India - Private vs Government Sector

Last weekend, I was part(mostly passive), of a passionate debate on the topic of Govt sector vs Private sector in India. Since the backdrop of this article is the debate- a vigorous and emotive one, and in a typical debate its natural for humans to act as human means to be sometimes angry, cynical, liberal and sometimes belligerent. So I would start this thread with the following quotations applicable to above mentioned emotions.

Anger is the feeling that makes your mouth work faster than your mind. -Evan Eser

A cynic is a man who knows the price of everything but the value of nothing. -Oscar Wilde

A liberal is a man too broadminded to take his own side in a quarrel. - Robert Frost

A long dispute means both parties are wrong. - Voltaire.

Mainly the facets touched (and torn as well) were as follows.
1. General perception about govt and private sector workforce, culture, excellence accountability etc.
2. In order to conjure up the big picture, can we generalize the entire govt/private sector? Will this gross generalization will lead to loss of unique identities?

3. Whether "Cream of India is in Govt sector or in Private Sector"?

Even though the impulsive arguments, boisterous counter arguments, heady quips, brash and smart one-liners accentuated with appropriate intonation, all brimming with passion threatened to hijack the discussion at times , yet thankfully the debate did not go much off the track. This offered me an opportunity to listen up the thoughts discussed, to discount the arguments by the locality/biases because of limited individual experiences, before drawing some positive conclusions.

For normalized analysis I thought of following parameters for side by side comparison.

1. Fundamental Difference beteen private and public sector.

Relative assessment with respect to the following parameters in the India context.

2. Responsibility - Challenges of Scale, diversity and complexity
3. Accountability - Business, Social
4. Competitiveness and Entrepreneurship
5 Culture - Operational Excellence, Quality, Customer satisfaction, Drive for consistent excellence, tolerance for non-performance, Employee care and stability.

Some Introductory Numbers -

Before even starting the real discussion, I will start with some facts. India has around 300 thousands industrial establishments which employ the entire organized sector workforce. Almost 60% of these are public secter enterprises and 40% are private ones. India has approximately 30 million organized workforce ( public and private combined), out of this around 70% are employed in public sector and rest 30% are in private sector.
So this brings out the first difference in terms of scale - The public sector employment is roughly 2.5 times that of size of private sector. For the sake for providing more context of the debate(Govt R&D vs IT companies in India as it was broadly discussed), out of 30 million of all public sector, number of government employees is about 4.5 million, even further the collective R&D employment (engineers/scientists in the field of science, technology, engineering) within India including all gems (ISRO, DRDO, NPLs, and lot others) is less than around 40K ( not including the engineers in state depts for this discussion which also will not exceed 40-50K independently), which represents roughly around less than 1 percent of all government employees, and roughly around 0.25% of all public sector employees.

One the other hand the India IT employes arond 1.6 million people, provides around 5.5% of India's GDP and out of this 1.6 million around 40-50 K are employed with MNCs, which is around 3% of the total IT population in India. With this rough introduction of the scale I will start with the original premise of the debate.

1. Fundamental Difference between private and public sector.

Typically I see the public/govt sector as the socialism response to the nation development and private sector is result of capitalism. I find following to be the definition of the socialism and capitalism.

Socialism refers to a broad set of economic theories of social organization advocating collective ownership and administration of the means of production and distribution of goods, and a society characterized by equality for all individuals, with an egalitarian method of compensation.

Capitalism is an economic system in which wealth, and the means of producing wealth, are privately owned. Through capitalism, the land, labor, and capital are owned, operated, and traded for the purpose of generating profits, without force or fraud, by private individuals either singly or jointly, and investments, distribution, income, production, pricing and supply of goods, commodities and services are determined by voluntary private decision in a market economy.

I find the following three to be important criterion for the differentiation.

1. Spirit of entrepreneurship
2. Motivation by profits
3. Social Responsiveness

While most public sector and government sectors drive the social accountability and nationalistic agenda and thereby award their employees not only in monetary terms but also instilling the feeling of nation building directly or indirectly. However the public sector ( non-government) are like midway between our government sector and wholly private enterprises. They enjoy more autonomy than the government departments but still are less entrepreneurial than the private sector counterparts. On the other hand the private sector foster the culture of entrepreneurship, carry the capitalistic agenda and are in general accountable to the stake holders like share holders.

Devil's Dictionary's author Ambrose Bierce defines Corporation as follows.

CORPORATION, n. An ingenious device for obtaining individual profit without individual responsibility.

Thus clearly we see the DNA of the two sectors is different, thus it must engage the workforce which is primarily aligned with the core values of the respective cultures and it will be grossly unfair to put them in the same basket even for the academic comparison.

