The pot-holed road

Inclusive growth and its corollary “Inclusive Loot”

2010-12-14T22:08:00.001-08:00

I have always been suspicious of this whole idea of “inclusive growth”. In fact, one of my essays is titled “The fallacy of inclusive growth” where I make the point that you only have a choice between fast growth and slow growth and that in practice inclusive growth can only imply slower growth as compared to your potential. Recent events in India have added a new dimension to this debate; we now have to seriously consider whether “inclusive growth” is just a façade for “inclusive loot”.

Now that the evidence is out, the logical link that binds the two together is not hard to fathom. Inclusive growth is all about spending huge amounts of public money, ostensibly with the aim of doing good to the poor of the country. In reality, the greater the outlay on such schemes, the greater will be the pilferage and the money lost to “leakages”. In other words, the more the budgeted expenditure, the more the money that gets siphoned off.

However, this is not all. A little bit of thought would suggest that when you double the expenditure, the scope for pilferage would more than double, simply because the level of supervision and control that can be exercised over the money spent cannot be simultaneously doubled.

What this means is that when government spending on any particular scheme is doubled (and in these days of the Sonia raj, there is so much of doubling and tripling all around) it cannot be accompanied by a doubling of the monitoring mechanism or the systems and procedures in place to check corruption. Therefore, where an efficient set-up restricts pilferage to 10 percent out of a budget spend of, say, Rs.10 lacs, the same set-up would see a 15 percent siphoning off when the expenditure doubles to Rs.20 lacs. In this example, in the journey from a Rs.10 lakh spend to a Rs.20 lakh spend, the “outflow” increases more than proportionately from one to three lakhs.

Incidentally, I believe I may have framed a new law of corruption in government circles, call it Ranjan’s law of corruption in public spending.

Expressed in the form of a simple scientific forumula it says: Inclusive growth = Inclusive loot (with a minor time lapse)

India's inflation problem and the elephant in the room

2010-08-01T04:49:00.000-07:00

There’s a lot of talk in the Indian media about why inflation should be so high and the general consensus seems to be that last year’s poor monsoon is the culprit.

Is there an elephant in the room here that we all refuse to see? I mean, isn’t there a link between the high inflation that we are seeing now (particularly food inflation) and the recent vastly increased outlays on social “welfare” schemes? Is it not best understood as the reverberations from that chest-thumping moment in parliament when finance minister Pranab Mukherjee got up to declare so grandiloquently that for the first time, India’s budgeted expenditure would cross Rs.100,000 crores.

Take the example of all that money going down the NREGA drain. This has the immediate effect of injecting a lot of extra purchasing power into the economy without doing much on the output side (neither the short nor the long term). Naturally, inflation follows and this should be a no-brainer. And if you look at the kind of activities financed by the NREGA, they are actually not very far from simply digging trenches only to have it filled up the next day (all in the name of “employment generation”).

A while back I read a news story purportedly about the “success” being achieved by the NREGA. It mentioned that farmers in Punjab were facing a shortage of labour to harvest their crops because of a slow-down in the hordes of seasonal migrants from U.P. and Bihar that earlier used to turn up for this kind of work. And this was because the NREGA, by providing them work near their villages, had made the trip to Punjab less worthwhile. Yes, this is heart-warming stuff.

Unfortunately, economics has very little time for warm hearts. What is actually happening is this. Instead of doing economically productive work (harvesting crops), labour is being diverted into unproductive work (digging trenches), and getting paid in the bargain. It pushes up the costs for Punjab farmers, which invariably finds its way to the government in the form of higher minimum support prices, and it does nothing to increase output in the economy which might otherwise have absorbed the extra purchasing power created. Costs have gone up, output is stagnant, and at the same time, people have more money in their hands.

And this is just so much about what has happened. What is in store for us is perhaps even worse. Wait till the Food Security Bill and its promise of food grains at Rs.2 (or Rs.3) a kilo becomes law. The government will then necessarily have to acquire a lot more rice and wheat from the market for supply to the “poor”. A lot of it will get pilfered or wasted in the logistics and in the hands of the end-user (knowing what happens to things given away for free), and importantly, it will also cut down on the supply available in the open market for purchase by our “aam aadmi”. At this point, it is simple demand and supply.

Anyone who has a doubt about what I have just said should feel free to look up the inflation rate in Venezuela where our Comrade Chavez has lately been into a lot of social “welfare”. Okay, let me save you the trouble, it's close to 30 percent. Alternatively, you can go back in history and check out why Indira's "Garibi Hatao" was such a resounding failure. As a matter of fact, it had degenerated into "mehangai lao".

I believe one reason why America went into Iraq (remember 70 percent of America was with George Bush on this one) was that the lessons from Vietnam were about 30 years old and, on the whole, forgotten. In India, the national consensus about "inclusive growth" suggests we have begun to forget how we got stuck with a "Hindu" rate of growth. We are now due for another rude awakening

Health Care Reform Will Help Everybody

2010-07-17T11:33:00.000-07:00

By Barbara O'Brien

Many Americans assume the new health care reform act will benefit mostly the poor and uninsured and hurt everyone else, according to polls. As Matt Yglesias wrote, “Basically, people see this as a bill that will take resources from people who have health insurance and give it to people who don’t have health insurance.” Those who still oppose the reform say that people ought to pay for their own health care.

We all believe in the virtues of hard work and self-reliance, but these days it’s a fantasy to think that anyone but the mega-wealthy will not, sooner or later, depend on help from others to pay medical bills. And that’s true no matter how hard you work, how much you love America, or how diligently you take care of yourself. The cost of medical care has so skyrocketed that breaking an arm or leg could cost as much as a new car. And if you get cancer or heart disease — which can happen even to people who live healthy lifestyles — forget about it. The disease will not only clean you out; it will leave a whopping debt for your survivors to pay.

