Mr. Ramalinga Raju's letter to the board of Satyam contained not one but two disclosures. The first, which has drawn universal attention, is the amount by which, over the years, he had succeeded in padding the balance sheets of the company, and duping its shareholders about the real worth of their shares. The second is his reasons for doing so. The first has attracted universal condemnation, and not a little anger. The second has drawn a collective blind eye. Yet if we seriously wish to safeguard the legitimacy Indian capitalism, in the eyes of the Indian people it is the latter that we should be trying to understand.

Satyam has been dubbed as India's Enron. The similarities are indeed uncanny. Enron too fudged its accounts in order to show high profits and a healthy bank balance. It did so by creating subsidiaries and palming off its losses onto them and a variety of other questionable accounting sleights-of-hand. Satyam tried to do something similar by creating Maytas (Satyam spelt backwards) and then acquiring it.

There is , however, one striking difference. Enron's CEO, CFO, and just about every director and employee in the know, were selling their shares for months before the crash, and made millions, indeed hundreds of millions out of their inside knowledge. Enron's CEOs continued to pay themselves multi-million dollar bonuses even while their company continued to sink, and they  were quietly encashing their stock options. 

If  Raju stated  the truth in his letter to the board (and I am inclined to believe that he mostly did), then neither he, nor any member of his family, sold a single share  to profit from the company's artificially inflated books. On the contrary, they pledged their entire family shares to meet  Satyam's expenses. Add to this the fact that that the family  has set a new world standard for corporate responsibility through the Byrraju foundation's work on  village uplift and  provision of  emergency medical services,  and the differences between Enron and Satyam  become almost more striking than their similarities.

Why did a family with such an exemplary sense of social duty do such a thing? The answer is the same as it was for Enron, but here the absence of personal fraud makes it stand out in bold relief.  It is the change that has taken place in the nature of capitalism as it has broken the bounds of the nation state and gone global. The last 20 years have  seen the rebirth of robber baron capitalism, of a kind that England knew in the late 18th and early 19th centuries, and America a century later. Globalisation has made robber baron capitalism go global. 

 This has destroyed, and continues to destroy,  the institutions that nation-states had built over more than a century to limit social conflict and curb unbridled capitalist greed. In just the past 15 years  we have seen the 'de-regulation, of the banking system, the removal of the steel wall between commercial and investment banking,  the mushrooming of derivative bonds (that club together good and bad investments) on the one hand and the rise of hedge funds, (that are little more than bankers' private gambling clubs) financed by their depositors' money, on the other.
With no regulatory system that could signal excess this so called ''free'' system inevitably became its own nemesis.

But the sustained horror of what has been unfolding over the past two years has drawn our attention away from another insidious change. This is a change  in the very concept  of  profit. Till as recently as 30 years ago, shareholders sought to make money by sharing in the profits of the company, ie  through dividends and the  issue of bonus shares.

Today while this still remains broadly true of  the Indian and many other emerging country  share market, it has changed almost beyond recognition in the high income countries. In the latter investors look to making their profits  through an  appreciation in the value of their shares. This is not surprising because there are few new share issues, the secondary market accounts for all but a tiny fraction of trading,  and the face values of the original shares, many of which are more than a century old, are a tiny fraction of their current market price. The dividends they yield are therefore negligible. 

But in the gamblers' world of global capitalism, share market prices depend not on accrued profit but analysts' predictions of future profit, specifically  in the next quarter. Failure to meet these expectations leads to an immediate drop in the value of one's shares , regardless of the absolute level of profit that the company has earned. The pressure this puts on top management is, quite simply, inhuman, for they not only have to perform well but better and better all the time.

Satyam for instance was a highly profitable company, and will remain so even after the padding of the past seven years is deducted. So why did the Rajus pad its accounts not just in 2007-08, when the world was sliding into recession, but for six years before that?
The answer may lie in Satyam having been the very first Indian firm to have been listed on the New York Stock Exchange, and therefore the first Indian company  to be exposed to the ferocious pressure of analysts' forecasts that drives the American share markets. Add to this the poster boy status that we ourselves gave to  Ramaliga Raju,  and it becomes easier to understand why even such an upstanding  man stumbled morally and  fell.

Raju was therefore the victim of a system, and the entire Indian community of investors, which applauded and sought to emulate him, is a part of that system. Today it is trying to absolve itself by heaping individual moral blame on Raju.  By doing this it hopes to cauterise the system and persuade the public  that they have stopped the rot. That will not happen if the system, ie unregulated capitalism, is not quickly brought to heel.

The place to start is with the auditors. Satyam could no more have done what it did without some form of failure or delinquency in PricewaterhouseCoopers, than Enron could have done it without a similar  lapse in its auditors, Arthur Anderson (now Accenture). What is more the fact that PwC was also one of the auditors of the Global Trust Bank (formerly Vysya Bank) which also was found to have indulged in fraud in 2004, suggests that here too the problem might be at last partly systemic.

No matter what the cause, it is now clear that if global capitalism is to made responsible and worthy of trust, the auditors, who are at present our only bulwark against abuse, need to be monitored. Till an international system for doing this evolves, we would do well to insisit that all Indian companies have Indian principal auditors, who can be held accountable for their lapses, under Indian law.