Arthashastra Lessons for Management Theory

  • By Anil M. Naik
  • October 2002

Reproduced from the September issue of The Bombay Chartered Accountant Journal.

Arthashastra, the treatise on Economic Administration was written by Kautilya in the 4th century before Christ. It consists of 15 chapter, 380 Shlokas and 4968 Sutras. In all probability, this treatise is the first ever book written on Practice of Management. It is essentially on the art of governance and has an instructional tone.

Kautilya wrote this treatise for his swamy (the king) Chandragupta Maurya and stated in its preface that it has been written as a guide for “those who govern”. Kautilya was interested in establishment and operation of the machinery through which the king preserves the integrity and solidarity of the State and generates power.

It is astonishing to observe that several concepts of present day management theories have been explicitly explained by Kautilya in his work. As in the present day management, the importance of vision, mission and motivation was captured in Arthashastra. Kautilya advise his swamy to rule through Prabhu Shakti (vision), Mantra Shakti (mission) and Utsah Sahkti (motivation). Kautilya’s concept of the objectives of a king seem to be virtually adopted by Peter Drucker in his book, Managing For Results. Drucker proposed Economic Performance as corporate objective and highlighted the constituents of Economic Performance as:

- Making present business effective;

- Identifying the potential and realizing it; and

- Making it a different business for a different future.

Kautilya reminds his swamy that his objectives for his rule are:

- Acquire power;
(Making present business effective)

- Consolidate what has been acquired;
(Making present business effective)

- Expand what has been acquired; and
(Identify potential and realize it)

- Enjoy what has been acquired.
(Making it a different business for a different future)

Kautilya is aware that for efficient running of the State, elaborate machinery has to be established. He is equally clear on the organizational aspects, human dimensions of an organization as well as the leadership requirement of an organization.

On the organizational aspects, Kautilya evolves an elaborate hierarchy under the king. The king appoints Amatya, the Prime Minister. Amatya operates the day-to-day machinery of the State through a council of officials consisting of Mantris, the Ministers, Senapati, the warlord or the Defence Minister, Purohit, the Chief Justice and Yuvaraj, the Heir Apparent or identified successor to the throne. Kautilya weaves a design of a tall hierarchy for governance going down to the level of village through his concept of Mandalas. Gram Panchayats and Panchayati Raj set up that was adopted by the Government of India can be considered as a logical derivative of Kautilya’s attempt to bring administration to the lowest appropriate level in the machinery of State.

It is indeed interesting to note that Kautilya, having woven an elaborate organization, moves to set up policies and procedures i.e. business processes. Arthashashtra has detailed policies for the society, individual industries, labor and employment, calamities and control of vices. At this stage, he shows the depth of his knowledge of the major element of effective and efficient implementation of business processes, namely, the human aspect of management. He observes that the State, as an organization, is a social organization with economic aim. Here again, Peter Drucker and Kautilya go hand in hand as Drucker defines an organization as having ‘social dimension and economic objective’. Kautilya at this stage, reminds his Swamy that sound knowledge of complex human nature is essential in effective, efficient and honest running of the State machinery. He warns of two undesirable attitudes of human nature, Pramada, meaning excess and Alasya, meaning inactivity, to be watched for and avoided. This is where, according to Kautilya, the leadership counts.

The essence of leadership, he stresses, lies in its acceptance by the subjects. He therefore, advises the Swamy never to forget the two pillars of the art of governance: Nyay, the justice and Dharma, the ethics. He also decries autocratic behavior as a leader is visible and people follow the leader. Hence he advises the Swamy to introspect to identify his atma doshas, i.e. deficiencies to improve or develop himself. He further advises his Swamy to study deficiencies of his cabinet members and take steps to improve upon them. He states that Mantris could be incompetent, Senapati could be over ambitious, Purohit may not consider the present day practices or traditions while enacting laws or justice, which might lead to injustice. As regards Yuvaraj, he advises specific training to prepare him for the eventual succession. He states that the Yuvaraj should be trained in three specific areas: Arthashastra (economic administration), Nitishastra (foreign affairs) and Dandaniti (political science).

Kautilya seems to have given a lot of thought to human resource development for the government machinery. He is specific about the qualities Mantris must possess. He writes about these qualities as qualifying standards for appointment as a Mantri. These qualities are: Drudhachitta (power of concentration), Shilavan (character), Pragna (thinking capability), Vangmi (communication skills) and Daksha (observation / vigilance). In addition, he highlights the competencies that a Mantri must possess. These competencies are the same as the competencies advocated by the management gurus of the present times, namely, Knowledge, Skills and Attitude.

Kautilya’s knowledge about human behavior is really astounding. He advises his Swamy about six emotional devils which he should avoid and ensure that his cabinet members also avoid. He makes it amply clear that times six emotional devils do not allow appropriate decision making in any operation. The emotional devils identified by Kautilya are: Kama (lust), Krodha (anger), Lobha (greed), Mana (vanity), Mada (haughtiness) and Harsh (overjoy).

