year aims to ensure the efficient implementation of the <keyword id="20821427" type="General" weightage="20" keywordseo="national-policy-for-treatment-of-rare-diseases" source="keywords">National Policy for Treatment of Rare Diseases</keyword>, 2017, so that the benefits effectively reach those in need. SEE ALSO: <a href="https://www.businessinsider.in/tech/mobile/news/realme-12-5g-with-dimensity-7050-chipset-to-launch-in-india-on-march-6/articleshow/108129873.cms">Realme 12+ 5G with Dimensity 7050 chipset to launch in India on March 6</a> <a href="https://www.businessinsider.in/tech/mobile/news/xiaomi-14-to-launch-in-india-on-march-7-to-take-on-the-galaxy-s23-and-oneplus-12/articleshow/107841326.cms">Xiaomi 14 to launch in India on March 7, to take on the Galaxy S23 and OnePlus 12</a> <a href="https://www.businessinsider.in/business/auto/news/upcoming-cars-launching-in-india-in-march-2024/slidelist/108095936.cms">Upcoming cars launching in India in March 2024</a>

Delhi HC exempts custom duties on medicines for rare diseases

<ul><li><keyword id="1731609" type="General" weightage="20" keywordseo="oppo" source="Orion">Oppo</keyword> has reportedly come under the scanner of the Directorate of Revenue Intelligence (DRI).</li><li>The DRI has detected customs duty evasion of ₹4,389 crore by Oppo.</li><li>The company has reportedly mis-declared the description of items imported by it.</li></ul>Oppo is the latest Chinese smartphone maker to come under the scanner of Indian agencies. The Directorate of Revenue Intelligence (DRI), the country’s apex anti-smuggling agency has detected customs duty evasion of around ₹4,389 crore. According to a <a href="https://www.pib.gov.in/PressReleasePage.aspx?PRID=1841150">release</a> by the Press Information Bureau, the DRI conducted a search operation at Oppo’s offices in the country and the residences of its key management, the agency recovered incriminating evidence that revealed willful misdeclaration in the description of items imported by the company. The items imported by Oppo were reportedly used for the manufacture of mobile phones in the country. The DRI has claimed that Oppo mis-declared the items to avail ineligible duty exemption benefits. It has claimed that the company availed an exemption of ₹2,981 crore. It looks like DRI has a strong case as the senior management of Oppo and domestic suppliers of the company have accepted the submission of wrongful descriptions to the Customs Authorities to evade payment of customs duty. <cmsannotation type="cmsannotation" annotationid="Oppo sent over ₹1,400 crore to China" comment="subhead" text="Oppo sent over ₹1,400 crore to China">Oppo sent over ₹1,400 crore to China</cmsannotation> Oppo reportedly also remitted a huge amount to China for payment of “Royalty” and “license fee”. The DRI has claimed that Oppo did not add the amount remitted to China in the transaction value of goods imported by them. This allowed the company to further evade customs duty of ₹1,408 crore, bringing the total amount of customs duty evasion to ₹4,389 crore. “After completion of the investigation, a Show Cause Notice has been issued to <keyword id="2034172" type="General" weightage="20" keywordseo="oppo-india" source="Orion">Oppo India</keyword> demanding Customs duty amounting to ₹4,389 crore. The said Notice also proposes relevant penalties on Oppo India, its employees and <keyword id="3513260" type="General" weightage="20" keywordseo="oppo-china" source="Orion">Oppo China</keyword>, under the provisions of the Customs Act, 1962”, the PIB release quoted DRI. <cmsannotation type="cmsannotation" annotationid="Oppo deposits ₹450 crore" comment="subhead" text="Oppo deposits ₹450 crore">Oppo deposits ₹450 crore</cmsannotation> Oppo has reportedly already deposited ₹450 crore as partial differential customs duty short. This means the Chinese smartphone maker will still have to pay ₹3,939 crore in customs duty. “We have a different view on the charges mentioned in the SCN. We believe it's an industry-wide issue many corporates are working on. OPPO India is reviewing the SCN received from DRI, and we are going to reply the notice, presenting our side, and will be working further with the related government departments. OPPO India is a responsible corporate and believes in prudent corporate governance framework. OPPO India will take appropriate steps as may be needed in this regard including any remedies provided under the law," Oppo said in a statement to Business Insider India. <cmsannotation type="cmsannotation" annotationid="Oppo joins Vivo, Xiaomi, and other Chinese smartphone makers" comment="subhead" text="Oppo joins Vivo, Xiaomi, and other Chinese smartphone makers">Oppo joins Vivo, Xiaomi, and other Chinese smartphone makers</cmsannotation> This comes at a time when other Chinese smartphone makers are already under the scanner of Indian agencies for tax evasion, money laundering and other violations. Oppo’s sister company Vivo recently came under the <a href="https://www.businessinsider.in/tech/enterprise/news/ed-has-reportedly-raided-44-locations-of-vivo-and-related-firms-across-the-country/articleshow/92672031.cms">scanner</a> of the Enforcement Directorate after the agency alleged that Vivo <a href="https://www.businessinsider.in/tech/enterprise/news/vivo-reportedly-transferred-nearly-8-billion-to-its-parent-company-in-china/articleshow/92726095.cms">remitted</a> ₹62,476 crore, which is around 50% of its revenue over a five-year period to its parent company in China to avoid paying taxes. The ED is also investigating Xiaomi over <a href="https://www.businessinsider.in/business/news/exclusive-84-of-the-5551-27-crore-seized-from-xiaomi-india-were-remitted-to-qualcomm-group/articleshow/91560593.cms">allegations</a> that the company remitted ₹5,551.27 illegally. Huawei also came under the scanner of the Income Tax department after the company <a href="https://www.businessinsider.in/tech/enterprise/news/chinese-smartphone-maker-huawei-comes-under-the-it-departments-scanner-over-tax-evasion/articleshow/92739828.cms">remitted</a> ₹750 crore as dividends to evade taxes. SEE ALSO: <a>Vivo's offices caught with 2 kilo gold bars after sending ₹62,000 crore back to China – all you need to know on the ED probe</a> <a>After Xiaomi, Vivo comes under the Enforcement Directorate’s scanner</a> <a href="https://www.businessinsider.in/tech/enterprise/news/vivo-reportedly-transferred-nearly-8-billion-to-its-parent-company-in-china/articleshow/92726095.cms">Vivo reportedly transferred nearly $8 billion to its parent company in China</a>

