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'Governments do not create wealth, companies and entrepreneurs do so'

On Thursday Gita Piramal released her second book Business Legends -- after her first successful book, Business Maharajas -- which is the story of four men who shaped Indian industry this century: G D Birla, J R D Tata, Walchand Hirachand and Kasturbhai Lalbhai.

Mukesh Ambani, managing director of Reliance Industries, and Dr Sumantra Ghoshal, Robert P Bauman Professor of Strategic Leadership at the London Business School were the chief guests at the function. Both of them debated 'Creative Destruction', the philosophy of how new changes destroy the old system to create a new system for the benefit of the current generation. Rediff On The NeT presents their illuminating exchange:

Mukesh Ambani

Creative Destruction is an ancient Hindu philosophy. Brahma the creator, Vishnu the Preserver and Shiva the destroyer are embedded in our basic culture. And, I believe the philosophy of destruction is to universally destroy and create new things for the better. Let me look at the labour issue first in India. Just a few days ago I met parliamentarians and discussed with them the labour situation.

There are nearly 10 million people working in government-related jobs. And we are protecting them at the cost of another 300 million people who are going to add to the workforce in the next 20 years. And to provide these people jobs, we need to attract more investments and create more jobs. Today, these 10 million people are the elitist workforce in our country and because of them no one is able to do anything about the 300 million people who are going to add to the workforce. So, I feel that we need to have an equitable policy. And, I would like to ask you where the process of creative destruction has to begin. Maybe we can have contradictions.

Professor Sumantra Ghoshal

I feel what is happening today is that the entire legislature is protecting the past and the concept of stability. I mean, if you check the labour-related laws and all, they protect the existing laws rather than protecting the forces of change.

Today, I spent the morning with a former manager in Indian Oil. He told me the only way to change the bureaucracy is by radical change. And, I completely agree with him. Things won't change until and unless radical change is brought into the system. If tomorrow, Reliance ceases to be competitive there is no guarantee that Reliance will exist forever.

If you look at history, it has happened in many countries and companies. If Reliance wants to exist forever, then the only thing Reliance can do is to develop skills and win a place in market. And that is your job, Mukesh, to build the competitiveness of Reliance.

When I say these words to people in India, they tell me it looks very idealistic but it can never happen in reality. Just look at history and I am sure you all will realise that things have changed. And, I sincerely believe that the industrialists sitting in this room have to play a profound role in making this change. Agreed that the government may have not done all it could have, the bureaucrats and trade unions may have not done so too. But, I think the top management of Indian companies have equally not done so.

Mukesh Ambani

I feel that apart from Indians and most of our counterparts, we have an attitude that as long as we continue to do the same job, everybody is very comfortable. But we cannot go on protecting the 10 million jobs. Look at what is happening because of these 10 million jobs. They are creating a problem of fiscal deficit for the government as 30 per cent of the its income goes in paying salaries to these people. And because of that the role of the government has been reduced to that of a facilitator rather than that of pushing the economy.

Professor Ghoshal

Mukesh, that part is an easy for you to mention. But I would like to know what about the capital market? I feel that the same logic should be included for the capital market. There should be a free capital market. And somebody should be able to come and bid for Reliance. If somebody is stupid enough to bid for $ 40 billion, they should take over Reliance and manage Reliance. How would you response to this?

Mukesh Ambani

Yes, I agree with your point.

Professor Ghoshal

Let's come to Creative Destruction. If you talk of Indian companies in terms of value creation, their performance is actually very bad. But on the contrary, if you look at them growth-wise, they have done very well. Today a vast majority of family managed companies except Reliance and Bajaj have systematically destroyed themselves in India in spite of the fact that they had the brands and terrific distribution network.

Mukesh Ambani

I think the Indian industrialists had a lot of 'I' in them, the attitude of it's me who controls the company. We have to recognise that this is a transition period. And today most Indian businesses don't think in terms of a successor. When I joined the industry, I was told that I will have to prove my managerial capability, only then can I get recognition. And, one can see there are ample examples of where people have not used their managerial capacity and the markets and the investors have severely punished them. So, we have to look at things with a view that the attitude of 'I' has to disappear.

Professor Ghoshal

I must mention that this is not the right place to mention this. The industrialists in the audience are almost converted from this 'I' attitude. I will give you an example of my life when I grew up in Calcutta, in a middle class family. And my family told me that only if I do not get any job, should I try business. But this is Bombay, and people in Bombay accept and respect the value of enterprise. From what little I know of this country, except Rajasthanis, a large part of this country feels that risk-taking is not legitimate. So, I feel there is an absolute microscopic minority of people who are enterprising in India and out of them some of them are sitting right here.

Governments do not create wealth. It is the companies, entrepreneurs and managers who create wealth. The last five decades have seen the enormous progress made by the West. Progress has not been created by politicians and not by scientists. But the wealth has been created by entrepreneurs and managers. They are the principal source of value creators. I tried my best to convince my father, my mother and wife, but have always failed. And, I think till such time you win that battle, it is very hard to win the battle of creative destruction.