KNOWLEDGE WORKERS, STATE AND THE ART OF CONSULTING*

Engr. K Vijayachandran FIE

Key role of knowledge workers in modern societies is well recognized by management theorists of diverse ideological persuasions. Peter Drucker, considered the guru of twentieth century corporate capitalism, was the first to use terminologies like, knowledge worker, knowledge society, knowledge economy etc. He had even theorized that Knowledge Workers have created a post-capitalist society, driven by Knowledge rather than Capital. This paper examines such hypothesizes in the context of contemporary realities and argues that, state power guided and tempered by politics is the deciding factor in business or economic development, over which Knowledge Workers have little or no influence.

Evolution of Indian State as well as its strengths and weaknesses are then examined in this global backdrop. Considerable institutional capacities, technological and managerial, were created after national independence, at the federal or central level. However, Indian State continues to be weak and poorly organized, compared to its counterparts in developed countries. State Governments are grossly underdeveloped, and local self governments with two employees per thousand population on the average, compared to fifty seven in the USA, hardly exist. Strengthening the federal foundations of the Centre, and inducting more knowledge workers into local self government institutions are suggested as urgent remedies, if Indian society is to benefit from knowledge workers and the so called paradigm shift to Public Private Participation.

Consultancy is a highly creative profession. Unlike writers, consultants deal with living characters, both men and organizations, rather than their abstractions from past or for future: product is a symphony produced and delivered for once, and hardly amenable for replays. Consultancy today, is a flourishing trade, globally. Even a new tribe of political consultants, reminiscent of the era of Rajagurus and Kautilya, have appeared on the horizon. They played a key role in the downfall of Soviet Union and the disintegration of what was once known as the Socialist Block. Even religion is transforming itself into spiritual consultancy, transcending even national boundaries and substantially contributing to the invisibles in national income statements. Consultants help the client to develop a vision and to realize the dreams associated with it: The client could be an individual, an organization, or even a local or national government.

Consultancy Business is mostly owned by the top layers of Knowledge Workers. Peter Drucker, the Guru of twentieth century corporate management, had coined the phrase of Knowledge Workers (KW) in 1959, in order to describe the managerial classes in the pay rolls of corporations, owned by entrepreneurs and finance institutions. He differentiated this class of wage earners from their fellow proletarians in a much later 1988 essay, Management and the World's Work: 'When Marx was beginning work on Das Kapital in the early 1850s, the phenomenon of management was unknown. So were the enterprises that managers run. The largest manufacturing company around was a Manchester, England cotton mill employing fewer than 300 people, owned by Marx's friend and collaborator Frederick Engels. And in Engel's mill-one of the most profitable businesses of its day-there were no "managers," only first-line supervisors , or charge hands, who were workers themselves, each enforcing discipline over a handful of fellow 'proletarians' ¹. According to him, 'in less than 150 years management had transformed the social and economic fabric of developed countries and has created a global economy and set new rules for countries that would participate in that economy as equals'. The new class of KW, according to his perceptions, has liberated itself from finance and investment capital and developed an existence even outside the corporations they managed.

Knowledge economy or post-capitalist economy, driven by an autonomous class of KW, was a favourite theme of many management experts of late eighties and early nineties; a trend vastly encouraged by the rapid strides in information and communication technologies (ICT). In 1989, Drucker himself had predicted in another famous article, Peter Drucker's 1990s: 'Business tomorrow will follow two new rules: One: to move work to where the people are, rather than people to where the work is. Two: to farm out activities that do not offer opportunities for advancements into fairly senior management and professional positions (e.g. clerical work, maintenance, the "Back office" in the brokerage house, the drafting room in the large architectural firm, the medical lab in the hospital) to an outside contractor. The corporation, in stock market jargon, will be unbundled'. True, Businesses Process Outsourcing (BPO) has taken place in a big way and it has not yet lost its momentum: Even a sort of Knowledge Process Outsourcing (KPO) has emerged which is closer to external consulting by business organizations. With the rapid developments of ICT in recent years, it was fashionable with most futurologists, to speculate on an emerging virtual economy or e-economy on a global scale, based on concepts like e-business, e-banking, e-money and the like, transcending the boundaries of even national economies.