Oppo comes under DRI scanner for alleged customs duty evasion of ₹4,389 crore

<ul><li>A new amendment to India’s foreign trade policy restricts companies from importing ‘gifts and samples’ duty-free into the country.</li><li>The move is aimed to keep companies like Shein, <keyword id="6016374" type="UNKNOWN" weightage="20" keywordseo="Club-Factory">Club Factory</keyword> and <keyword id="6015916" type="ORGANIZATION" weightage="20" keywordseo="ali-express">Ali Express</keyword> from using the provision to evade tax.</li><li>They have reportedly been underbilling items to get them past customs without having to pay the import duty.</li></ul>The Indian government is cracking down on Chinese e-commerce companies like Ali Express, Club Factory and Shein. They will no longer be able to avoid paying customs duty, even on ‘gifts and samples’ valued under ₹5,000. Until today, such items were exempted from scrutiny. Not anymore. “Import of goods, including those purchased from e-commerce portals, through post or courier, where Customs clearance is sought as gifts, is prohibited,” said the <a href="https://dgft.gov.in/sites/default/files/Notification%20No.%2035%20dated%2012.012.2019%20in%20E.pdf">notification</a> by the Department of Commerce. “Import of goods as gifts with payment of full applicable duties is allowed,” it said, amending the Foreign Trade Policy 2015-20. Rakhis, but not the gifts related to it, will still be allowed under Section 25(6) of the Customs Act 1962 which states, “..no duty shall be collected if the amount of duty leviable is equal to or less than ₹100. ” How does it affect online shopping? While the new regulations apply to all e-commerce companies, the move is angled as curbing the tax evasive practices of Chinese e-commerce platforms. Shein, Club Factory and other companies have previously come under scrutiny for misusing the duty-free provision. Since there was no limit on the number of gifts an individual can receive, the companies were reportedly underbilling their shipments to get them through customs without having to pay any import duty. In June, the Mumbai courier terminal seized 500 parcels addressed to Shein and Club Factory customers as per an <a href="https://tech.economictimes.indiatimes.com/news/internet/mumbai-customs-seizes-hundreds-of-gifts-from-china/69866448">ET</a> report. A move that led to Shein partially shutting down its India operations. The companies shifted airports in order to keep receiving consignments but a month later, customs officials in Bengaluru and Delhi <a href="https://economictimes.indiatimes.com/small-biz/policy-trends/bengaluru-and-delhi-customs-forbid-clearing-gifts/articleshow/70221405.cms">followed</a> suit — refusing to let any ‘gifts and samples’ into the country. The amendment was originally proposed as a part of the draft e-commerce policy back in February. Now that it’s an official part of the foreign trade policy, items ordered online from foreign platforms are about to get more expensive. The Indian government is also <a href="https://m.economictimes.com/defaultinterstitial.cms">mulling over</a> introducing a 50% tax and customs duty on products bought from Chinese e-commerce platforms — but has yet to finalise the exact rates. See also: <a href="https://www.businessinsider.in/amazon-india-finds-way-around-new-e-commerce-rules-for-cloudtail-and-appario/articleshow/67831376.cms">Amazon may have found a way around India’s new e-commerce rules</a> <a href="https://www.businessinsider.in/the-indian-government-may-revisit-plans-to-curb-e-commerce-discounts-report/articleshow/67132528.cms">The Indian government may revisit plans to curb e-commerce discounts: Report</a>

