When garment manufacturer, the Kitex Group , recently announced that it was rethinking its plans to make fresh investments in its home State of Kerala, nine other States competed to win its favour. They offered it financial incentives and other sops. The company chose Telangana ; the State had not only offered it the “best deal” but also sent a plane for the company leaders to travel to Hyderabad and meet the Minister for Industries. Kerala’s often toxic trade unionism has been the major factor in derailing the industrial ambitions of the State. But beyond the industrial climate of Kerala, the Kitex episode mirrors an ongoing global bargain between capitalism and democracy.
Key questions
The foremost industrial societies are grappling with this question, and the G7 countries have taken the initiative to move towards a global minimum tax on corporations and to obligate companies to pay more taxes where they operate also as opposed to where they are headquartered. At the heart of the debate are two questions. First, how does a capitalist enterprise relate to the political and social organisation in its location? Second, how do different jurisdictions compete for investments, and at what social cost? Now, a recap of the Kitex story with reference to these questions.
Kitex is primarily export-oriented and counts American retail giant Walmart among its global clients. Located in the Kizhakkambalam panchayat near Kochi, the company employs nearly 10,000 people, most of them from outside Kerala. In 2015, the corporate social responsibility activities of the company took a political form. Under the banner ‘Twenty20’ Kizhakkambalam, it fielded candidates in the local body elections, in a sensational move. It won 17 of the 19 seats and took control of the panchayat . In the 2020 local body elections, it captured power in three more panchayats. In the 2021 Kerala Assembly elections, Twenty20 fielded candidates in eight segments and performed well, though nobody won. Along the way, in 2020, the group had announced ₹3,500 crore of fresh investments in the State.
Things suddenly turned turtle after the May Assembly results; the company said that the 11 inspections it had at its sites in the month of June were nothing but harassment. The government said these inspections were in response to specific complaints regarding human and labour rights violations. The company chairman berated the investment climate in Kerala. At the end of it all, Kitex announced its decision to move to Telangana.
Compact of social control
The regulations that cover labour relations, the environment, and natural resources and taxes make up the compact of social control over private enterprises. The social compact between capitalism and democracy is negotiated through elected representatives and bureaucrats. This negotiation turns out in practice to be legal and illegal, and through formal and informal means. Rules are there, but bribes and political donations are also a part of it. In places where democracy is dispersed and political action is multilevel, such negotiations become more complex. For instance, in Kerala, even the Chief Minister is unable to enforce everything that he thinks appropriate — a point that the Kitex chairman has repeatedly made. It is in places where the chief executive has untrammelled power that all decisions are at the ‘single window’.
Based on all these considerations, the investor has to make his decisions at two levels — where to locate the capital, and how to deal with the social and political issues there. As American States began to compete with one another to attract investors, the phrase ‘race-to-the-bottom’ came into use in the early 20th century, denoting the competition to please capital, and overlook other factors such as the environment and labour. This race turned global towards the end of the century. Countries, and jurisdictions within countries, are encouraged to compete with one another. In 2015, India partnered with the World Bank to launch the Ease of Doing Business ranking of States, following the global ranking model.
The investor friendliness of a State is often reduced to its willingness and capability to override the interests of the labour, environment, and indigenous populations. How tax concessions impact State capacity is a linked question. With States losing most taxation powers, tax concessions are not a viable allurement that they can offer any more. Jharkhand is ranked five in the Ease of Doing Business ranking;; Kerala is at 28 . The previous government of Jharkhand would jail 3,000 Adivasis who claimed legally guaranteed rights under the Panchayats (Extension to Scheduled Areas) Act (PESA) and the Forest Rights Act (FRA). The fight for their legal rights led Jesuit priest Father Stan Swamy to imprisonment and death in custody at the age of 84, recently. In the poverty score card (out of 100) in the Sustainable Development Goals Index 2019-20, Jharkhand is 28, while Kerala gets 64.
The American example
Before the rise of globalisation, the capitalist had to negotiate with the political system at its base. The influence of corporations in U.S. democracy remains a contentious topic. In 2010, the U.S. Supreme Court allowed unlimited election spending by corporations and billionaires. They promote or undermine particular causes and personalities. The Kitex group took this model to a step further and directly captured political power in four panchayats, even as complaints of pollution rose against it. Not stopping there, its chairman proposed that bigger companies should follow his model and take over political administration across the country. But controlling four panchayats did not amount to control over the overarching political system. Hence, relocation.
The story of globalisation is a story of capital’s enhanced capacity to flee from the shackles of too much democracy to places that are well-controlled under a strong regime, where all clearances are available at a ‘single window’. Investments moved to places where environmental regulations are lax, wages are low, labour standards are weak, and dissent is answered with an iron fist. This was working perfectly until its ripple effects reached the shores of western democracies. Now the West is waking up to the challenge and the G7 move is an acknowledgment of the crisis. U.S. Secretary of the Treasury Janet L. Yellen now talks about the “working class”. “That global minimum tax would end the race to the bottom in corporate taxation, and ensure fairness for the middle class and working people in the U.S. and around the world,” she said recently. This would also be “encouraging countries to compete on positive bases, such as educating and training our work forces and investing in research and development and infrastructure.”
Need for a national standard
Rather than vilifying Kerala for its alleged hostility to investments and glorifying the opportunism of capital, the need of the hour is to discuss the requirement of a national standard for corporate governance, environment and labour, alongside the forceful implementation of the laws that guarantee the rights of indigenous communities in the development process.
It is ironic that India is encouraging competition among States as a route to development at a time when the most advanced industrial societies are realising the limits of competition and pushing for better global standards in labour, environment and taxation. Turning the development aspirations of States into a modern-day gladiator sport is hardly in line with the slogan that we are asked to repeat — One India.
varghese.g@thehindu.co.in