However, the theories of knowledge economy, centred around the new class of KW, found little acceptance in developed market economies which continued to be navigated by the profit motive of capital, which was turning more and more speculative: global corporations continue to expand across the seven continents along the traditional trajectories set by political and market-economists. True, their ownership and management are distinctly different from the days of East India Companies and their successors like Rockefeller, Morgan, Carnegie, Krupp and other typical capitalists who could finance their industries, apparently out of their own pockets and they as individuals had owned and controlled what Marx had qualified as the means of production. Today, modern corporations in OECD countries are mostly owned by pension and insurance funds of working people and other financial institutions, which are closely regulated by Governments. They are managed by professionals or knowledge workers and specialists. Individual capitalists, like prehistoric dinosaurs, are extinct today in developed economies: However, they have staged a comeback in former socialist countries and less developed market economies like India ^2.

True, the KW of Drucker play a key role in managing modern corporations as well as the management of financial institutions that own them, either as employees of these organizations or as professional consultants and civil servants. Transformation of capitalist enterprises into knowledge based enterprises and that of market economy into welfare economy etc, as theorized by management consultants, were truly a post-war phenomenon. However, these transformations were the product of policy initiatives at the political plane, initially in USA by President Franklin Roosevelt and then in other OECD countries, based on the Keynesian theories of welfare economics. In fact, even before the Second World War, Soviet Union had started experimenting with its own model of welfare economics, under the system of socialist planning, which essentially was a knowledge-based system for managing a welfare economy based on universal and compulsory social security, pension and insurance schemes for the entire people. These initiatives by the Soviet State had transformed Tsarist Russia and its colonial dependencies into a modern industrial country that could challenge even the war machine of Nazi Germany, the then industrial superpower of Europe. This transformation was the handiwork of Soviet Revolution, which had developed a vision of its own with the help of knowledge workers groomed by it. According to Prof Galbraith and other liberal economists the two models of the so-called post-capitalist society, though apparently confronting each other in cold-war, were in fact converging and even learning from each other, with regard to the role of knowledge workers in managing business and government ³.

World Development Report 1997 with its focus on 'The State in Changing World' had noted: 'Over the last century the size and scope of government have expanded enormously, particularly in the industrial countries' ^4. According to WDR estimates, total government expenditure in OECD countries was less than ten percent of their GDP in 1870. This had steadily grown five fold, to nearly fifty percent by 1995. Critics of market economics had pointed out even earlier that, State had continued to grow in these countries even during eighties and nineties, despite the tall talks of Thatcherism and Reagnomics, and had held this in support of their theories on State Monopoly Capitalism and Industrial-Military complexes. Expansion and enrichment of the role of State, on either side of the cold war, was characterized as proof of convergence of socio-political systems, by Professor Galbraith and other liberal economists. State played a key role in the development of national economies of OECD countries, not only in social welfare and national defence but also in the development of hard core technologies related to electric power and energy, nuclear and fossil fuels, rail and road transport, ship building, space, communications and numerous other sectors of economic activity. State in the developed countries has in its roll the best among Knowledge Workers for playing this key role and also uses the services of private consultants and consultancy organizations to work for them. It is to be noted that the State was engaging consultants or knowledge workers even outside the public domain, for performing certain well defined duties and functions decided as part of a political process or consensus. It was the Government or the State that was calling the shots, based on a democratic consensus in these countries, and not the Knowledge Workers.

Marx had looked at the State mostly as an instrument of oppression by ruling classes. However, newly liberated countries like India, inspired by the success of the Soviet model as well as the prevalent practices in Western democracies, had looked at the institution of State as a critical resource for social progress and economic development. According to the WDR-1997 quoted earlier, central government expenditure in developing countries was just fifteen percent of their GDP in 1960 which had nearly doubled up by 1990. In the Indian economy, total government expenditure had peaked to 26 percent of GDP by 1991 and then started declining, thanks to the economic reforms. It was argued that, due to economic planning and growth of public sector organizations, India was over-administered, and down-sizing of Government at every level was recommended as the first necessary step toward faster growth of the national economy. Fallacy of this argument will be clear, when we consider the numerical size of Governments in industrial countries: USA with a population base of 265 million had 24 million Government employees in 2002, including its armed forces, or some 91 employees per 1000 population. India with 1100 Million people had only 13 million Government employees or about twelve per thousand populations ⁵. India is a thinly administered country by any standard, combined with lower efficiencies at every level Indian State is no match to that of the USA. Even a casual look at the two societies will reinforce this statistical evidence. Table-1 compares the relative strength and distribution of public employees in India and USA at the three levels of Government: Federal or Centre, State and Local.