If you ordered a ‘gift’ from Club Factory, Shein or Ali Express — it might not make it through customs in India

The concept of <keyword id="6354678" type="DEFINITION" weightage="20" keywordseo="Indirect-Tax">indirect tax</keyword> has been introduced in India in order to reduce the burden on the tax payers. In other words, we can say that the burden of these taxes are borne by someone else other than the taxpayer. What is Indirect Tax? As the name indicates, indirect tax is levied on goods and services that carry a higher price. Some of the typical examples of indirect <keyword id="707923" type="PERSON" weightage="20" keywordseo="taxes-in-India">taxes in India</keyword> include service tax, value added tax (<keyword id="6370857" type="UNKNOWN" weightage="20" keywordseo="VAT">VAT</keyword>), central excise and customs duty. Different kinds of indirect taxes levied in India Service tax Service tax is applicable to be paid by the entities that provide services like consulting, legal assistance and other such services. This kind of tax is collected from the recipients of the services and paid to the Central Government. Starting from June 1, 2016, service tax was fixed at 14% along with Swacch Bharat Cess (0.5%) and Krishi Kalyan Cess (0.5%). Thus the resulting rate of service tax chargeable is 15%. Small service providers who do not make more than Rs 10 Lakhs per annum are exempted from paying the service tax in India. <keyword id="6356916" type="UNKNOWN" weightage="20" keywordseo="excise-duty">Excise duty</keyword> Excise duty is applied on all kinds of goods that are manufactured in India. This kind of indirect tax needs to be paid by the manufacturers and then eventually passed on to the end buyers. Excise duty is levied by the Central Government in India. This tax works based on the provisions found in the Central Excise Act, 1944. VAT Value Added Tax (VAT) is levied on the sale of goods that are movable within the nation. VAT is charged during all stages of production and distribution channels that include the instance of value addition. The State Governments levy this tax under Entry 54 of the State List. Customs duty Customs duty is a kind of indirect tax that is applicable to goods imported from other countries. This is payable towards getting some goods inside the country. In some cases, this kind of tax is also levied on exported goods. The Customs Act, 1962 contains the procedures and regulations on how the customs duty must be levied, how it must be collected and the procedures of imports and exports, penalties, offenses and prohibitions. Securities Transaction Tax (STT) Securities transaction tax is levied while purchasing or selling stocks through the Indian stock exchange. Introduced in the year 2004, STT is applicable in cases of shares, mutual funds, and future and options transactions. STT was levied in order to bring down the short-term capital gains tax and eradicate the long-term capital gains tax. Stamp duty This kind of indirect tax is charged by the state government while movable and immovable properties are transferred within their jurisdiction. Also, stamp duty is made compulsory on all kinds of legal documents. The rates of stamp duty varies from one state to another. <keyword id="62084" type="ORGANIZATION" weightage="20" keywordseo="Entertainment-tax">Entertainment tax</keyword> Entertainment tax is yet another kind of indirect tax levied by the state government on the different kinds of transactions connected to entertainment. Some examples to entertainment taxes are movie tickets, stage shows, amusement parks, sports activities, adventures, video game arcades and others.