And the truth is, we all pay for other peoples’ health care whether we know it or not. When people can’t pay their medical bills, the cost of their health care gets added to everyone else’s bills and insurance premiums. When poor people use emergency rooms as a doctor of last resort, their care is not “free.” You pay for it.

Another common fantasy about medical care is that the “free market” provides incentives for medical companies to develop innovative new drugs and treatments for disease without government subsidy. It’s true that private enterprise is very good at developing profitable health care products. But not all medical care can be made profitable.

For years, the U.S. government has been funding medical research that the big private companies don’t want to do because there is too much cost for the potential profit. This is especially true for diseases that are rare and expensive to treat. An example of a recent advance made possible by government grants include new guidelines for malignant pleural mesothelioma treatment developed by MD Anderson Cancer Center researchers. Another is a blood screening test developed by mesothelioma doctors like thoracic surgeon Dr. David Sugarbaker. The health reform act provides for more dollars for such research, from which even many of the tea party protesters will benefit.

The biggest fantasy of all was that people who had insurance didn’t have to worry about health care costs. But the fact is that in recent years millions of Americans have been bankrupted by medical costs, and three-quarters of the medically bankrupt had health insurance. And yes, insurance companies even dumped hard-working, law-abiding patriots. But the health care reform act will put an end to that, and now America’s hard-working, law-abiding patriots are more financially secure, whether they like it or not.

The irrelevance of the Scandinavian model

2010-07-09T12:27:00.000-07:00

With America in crisis, there is a lot of talk about the alternatives to the American way. Even within America, people have begun to sit up and take notice of the way things are done in Western Europe. And some look wistfully towards the more egalitarian model of the Scandinavian countries.

As an outsider, and as an Indian, here are my thoughts about the Scandinavian model being the sensible way forward, in preference to the “crisis-exposed” American way.

At the outset, I must confess to some prejudices in favour of America. The fact is, even as I live out my life thousands of miles away from both America and Scandinavia, not a day passes when I am not grateful to America (and to Americans) for some aspect of my life that is now infinitely better thanks to their talent and creativity. I really cannot say the same for Norway, Sweden, Denmark or even Finland. (Disclosure: I make use of a Nokia cell phone but not Ikea furniture; I do not drive a Volvo car and have never been the recipient of a Nobel Prize.)

To begin with, the Scandinavian model of a comprehensive “cradle-to-grave” welfare state is financed by high levels of taxation with a steeply progressive income tax regime.

In terms of ethnic composition, these are all very homogeneous societies and generally closed to immigrants, especially from the third world. Therefore, citizens who pay out large amounts of taxes always have the implicit assurance that the benefits are going to their own countrymen. (Think of the reaction if India becomes a welfare state and word gets around that Bangladeshis are flocking in to claim benefits here.)

Besides, all these countries consistently rank as the top performers in the various surveys about levels of corruption, transparency and the efficiency of public services. Therefore, taxpayers in these countries have the further assurance that the money they pay is actually being put to good use, and not lost to waste and graft. In turn, this means there is far less resistance to the idea of paying more taxes.

It will now be obvious that the conditions existing as above are not those that can easily be replicated elsewhere. The model may therefore have less relevance for America and almost none for India.

From India’s point of view, there is the other issue that being an expensive model, it presumes the existence of a prosperous majority who can then pay for those who fall behind. In fact, any welfare state presupposes a minimum level of prosperity; you cannot go about building a welfare state on a foundation of unrelenting poverty. That should take India out of the picture (for the foreseeable future, at least) as far as following the Nordic footsteps go.

As for America, despite all the evidence of heartlessness in its workings, there is something special about this country I have only recently come around to appreciating. This is the idea that the idea of America is not just for the Americans, it is for every one of us.

In America, it’s called the “American Dream”. We know for a fact that this is not a carefully put up mirage meant to lull and buy peace with its underprivileged. Examples abound of people rising from the dirt and living the dream. And perhaps the most wonderful thing about the American dream is that it is open, in some degree or other, to just about everyone around the world. We know of so many ordinary folks in our own midst, born into modest circumstances and now living the dream in America.

As for the Scandinavian model, the last time I checked, I did not come across a “Scandinavian Dream”. And if there is one I happened to miss, I know for sure it’s not meant for me, my family, or my friends.

Critics make the point that for a wealthy country America’s social indicators are well behind those of its peers. There is a reason. When you have been letting in millions of the dirt-poor from all around the world, and with many millions more having let themselves in, averages—and social indicators are, after all, averages—are bound to suffer. A classic example is Germany today. During much of the eighties, West Germany was among the top European countries in terms of GDP per person. These days, Germany figures behind Britain and pulls in behind even Ireland. So, did the German economic miracle run out of steam? Not quite. In 1989, Germany let in about 17 million of its poor cousins from the former East Germany and the average has been depressed since then.

This is not to deny that the Scandinavian model takes good care of its own citizens. The American model takes less good care of its own citizens, but it also cares for millions of poor from around the world who were allowed in with honour and dignity. Every year, nearly one million immigrants to the country are granted American citizenships. This is over and above the fact that all children born in America, even to foreigners and illegal immigrants, are ipso facto American citizens.

The choice then is a no-brainer. If you happen to belong to one of the Scandinavian countries, yes, yours is the way ahead. For the rest of the world, it is the American way that holds promise.

And then, when you think of a Swede, a Norwegian, a Dane or a Finn, you think blond, and you think blue eyes. Think of an American, and you suddenly realize you just cannot think along these lines. To me, that is the explanation why the American Dream has such a powerful resonance across the world.

(This blog post was originally posted on another of my blogs in January 2010)

For a friendly EMI

2010-07-09T12:13:00.000-07:00

(This article was published in the Open page of The Hindu dated November 22, 2009 and is available at the link: http://beta.thehindu.com/opinion/open-page/article53118.ece?css=print)

One of the reasons why ordinary people who survive on salaries have ended up borrowing so much from banks and financial institutions is the simplicity of the repayment mechanism that goes by the name “EMI”, i.e., Equated Monthly Instalment.