A recent report from South Africa, which had a fairly extensive state apparatus, developed during the Apartheid regime, illustrates the impact of downsizing of government on the efficacy of governance: 'A consultant fretting about constant consultancy across government agencies is like South African Breweries calling for abstinence, but we seem to be reaching a stage where we can only master the public sector's nagging capacity challenge by thinking the previously unthinkable. In some parts of the government the call on outside advisers is perennial and dependency is setting in. Yet consultancy should be a support function, not the core driver of departmental outputs. Consultancy firms enjoy the fee income, but some privately acknowledge that a credibility crisis is looming for departments that seem unable to stand on their own feet and consultants who seem unable to make a difference. ....Annual staff turnover in critical skills and management categories runs at an estimated 20% to 30%. A consultant may work intensely with a team, build competence and get good results from high performers. By year-end, staff turnover may have removed the entire managerial layer. The consultant starts again and is sometimes the only provider of continuity.' (Business Day of Johannesburg 22nd Oct 2007. S Asbury, CEO of Gemini Consulting). Dwindling capacity of government departments to absorb even the marginal outputs from external consultants because of staff attrition, is a common experience with most African countries that have taken to the reform path. Marginalization of the State has been reported from other African countries as well, resulting in lawlessness and misery on a large scale. And, Latin American countries are experiencing, today, a massive swing away from the regime of global consultants and they are resorting to more extensive state intervention and regulation.

Experience of the erstwhile socialist block tells us a different story. KW had occupied a pre-eminent position in the political economy of erstwhile socialist countries. By the early nineties they, as a class, had virtually taken over the control of state apparatus, in Soviet Union and other East European countries, thanks to the reforms initiated by Khrushchev in the early sixties. KW were already occupying key positions in the Government, the national economy and also in the Communist Party of Soviet Union, when Gorbachev initiated his perestroika and glasnost movement in 1987, with the noble objective of enriching the democratic content of its socialist regime. Within three or four years, KW or the so called intelligentsia could hijack the reform movement, remove Gorbachev from power, dismantle Soviet Union, and bring Russia under the dictatorship of Yeltsin who is now hated by the entire people of Russia and most CIS countries. The so called Western Aid for introducing market reforms in Soviet Union was mostly subsumed by the cleverer among the Russian KW as consultancy fees: They used these fraudulent incomes for acquiring the controlling shares of the massive Soviet enterprises for a song, and President Putin is now trying to salvage an embezzled economy. Situation is not different in other CIS and East European countries. However, despite its massive reform programs, China has so far refused to weaken the role of the State or to demobilize its massive public enterprises and initiatives. And, using these public sector resources, it continues to make best use of the services of even global consultants.

Import of consultancy was virtually restricted to technology transfer in the regulatory regime that came into existence in our country, as part of the Industrial Development Act of 1951. These restrictions were in place until 1991, when liberalization of the Indian economy was initiated on a large scale. Departments of the Central Government, Indian Railways, institutions like Planning Commission along with its numerous working groups, Central Water & Power Commission, Central Electricity Authority, Atomic Energy Commission, ISRO and the numerous other public sector enterprises specializing in various sectors like SAIL, CIL, ONGC, GAIL, EIL, IOC, BHEL, NTPC and several other specialist organizations had doubled up as consultants to the nation on various sectors of the national economy. Most of these capabilities were built on the strength of international cooperation, supplemented and strengthened by bilateral trade agreements with OECD countries as well as the socialist block. The large public enterprises of the Central Government had served as technology generators of the nation for more than four decades and several of them were declared as autonomous Navaratna companies, considering their strategic importance. These organizations and enterprises along with the S&T Institutions under CSIR, ICMR, ICAR, DSIR and other Central Government departments had developed the core consultancy capabilities needed for a developing economy.