2. Responsibility-

Most of the PSU and government sector carry the broad agenda of nation building in different and specific ways. Keeping this nation building mission and social accountability in the core they build their structure around.
In order to correctly understand the difference between the responsibilities, one must realize that the real difference comes, not from what they do but why they exist.

Keeping this in mind, the government sector carries the prime responsibility of making change in the lives of millions either by employing them or by serving them. And this puts their responsiblity of functionally excelling in whatever they do as the second or probably lesser priority.

Whereas the private sector's prime responsibility is to earn profits and there by creating consistent value for the shareholders. This indirectly beckons them to operate or rather excel in the specialized function of producing, marketing, selling something with highest level of efficiencies.

This also means that by definition government sector is not as much focused and committed to the operational excellence as sector is. This is true especially if the government sector is confronted with their higher priority of serving the nation building and enriching the quality of lives of the people. For example given a choice, a government company will never think of firing 100 people for improving its operational efficiency whereas for private sector this hardly is the problem.

Now in the contexts of India, which is a enormously huge country as since government is the first owner of the national resources, the public sector responsibilities are primarily huge and complex because of sheer scale. Its not the functional nuances but the scale of operations which puts them apart.


3. Accountability

While government sector is accountable to government which is indirectly the caretaker of the public interest at large. Whereas the private sector is accountable to the shareholders only, however it has to always abide by the same set of legal framework which are developed by the government and in which the government sector also operates.

While this sounds noble so far, but this also limits the public sector in multiple ways in directly competing with private counterparts in the department of productivity, accountability, transparency, efficiency and quality of inputs.
For example they have to abide by the rules of caste based reservations but private sector has no such liability. Because of being less modular and socially driven, Public sector is poor in ensuring the individual accountability. Whereas the private sector clearly sets the goals for the employees and hold them directly accountable for any deeds/misdeeds. Private enterprises are not plagued by the social accountability and thereby putting holes in their balance sheets. They operate not to serve but to earn profits legally.

4. Competitiveness and Entrepreneurship

Avoiding repetitions, needless to say in this department private sector is the way ahead than the government sector. It does this not by choice by design. Theory of corporate existence or competitive markets is based upon this fundamental principle, that is why Adam Smith in 1776 propounded the capitalism to be the founding principle of nation building identifying the glaring holes in the model of socialism.
Following is the exact text quoted from the father of modern economics - Adam Smith in this regard.

As every individual, therefore, endeavors as much as he can, both to employ his capital in the support of domestic industry, and so to direct that industry that its produce maybe of the greatest value; every individual necessarily labors to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.

Though I do not need to add anything after this, but just to elaborate the point, the government owns the national resources, like a son enjoys the resources of the father. Thus in whatever function it pursues the competition can never be the same as with the one who started fromt he scratch. however this analogy holds good only for the production based function. For the function of regulatory bodies where the main agenda is the policy making, administration, guarding the social interest and etc, there is not competition from the private sector as they are not even entitles to enter into this domain

5. Cultures

In this section I will briefly touch upon the various issues like Operational Excellence, Quality, Customer satisfaction, Drive for consistent excellence, tolerance for non-performance, Employee care and stability.

Here clearly within the realm of functions of production (concrete input, output model) in a profit based model, Private organization are much ahead then their government counterparts because of their reason of existence and fight for survival. Its like even a non athelete can clock his life time best for running if a violent dog is chasing one. So its not by the choice but out of sheer compulsion to survive, earn profits consistently which makes private sectors better in this sector.

In other words for the similar functions (production model in a profit based model) the government sectors are full of chalta hai attitute leading them consistently southward. The example of these sectors is like natural resources production, engineering, electricity, infrastructure developments, civil supplies, health care and education.

They do not feel the competition, their jobs are secure, their families are taken care of with the pension, their labor rights are well protected within law which collectively makes them think like a governor and treat the people, which they need to serve, as their servants.

But in the sectors of non-profit based model, the things are entirely different. The examples of these are law and order, justice, regulatory bodies, science and technology R&D organizations.

Though these department also enjoy the de facto bounty of regular benefits as outlined in the above section, but there owing to highly qualified workforce and enormity of challenge in complexity, huge investment of powers in respective ranks, the cultures starts deviating from the typical chalta hai sarkari attitude.

But even here the system acts merely as a facilitator for encouraging people to excel, it still does not strictly enforce unlike the tiniest private enterprise. Now its up to the individuals to be self-motivated to a large extents. But one clear difference is that though these departments do not immediately fire people of low productivity but are relatively more driven by meritocracy and encourage the bright people by recognizing them.d

For example, the real difference between ISRO, DRDO or BARC, IITs, IIMs, IIScs and other state run and owned science/engineering institutions is primarily hinges upon the following factors.