The EMI is a fixed payment amount made by a borrower to a lender at a specified date each month. It is used to repay both the interest and the principal each month so that over a given time period, the loan is fully repaid. In practice, the early instalments repay more of the interest component with the later instalments taking care of the principal amount. The advantage with the EMI is that the borrower knows exactly how much is to be paid towards the loan each month and this makes the personal budget easier to manage. When you get your monthly pay-cheque, you also pay out the EMIs on all the loans you would typically have taken, from the now mandatory home and vehicle loans to the sundry personal loans.

However, as much as the EMI has simplified the business of borrowing and repaying, it also wields an unwelcome and unyielding hold over your finances. The cheques have to be paid on the dot, month after month, no matter what contingencies stare you in the face. If the cheques bounce, you pay more by way of charges and penalties. Salary earners get paid roughly the same amount each month. But, anyone who runs a household would know that expenses are just not the same over the months. It could be the start of a school year when so much extra fee is to be paid out, or a festival like Deepavali when money goes up in smoke, as it were. In the West, this could be the extravagance of the Christmas shopping season or the annual vacation.

Flexi-EMI

Here, then, is a suggestion. Instead of insisting that EMIs be paid religiously every month, the banks can offer a “flexi-EMI” plan, where the borrower is allowed the right to default in one month of his choice every year. In return, the EMI amount will be proportionately increased so that the remaining 11 months will together amount to the annual repayment obligation. For instance, if your current EMI is Rs.1,100 a month, under the revised plan you will be required to pay Rs.1,200 a month for 11 months. The annual repayment in either case amounts to Rs.13,200, but the borrower will now be free not to pay anything during the one month — when you expect your finances to be under strain.

This is the basic plan, and from this starting point, variants can be devised. Thus, if for any reason someone wants a two-month default or “vacuum” option, it can also be worked out. Another version would be to offer the product in two options, one allowing a fixed month vacuum where the month in which the EMI is skipped is pre-defined and the other being a variable month vacuum option, where the borrower is free to choose when to skip repayment. Obviously, the second option will be priced a little higher because a beginning-of-the-period default has a higher interest burden.

Simplicity has a lot to do with why the EMI has become so popular. In that sense, the advantage with the changes I have suggested here is that even as the simplicity is retained, the customer is offered an additional convenience at no extra cost.

(ranjan.sreedharan@gmail.com)

America's secret competitive advantage is a dirty secret

2010-07-08T12:24:00.000-07:00

What follows is the abstract of a paper I have e-published as a research paper on the website of RePEc (Research Papers in Economics). The full text is available at the link below:
http://mpra.ub.uni-muenchen.de/22024/

Abstract

The noted management guru Michael E Porter identifies seven unique competitive advantages for the U.S. economy to explain the country’s pre-eminence; they range from (among others) its environment for entrepreneurship, its institutions of higher learning, its technology and innovation machine, to its commitment to competition and free markets.

In this article, I argue that there is another critical competitive advantage exclusive to the U.S. that arises from its electoral system characterised by consistently low levels of voter turnout in national elections and with disproportionately large numbers of its poorest and least educated citizens not voting. I begin by looking at reasons why the poor in America vote in far lesser proportions than their numbers, and particularly, at the various formal and informal impediments that prevent voting by the poor. I then consider the impact this would have had on America’s economy and its competitiveness.

The core idea of this paper is that when an electoral process effectively filters out significant sections of the poor, the country would find it far easier to put in place (and sustain) sound free-market economic policies focussed on long term objectives with generous incentives for creation of wealth and with a tight leash on welfare and other entitlement programmes. I contend that America’s undeniably greater acceptance of the rigours of the free-market system is not (as is commonly believed) a product of a unique history or culture but, in truth, is closely tied to a discriminatory and exclusionary electoral system that has strong historical roots.

India's inflation problem and the elephant in the room

2010-07-08T11:27:00.000-07:00

There's a lot of talk in the Indian media about why inflation should be so high and the general consensus seems to be that last year's poor monsoon is the culprit.

Is there an elephant in the room here that we all refuse to see? I mean, isn’t there a link between the high inflation that we are seeing now (particularly food inflation) and the recent vastly increased outlays on social “welfare” schemes? Is it not best understood as the reverberations from that chest-thumping moment in parliament when finance minister Pranab Mukherjee declared so grandiloquently that for the first time, India's budgeted expenditure would cross Rs.100,000 crores.

Take the example of all that money going down the NREGA drain. This has the immediate effect of injecting a lot of extra purchasing power into the economy without doing much on the output side (neither the short nor the long term). Naturally, inflation follows and this should be a no-brainer. And if you look at the kind of activities financed by the NREGA, they are actually not very far from simply digging trenches only to have it filled up the next day (all in the name of “employment generation”).

A while back I read a news story purportedly about the “success” being achieved by the NREGA. It mentioned that farmers in Punjab were facing a shortage of labour to harvest their crops because of a slow-down in the hordes of seasonal migrants from U.P. and Bihar that earlier used to turn up for this kind of work. And this was because the NREGA, by providing them work near their villages, had made the trip to Punjab less worthwhile. Yes, this is heart-warming stuff.

Unfortunately, economics has very little time for warm hearts. What is actually happening is this. Instead of doing economically productive work (harvesting crops), labour is being diverted into unproductive work (digging trenches), and getting paid in the bargain. It pushes up the costs for Punjab farmers, which invariably finds its way to the government in the form of higher minimum support prices, and it does nothing to increase output in the economy which might otherwise have absorbed the extra purchasing power created. Costs have gone up, output is stagnant, and at the same time, people have more money in their hands.

