The rise and fall of Infosys: Is Indian capitalism flawed?

Infosys-the IT bellwether firm- which could be said to have been the face of Indian capitalism and the visage of the New India is in trouble. The pioneering firm took advantage of globalization , India’s meshing into the global economy and other germane structural factors is no longer the firm which animates and captivates the market. What accounts for this? Has the law of diminishing returns set in? Did the firm merely ride the tide of reforms that swept India after 1991 and given this, does this mean that it was destined to be second class? Has the firm reached its ‘strategic inflection point? Have its competitors been more nimble? Do cultural and sociological factors account for this?Or is it the Scumpeterian creative destruction kicking in?



It would appear that the catch all explanations that may explain the plight of Infosys are a combination of cultural and sociological explanations coupled with creative destruction. What does this mean?



Pared down, these assertions mean that India, sociologically and culturally, may not have capitalism wired into its DNA. As a corollary, dynamic risk taking and entrepreneurship may be missing in India. The reasons for this are manifold: the socialist legacy bears down heavily on the Indian psyche. However, more poignant reasons may be nature of Indian society and culture. That is to say that given that India is what may be called a communitarian society, the nature of society and its dynamic revolves around the group. This stifles creativity and the thrust of the group’s approach is toward seeking security and overall, in the main, the group is risk averse. Was Infosys an aberration then? Are Indian firms and potential entrepreneurs condemned to mediocrity?

No. Neither. The percolation of capitalism to India and India’s intermeshing into the global economy means that the country made its tryst with an altogether different, hypercompetitive, turbocharged capitalism. Infosys benefited and profited from this initial foray but may have reached or hit the law of diminishing returns. Can it recover?



The answer lies in creative destruction. By creative destruction, the reference here is not to apocalyptical , Marxian visions and prognoses of capitalism’s ultimate demise but the dynamism inherent in capitalism. The phrase creative destruction was popularized by the genius of geniuses, Joseph Alois Schumpeter. In Schumpeter’s schema, capitalism was defined by an inherent dynamism that destroyed the old and created the new. It is worth quoting Schumpeter here:



“Capitalism [...] is by nature a form or method of economic change and not only never is but never can be stationary. [...] The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates. [...] The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation [...] that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in”( http://en.wikipedia.org/wiki/Creative_destruction).

This is what may have happened to Infosys. That is, while the firm itself was beneficiary of the creative destruction process, it too may have been overtaken by the same dynamic. Infosys may or may not recover its pivotal position. Whether it does or whether some other Indian firm takes its place or even goes beyond, the principles to bear in mind are that in the contemporary world, capitalism is turbocharged and hypercompetitive. Creative destruction them takes at a faster pace and speed. No firm can rest on its laurels and continue to survive let alone thrive.

To recover then, Infosys needs to rejig itself. This rejigging cannot and should not merely mean tinkering revamping its business model but realigning the entire concepts upon which it was premised upon. This means more entrepreneurial verve and risk taking which in turn means reviewing cultural assumptions and even creating new ones instead in the new Infosys culture. Once this is done, the rest-creating and crafting a new business model, and other issues of business structure and strategy- become mere detail.



India has made its tryst with capitalism. This is irreversible. To reach a level that is coeval or commensurate with the developed world, it is imperative that the country develops a culture that is aligned with the needs of capitalism. It is then that the country can boast of Bill Gates or Steve Jobs. Till then, the country and its firms can go only so far. Infosys demonstrated that India and Indians could compete. Now it’s time to demonstrate that India stands prepared for any challenge that capitalism throws at it.

The Iranian Sisyphus: Would nuclear proliferation in the region lead to peace?

Nobody can fault the Iranians for lack of subtlety. Be it the delicate dance over its alleged nuclear program or gradually and inexorably building a position of power and strength in the region or maneuvering deftly through the maze of international politics, Iran has done it all with adroitness. It amplified and intensified its nuclear program soon after the George Bush administration labeled it as a component of the ‘ axis of evil’, resisted pressure by the international community over its alleged program, and maneuvered deftly and adroitly in the changing equations and changed balance of power in the Middle East, post Gulf War II.



More recently, it held elections and elected Hassan Rohani with a landslide margin as the president of Iran. What is remarkable about the election of Rohani is that neither the reformists nor the hardliners murmured a word of protest or mumbled against his elections. Iran apparently is unified over his election. What all this tell about Iran, regional politics and Iran’s status?



First and foremost, despite numbers and statistics, that indicate a worrying state of the economy for Iran-30% inflation and over 40% of Iranians living under the poverty line- sanctions have not had the intended effect of splitting Iranians and making them rebel against the regime. To the contrary, Iranians seem to have become more unified with no major differences or splits emerging. What explains this apparent contradiction and counterintuitive theme?



Nuclear nationalism and Iranian pride may be the answers. Both go together. Nuclear weapons not only are the only security guarantors but can potentially- especially in the volatile Middle East region- provide and accord hegemonic status to a state that has a nuclear arsenal. Acquisition of nuclear weapons accord Iran hegemonic status in the region- a status it could never have despite being an Islamic Republic. (Being Shi’ite coupled with the fact that the centre of gravity of Islam remained Saudi Arabia on account of its custodianship of Islam’s holiest places- Mecca and Medina, Iran could not sate this aspiration). Nukes potentially give Iran the much coveted regional hegemonic status albeit in a convoluted way and not at the same level as Saudi Arabia in terms of prestige and standing in the Islamic world.



This along with the squeeze induced by sanctions and the occasional rhetoric of a pre-emptive strike against Iran appears to have unified the Iranians. A new nationalism overlain by Islam appears to be developing in Iran. This is ominous. How can this nationalism approximating what may be called Islamo-nationalism be accommodated by the world and above all what can be done about Iran’s alleged nuclear weapons capability?



Instead of viewing Iran’s emerging combination of Islam and nationalism as a threat, the international community(read the United States) should view it as an opportunity albeit in a qualified manner. Why? A rigid confrontationalist approach would only harden and solidify angst against the west. Moreover, a qualified acceptance of Iran as one of the regional powers would sate the grandiosity complex that Iran collectively suffers from. This may mean accepting Iran’s nuclear quest. This counterintuitive option that will appear bizarre to many in the west may be most prudent. The reasons are manifold: a pre-emptive strike is a non starter, war is a mugs game and continued sanctions useless.



The question now is what would prevent Iran from being an aggressor and a dominating force in the Middle East? Nuclear proliferation in the region may be the answer. Again, this is counterintuitive but may be the most prudent answer. Extended deterrence provided by the US nuclear umbrella in the region would not suffice in this schema. What may be needed is allowing Saudis to go nuclear and deepening the alliance structure with the mini Gulf statelets. This makes the balance of power in the region more even and also leads to a balance of force(s) in the region. Nuclear parity- as the Indo Pak deterrence paradigm so eloquently demonstrates- can lead to over improvement and increase in security. The same may hold true for Iran. What needs to be guarded against is the lapse into proxy wars under the shield of nukes. This can potentially be cancelled out again by engendering a balance of power in the region(this means arms racing) and removing the props for conflict in the region. The reference here is to the Palestianian-Israeli dispute and its resolution. The moribund peace process needs to be revived and a satisfiscing solution arrived at.



In combination, a focus on these factors and elements may lead to a more peaceful Middle East and may keep Iran in check. The price to be paid is proliferation in the region which , on balance, may not be a bad option. The world or the region cannot afford recrudescence into irredentist conflict with nuclear overtones. It is about time a new Iran strategy is formulated and implemented.