I feel more and more agitated and restless nowadays. The expose of so many of the corporate scams that have been going on for so long is proving my intuitions right – that the current system of governance (the skewed free market system with so called government controlled regulatory authorities) in place across the world breed crooks more often than not. I am not at all happy about the situation though it sometimes feels good that I have personally always stayed away from investing in stock markets as I have always felt uncomfortable and did not believe in the hype and the fictitious-credit induced bubble that was going around. My instinct said these are not real and later my analysis guided me to discover the root cause of all this as I wrote in my last post “the skewed free market world we all live in“.
Just yesterday, I was chatting with our auditor about some money we want to send to our newly opened US subsidiary and the amount of paper work that is involved in India to get that done. It is worth mentioning that it took almost ten days for us to send a mere $6000 as capital investment to our US subsidiary as our bank kept asking for more and more documents from us to satisfy the regulatory authorities – which in this case is the reserve bank of India (RBI). While speaking to him we were discussing the topic of the corporate scams and how the regulations to prevent the scams make it harder for genuine and honest companies to do business in an efficient manner. In that context I made a comment to our auditor on how the current skewed free market system breeds crooks and how it is similar to the way the current democratic setup, which gives lots of power in the hands of the government, breed only crooked politicians to compete for high offices. It is my contention that the need for regulation arises because of the skewed free market system, with government doles and regulations, which is in vogue across the world. In a true free market there will not be a need for government regulators and private citizens, out of necessity, will learn to be vigilant enough not to fall for fraudsters. And this system will automatically discourage crooked and fraudulent behavior. Of course, there will always be crooks in any society but their ability to do big long term damage would be very minimal in a true free market system because their powers are very limited anyway.
This discussion with my auditor was before I heard about the Satyam Computers scam which was revealed yesterday. Within in an hour after my discussion with our auditor I read about the latest corporate fraud by Satyam Computer Services and how some analysts and the media were predictably talking about how these scams can be prevented with more government regulations. One analyst in a news channel even went to the extent of saying that may be private auditors cannot be trusted and that we should appoint government auditors to audit the books of publicly listed companies. These knee-jerk comments and reactions are worse than the scam itself. At least in the scam a few investors lose money, learn their lessons and become extra cautious in the future. We should realize that how much ever regulation you have the crooks will always find a way and it only breeds more and more crooks as it becomes impossible for genuine and honest people to do anything worthwhile. Tougher regulations will only encourage more and more corruption and make the small time crooks aim to become big time crooks, as the only way around the system will be to game the system. Most good and honest people will stay out of doing anything worthwhile and will be forced to settle for the crumbs. There is enough empirical evidence we see in real lives but we all refuse to acknowledge that and think that if you give more power to the government these things will somehow stop. In fact, what happens is the reverse; as the government gets more and more power the crooks actually end up in the government because that is where it is the most profitable and the risk of getting caught is minimal. More regulation also actually gives gullible citizens a false sense of security and they start believing that because there is a regulator overseeing everything, we will all be safe from fraudsters. This actually gives room for bigger fraudsters to emerge. Without regulations and government meddling, private citizens will be more watchful and would ask the tough questions before parting with their money. And that will actually expose smaller fraudsters before they could commit big frauds which can be much more devastating. As I said before, the more the power the government has, more of the bigger crooks will end up in the government and that is much more dangerous as they can cause very long term damage to whole societies.
Why is all this relevant for us as a business? It is relevant for us because all these excessive regulations to prevent fraudsters are actually increasing the cost of doing business for us and it also makes us more inefficient. The crooks anyway find a way through all these mess and game the system. And we end up being the victim because we have no inclination or skills to game the system. That is, most honest businesses would rather remain small than to succeed by hook or crook. It is time we all fought against this so called “more government regulation” menace or else we will all be perpetually cursed to pick up the crumbs left over by these crooks who eventually end up in the government and run our lives.