Here’s all you need to know about Indirect Tax in India

The <keyword id="6355512" type="ORGANIZATION" weightage="20" keywordseo="Union-Cabinet">Union Cabinet</keyword> has approved changes in the Customs and Excise Act, which is required for rollout of Goods and <keyword id="645517" type="COMPANY" weightage="20" keywordseo="services-tax">Services Tax</keyword> (<keyword id="6354679" type="ORGANIZATION" weightage="20" keywordseo="GST">GST</keyword>). The amendment will result in abolition of 16 cesses and surcharges, union excise and service tax charged on various goods and services. 
 
The cesses that would be abolished include <a href="http://www.businessinsider.in/markets/economy/Krishi-Kalyan-Cess-from-June-1st/articleshow/52504911.cms">Krishi Kalyan</a> and <a href="http://www.businessinsider.in/swachh-bharat-campaign-goes-digital-private-companies-can-now-choose-their-cleanliness-projects-online/articleshow/57730445.cms">Swachh Bharat</a>, resulting in the government losing Rs 65,000 crore. The government will make up for this loss by finding resources from the budget. 
 
"Amendments or repeal of various provisions of other Acts which will no longer be relevant consequent on <a href="http://www.businessinsider.in/get-ready-for-gst-draft-bills-have-been-approved-by-cabinet/articleshow/57751339.cms">rollout of GST</a> will result in cleansing of the irrelevant portions from the Statute Book and reduce multiplicity of taxes," said an official release from the government. 
 
Also read: <a href="http://www.businessinsider.in/luxury-cars-to-get-costlier-after-gst-rolls-out/articleshow/57687734.cms">Luxury cars to get costlier after GST rolls out</a> 
 
These resources would come from higher GST mop-up, since more entities would now be <a href="http://www.businessinsider.in/tax-collections-will-exceed-rs-17-lakh-crore-despite-demonetisation-arun-jaitley/articleshow/57773980.cms">eligible to pay taxes</a>. 
 
GST rates are not yet finalised, which means that it can’t be ascertained whether consumers <a href="http://www.businessinsider.in/traveling-eating-out-and-phonebills-to-get-expensive-as-arun-jaitley-plans-to-hike-service-tax/articleshow/56850084.cms">eating in restaurants or paying phone bills</a> would benefit after removal of cesses and surcharges or not. 
 
Also read: <a href="http://www.businessinsider.in/jaitley-hopeful-of-july-1-gst-rollout/articleshow/57772424.cms">Jaitley hopeful of July 1 GST rollout</a> 
 
The bills amended include the Customs Act, 1962, the Customs Tariff Act, 1975 and the Central Excise Act, 1944. 
 
It also approved cancelling the Central Excise Tariff Act, 1985 and changing or cancelling the provisions relating to Acts under which cesses are levied. 
 
