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Making local sense of food, urban growth, population and energy

Now playing, the management firm for poverty

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There is a new contributor to an old subject in India. The subject is poverty, and the newcomer is a management consulting company. This sort of company has no experience with such a subject, however the McKinsey Global Institute – which works as “the research arm of consulting company McKinsey” – has not been short of advisors on the matter.

What does this consulting company say and why should we keep an eye on their activity in this subject? This institute has issued a report called ‘From poverty to empowerment: India’s imperative for jobs, growth and effective basic services’. The proposal, unabashedly touted as new thinking, is that India should focus not on a poverty line but on a “more comprehensive measure of what it would take to satisfy a person’s basic needs for food, energy, housing, drinking water, sanitation, healthcare, schooling and social security”.

This new thinking – presented as a startling innovation in the same way that a new brand of running shoes or some such frippery is launched – is called an “empowerment line”. This ‘line’ has been placed at Rs 1,336 rupees a month – which McKinsey points out is about 50% higher than the national official poverty line.

The press likes it. The business press in particular dotes on these management consulting companies and are lackeys in ensuring that the whims and fancies of global capital are satisfied. So it is in this case. Business Standard has said ‘McKinsey Global wants next government to target poverty’, the Wall Street Journal has called it ‘A New Way to Measure Poverty in India’ (as if 40 years of serious and dedicated research in Bharat on the causes and consequences of poverty was simply absent), Mint has said the debate must shift from fiscal deficit to jobs and productivity growth, The Economic Times has reported the (unsurprising) McKinsey recommendation that ‘Inclusive reforms are the key to reduce poverty’, and The Hindu, which ought to have been very much more critical, has used a summary line from the report, ‘680 million Indians lack the means to meet their essential needs’.

The justification for the invention of a new measure (there are some obligatory formulae included in the report, together with graphs and charts to impress the ignorant and to serve as fodder for the ‘reformists’ in government and industry) is that India’s rank in the 2012 UN Human Development Index is 136 (out of 186 countries) and in the World Food Programme’s Global Hunger Index it is 94 (out of 119 countries).

Spending and growth, poverty and entitlement – these are connected aspects of development in Bharat and India which community groups and organisations consider and respond to every day. Management consulting companies like McKinsey (and its peers such as Ernst and Young, Accenture, Deloitte, Pricewaterhouse Coopers, Bain, Booz, KPMG, et cetera) are ignorant about these matters but spend a great deal – as this McKinsey Global Institute has just done – to pretend otherwise.

But the forces in India that are pursuing aggressively the ‘reform’ programme, now 24 years old, underwrite such activities. That is why an examination of the proponent is necessary.

It was not even two years ago that Rajat K Gupta, the retired head of McKinsey & Company and a former board member of Goldman Sachs (an investment banking company) was found guilty of “conspiracy and securities fraud for leaking boardroom secrets to a billionaire hedge fund manager” (this was Raj Rajaratnam, of Galleon Finance). In the same year, 2012, former McKinsey senior partner Anil Kumar was sentenced for illegal insider trading.

These cases exposed what some in the financial press elsewhere (not in India) had called ‘McKinsey’s corrupted culture’. Following the shameful scandals even the Financial Times of Britain, a pro-reforms, pro-austerity newspaper of the sort that thinks climate change isn’t taking place, had commented that “management consultants in general, and McKinsey consultants in particular, have made their entire business out of exploiting the moral grey zone surrounding confidential information”.

Christopher McKenna, a professor at the Oxford university’s Saïd Business School who studies professional services firms, had said that “consultants will carry information in and information out. The client has to decide which of those flows is worth more”. This is important to ponder, for if the ‘client’ is the Government of the Republic of India, where is this analysis of district-level ’empowerment’ gaps going to and with what objectives in mind?

McKinsey’s flimsy (and recent) claim to being concerned about poverty is easily dismantled thanks to its ragged reputation in every sector in and outside of finance. In 2012, the watchdog REDD Monitor cautioned: “Consulting firm McKinsey has played a key role in pushing a version of REDD (reduced emissions from deforestation and forest degradation) that underestimates the role of industrial logging and agriculture on forest destruction, while painting local communities as forest destroyers. McKinsey’s advice, if taken seriously, would have had serious implications for local livelihoods and would do little to reduce deforestation.” In fact, a year earlier, Greenpeace had released a report titled ‘Bad Influence: How McKinsey-inspired plans lead to rainforest destruction’.