1. Better quality of input, thereby better culture to encourage the performers

2. Exposure to global competition

3. Exclusivity in huge funding

4. Relatively higher autonomy from the typical government bureaucracy.

5. Since focused into the niche areas, there is negligible public dealing and political intervention.

This summaries, that when a group of high caliber people, assembles to achieve something big in a focussed area and funding is hardly an issue, and on top there is little structural (bureaucratic, political social etc) interventions, the group is bound to excel. These are typical qualities of focussed private group also. However these systems (government systems) still operate based upon encouragement of better performing resources and less strict in weeding out the laggards which is in stark difference than the private sector counterparts.

I mean in the crude way if hundred people are allowed to race with an assured thirty years salary+pension+health care+other benefits to all the runners, plus special recognition for the the top 10 winners, I would presume that majority will not be actively competing for the top honors.

However if the same set of people are being chased by a hungry tiger, and there is no assurance to all the racers thought there is also a similar award for the top ten survivors, then I would assume all to give their best shot, if not being a winner.

This primarily sums up the main difference in cultures of private and even these premier non-profit driven government organizations.

Now I am addressing the final remaining question for this debate.

Whether the cream of India's Intellect is in private sector or public sector?

Since this topic alone could be touchy and itchy to many, I would like to set the basic premise of this question unambiguous. By cream here we mean the top 1% talent in the respective fields. Though I remember the following quotation about the greatness of minds.

Great Minds discuss ideas. Average minds discuss events. Small minds discuss people.
Eleanor Roosevelt.

We have various instruments to measure this tangible greatness like competitive exams and furthermore the proven track record of successful handling of challenges which are globally recognized for the sheer complexity.

If I broadly define the streams into science and humanities and furthermore sub divide the science into the fundamental science, applied science, engineering and technology. I can similarly also sub divide the humanities into fields like economics, management, administration, law, creative arts, history, sociology and political science.

I am doing this fine classification to make clear that "Cream" is not only the mind which is good in maths, it can also be a person who can make laws, interprets them and pronounce justice which helps in retaining the roots of multicultural society intact.
So largely cream is a relative terms more applicable to the specific stream and overall they have their relative (less or more) importance for the job of nation building.

Based on this classification, I believe, majority of the cream in the field of science, technology and management does not work inside India. The second rate in these domains is controlling the giants in the government sectors and a relative minority in this fields are controlling and driving the nascent private sector in India.

When I say that the cream in science and technology is not in India, its is worthwhile what it has left for. It had left for the places with higher autonomy, more direct return for their contribution, respect for non administrative ranks and largely a society based upon the relative merits. More often than not, these people have landed upon the private enterprises in the US and Europe and other parts.

Its noteworthy that this is true only for the present nascent state of private sector in India, which is fairly younger in comparison. With more liberalization the private sector hopefully will not only be able to reverse the brain drain but also attract the second rate people also thus collectively attracting the majority of cream in these sectors.

However, for the other streams which I have already mentioned, the cream is very much in India and certainly not in private sector and in some of the domains like administration, law and order, regulatory bodies like SEBI, RBI, election commission etc presence of private sector in any country is inconceivable and these are not the areas of profit loss model.

However a parting twist to this "Wisdom of Crowds" by James Surowiecki, claims that a groups of average people consistently outsmarts a relatively much smaller groups of so called experts and that is what he prefers to call the collective intelligence quotient of the average crowd, which always outdo the much smaller ensemble of more focused expertise. From this angle, the average quality of people (because of sheer focus upon competitiveness, excellence and efficiency and therein promising higher and direct monetary compensations) choose private sector as the favorite addresses along with the most brilliant minds, though not true completely for India because of being fairly new to the world of capitalism.

Now if India continues to tread on the path of controlled liberalization, this trend of stronger private sector may offer as better destination for the people who want to work in the production model. After all the brain-drain fed to private enterprises across the world, so if our private sector is allowed to grow on the similar patterns, I do not see why the cream will not start coming back in join Indian private sector.

As a parting shot, I believe a great mind is also by definition a free mind, and a free mind needs a free structure to operate in.

Typically the government structures amputate this freedom by putting lots of hierarchy and private sector crush these freedom by subjecting this to inferior motives of profits maximization in the quarterly approaches. But given the private sector's more emphasis on competitiveness and entrepreneurship, the probability of private sector to have more chunk of greater minds seems more plausible.

Having said that this statement is not applicable to prevailing Indian environment where we clearly do not have such private or government organizations.