And this is just so much about what has happened. What is in store for us is perhaps even worse. Wait till the Food Security Bill and its promise of food grains at Rs.2 (or Rs.3) a kilo becomes law. The government will then necessarily have to acquire a lot more rice and wheat from the market for supply to the “poor”. A lot of it will get pilfered or wasted in the logistics and in the hands of the end-user (knowing what happens to things given away for free), and importantly, it will also cut down on the supply available in the open market for purchase by our “aam aadmi”. At this point, it is simple demand and supply.

Anyone who has a doubt about what I have just said should feel free to look up the inflation rate in Venezuela where our Comrade Chavez has lately been into a lot of social “welfare”.

PRIVATE INVESTMENT IN COLLEGE EDUCATION FOR THE DEPRIVED

2010-01-04T21:09:00.000-08:00

(An alternative approach using the “income tax” model)

In the paper “Educating India’s poorest: A radical plan to attract Private Sector investment”(1), I make a case for attracting private investment in the education of India’s poorest and most vulnerable children in return for the federal government agreeing to give up the entire income tax payments by the beneficiaries over their lifetime.

I believe that based on this core idea, a workable plan can be devised to enable private investment in the college education of talented but (economically) disadvantaged American students. Here are my thoughts about how this can be done.

At the outset, a word about the differences in the two contexts. For private investors putting money into educating India’s poorest children, the timeframes and the risks involved are huge, with a gap of fifteen years or so before the returns come through. Investors in America looking at paying for the college education of deprived but talented students do not run this kind of risk because they would step in only after the beneficiary has revealed ample evidence of his talent and capabilities. Moreover, the duration of a typical college degree programme—effectively, the period of wait before the returns come through—runs to only about four years. Consequently, there is little reason to go anywhere near to the extent of signing away the beneficiary’s entire income tax or extending the payout to his lifetime contributions.

Now, the two questions that come up are how much and how far — what percentage of the beneficiary’s income tax contributions is to be appropriated in favour of the benefactor and how long should such appropriations continue?

A useful model to consider is the production sharing agreements under which western oil companies operate in the oil exporting countries. The two relevant (and widely used) terms are “cost oil” and “profit oil”. Cost oil is defined as “a portion of produced oil that the operator applies on an annual basis to recover defined costs specified by a production sharing contract.” Profit oil is “the amount of production, after deducting cost oil production allocated to costs and expenses, which will be divided between the participating parties and the host government under the production sharing contract.” (2) In the initial years, the typical production sharing contract will have a much greater component of cost oil, implying that most of the revenue goes towards defraying the exploration and development costs incurred by the oil company. Once these costs are fully recovered, the much larger share of the “profit oil” now goes to the host government.

Applying this model to the issue at hand, the simplest plan would have the government passing on the entire income tax proceeds in the initial years to the benefactor until his “defined” costs are fully met. Thereafter, a minor share will be passed on for a limited, pre-defined period. (After all, having minimized the risks, the upside can be capped as well.)

While the simplicity is welcome, the disadvantage here is that the government ends up making a substantial sacrifice early on and this would make it a difficult sell. A sensible way forward would be to rework the model by taking the stand that what the government passes on to the benefactors can only be that component which can justifiably be attributed to their efforts or intervention. This would involve defining a certain minimum level of income tax—say the median income tax amount for individuals nationally—up to which no amounts will be passed on to the benefactor simply because no out-of-the-ordinary financial success is indicated. In other words, this defined “minimum” would be the amount of income tax the government could reasonably have expected from the beneficiary even without a college degree. Tax proceeds over this defined minimum would be passed on in full measure to the benefactor. However, how long this arrangement should hold would still have to be decided, keeping viability in mind.

At this point, the cost of the college education to the beneficiary would amount to almost nothing. This has the drawback that anything given away for free soon loses value in the hands of the recipient. To get over this, and to ensure that beneficiaries remain committed and motivated, it would be reasonable to put in place a requirement for a specified minimum share (say, 25 percent) of the total cost to be compulsorily borne by the beneficiary. This minimum share can be in the form of a “down payment” or a loan component with water-tight repayment obligations.

What I have outlined here is merely one example of how a realistic plan can be shaped around this core idea. Once there is more thinking along these lines, I am sure we can expect many more alternative plans and models. However, the underlying principle, I believe, should remain the same: higher the risk, greater the upside potential.

Finally, this is a point worth reiterating: The narrow focus on the future income tax payments by the beneficiaries has two advantages. It can easily be tracked at a centralised level. And, it provides a ready and quantifiable measure of the success attained by each individual beneficiary, which allows proportionate reward to the benefactors, without scope for subjective considerations. ◄►

-----------------------
Endnotes

(1)Available as a working paper at http://mpra.ub.uni-muenchen.de/20462/

(2)http://www.glossary.oilfield.slb.com/search.cfm

WHAT THE CRISIS DOES NOT MEAN

2008-12-05T06:02:00.000-08:00

(The global financial meltdown may be a failure of the system but does it not make more sense to see it as a failure of the people who were responsible for running it? Also, some thoughts about the way Indian communists have gone about claiming they have saved the country)

These are clearly not good times for global capitalism and for folks like me who happen to be ardent votaries of the free market economy. Every passing day brings more of bad news. In fact, it’s a bit like waking up every day to a bad hair day.

And, much as the times are bad for ‘us’ folks, equally, these are good times for ‘them’ folks; the unrepentant communists and socialists who have not forgotten any of their dogmas and (consequently?) have not learnt anything from history. Besides, there are the social democrats, progressives and all the others who place themselves on the left hand side of the ideological divide. Many among this lot are aware of and accept the greater efficiency of the market mechanism but could never reconcile to its inherent amorality.

Global capitalism is in trouble, deep trouble. The crisis it finds itself in is widely acknowledged to be the worst ever since the Great Depression. The scale of the troubles afflicting the banking and financial services sector, the very heart of a modern free market economy, is unprecedented. There is a nervous realisation that this is not just another cyclical downturn characteristic of free markets. Not surprisingly, questions are being asked, doubts raised, even about the fundamental viability of the system.