(Image source: South Live)

Removal of cesses for GST would cost government Rs 65,000 crore

<div class="KonaFilter image-container display-table"><div><div class="image on-image">Getty Images/ Scott OlsonBaupost Group CEO Seth Klarman.</div></div></div><ul class="summary-list"><li>Baupost Group CEO Seth Klarman gave a speech calling for a shift away from what he sees as toxic short-termism.</li><li>He believes this is the result of the theory of shareholder primacy, and that other stakeholders like employees and community need to be considered for the sake of long-term growth.</li><li>He called for companies to reconsider their actions as society's calls for change become increasingly stronger.</li><li>This article is part of Business Insider's ongoing series on <a href="https://www.businessinsider.com/better-capitalism">Better Capitalism</a>.</li></ul>Seth Klarman, the renowned founder and CEO of the $30 billion hedge fund the Baupost Group, <a href="https://www.alumni.hbs.edu/stories/Pages/story-bulletin.aspx?num=6818">recently gave a speech</a> on the ramifications of shareholder primacy."Business schools have sometimes taught that shareholder value maximization is the Holy Grail, the sole proper focus of corporate managements," he said. "So I ask, should managements be focused solely on a company's share price, which itself is ephemeral, and do everything within their power to levitate it? What longer-term good would this possibly accomplish? And does anyone really believe that shareholders are the only constituency that matters: not customers, not employees, not the community, or the country, or planet Earth?"Klarman gave the speech at a dinner celebrating the opening of Klarman Hall at Harvard Business School on Oct. 1.Klarman is an avowed value investor, which means that his approach to managing money involves buying shares of companies he thinks are cheap relative to their peers. It's a philosophy employed by other industry heavyweights, such as Warren Buffett and <a href="https://www.businessinsider.com/joel-greenblatt-magic-formula-how-gotham-index-plus-fund-has-outperformed-2018-11" target="_blank" rel="noopener">Joel Greenblatt</a>, the managing principal and co-chief investment officer at Gotham Funds.Read more: <a href="https://www.businessinsider.com/seth-klarman-margin-of-safety-book-on-amazon-kindle-2018-7">An unauthorized copy of Seth Klarman's investing bible that Wall Streeters pay thousands of dollars for was up for grabs on Kindle for $9.99</a>It makes sense, then, that he's in favor of an approach creating long-term value. But his speech declared the notion of shareholder primacy, as it's been practiced for the last 40 years, as an impediment to the health of the economy and society at large."A capitalist economy should be judged not just on the aggregate economic improvement driven by its innovation but also on the design and strength of the social safety net that cushions the ill, or disadvantaged, or those who simply fail to thrive in their particular setting, geography, industry, or trade," Klarman said.<h2>What is the role of business in society?</h2>The debate over the pursuit of short- versus long-term value, and how that is related to the responsibilities of public corporations, <a href="https://www.businessinsider.com/joseph-stiglitz-milton-friedman-capitalism-theories-2018-3">has been drawn out over many decades</a>.In the wake of the Great Depression, the economist John Maynard Keynes wrote in "The General Theory of Employment, Interest and Money" that the American stock market encouraged public companies to prioritize short-term gains, temporarily benefiting their stock price, over long-term gains, benefitting both their business and society as a whole. It frustrated Keynes and the Keynesians that followed.But for free-market economists like Milton Friedman, who published "Capitalism and Freedom" in 1962, there was no need to differentiate between the short and long terms. For Friedman, a company's sole social responsibility was to make as much profit as possible, as long as it followed the rules. A free market would reward the best companies, which would take care of all stakeholders.American executives and politicians embraced Friedman's ideas in the 1980s, and <a href="https://corpgov.law.harvard.edu/2017/04/11/a-legal-theory-of-shareholder-primacy/">judicial