If asked to suggest a viable economic model for any 'X' entity, chances are that most of us would advocate a model of free market economy, based on demand-supply equation. As newer products acquire shelf space around us, we are more encouraged towards free market theory, as it increases competition, reduces price, and offers quality. A competitive market - where only best survives. Many of us can safely argue in favour of one product over another, based on personal experience. It is universally accepted principle- whoever offers best shall survive, and survive happily. Not many can deny the benefits of sticking to this model, based on fair competition.
But I have a contention here. My contention is in close relation to the professional sphere. Why is the free market belief forgotten in professional sphere, when we keep advocating it?
As organisations offer annual appraisal to their employees, different reactions follow. Some are satisfied; some are not. Those who are, hail their belief in competitive free market theory- where only best are rewarded, and how it works best for them. Those who are not, denounce the free market theory, arguing injustice. "I contributed so much, I think I truly deserve the 'X' percent hike given", a satisfied employee reasons. An unsatisfied one cites his own reasons for being unhappy.
Free market economists often argue over governmental intervention in pricing mechanism of many commodities. The common contention, in their arguments, is how governmental intervention discourages producers, reduces production, and raises prices. This intervention usually becomes visible when, in an attempt to save one industry, government compromises good prospects of another. That is the story visible.
We witness something on those lines in professional sphere. While deciding percentage of raise in salary, why organisations do away with principle of free market? Why is it that significant contributors end up on the same scale as the lowest? "There are different reasons in that decision", a senior explains in response to my query. He adds that work contribution has limited role in deciding increase in one's annual remuneration.
So, the free market belief- best reward to biggest contributor, takes a hit. One with highest contribution faces the heat in terms of comparative increase in remuneration. It is like a PSU that contributes maximum in revenues, but remains low on returns in terms of bonus, capital for expansion. The argument of helping sick on the expense of healthy follows inevitably. That eventually leaves healthy on the path of falling sick in near future. Sick industry, helped on the expense of a healthy industry, eventually ends up spreading sickness further.
Equate it to professional sphere around. Highest contributor, labouring under the anticipation of rewards, sees limited increase in remuneration. The lowest contributor takes away part of rewards. "But government cannot just think economically", Finance Minister’s usual justification on aiding sick units. What happens when a sick unit is supported by subsidy, extracted out of profits of healthy unit? What happens when the lowest or zero contributors are rewarded, on the expense of highest contributors? We have seen numerous examples in government run institutions to this effect. Such examples are available in private organisations as well.
So, productive individuals are compromised to accommodate unproductive ones. As sick units are assured with minimum funding, productive units start losing vigour. Thereby, reduction in productivity. Soon this reduction becomes visible.
No organisation will be better off with non-performing assets for long time. If contribution is the only parameter to offer good appraisal, why sudden need to accommodate “the experienced” gains importance? Why does it not matter whether "the experienced" is making any significant contribution to net result? It just does not end here. Government goes one step further to define productively again. PSUs, managing good balance sheets, get revised targets to meet. Anything short of meeting that target allows government to divert capital to aid sick units. Government attempts to give life support to those units which are, essentially, dead, or should be declared dead. If an individual is only engaging one chair, why the organisation is paying him? And if the payment is being made without much thought, what is the contribution?
An economy goes into recession when it accumulates too many non-performing assets. It is a simple economics principle. We are aware of the side effects of having NPAs. But the plea, seeking attention for contributors, reaches no one. When the balance sheet is observed, troubled finances are talked about. Blame game follows. Who got the economy to these troubled levels? Why does the competitive environment, so created, is forgotten while offering appraisals?
Another principle of free market theory, giving equal opportunity to all, takes a hit. One rupee extra to sick unit is one minute less productivity of healthy unit. Production will surely suffer. Delays will be frequent. Ignorance of these non-performing assets brings most important question to the surface. Why do organisations keep aiding these sick individuals at the expense of real and significant contributors?
Two natural consequences follow.
First- Individuals, with higher or real contribution, start losing vigour in performing day after day. Individuals, with next to nothing contribution, still survive with no fear of losing anything. So, bad loans keep rising. Government, with certain benefits in mind in aiding sick units, gives rise to NPAs. Government insists banks to offer credit for sick industry. Banks follow orders, only to realise that there are too many unpaid receipts.
Two- the overall productivity reduces. The healthy units focus more on partial treatment meted out. Idea of expansion is forgotten. Desired productivity is never achieved. NPAs become difficult to handle. At the end, organisation's growth suffers.