Mixed economy of our Union Republic was a bold and innovative experiment in a country of continental proportions with unity and in diversity written large on its cultural signpost: Nehru had called it the tryst with destiny of the Indian people. Institutional capabilities built up by the Central Government, within a couple of decades of national independence, were indeed formidable with their large contingents of scientists, engineers, technologists, planners, economists, social scientists and numerous other categories of knowledge workers. National economy had experienced rapid growths in several sectors, like grid power development, fuel production and prospecting, steel, aluminium, nuclear energy, power equipment, machine building, communication, space, transportation, heavy machine building etc. Despite the lingering problems of poverty, the country could achieve food-security, improve the quality of life in general and sustain a parliamentary democracy considered to be the largest in the world. True, national economy as a whole could hardly cross the traditional Hindu rate of growth and our massive capacity building program in government, embarked after national independence, had its blind spots.

Basic weakness in our capacity building strategy was possibly its over-centralization: Everything was built around Delhi and in conformity with its imperial tradition. CSIR, ICAR, ICMR, CWC and most other national institutions did not have their state level counterparts that could impart these national institutions a genuinely federal character. Problems of industrial development, health, food and agriculture or water resources development have their sub-national dimensions which were very well recognized in our constitution that had divided governmental powers into water-tight compartments, violating the traditionally federal character of Indian polity. For example, when in 1989, the Inland Waterways Authority of India (IWAI) was formed; there was a proposal to set up a Kerala Inland Waterway Authority (KIWA) to work as its subsidiary or joint venture, to take on the responsibility of developing the 1700 Km of inland waterway potential of Kerala, which is noted for its unique hydrological features ^6. The 160 Km long Kollam-Kottapuram National Waterway-III was seen as a political gift from Delhi and IWAI has been spending millions of Rupees every year on this project for the past two decades: However, the structures created by them remain grossly underutilized, because of defective conceptualization and lack of involvement and participation by local communities. In sharp contrast, the Cochin International Airport Ltd (CIAL), a company closely held by Kerala Government, has recently built a highly cost effective international airport, which is the envy of most non-metro airports in the country. CIAL was immensely benefited by the professional expertise of Airport Authority of India (AAI) with its vast experience in building airports in India and abroad for nearly half a century. Cochin airport is often wrongly projected as a successful example of Public Private Participation: But, it was virtually a joint venture of AAI and CIAL, two public sector organizations ^7.

In the good old days, Planning Commission, and its numerous working groups had served as the forum for policy making and producing consensus, at the national or federal level. ONGC and GAIL along with other public sector oil companies could help the central government to decide on a federal petroleum policy in the best interests of the country as whole. The Central Electricity Authority along with the State Electricity Boards served as a federal planning and policy making platform, which had helped in increasing the per capita generation and consumption of electricity several fold, a growth rate that could not be sustained by the slow moving national economy. All these are now changed, or are rapidly changing under the impact of reforms. The planning process has been diluted and the central government has mostly withdrawn from its policy making and program formulation responsibilities.

State governments are ill-equipped to fill in the vacuum created by the withdrawal of centre and are at the mercy of external consultants who has no feel about the ground realities at the grass root level. Several mega project concepts were developed during the last decade with the help of foreign consultants: Most of them are stuck up for lack of objectivity and vision while formulating them. Even the much talked about Special Economics Zones, supposedly under the control of Central Government on territories liberated from state governments, are failing to take off. Individual state governments and local bodies are being advised to directly negotiate loans from multilateral agencies for infrastructure development and they simply do not have the expertise or capability to take on such responsibilities. Capacity building exercises, modernization in government programs and e-governance programs taken up by Kerala government and funded by multilateral agencies had met with little success: Experience in this regard is close to that of South Africa, already referred to in an early paragraph.

This, possibly, is the experience with most state governments and the Central Government is aware of their disabilities and utter lack of professionalism in their dealings. It appears that the government departments at the centre have little faith in the professional capabilities of their counterparts at the state level. The draft eleventh plan has proposed allotment of plan funds directly to the districts and local bodies, bypassing the state governments. However, it is common knowledge that, most centrally sponsored program had failed in the past because of bureaucratic approaches and faulty delivery systems at the grass root level and because of weak or non-existent local governments. Peoples Planning Program of Kerala Government during the 1996-2001 period had sought to overcome this difficulty by deploying a large number of volunteers trained up by the State Planning Board. Dozens of handbooks and manuals were produced and crash programs organized for developing thousands of barefoot consultants, who were looked down and instantly rejected as political commissars by the working people. And within a year of their deployment they produced an inventory of about 100,000 project reports: bulk of them is dead and declared useless. The program has taught us a valuable lesson that the problems of inadequate governance cannot be overcome, simply by deputing low cost barefoot consultants.

