The Flipkart Saga – Communist, Socialist and Capitalist Approach

Published on: Jun 15 2016 by Sachin
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Flipkart Saga

Over the last few days, one of the eye-catching news in India has been of Flipkart deferring the joining dates of campus hires by six months to December 2016 and offering them a compensation of 1.5 Lacs INR as a compensation to be paid at the time of joining. This according to Flipkart, has been done to align with the business restructuring activity taking place and is expected to complete by the December 2016 timeframe.

On the other hand, the management and placement cells of the reputed B-Schools have reacted by setting up calls, seeking justification and proposing alternates for the situation at hand. Some have even gone ahead and proposed taking Flipkart out of the ‘Day One’ campus slots that deprives them of the cream of students at these institutes. People have called it unfair and an uncalled action by Flipkart.

While both sides of actions are being played out in national arena, I am now wondering if we were not living in a hybrid and mixed economic model but were living in a purely unidirectional way of economic thought, how would the situation have played out.

Through this blog, I will attempt to take you through some of my thoughts on the Flipkart saga through three of the most eminent economic ideologies of the 19th and the 20th century – Communism, Socialism and Capitalism. An effort has been made to identify the players, the situations, the decision making process and the actual decisions that would take place under each economic ideology. It is no ways a comment on the capability of the campus hires, Flipkart, agencies impacted or any other stakeholder involved. A disclaimer though that this is through my understanding of each of these economic ideologies so any thoughts/ feedback/ corrections are most welcome to make it an engaging read for the viewers.

Economic Model 1 – Communism (Inspired by Karl Marx)

Karl Marx had given the clarion call “Workers of the world unite”. It is said that Karl Marx believed that the industrial revolution of the 19th century in North America and Western Europe would result in a very repressive capitalism across the colonies controlled by these powers. He had no doubts that due to the initial power exerted, capitalism would succeed but over a period of time, the workers (proletariat) would unite against the capitalists (bourgeoisie) to overthrow them and take over the industries. This communist ideology became the back-bone of the economic policy making at erstwhile USSR and modern day China, including some countries in Latin America and Eastern Europe.

The workers never united to dislodge capitalism. Over the 19th and 20th century, the ideology that Communism helps to create a better socio-economic environment failed to strike a chord with the workers. With the boom of knowledge economy, the workers were now of a different class who wanted the promised benefits but also understood that communism is not the solution. The disintegration of USSR was again a proof of the failure of this ideology.

If Flipkart was operating in a communist environment, its sole purpose would be to ensure the well-being and benefits of its workers. There was no chance that any organization would be allowed to retrench workers or defer their employment. It would be considered a grave economic disorder and would be aptly and tightly controlled by the existing government. In short, it would not even be plausible to think of deferring employment by any organization operating under a communist government.

Economic Model 2 – Socialism (Inspired by J M Keynes)

The socialist model of JM Keynes changed the course of history through the 1930s to 1970s. Recognized as the father of modern macro-economics, Keynes believed that government regulation can help keep the economy in good health. His mantra was “During good times, governments should play a monitoring role. During bad times, governments should intervene and put money in the hands of the people to help expand the economy”. Effectively, inflation could be countered through increased employment levels.

Most developed nations have grown on the ideology of Keynes where capitalism has been allowed to flourish under government regulations. In short, it is controlled capitalism more commonly known as Socialism. The aim is to create a middle path that allows capitalism to grow but also strives for the benefits of the worker population. Governments intervene whenever they think the time is apt. Governments kept control either directly or through regulating bodies on important industries (Steel, Iron, Petrochemicals, Telecom and Infrastructure) and institutions (Banks, Stock exchanges) of the 20th century. The ‘invisible hand of Adam Smith’ has not been allowed to function to its full potential. Such a model helped North America and Western Europe get out of the great depression of the 1930s.

If Flipkart was operating in a socialist environment, its main concern would be to find a middle path for the problems faced. It would work with the identified government agencies to ensure that the firm related problems are understood as well as the right business decision is taken. We are experiencing exactly such a behavior from Flipkart. Whether they need the new hires six months down the line is absolutely their own call. But they are also offering a 1.5 lacs INR as compensation for the lost employment of these hires, thereby seeking a middle path to problem resolution. They are probably doing this to avoid a confrontation with government or their agencies in a bid to show their sincere concern for the jobs that have been deferred due to business considerations. Do they really believe that they can maintain their credibility as an employer in the job market through a middle path is something only Flipkart can answer?