precedents</a> in the United States cemented the notion that public companies existed to maximize profits for their shareholders.This debate has resumed in earnest, however, during the recovery from the financial crisis of 2008, and this time, the other side has more momentum. Klarman isn't the only billionaire calling for change.In 2013, investor Paul Tudor Jones, for example, cofounded JUST Capital, which measures public companies' value added to all stakeholders, not just shareholders. It launched an ETF in partnership with Goldman Sachs earlier this year. On the corporate side, more large companies, like food giant Danone, are seeking "B Corp" status (the "B" stands for "benefit") - this certification proves they received high marks from the company B Lab, founded in 2006, that measures a company's societal benefit.And, notably, this past January, BlackRock CEO Larry Fink wrote in his annual letter to CEOs that, "To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society."<a href="https://www.businessinsider.com/blackrock-larry-fink-investors-esg-metrics-2018-11">At the New York Times DealBook Conference</a> in October, Fink defended himself against accusations from critics like Wall Street Journal columnist Holman W. Jenkins, Jr. that he was just trying to be en vogue or "buy indulgences" from the public. As Fink put it, the demand from customers and employees for customers with purpose has become so strong that he wrote his letter as a way to improve his clients' performance.There's evidence this is more than just intuition. Boston Consulting Group found that companies pursuing initiatives that benefit ESG (environmental, social, governance) metrics actually boost their bottom lines. Fink said that in the near-future - as early as the next five years - all investors will measure a company's value along ESG metrics.<h2>Where Klarman stands</h2>While Klarman called for an improvement of capitalism in his speech, he did not consider his suggestions to be drastic.He specifically mentioned as something he considers too radical to be Sen. Elizabeth Warren's Accountable Capitalism Act, which would require billion-dollar public companies to obtain a federal charter that binds them to creating value for stakeholders beyond shareholders, as well as have 40% of its board members elected by employees.The way he sees it, businesses should determine how they are going to grow more responsibly before regulators decide for them.He noted that, "when capitalism goes unchecked and unexamined, and management is seduced by a narrow and myopic perspective, the pendulum can quickly swing in directions where capitalism's benefits are discounted and its flaws exaggerated, thereby leaving its future even more clouded and uncertain.""While it's hard to see how this proposed regulation would solve the problems that I've raised tonight, it's exactly the kind of proposal that business will have to contend with when complex issues go unexamined, and when character, sound values, restraint, and long-term thinking fail to gain the upper hand."<h2>Now read:</h2><a href="https://www.businessinsider.com/stock-market-crash-hedge-funds-in-vicious-downward-cycle-goldman-says-2018-11?r=below-article-promo" target="_blank" rel="noopener">GOLDMAN SACHS: Hedge funds have plunged into a 'vicious downward cycle' with the most popular stocks, and it's a sign the meltdown is just getting started</a><a href="https://www.businessinsider.com/joel-greenblatt-magic-formula-how-gotham-index-plus-fund-has-outperformed-2018-11?r=below-article-promo" target="_blank" rel="noopener">Joel Greenblatt's flagship fund has beaten 99% of competitors over the past 3 years - here's a peek at his Warren Buffett-inspired 'magic formula' that's crushed the market</a><a href="https://www.businessinsider.com/hedge-fund-performance-impact-of-october-stock-market-sell-off-future-implications-2018-11?r=below-article-promo" target="_blank" rel="noopener">Hedge funds just suffered through their worst month in 8 years - here's why their struggles could just be getting started</a> <div class="margin-top"> <h3>NOW WATCH: <a href="https://www.businessinsider.com/value-investing-applied-to-the-socially-responsible-sector-2018-7">Expanding Warren Buffett's value investing approach to the socially responsible sector</a></h3> <div> </div> </div>