Okay, granted that things look bleak, but does that mean the doomsayers have a point about capitalism being in such a fundamental crisis, that it can emerge from it only by altering itself beyond recognition from its former self.

I don’t think so.

I believe that rather than the system being at fault, it was the people in charge of it who are more to blame. Here is an analogy that should make it clear. Imagine you have an expensive car and have hired a chauffeur to drive it. One day, there is an accident. Initially, you have no way of knowing whether it was the fault of the driver or whether something was critically defective in the car. Later on, you come to know that at the time of the collision, your driver was quite drunk. Now, would you blame the car manufacturer any more?

For the last eight years, George Bush was at the helm in America. It is like having a driver short on competence and very high on an alcohol-like cocktail of bluff, arrogance and ignorance. The NY Times columnist Thomas Friedman wrote recently, “I have always thought the American political system was devised by geniuses so it could be run by idiots. Now I know I was wrong”. He speaks of the political system. Well, it was the same folks who ran the economy.

The point therefore is, just as we do not find fault with our car manufacturer when we know our driver was incompetent, maybe we need to think twice before concluding that the system is at fault.

And then, even as we talk of a crisis, remember that ‘crisis’, and also terms like recession and depression, are actually relative terms. During the past few decades, capitalism has delivered unprecedented prosperity to millions of ordinary people across the western world and beyond, and more recently to people in China and India. What is now at stake here is the loss of a portion, a fraction of that extra prosperity achieved over the years. It does not mean that people in America, Europe and elsewhere where economic freedom prevails, get pushed back to the stone ages.

And so it is that even as many in these countries are put to real hardship, a North Korean plucked from his country and magically transported to America, would still exclaim “Hey, this is paradise”. And a Cuban citizen, given an assurance of even a half chance of survival, would still happily plunge into the shark-infested waters of the Straits of Florida to escape from the unrelenting desperation of his crisis-free socialist ‘paradise’.

Okay, there is no denying the crisis. But then, this is the crisis of a system that has consistently delivered results. Now, a part of what has been achieved over the years is at risk. With this perspective in mind, it becomes clear why now is not the time to go looking for alternatives that have never delivered anything and therefore, where nothing is at risk.

The reaction in India, particularly of the Left

And then there is the reaction of the Indian communists who, for the past four years, have been a part of the federal government playing the role of a millstone around its neck. They have really done much to block all attempts at further reforms in the economy.

Now, the communists have gone to town proclaiming that thanks to their role in stonewalling reforms, the country has been saved from a major disaster. This is a claim that, like so many other things about them, can only be described as bogus. And yet, quite a few in the country seem to be giving credence to it. A leading Indian news magazine made the question (Did the Left save India?) its cover story, conceding an element of respectability to what is patently a spurious claim.

Why do I say that?

Let’s begin by putting things in perspective. Ten years ago, the world economy was rocked by the Asian financial crisis. Almost all the major economies in Asia were affected, particularly those that were part of the elite club known as the “Asian economic miracle”. South Korea, Thailand, Malaysia, Indonesia, Philippines, Taiwan and Singapore were all affected. Yet, India was relatively unscathed. Now the left cannot (and does not) claim credit for that because in those days, they did not have a say in the corridors of power. Indeed, for much of the period of the crisis, India was ruled by the bête noire of the left, the BJP, so if anyone should take credit, it is the BJP.

What then is the story behind the communists and their tall claims?

It would be helpful to use the automobile analogy again. The western countries and some of the Asian countries like Japan, South Korea, Singapore, Taiwan etc. are relatively advanced and mature capitalist economies where people enjoy a high standard of living. Think of these countries as smooth, expensive cars moving at a high speed of, say, 80 mph. The other side of the freeway belongs to countries like China, India etc. which are now broadly ‘free market’ but are still weighed down with a host of residual command economy controls and restrictions on free movement of goods, services and capital. The people here have enjoyed modest gains in the standard of living. Importantly, in the more recent years, with economic liberalisation, there has been a marked quickening of the pace at which living standards have risen. Think of these countries then as cheaper cars that for a long time moved along at a slow speed of 20 mph, and now have begun to accelerate and touch a speed of 30 mph.

Of course, the cars that travel faster reach their destinations quicker. But yes, they also run the risk of meeting with an odd collision, maybe a fender-bender, or perhaps even something serious. And sometimes, it can even be a fatal accident. And so it has come to pass with the US and the leading western economies. Their cars have crashed and while the extent of the damage is not fully determined, it is expected to be substantial and serious.

Here is my problem with the communists and their boast. To begin with, the accident happened to those cars moving at 80 mph and more. It is just not likely that an economy moving far slower and incapable of approaching anywhere near those speeds would crash with the same extent of damage.

Secondly, there is the role of the left in successfully stalling reforms about which there is no dispute. But I would contend that this ‘success’ was the equivalent of preventing our car now moving at a modest speed of 30 mph from increasing any further, say, to 40 mph. After all, the reforms that the left takes so much pride in blocking were incremental rather than revolutionary in nature. They were measures like allowing greater foreign investment in the insurance sector, allowing voting rights to foreign investors in our private banks above the present ceiling of 10%, consolidation of state-owned banks, permitting the state owned pension funds to invest a fraction of their corpus in the stock market etc. It may be said then, that these measures were designed to increase the speed of our car marginally, from 30 mph to say, 40 mph. They were never designed to take us to 80 mph.

By stalling reforms, the left has not saved us; instead they have made our journey on the road leading away from poverty (and towards prosperity) a little more slow and a lot more troublesome. Therefore, they deserve not praise but condemnation (as usual).

I began this article with a reference to a bad hair day. Well, here is a revelation of particular interest to all those left behind communists and socialists around the world who imagine that what they see now is the beginning of the end of capitalism.