The placement cells and the management of B-Schools have threatened Flipkart with impacts in forthcoming hiring cycles because they too believe they are responsible for settling the issue of the temporary worker unemployment. The hectic calls, conferences, press releases, news leaks are all testimony to the fact that we are currently living in a socialist economy.

Economic Model 3 – Capitalism (Inspired by F V Hayek)

FA Hayek had a very radical approach of looking at economic problems. He believed that market forces should be allowed to solve problems emerging out of market situations. The government, according to him, had no business to be in business. His radical thoughts and success of Keynesian models following WW2 were proof that pure capitalism would never work.  With capitalism, there was no middle ground to solve macroeconomic problems, leave aside microeconomic firm related problems. Hayek would firmly oppose any intervention in the functioning of the free markets. The invisible hand was the best tool to solve economic problems.

The Hayek model was adopted partially by the Thatcher and Reagan governments in the 1980s following the economic crisis of stagflation (unemployment accompanied by high inflation, which was thought of as impossible in Keynesian models). The era of mixed economy wherein privatization of state owned assets took place, became the order of the day. Many heavy industries and infrastructure projects went to the capitalist firms. This resulted in optimization of resource utilization and got the economy on track within the next decade. Since then, reforms (mainly privatization of state owned assets and deregulation of markets) have been a buzzword in the developed and developing countries. It is generally believed that reforms leads to a better economic outcome for all the stakeholders.

If Flipkart was operating in a capitalist environment, its main concern would be its own survival through prudent business decision making. It would not have searched for any middle path. If it did not make sense in hiring new employees, they would have let them know so without seeking to find a middle path. This would have surely impacted their credibility as an employer in the next phase of hiring for years to follow. But they would take it in their stride as an outcome of a business decision. They would have planned for it – information dissipation, press releases, student interactions, college meetings.

College institutions would have approached other potential companies with the affected student database rather than trying to seek a middle solution with Flipkart. There is a reason why Flipkart is not honouring the job offers and trying to seek a solution with Flipkart is nowhere a sustainable outcome for all the people involved. Competitors like Amazon are already approaching these hires with job offers and that would have been the most efficient outcome to an economic problem faced by Flipkart.

My Views

The reaction by placement teams of top institutes, according to me, is a knee jerk reaction without taking into account the real business scenario that exists within the e-commerce and m-commerce space. There is definitely need to cut costs for a lot of such players, and it will mean going back on some deals (here, job offers) that seemed okay a few months back but in the present (today) scenario, will not be a prudent business decision.

Through many subjects taught within the B-Schools itself, one key investment lesson is ‘Do not throw good money over bad”. Many case studies taught in B-Schools try to inculcate this management behavior in the students. It is therefore an irony, that the management of some of the reputed B- Schools would expect an organization to behave in a socialist manner rather than adopt the very principles of capitalism.

I am a firm believer that markets should be allowed to drive corrections in business models. This is good for the long run economics – micro and macro – and results in a sustainable economic model for everyone. Any interference by any organization or government or NGO or SIG (Special Interest Groups) is not only detrimental to the overall health of the particular industry but can create a self-sustaining negative spiral that impacts other critical and healthy areas of the national economy.

Flipkart has gone the socialist way to solve a microeconomic problem. I believe they too understand that even with a middle path solution (whatever that may eventually be), they would still lose credibility with job seekers seeking employment in the e-commerce space. Looking at it from a game theory possible outcomes perspective, would it then not be prudent that Flipkart should have gone the capitalist way? In my humble opinion, the business case at Flipkart is a micro-economic condition with no meaningful impact on the overall national macro-economic factors (especially GDP and unemployment). Food for thought is then why Flipkart chose the middle path to solve what is really a micro-economic issue.

Obviously, it is never easy or convincing to go to a purely capitalist model as there would be calls that echo Karl Marx sentiments to take down such a model. But is a socialist approach the right way to tackle such business scenarios. The government/ agencies of Socialist economies should allow at least microeconomic situations to be solved by free market capitalist forces. They should leave it to the invisible hand to solve such problems in a sustainable manner. Any intervention by anyone can set a dangerous precedent.

— Sachin

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