Why Healthy Corporate-Regulator Tussle is Good for Free Market Capitalist Economies
What the Resignation of Urjit Patel Means for the Corporate Regulator Tussle in India
Recently, in India, the RBI or the Reserve Bank of India and its former governor, Urjit Patel, were in the news for their resistance to encroachment on their powers by the Government of India.
Separately, the RBI and Patel were also facing flak from the private sector for its efforts to clean up the bad loans or the NPAs or the Non Performing Assets on the Balance Sheets of the public sector banks.
Indeed, the tussle between the preeminent regulator of Indian Finance and the custodian of the countrys money and the Finance Ministry and the Private Sector was so intense that it ultimately led to the resignation of Urjit Patel.
Leaving aside the other specifics and details of this saga, what this case highlights is the constant see-saw battle between corporates and regulators that is the characteristic of any Free Market Capitalist Economy.
While in the advanced countries of the West, the corporate regulator tussle plays out in various ways, in India and other Asian countries that are emerging, it is usually the private sector that has the Upper Hand.
Healthy Corporate Regulator Tussles are a Sign of the Maturity of the Economy
It is the contention of many experts and economists that the Creative Tension between corporates and regulators is a sign of the maturity of an economy and as long as the contest between them is healthy and fosters more responsibilities on either, such aspects bode well for an economy.
The reason for this is that Capitalism is usually marked by a periodic Boom and Bust cycle that is inherent to the very fabric of free market systems.
This is because capitalism works by creative destruction wherein there is a manic boom followed by a depressing downturn where the poor performers are weeded out due to the Hidden Hand that drives markets.
In such cases, the job of the regulators is to ensure that the ordinary people do not get hit either during the boom when they can be suckered into Ponzi investments or during the busts when there is a real possibility of their hard earned money and their savings becoming the casualties of bank failures and stock market crashes.
Indeed, this is the reason why governments worldwide usually give more Teeth to the regulators since by definition; both of these stakeholders are in place to protect the interests of the common men and women.
Regulators in Action during Calm Periods
Having said that, it is not only during crises that the regulators and the corporates are engaged in battles.
Even during relatively calm and sound economic conditions, it is the job of the regulators to oversee the launch of new products, the methods, and the marketing strategies adopted by the corporates, and monitoring the quality and the safety of the products that are being used by consumers.
Indeed, in the United States, there are as many numbers of regulators such as the FDA or the Food and Drugs Agency that keeps a close watch on the medicines and the other associated food and drugs that are being launched and used.
The mandate of the FDA is to ensure that Big Pharma corporates do not launch substandard products or push unsafe drugs into the market.
Indeed, the FDA has become known worldwide for its stubborn insistence on multiple layers of checks on the type and the quality of the food and drugs that are being launched into het market.
Further, the EPA or the Environmental Protection Agency is another regulatory body that oversees environmental issues wherein it monitors the activities of the Big Oil firms and the other manufacturing firms to ensure that their business operations are not unduly harming the environment.
Regulators Must Not Become the Dogs that Did Not Bark
What the preceding discussion shows is that, capitalism needs both corporates and regulators to keep the momentum going and hence, the state of balance between them determines the extent to which the economy is working for all and not for a few.
Having said that, it is a matter of concern for all stakeholder and especially the consumers that in recent years, the pendulum has swung to the side of the corporates who are now facing little or no constraints on their activities which in turn, is making the poor and the underprivileged suffer.
As can be seen from the actions of the regulators in the build up to the Global Financial Crisis of 2008, the regulators have been criticized for not doing much both in the years preceding the crisis as well as during the aftermath.
They have been likened to the Dog That Did Not Bark when the Thieves were Looting the Economy.
This is indeed a cause for concern to anyone who has a stake in the future. What is more galling is that under President Trump, the powers of the regulators are being Whittled Down to an alarming extent which can only lead to peril in the future.
Voters Must Take a Stand during Elections
Lastly, while Urjit Patel may have resigned to protect his reputation as well as to soothe and assuage his conscience, it is sad that we are not drawing the right lessons from this avoidable mess.
Indeed, this is more the reason for the present and the upcoming generations of youth and the future voters to take a stand against the Predatory Practices of Corporates so that their futures are bright.
To conclude, the fine balance and the healthy tussle between corporates and regulators is needed and whenever, it skews off balance, it is the job of the governments to right the asymmetry and more importantly, it is the duty and responsibility of the voters to demand such interventions.
|❮❮ Previous||Next ❯❯|
Authorship/Referencing - About the Author(s)
The article is Written By Prachi Juneja and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
- Corporate Finance - Introduction
- Nominal and Real Value of Money
- Fundamental Rules of Corporate Finance
- Present and Future Value of Money
- Net Present Value Calculations
- Compounding Intervals and Interest Rate
- What Are Negative Interest Rates ?
- The Consequences of Negative Interest Rates
- Opportunity Cost of Capital
- Valuing Cash Flows in Different Periods
- What is Perpetuity ?
- Growing Perpetuity
- What is Annuity ?
- Ordinary Annuity vs. Annuity Due
- Types of Annuity Calculations
- What is Bond Valuation ?