Iconic hedge fund billionaire Seth Klarman explains why traditional business models are broken, and outlines how companies can fix them

<div class="KonaFilter image-container display-table float_right"><div><div class="image on-image">Reuters</div></div></div>Over the last 40 years, the US government has done precious little to invest in the future.Instead of spending money on education, our government has repeatedly chosen to cut taxes. Instead of investing in infrastructure, politicians have several times <a href="http://www.nytimes.com/2016/11/13/opinion/sunday/when-republicans-take-power.html?_r=0">shut down the government</a> over budget disputes. Time and time again difficult decisions have been pushed off for later, and complicated social issues have been relegated to something that the unforgiving, "invisible hand of the market" can fix.It has all been to our detriment. And it is all our parents' fault. The Baby Boomers who have controlled this country since the 1980s are a selfish, entitled generation. It is not your imagination, and it didn't come out of nowhere.This is a short review of the ideas that made them that way.But first, a note from economist John Maynard Keynes: <div>"The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist."</div><h2>Our man, Milton</h2>And so it is in this case. "The defunct economist in this case is <a href="http://www.businessinsider.com/the-story-of-shareholder-value-2016-6">Milton Friedman</a>, who persuaded a generation that selfishness was the natural state of humanity and that selfishness ultimately would lead to the best possible society, when all the empirical data shows exactly the opposite: that people are capable of prosociality and that pro-social societies do better," Cornell Professor of Economics <a href="http://www.lawschool.cornell.edu/faculty/bio_lynn_stout.cfm">Lynn Stout</a> told me in an interview. Toward the end of the 1960s and early 1970s, Friedman was the champion of a school of thought in economics called neoclassical theory.According to this theory, every human action is motivated by selfishness. As such, all humans can be motivated into doing anything as long as there is an economic incentive for it. In fact, no one does or should look out for the good of the collective - corporations should worry only for their shareholders, not for their workers or customers, for example. Individuals should only think about their own bottom line. It's all that matters to them really, anyway - the me, here and now.It took some work for this ideology become mainstream, though, because Americans didn't always think this way. From the 1920s to the 1960s corporations were expected to take care of their workers and their communities. And citizens were encouraged to do the best for their country. Taxes were high, workers were well paid, <a href="http://www.businessinsider.com/ibm-corporate-america-history-2016-6">the middle class was built</a>, and America prospered.<div class="KonaFilter image-container display-table"><div><div class="image on-image">Wikimedia CommonsCheck out tax rates when America was "great."</div></div></div>But there were stumbles, and Friedman and his ilk took advantage of a major one in the 1970s: When the United States abandoned the gold standard and the price of oil exploded, neoclassical economist blamed regulation for the country's economic malaise. Protections for workers were undone. Unions were busted. And serious politicians started to argue that cutting taxes for the rich would benefit everyone as those cuts would incentivize the wealthy to spend more money that would "trickle down" to the rest of the populace.Former New York Times Editor Bill Keller put the results of this ideology in a <a href="http://www.nytimes.com/2012/07/30/opinion/keller-the-entitled-generation.html?_r=0">perfect paragraph</a> back in 2012:"In 1962, we were laying down the foundations of prosperity. About 32 cents of every federal dollar, excluding interest payments, was spent on investments, only 14 percent on entitlements. In the mid-70s the lines crossed. Today we spend less than 15 cents on investment and 46 cents on entitlements. And it gets worse. By 2030, when the last of us boomers have surged onto the Social Security rolls, entitlements will consume 61 cents of every federal dollar, starving our already neglected investment and leaving us, in the words of the study, with 'a less-skilled work force, lower rates of job creation, and an infrastructure unfit for a 21st-century economy.'"Neoclassical economic theory is behind all of this. It was behind the draconian budget cuts of the Reagan administration that also came with tax cuts for the wealthy. It was behind the Bush tax cuts too. It was also behind Clinton-era banking deregulation, namely the end of the Glass-Steagall Act, which sowed the seeds of the financial crisis. It is behind the growing wealth gap that has dragged our country down - politically and economically - for decades."The neoclassical theory of everyone acting selfishly does not get you to peace and prosperity," Stout told me over the phone. "The way societies prosper is by cultivating conscience."<h2>"Ask not what your country can do for you..."