Even on a bad hair day, capitalism looks far better than socialism.
***

GEORGE BUSH AND HIS LEGACY, WHY HE STILL HAS HOPE

2008-11-19T04:11:00.000-08:00

Ranjan Sreedharan
Nov. 18, 2008, Cochin, India

It is fair to say that when George Bush leaves the White House in two months time, he will do so not with a feeling of dejection at his colossal failures. Instead, he will carry with him a sense of deep hurt and injured pride that his accomplishments are so seldom acknowledged by his countrymen and the world at large. Indeed, in these the twilight days of his disastrous presidency, it is likely that he subsists entirely on that fond hope of politicians (the unlucky and the incompetent alike) that history will judge them far more kindly than their contemporaries have.

At the moment, it does seem a very tall order. A recent survey of 744 contemporary historians and political scientists in the United States revealed that many rate him to be the worst American president ever. This will not come as an eye-popping surprise to anyone. After all, here is a man who possessed the contra-Midas touch. Everything he touched has turned unfailingly into dust.

He began by breaking up the existing international order and sullying America’s image in the world. He followed it up by wrecking the economy, accumulating massive amounts of national debt and topping it off by bequeathing a banking and financial crisis so acute, it draws comparison with the Great Depression. Finally, and we know it now that the elections are over, the Republican Party is rudderless and almost in tatters, having lost heavily in the Congressional elections as well. George Bush, it may be said, broke the world, broke America and broke his own party.

And yet, all is not lost as yet. Indeed, going by historical precedent, there is still hope that history will take a kinder look at what Bush has wrought.

To begin with, the legacy of an American president (or for that matter, just about any other position) is not just about what he has done or what his achievements and failures are. It is also in large measure, about what his successors do after taking over from him. A weak, inefficient successor tarnishes your legacy, because the failures are allowed to fester without course correction. Equally, a capable successor burnishes your legacy because he builds on your accomplishments and covers up for your failures.

In the case of George Bush, there is no denying that the failures are many and massive. To ensure the kinder, gentler look from history, he badly needs a strong, capable successor who can methodically address the many loose ends he will surely leave behind, and who can be counted on to undo some (if not all) of the damage already done. In Barack Obama, George Bush may have exactly such a person.

Left to his own instincts and judgement, George Bush would have preferred John McCain. But then, if there is an enduring lesson from the Bush presidency, it is that it is possible for one man’s gut feelings to be consistently wrong, even when he holds the highest office in the land.

George Bush hoped that John McCain would succeed him as president. He did not get his wish. I believe he has been fortunate. At a time when what America needs above all is day-to-day competence in its president, John McCain ran on a platform whose primary offering was more of muscular American leadership with no sense of this country’s diminished circumstances. In contrast, Obama appeared to be the more level-headed choice, if only because he had a greater sense of how much the country has fallen.

And here is an irony. Thanks to George Bush not getting his wish, his legacy stands a better chance of that kinder look from history that he so craves.

There is a recent parallel Bush can take heart from. These days, whenever Americans are asked about their great presidents, a name that consistently figures among the top is that of Ronald Reagan. There is a feeling that Reagan won the cold war for America and that his reign marked a period of quiet prosperity. Actually, the truth is a little more complex. When Reagan came to power, America was the largest creditor nation in the world. When he stepped down, America was the largest debtor nation in the world. During his eight years in office, the country’s national debt increased three-fold to US$ 2.9 trillion dollars, with the federal budget running up massive deficits year after year. Reagan was, however, lucky that when he stepped down, the economy was still doing okay. His vice-president the senior George Bush who succeeded him, was not so lucky. By the time he went up for re-election, the economy was in a serious recession and he lost tamely to Bill Clinton (remember the line “It’s the economy, stupid.”)

And yet, if Reagan is remembered kindly today, credit must also go to the Clinton presidency which revised taxes, kept spending in check, presided over the largest peace-time expansion ever in the economy, and methodically turned a chronic budget deficit into (what seems unimaginable now) a surplus. Once this was done, it was so much easier to look kindly at the Reagan presidency.

However, the biggest failure of the Reagan years is something few Americans are even aware of. Under Reagan, America was actively involved in funding and arming the Afghan Mujahedeen who were then fighting the Soviet army. It led to defeat for the Soviet Union and was judged to be a great success. It is also claimed that the cost imposed on the Soviet Union by this action was one of the reasons for the subsequent collapse of the Soviet empire.

Whatever be the truth about the Soviet collapse, it is a fact that the Mujahedeen were soon to transform themselves into the Taliban and that one of the less prominent figures in the Mujahedeen who happened to receive substantial American help (routed through the Pakistani military) was Osama bin Laden. What happened next is too well known to require reiteration. Okay, in politics, your enemy’s enemy is very often your friend. But equally, it is also plain good sense (not to mention good policy) to look a little closely at exactly who this enemy’s enemy is, and ask a few hard questions about what he really stands for. It was a remarkable failure of the Reagan presidency that no such foresight was shown. Thanks to this gross negligence, we have an area in New York that today goes by the name “Ground Zero”.

As for George Bush, talk about lack of foresight being likely to create many more problems in the future is premature. His eight reckless years at the helm have given rise to too many burning problems that require immediate attention. Therefore, while it is likely that America will continue to pay a price well into the foreseeable future, chances are (like Reagan before him), Bush will not be blamed for these.

And then, if Barack Obama’s administration turns out to be a competent, capable effort, able to extricate America from Iraq, restore America’s standing in the world and bring stability to the ailing economy, it is conceivable that in 15 to 20 years time, people in America will begin to forget how bad things really were under the Bush presidency.

And then, George Bush will have his wish, with historians and academics looking back on his reign with sympathy for a simple man who boldly set out to do what he thought was right without fear of the consequences. Who knows, one day Iraq may actually become a modern, progressive Democracy. Trust the American right-wing then, to rush to proclaim, “all thanks to Dubya”. Not long afterwards, count on a legend to spring up around Geroge Bush as the American president who brought freedom and democracy to the people of Iraq.