We also recall the Enron power project and all that it represented. The American energy-trading company was the creation of Jeff Skilling, a McKinsey consultant of 21 years. Enron under Skilling was paying McKinsey for advice and the consulting company fully endorsed the dubious accounting methods that caused the company to implode in 2001. It was just under 20 years ago that what came to be known in India as the Enron controversy was raging, and in a ‘Techno-Economic Analysis and Policy Implications’ the independent NGO Prayas had laid bare the tale.

With a sense of baffled outrage the British newspaper The Independent had noted in ‘McKinsey: How does it always get away with it?’ that “McKinsey’s fingerprints can be found at the scene of some of the most spectacular corporate and financial debacles of recent decades”. And yet the commissions rolled in. One of the first acts of the (then) new Bank of England Governor, Mark Carney, was to call in McKinsey to review the central bank’s operations, for an undisclosed cost. In the 2012 US presidential election (the same year Rajat Gupta was convicted) the Republican candidate Mitt Romney talked of his intention to hire McKinsey to “fix” the American government.

And so we must ask what is sought to be fixed at the bidding of the current government of India and at what cost? This new report by the McKinsey Global Institute suggests that Rs 330,000 crore should be spent over the next 10 years to “empower 680 million Indians who are only marginally better than those under the poverty line”. And moreover that this spending be increased to reach 1.08 million crore by 2022 because “the government’s spending on various development schemes” does not “effectively reach much of the public”. At current rates of exchange, that is US$ 173 billion and what handsome percentage of that will be marked (or unmarked) as consultants’ fees?

Likewise, we must also examine those who have provided, as McKinsey has said, “insights and guidance” for this work. Among those listed are Subir Gokarn, director of research of Brookings India and former deputy governor of the Reserve Bank of India; Vijay Kelkar, chairman of the India Development Foundation, former chairman of India’s Finance Commission, and former finance secretary, Government of India; Montek Singh Ahluwalia, deputy chairman of the Planning Commission of India; Arun Maira and B K Chaturvedi, members of the Planning Commission of India; Rakesh Mohan, India’s executive director at the International Monetary Fund; Nandan Nilekani, chairman, Unique Identification Authority of India; S Ramadorai, adviser to the Prime Minister, National Council on Skill Development; and Soli Sorabjee, former attorney-general of India.

These people are votaries of the thesis that GDP growth is good, and that all policy must conform to such a doctrine. Hence it becomes easier to see the connection between the direction that the UPA 1 and UPA 2 governments have taken till here, and the firm grip finance and industry have on the country’s journey into ‘development’, aided by the outpourings of management consulting companies such as McKinsey. This ’empowerment index’ is nothing but a repetition of the desire that over the period 2010-20, urban India must create 70% of all new jobs in India and these urban jobs will be twice as productive as equivalent jobs in the rural sector, as stated in ‘India’s Urban Awakening: Building Inclusive Cities, Sustaining Economic Growth’, a report by the McKinsey Global Institute issued in early 2010.

The expectation is that as India’s cities expand, India’s economic profile will also change. In 1995, India’s GDP was divided almost evenly between its urban and rural economies. In 2008, urban GDP accounted for 58% of overall GDP. By 2030, according to the McKinsey report’s calculations, urban India will generate nearly 70% of India’s GDP. Such a transformation, if it comes to pass, is expected to deliver a steep increase in India’s per capita income between now and 2030 wherein the number of middle class households (earning between Rs 2 lakh and Rs 10 lakh a year) will increase from 32 million to 147 million. And it is against the drawing of that alarming line of minimum urbanisation drawn four years earlier, that this new line must be viewed, together with the injunction that “India can bring more than 90 percent of its people above the Empowerment Line in just a decade by implementing inclusive reforms”.

Written by makanaka

February 20, 2014 at 11:32

One Response

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  1. […] new thinking – presented as a startling innovation in the same way that a new brand of running sho…. This ‘line’ has been placed at Rs 1,336 rupees a month – which McKinsey points out is about […]

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