</h2>That, of course, begs the question - what is the American conscience?Neoclassical economics was developed, in large part, as a counter to communism. We are not communists. We are capitalists, the question is how we want to bring that to bear on society. Do we do it with violence, allowing the market to rip at the fabric that holds communities together - families, schools, shelter, health?Or do we do it generously, so that future generations can trust that their country will remain in tact?There is a very American way to engage in capitalism that also ensures that corporations take care of their workers, and the government takes care of its citizens. It's called "future preference," and President Bill Clinton referred to it in his <a href="http://www.presidency.ucsb.edu/ws/?pid=25958">acceptance speech</a> for the Democratic Party's nomination in July 1992:"...America was the greatest Nation in history because our people had always believed in two things- that tomorrow can be better than today and that every one of us has a personal moral responsibility to make it so..."Of all the things that George Bush [Senior] has ever said that I disagree with, perhaps the thing that bothers me most is how he derides and degrades the American tradition of seeing and seeking a better future. He mocks it as the 'vision thing.'"It was the lack of a 'vision thing' that made Bush promise that he would not raise taxes when he ran for President in 1988. Of course, he eventually did. Our economy demanded it and Bush was ultimately a pragmatist, not an ideologue.Unfortunately now, however, the ideologues are fully in charge of Washington. Baby Boomer Donald Trump, a man who bragged about not paying taxes, is at the head of the government. He's surrounded himself with economic advisors who will again cut taxes for the rich. He wants to appoint an Education Secretary who does not believe in making all public schools vibrant and competitive, but believes in allowing the market to dictate which schools should and should not survive (an abdication of our responsibility for the future in its purest form).What you will get from this, of course, are policies firmly rooted in selfishness.<div class="KonaFilter image-container display-table"><div><div class="image on-image">Mike Nudelman / Business Insider</div></div></div><h2>And now, my friends, we are in danger</h2>Stout called today's neoclassical economists "a generation of intellectual slaves."I call them "the people who brainwashed House Speaker Paul Ryan."Over the next few months Ryan will attempt to dismantle Obamacare and privatize Medicare. His plan to replace it involves just giving seniors a <a href="https://www.washingtonpost.com/blogs/plum-line/wp/2016/11/29/get-ready-for-a-big-messy-explosive-battle-over-medicares-future/?utm_term=.266d075c28bb">$20,000 voucher to pay for healthcare</a>. Of course, for many of our society's most vulnerable, that won't be enough. And who knows if they'll have insurance coverage to help them. The private sector does not prioritize the needs of our country's most helpless.So why do people think we should leave them to the unyielding hand of the market?Neoclassical economists believe that the private sector does things better because the incentives are more selfish. S0 why not let the private sector handle everything - even the most vital of human needs?Here's why: The incentive theory doesn't really work when the people being served are not also the people paying for the service. This is the case in education (taxpayers pay, students learn). This is the case with healthcare (insurers pay the bulk, patients decide when to see a doctor). In a selfish system, ultimately the payer's needs supersede everything else. We've seen this play out brutally in the case of incarceration. For-profit prisons have been such horror that the <a href="https://www.justice.gov/opa/blog/phasing-out-our-use-private-prisons">Justice Department decided to phase them out.</a> For-profit colleges have also been a disaster, last year the Department of Defense said it would no longer allow service members <a href="http://www.businessinsider.com/apollo-education-stock-slide-2015-10">to use their funds to attend</a> the University of Phoenix, the country's largest for-profit college owned by the Apollo Education Group.A Trump administration is expected to reverse a number of these decisions."All of our social cues are telling us to be selfish right now," Stout said. Baby Boomers love this because it means they do not have to consider the needs of others, or sacrifice for anyone outside their immediate networks. "And of course, very rich plutocrats support this because it allows them to continue being very rich plutocrats," she continued.There is hope, though. Millennials, a generation even larger than their parents, have grown up watching this selfishness in action. They watched how the recklessness of the housing boom and bust wreaked havoc on our society, and forced them to reach adulthood in a world where opportunity is shrinking. They do not benefit from the selfishness of their parents.And hopefully they will not emulate it either.The opinions expressed in this article are those of the author. <div class="margin-top"> <h3>NOW WATCH: <a href="http://www.businessinsider.com/richard-branson-entrepreneurs-government-lacking-2016-11">Richard Branson: Entrepreneurs need to fill the gap where government is lacking</a></h3> <div> <div> <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="V1dXVsNzE65h4lISR4rnnLRSgszALLD8" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div> </div> </div> </div>

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