- Bond Market Conventions
- How Interest Rates Affect Bonds ?
- Stock Valuation Models
- Discounted Cash Flow Approach
- Assumptions During Stock Valuation
- What is Cost of Equity ?
- What is Payback Period ?
- What is Internal Rate of Return (IRR) ?
- Problems With Using IRR
- Capital Rationing & Profitability Index
- Types of Capital Rationing
- Capital Controls: Meaning, Types, Benefits and Downside
- Estimating Project Cash Flows: Part 1
- Estimating Project Cash Flows: Part 2
- Estimating Project Cash Flows: Part 3
- Capital Budgeting and Inflation
- Capital Budgeting and Depreciation
- Equivalent Annual Costs
- Investing and Financing Decisions
- Getting Creative with Capital Budgeting
- The Fallacy of Creative Destruction
- Companys Risk vs. Project Risk
- How Governments around the World are Bankrupting Future Generations for Present Consumption
- Role of Credit Rating Agencies in Determining Attractiveness of Companies and Countries
- Federal Reserve Announcement to Taper Quantitative Easing
- How Do Funds Transfer Systems Work
- The Importance of KYC (Know Your Customer) Norms and Procedures in Banking
- Difference between Corporate, Retail, Investment Banking, and Private Banking
- Impact of Geography on Banking and its Functions
- Functions of a Central Bank in Modern Economies
- Lease Rental Discounting
- Lending Against Intangible Assets
- Real Reasons behind FDI in Retail in India
- Microfinance: A Cure for Poverty
- Microfinance: Indebting the Poorest in the World
- Behind the Scenes of an Initial Public Offer (IPO)
- Pros and Cons of Going Public
- Snapchat IPO: Is this the New Tech Bubble ?
- Benefits of Delaying Profitability
- Why Do Corporations Get Away With Tax Avoidance ?
- After Effects of the Nirav Modi Scam
- The Panaya Acquisition
- The Flipkart and Wal-Mart Alliance
- The Worlds Largest IPO
- Initial Coin Offerings: A Primer
- The Aftermath of the Qualcomm Deal
- What are Demergers: Its Pros and Cons
- Benefits of a Holding Company
- The Economics of Lawsuits
- Protectionist Sentiment over Flipkart Takeover
- The Impact of Tariffs on the Energy Sector
- Venture Debt A Primer
- Interest Rates and Automobile Sales
- How Should Companies Communicate With Wall Street?
- How an Interest Rate Hike Will Affect the Government of USA
- Is Tesla Close to Bankruptcy?
- Myths Surrounding Toys R Us Bankruptcy
- The Economics of 'Soda Taxes'
- Why Elon Musk's Tesla Should Go Private and Why It Won't?
- Why the Xiaomi IPO Failed?
- How A Whatsapp Message Nearly Took Down A Company
- The Case for Index Funds
- The Sears Bankruptcy
- The Socialization of Losses
- The Sudden Downfall of IL&FS
- Why Healthy Corporate-Regulator Tussle is Good for Free Market Capitalist Economies
- What Happens When Businesses Go Bankrupt? Insolvency, Aftermath, and Recovery
- Alibabas Singles Day
- Ubers New Businesses
- Goldman Sachs and the 1MDB Scandal
- The Amazon Divorce
- Are Index Funds Not A Good Investment In India?
- Can Brick And Mortar Stores Compete With Amazon?
- Why is the Fed Still Raising Interest Rates?
- Problems Related to Facebook, WhatsApp, and Instagram Mega Merger
- The Whatsapp-Facebook-Instagram Merger
- What Is The DHFL Scam?
- Financial Troubles In the Fracking Industry
- Flipkart Circumvents Indias FDI Norms
- Subprime Automobile Loans in America
- The Jaguar Land Rover Debacle
- The Kraft - Heinz Fallout
- Why Uber Should Be Regulated?
- Is Regulation of the Tech Sector Long Overdue with the Tech Giants being Too Big
- The Fall of An Ambani Scion
- Litigation Funding: A Primer
- The Finance behind the Plastic Problem
- The MasterCard Visa Duopoly
- Is the Lyft IPO Overpriced?
- The Alliance between Car Companies and Ride Hailing Apps
- The Amazon Divorce Deal
- The Lawsuit Between Spotify and Apple Corporation
- The Story Behind the L&T- Mindtree Takeover Bid
- Do IPOs Affect Competitive Firms?
- Can Cost Cutting Turn Out To Be Expensive?
- The Economic Impact of Facebook Outage
- The Apple-Qualcomm Legal Battle
- Cross Border Credit Reporting
- The Sudden Deluge of Unicorn IPOs
- The Wow Airline Debacle
- The WeWork Business Model
- Problem with Private Securities Offerings
- The Amazon FedEx Breakup
- The Decline of the Big Corporation
- The Gap-Old Navy Breakup
- Apples Acquisition of Intels Modem Business
- Mergers and Acquisitions: A New Perspective
- The CBS-Viacom Merger
- Why are Corporations Hoarding Trillions in Cash?