Sounds far fetched? Remember, Reagan is already lionised as the American president who won the cold war for America. Never mind that an economic system where planners and bureaucrats were setting some 24 million different prices would have imploded on its own, sooner than later.

***

AMERICA’S SELF-DESTRUCT IMPULSE: WHY BARACK OBAMA WILL LOSE

2008-10-31T04:33:00.000-07:00

Cochin, 10/Oct /2008

In my previous post, I had talked about “the gambler’s prejudice” and why it is likely to cost Barack Obama the elections. I believe there is another force at work that will also serve to deny the presidency to Obama. This is the tendency of those who have set out (knowingly or unknowingly) on a path of self-destruction to reject the shot at redemption.

In a stock market prices fluctuate everyday. Yet, there are many traders who manage to make money out of the ups and downs. However, even as you enter the market to trade on the fluctuations, it is necessary to have a slightly longer term view about the direction where the market is headed for. And so it is when making predictions these days about the US presidential elections. After all, this is also a prediction about the future direction of that country.

I’ll begin with my long term view. The United States, even as it continues its reign for now as the sole superpower of the world, is in irreversible and terminal decline. Its days as the richest and most powerful country in the world are numbered.

Now, whenever there is a discussion about whether America is indeed in terminal decline, a lot of sensible people have made the point that America has recovered or ‘bounced’ back so often in the past that it would be premature to write it off. I have a different point of view. We all have heard stories about people who have a near-fatal accident or who fall victim to a serious illness and then go on to make a remarkable recovery. But, just because at the age of 35 or 40 years you recover completely, does not mean that if you were to go through the same ordeal at the age of 65, you would still bounce back in exactly the same fashion. America recovered from the trauma of Vietnam and went on to defeat the Soviet Union. But this is an older America facing challenges that are qualitatively different. And this time, in what amounts to a crucial difference, its leading challenger is not handicapped by a faith in a patently absurd economic system. The past, therefore, is not a reliable predictor of the future.

For a long time, this was a relative decline that began about 30 years ago when the Chinese economy commenced its trajectory of double digit growth. In a race, you may be far ahead of the pack but if someone at the back accelerates and runs faster than you, he begins to gain steadily on you. Of course, for a long time the Chinese were so far behind that the relative decline of the US did not matter because the absolute positions were still vastly different. In fact, even now, i.e. 30 years down the line, the Chinese economy is significantly behind that of the US. However, what has changed dramatically in recent years is that the relative decline has now turned into one of absolute decline.

Going back to the analogy of the race, you continue to be far ahead, but instead of running full speed ahead, you slow down. You spend too much time looking over your shoulder and, because you are tired, you often pause to catch your breath. And then, in just about the worst thing you can possibly do in distance running, you lose focus and forget what your basic mission is. Someone from the crowd has hit you with a stone and shouted out an obscenity. You are furious. You are the star athlete at the meet and for millions across the world, you are a legend in your lifetime. How dare someone do that to you!

You are so angry that all that you really want to do now is to find out who the culprit is so that you can grab him by the throat and punch him hard in the face.

Surely, this analogy needs no further explanation as to how it applies to America, China and to America’s war on terror.

When you enter a process of absolute decline, anecdotal evidence (as indeed, my gut feeling) suggests that you do not generally reach out for and grab that chance at redemption that may come your way.

So, what does this imply for the US presidential elections?

One of the catastrophic failures of the Bush administration has been the way it has conducted itself on the international stage (I’m assuming the economy does not tank any further). It is fair to say that America’s standing in the eyes of the world has suffered greatly in the aftermath of the war on terror, and with the two unseemly, unending wars on hand. The decline has been so precipitous that what was unimaginable even a few years back, has actually come to be true. In Western Europe, defended against Soviet expansion for so many years by American soldiers, more people think of the United States as the greatest threat to world peace than any other country. Clearly, under Bush, America has made too many enemies and the costs are now beginning to tell.

To a country faced with this surge in its unpopularity, and which is actually beginning to hurt from it, Barack Obama should represent hope in a real, tangible sense. Today, in country after country, across continents, across the world, he has become one of the most popular American politicians ever. I have no doubt that merely by electing Barack Obama as president, Americans will generate a groundswell of goodwill and sympathy for their country. Those who have traditionally regarded themselves as friends of America and who are troubled and disillusioned by the recent turn this country has taken, will find themselves confronting fresh evidence that American idealism and leadership is actually worth believing in once again. As for America’s implacable foes, they will surely continue to be as hostile as ever, but with a difference. Soon, they will find themselves preaching their poisoned message to an ever-dwindling crowd.

Of course, it can well be pointed out that right after 9/11, there was an upsurge in sympathy and support for the US from all over the world. It did not take very long thereafter for all of it to be frittered away and replaced by downright hostility. Yes, a bit of caution does seem sensible and warranted. All the same, keep in mind the evidence that Barack Obama will walk into the Whitehouse with an armoury of grey cells far in excess of what George Bush could ever command. There is an old saying “A fool and his money are soon parted.” Therefore, what Bush did with all that support and sympathy in the wake of 9/11 (and the ‘political capital’ he talked about during his second inauguration) was entirely predictable, almost like night following day.

With such credentials then, what makes it likely that Obama will lose rather than win? As I said at the beginning, America as a nation and as a superpower is in decline. One of the surest ways in which you ensure that the downhill journey you have begun continues uninterrupted is by rejecting the golden chance to mend your ways and to redeem yourself. This should not be hard to understand. If you are a drunkard drinking yourself to a slow death, it is highly unlikely that you would jump with joy just because someone you know has offered to take you to a rehab clinic. And so it is with America and its increasingly troubled equation with Barack Obama.

