The purpose of platforms and public utilities

A JURY in Los Angeles has found major social media platforms (Meta's Facebook and Instagram and Google's YouTube) in California legally liable for harm to a young user's mental health. They were negligent in the design of their platforms and were responsible for creating addictive features (like infinite scroll, autoplay and algorithmic recommendations) that encouraged compulsive use. The court awarded $6 million in damages to the plaintiff.

The companies intend to appeal. Their case is they are speech platforms. They say the justice system should go after the people misusing the platforms, not the owners. They imply that 'platforms,' treated as public utilities, allow people to misuse them — to abuse others, buy pornography, spread fake news, or entertain themselves, etc. It's up to the users to use the platforms responsibly.

Last month, the non-executive chairman of the board of HDFC Bank resigned. He said he did so because the values guiding the bank's management were not aligned with his own. He had misgivings about the bank misrepresenting risks in the products it sold. HDFC Bank is the second most valuable corporation in the Indian stock market, following Reliance Enterprises.

The bank's stock price fell 8-9% in a single session following his resignation, and continued to decline, erasing about $16 billion in its stock value before stabilising. The SEBI head reacted sharply.

He said the chairman's 'vague statements' had harmed investor confidence. The implication was that the duty of the chairman and the board — even if they are 'independent' directors — is only to protect the interests of investors.

These cases highlight fundamental issues of public governance. What is the purpose of a public platform or utility? What principles should govern its management? Should utilities that serve the public be measured by how much wealth they produce for stock market investors or by the public welfare they create?

Public utilities are necessary for providing services equitably for the essential needs of all citizens, ensuring their health and secure livelihoods. These include clean water, nutritious food, shelter, security, health, energy, information, education and financial services (banking, loans when required for livelihood purposes, and insurance).

These are the fundamental rights of all citizens in any decent society. It is the State's duty to ensure that all its citizens are provided these services.

An enterprise is set up for a purpose. The primary purpose of any business enterprise in the private sector, whether it is unlisted or listed on the stock exchange, is to produce financial returns for its owners and investors.

It has no obligation to provide its products and services to customers who cannot pay enough. Whereas the purpose of enterprises in the public sector is to provide services to all citizens, and especially those who cannot pay enough. Their purpose is to provide public welfare, not profits for the government as an investor.

Therefore, the performance of financial institutions in the public and private sectors must not be compared by their performance in stock markets. Public enterprises are set up to improve public welfare, not returns for investors. By this measure, the State Bank of India and Life Insurance Corporation have contributed more to society than HDFC Bank, for example.

Values provide principles for judging the methods institutions use. Efficiency, ethics and equity are essential principles for boards and managers of all organisations in both public and private sectors.

All organisations must use their resources efficiently. Their managers must be ethical too, and not award themselves high salaries and perks, on the specious grounds that they believe they have earned their salaries by their out-sized contributions to society by increasing the wealth of investors. The business of a private enterprise may be only business. The business of a public enterprise is to increase public welfare.

The only equity financial investors understand — and that corporate boards endorse — is stock market equity. They are not required to uphold equity of the societal kind. Independent directors are expected to stand up for the rights of small investors against the demands of promoters and majority owners.

Their enterprise’s goal is to produce wealth for its shareholders. They must not bring their personal conscience into the board room and ask the board and management tough questions about societal equity.

Public sector enterprises must be efficient, no doubt. But privatising a public enterprise to make it more efficient is throwing out the baby with the bath water. Privatisation of economies has gone too far with the victory of US-style capitalism over socialism, and the surge of financial globalisation, since the 1990s. India has privatised its education and health sectors too much, too soon. China, Vietnam and Nordic countries have stayed on their 'socialist' courses. They rank much higher than India on the human development scale.

China has let entrepreneurial spirits loose in business sectors. It has created world-scale, and -class enterprises in many sectors. Nevertheless, the state has retained tight control of its financial sector, and technology sector too, to an extent that ideologically liberal western economists find intolerable.

At the same time, western governments are struggling to find solutions to regulate US tech enterprises and their wealthy owners who are destroying the social fabric and harming youth by addicting them to their services.

India must not regress to the pre-1991 era. Nor can it remain wedded to post-1991 neo-liberal economics. Even the US is searching for a new way. India must find its own way forward, untied from 'Washington' economists and US tech firms.