Friday, April 17, 2015

Will markets bring social responsibility? Lessons from Fabindia Incident



By D Dhanuraj and Rahul V Kumar

Among the top garment retailers in India, Fabindia outlet in Goa was in the limelight when an alleged instance of voyeurism was exposed by the Union HRD Minister Smriti Irani. At least four employees of the store was arrested immediately following the expose. The Goa police allegedly cracked the case in less than a week and the accused was arrested.The Fabindia incident gained immediate attention of the public primarily because it involved a Union Minister.It is very likely to fade immediately more or less due to the same reasons. However, there were other important aspects of the case that remained less explored. In the forefront of these aspects is how ‘markets’ take up responsibility in tiding a crisis. Unlike the case fading suddenly, market responsibility is likely to have beneficial long term consequences.

A major lesson that could be learned from the Fabindia issue is that ‘markets could bargain social responsibility more quickly than state action.’ To highlight the lesson, it is important to look at what pressures prompted immediate response from the state. A Minister’s involvement was decisive. However, beyond that was the concern of the investors in Fabindia. Investors in Fabindia range from artisan collectives to private investors and equity holdings by employees.Hence for the market, the issue was not an isolated case of voyeurism but a possible disturbance to the brands market value which in turn have direct consequences on the investors. Concepts like trust, fairness, and responsibility which are accepted as given in a society does not grow in isolation. It arise in exchange and when voluntarily agreed as mutually beneficial. For an enterprise operating on a large scale these factors also sets in the immediate conditions for the growth of rules governing them. Fringe elements acting to violate trust find no acceptable place in these exchanges not because they are punished legally but because they are dis-incentivized by the system itself.

The Fabindia issue is a reflection of how such theoretical possibilities in the market are realised. The investors in the retail chain including I Capital and Premji Invest were compelled to step in and demand thorough investigation on the issue due to the same factors. When the investors accepted responsible behaviour it was but a natural course that the law took to arrest the accused. It thus became a case where the market and its various stakeholders had greater benefits in solving the problem it faced.Other issues remaining (on whether the accused are in fact responsible for the alleged incident), the market’s necessity to find a solution also helped to raise a platform to debate crucial questions. The ethical use of cameras in the stores was thought of in a more systematic manner following the incident. It is likely to lead to further innovations and models which could strengthen the current practices.

Such possibilities in the market are abundant. However, in most cases the State uses legislations to suppress rather than extract these possibilities. This is also a strong case to dissuade banning as a legal measure adopted by the State. There are more possibilities. State machinery faces constraints and difficulties. It is not easy for the police to check incidents like ‘camera tilt towards change rooms’. Police inspection is possible at times but not possible throughout the year. If the investors keep a tab on the enterprise and force them to adopt ethical practices and decent behaviour from the company where they invested that would be more effective than policing. Also, a brand like Fabindia can create flutters among all the players and they would be cautious and more transparent in adopting precautionary steps to avoid such incidents in their premises.The Fabindia episode highlights responsible behaviour as an inherent stabilizer in market action. The incident reached a natural solution because people valued their invested money and stood to protect its value. Free markets is an ideal ground to absorb negative externalities.


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 * The authors are Chairman and Director (Research) of CPPR. Their views are personal and does not reflect that of Centre for Public Policy Research