We had seen from Table-1 that governance at all levels is extremely weak in India, compared to that in USA, a typical modern state, we all try to emulate. In terms employees per 1000 population, US Federal Government was nearly seven times stronger. State Governments in USA had nearly three times more employees compared to Indian States on a population basis. Local Self Governments, with less than two employees per thousand people, are the weakest links of State power in India. They are mere pygmies compared to their US compartments, which constitute a formidable part of US State power. With 52 employees per 1000 population, local governments in USA are the providers of a variety of community services at the street level: education, health, social security, human resources development, local transport, trade, tourism etc. Despite the Gandhian dreams of Gram-Swaraj, the JP movement of seventies, constitutional amendments of 1991 and repeated demands and promises by the Left and the Right, Local Governments are a virtual non-starter in our Union Republic.

Governments, at the state as well as local level, need the support of external consultants in a big way. Even the barefoot consultants engaged by them could do a lot and take the multitudes of our people to modernity and progress, faster and in a much more wholesome manner than the voluntary and non-governmental organizations. However, the more fundamental question is how they could build up the minimum of governing capabilities? It is a political question to be dealt by Indian democracy.

NOTES:

1. Managers and Marx: Drucker and other management theorists often argue that industrial management, technology etc are purely post-Marxian developments. They conveniently forget that impact of technology on the relations of production was the subject of inquiry of Das Kapital: Sufficient to mention here, the titles of two chapters of Volume I of Capital: Chapter XIV Division of labour and manufacture, and Chapter XV-Machinery and modern industry. Size of Engel's' factory is irrelevant here, because that was not the sole source of wisdom for Marx and his followers.

2. Individual capitalists: Individual capitalists are extinct in almost all developed countries; they sound like prehistoric animals even in the Indian context. Capitalist economy is driven by capital in the abstract or the capitalist class, and not by individual capitalists. This basic issue is often overlooked by management experts while evaluating the efficacy of market economies.

3. John Kenneth Galbraith of Harvard University was a pioneer in liberal economics and had assembled his non-conventional economic thoughts in his famous book Affluent Society (1958) in which he had attacked what he called conventional wisdom of economists, in pursuit of blind growth and consumerism. He had sought values beyond GDP estimates and had disagreed with the consumerist tendencies in socialist economies. He had noted the parallel movements in the economies of divergent ideologies, in support of his theory of convergence. Galbraith and his followers were initially enthusiastic about the reforms of Gorbachev, but had always doubted the efficacy of his plans to build a market economy from the scratch.

4. World Development Report-1997: Theme of this report was The State in a Changing World. It looked at the evolution of State and its institutions over the past century and its role in social and economic development. Experience of different systems including that of Soviet Union and other socialist countries are the subject of discussion and analysis.

5. Size of Governments: The data presented here was compiled by the author from various sources and an analysis based on this study was published in the Passline of 15th September 2005 under the title: Globalization and downsizing of governments.

6. Kerala Inland Water Authority: Kerala is a narrow strip of land with a 560 Kilometre coastline on the West, and mountain relief on the East. Every 14 kilometre on the average, there is a river system flowing westward, and forty-one drainage basins rush their heavy monsoon run-off, into a huge inland water body, stretching along the coastline and shaking hands with the Arabian Sea, at half a dozen locations called pozhi. Administration of this water body is in poor shape. The KIWA suggestion was made by this author, in his capacity as Government Secretary for Public Enterprises in 1988, when IWAI was formed with the late Xavier Arrakkal Ex-MP as Chairman. The unique hydrology of Kerala had provoked our former President to suggest the development of a comprehensive smart waterway for the Kerala coast.

7. CIAL: Possibly the first airport company in the world. It is often projected as an example for PPP. However, private equity participation is nominal. CIAL has a BoD with Kerala Chief Minister as Chairman and dominated by ministers and bureaucrats. Success of this venture was the cooperation and collaboration with the Airport Authority of India. This sort of Centre-State joint initiative has proved to be a far better route, compared to joint ventures with private investors and this experience has influenced the new policy announcements on airport development.

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* Accepted for publication in the January 2008 issue of Consulting Ahead, quarterly journal of Consultancy Development Centre (CDC) of Government of India.