Having looked at the key areas of an efficient and effective organization, Kautilya looks at external realities that the government machinery would face. He starts systematically studying what he calls ‘the essentials’ of an organized State. He identifies the essentials as the territory of the kingdom, the population of the kingdom, the organization through which the kingdom is being run and last but not the least, the unity within the kingdom. According to Kautilya, the essentials of the State should be taken care of through ‘constituents of the State’ identified by him. These constituents are: Swamy (King), Amatya (Prime Minister), Janapada (populated territory), Durga (fort), Ksha (treasury), Bala (force / army) and Mitra (ally). His choice of Mitra as a constituent of the State is interesting. He thinks of a network of allies to fortify a kingdom. Mitra is a king who would come to the support of Swamy, if Swamy’s kingdom is attacked by another king. It will also be the duty of the Swamy to extend all help if the Mitra is attacked by another king. In today’s world of globalization, the same concept is applied when corporates form alliances to fortify their territories from external dangers such as cheap imports and the entry of strong competitors.

At this stage, Kautilya refers to diplomacy as an important element in Nitishastra (foreign affairs). His clarity of thought is evident from the identification off six attributes of diplomacy. The attributes he talks about are: intelligence, Memory, Cleverness of Speech, Knowledge of Politics, Morals and Readiness to Provide resources. Though he is not shy of launching an attack as an external strategy, he also advises the use of diplomacy as a useful strategy to be explored showing his pragmatic approach to the external realities. He identifies the external threats as the superiority of strengths of other kingdoms as well as ambitions of other kingdoms. If one replaces the word ‘kingdom’ with ‘corporate’, Kautilya’s advice makes sense in today’s corporate turf battles.

It is interesting to note the advice Kautilya provides to handle a strong king who has evil designs as well as a weak king who has catapulted easily. To defeat designs of a strong king, Kautilya advise networking with other kings defeated or threatened by the strong king on one hand and develop nuisance value through ‘nibbling by the sides’. He also advocates the concept of Upeksha, the studied indifference, in the face of strength as a diplomatic move. To a weak king who easily catapults or surrenders, Kautilya advise his Swamy to give the king his dignity and not to rub his nose in the defeat. This way, he suggests, Swamy will have a useful friend who will never forget the treatment received and will remain ever so grateful.
Finally, from the point of view of management of the kingdom, Kautilya’s advice to his Swamy is indeed introspective and valid to the corporate world of the 21st century. His advice is as under:

Swamy should run a diversified economy actively, efficiently, profitably and prudently.

Diversified economy should consist of productive forests, water reservoirs, mines, productive activities, trade, markets, roads, ports, and storages.

Efficient management means setting up of realistic targets and meeting targets without using over zealous methods.

Wealth lies in economic activities. Proper direction and guidance from Swamy will ensure current prosperity and future gains. Inactivity of Swamy in economic sphere will bring the kingdom close to destruction.   

Swamy must bear in his mind that a king with depleted treasury is a weak king and the easiest target for a take over.

Swamy should ensure enactment of prudent policies. Prudence should be based on Dharma and Nyay that will ensure equal opportunity for all to earn a decent living.

Profitability should not only mean surplus over costs. It should also mean provision of investment for future growth.

Availability of water is important. It is practical to acquire a small tract of land with flowing water than a large tract that is dry and would need substantial investment to generate water.

An ideal Swamy is the one who has the highest qualities of leadership, intellect, energy and personal attributes.

Swamy can reign only with the help of others. He should appoint not more than four advisors and sufficient number of Mantris to look after the governance of the State machinery. While limiting the span of control for the Swamy, Kautilya warns against centralization of power in the hands of the Swamy by stating “one wheel alone does not move a chariot”.

Swamy should take proper care in appointing advisors. He should have clarity in terms of qualities an advisor should possess. Most important being practical experience, thinking prowess, sound judgement and ability to differ while keeping total devotion to the Swamy.

Throughout Arthashstra, Kautilya makes some really thought-provoking observations. I list them below as Pearls of wisdom from Arthashastra:

Small difference in ability can lead to enormous differences in results.

Main aim throughout one’s career is to identify, acquire and develop these differences, which yield superior results.

Knowledge is important. Knowledge is cumulative. Once it exists, it grows. Every new piece of knowledge reveals connections with other areas of knowledge. Each breakthrough in knowledge creates new opportunities that expand and multiply.

Thinking is creative. You can create your world by the way you think. Situation and people have the meaning you give them. When you change your thinking, you change your life. To take control of your life, you must take control of your mind.

By failing to plan, you are planning to fail. Every effective performance is based on thorough preparation.

You should be firm about your goal, but flexible about the process of reaching the goal.

A great leader shows ability to make decision and act boldly in the face of setbacks and adversity.

Power goes to the person who uses it most effectively.

Leaders are sensitive to and are aware of the needs, feelings and motivation of those they lead.

Foundation of leadership consists of honesty, truthfulness and straight dealing.

Leaders develop ability to predict and anticipate the future.

Self-discipline is the most important personal quality of a leader.

Most important basis of success in any venture is pragmatism. Do not ask where the new idea came from or who thought of it first. Ask only one question: does it work?

There are certain basic universal laws. They do not change. Ignorance of these laws is no excuse. Violation of these laws forces one to pay full penalty through underachievement, frustration and failure.
Success needs action. Action needs initiative.

For sustaining success, initiative to collect feedback is important. Feedback allows you to take corrective action, which sustains success.

For every effect, there is a specific cause. Success is not an accident. Success is not based on chance. Success is not a matter of luck. Success is the result of well thought out action.

Arthashstra written in the 4th century before Christ is a work whose relevance has not faded even after 24 centuries have gone by. Arthashastra is the evidence of the intellectual capital India possessed in its glorious past. We have the tradition of the past. We need the attitude for resurrecting and recreating the intellectual capital for the future.
Dr Anil Naik is a Mumbai based Management Consultant. You could write to him:

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