At the risk of oversimplifying, one of the reasons why the Roman empire declined is that it had emperors like Nero who “fiddled while Rome burned”. I may add that America is in decline because it has large numbers of people with the right to vote who prefer to fiddle even as the underpinnings of their great country continue to unravel. When a sizeable section of people with the right to vote believe that what matters most is your stance on abortion, gun control, gay marriage, school prayers, creationism vs. evolution etc. (or the race of the candidate), then what they will hold in their hands as they head towards the ballot box on election day, is a fiddle nominally called a ballot paper. It cannot be long, therefore, before America goes the way the Roman empire finally went.

Into the dust.

THE GAMBLER’S PREJUDICE: WHY BARACK OBAMA WILL LOSE

2008-10-31T04:22:00.000-07:00

Ranjan Sreedharan
05/Oct/2008

Now that the Democrats and the Republicans are both done with their national conventions, and Barack Obama and John McCain have been formally anointed as candidates for President by their respective parties, it is time to look ahead and make concrete predictions. Here is mine. Barack Obama will lose.

Having said as much, it is not that I am unaware of what the opinion polls have been saying ever since campaigning began. As a matter of fact, the polls have gone through a full circle. For a long time, it was Barack Obama who had the clear lead, though never decisive, peaking with what was, by all accounts, a well-received convention speech (the “post-convention bounce”). And then it was McCain’s turn to take the spotlight with the surprise nomination of Alaska governor Sarah Palin as his running mate. Palin’s convention speech literally set the house on fire and suddenly there was both energy and enthusiasm in the Republican campaign. White women who had enthusiastically supported Hillary Clinton were now literally to be seen deserting Obama in droves and flocking to the McCain-Palin ticket in what came to called the “Palin bounce”.

Since then, Palin’s lustre has dimmed somewhat and with the economic woes overtaking the nation, and with John McCain declaring that the economy was fundamentally strong on the very day that the storied Lehman Brothers went under (and just a week after Fannie Mae and Freddie Mac had to be bailed out by the federal government), Barack Obama has once again moved into the position of front-runner. Since then, with the stock market suffering serious erosion, and with Wall Street woes moving into the Main Street, he has actually consolidated his position, so much so that in some of the critical, so-called “swing” states which have traditionally voted Republican, he is actually ahead in the polls by a whisker.

Okay, so what are my conclusions? To begin with, I believe that despite all her recent troubles, Sarah Palin continues to be a smart choice who makes it more likely that Obama will lose. At the same time, my conclusion that Obama will lose predates Palin’s nomination because, to begin with, this is an election where a sizable (in terms of statistical impact, if not in absolute numbers) section of the mainstream voters (read the white voters) are actively in search of reasons to not vote for Obama. In fact, they appear to be in a quest for plausible reasons (not necessarily substantial one’s) to not vote for him because they do not want to appear as racist, as much in their own eyes as in the eyes of others around them.

The other factor at work here which is also the title of this article is what I shall call “the gambler’s prejudice”.

In making predictions about the future movement of prices in the stock market, analysts often make use of a tool called technical analysis (where you plot the price movements on a chart and draw conclusions based on the pattern) as also one called fundamental analysis. The movements in opinion poll ratings on account of a well received convention speech or the selection of a glamorous running mate are the equivalent of short term movements in the stock market that can be predicted by technical analysis. However, without getting distracted by the short term spikes, I believe there is a case for making predictions based on more long term and fundamental factors.

Imagine you are a gambler who has had a lucky and successful career so far but now have fallen on hard times. Increasingly, the bets are not coming off and the loss of money that began as a trickle has turned into a flood and you are on the verge of losing the shirt off your back. You had always possessed a great technique that enabled you to outsmart your opponents. But now, it seems they have finally cottoned on to you. So, these days at the table, more often than not, they win and you lose.

Now imagine further that two your friends come to have a word with you. The first one is indignant at the plight you have got yourself into.

“What have you done to yourself? Don’t you know gambling never did anyone any good? What made you think you could be different. Take my advice. You have to kick this habit at once and start rebuilding your life the hard way, brick-by-brick.”

The second one is more sympathetic. “You know, I’ve been watching you play for a very long time. You have always been very good. It’s just that in recent days, you have not updated your technique. I believe you only need to refine your technique and maybe, be a little less aggressive. I assure you, it’ll all come back to the good old days.”

So, whose advice do you take? Here is my conclusion.

Up to, and until the point you have actually lost the shirt off your back, your instinct will always be to go with your understanding friend No.2. But, if you have actually lost the shirt off your back, you will go with your indignant friend No. 1. However, even as you do so (because you have no other choice), you will all the while hate him and hate his guts in telling you so much to your face.

So, to sum up -- and just in case the analogy did not fall in place -- here it is. You are America now fallen on hard times and called upon to make hard choices. Your friend No.1 is Barack Obama and the friend No.2 is John McCain. For Barack Obama to win, America on the day of the election, must appear a gloomy place looking ahead to seriously bleak prospects. Anything less, and John McCain will be president.

Well, you may ask, with Wall Street and the banking sector on the verge of a meltdown and foreign policy in serious trouble with two unfinished, unending wars, isn’t America already in a deep hole? The answer to that is it’s not what you and I believe that matters but what the people of America believe to be true. And here is some news relevant to the point. Even in these bleak times, one out of every three American believes that Dubya is doing just fine. They approve of his Presidency. And then, there are many more who believe, that after the “surge”, America is well on course to “victory” in Iraq.

Other than making you wonder where these folks get their news from, it is also a pointer to a seldom realised truth about democracy. This is a political system that actually gives you the right to cherish your own delusions, the right to be in denial and the right to construct (and inhabit) alternative versions of reality.

That so many in America are so clearly unhinged also suggests that when this democracy gives way finally (in the none-too distant future) to a non-democracy as the leading superpower of the world, there really is no reason to fear the worst.

When communism in the erstwhile USSR collapsed, Francis Fukuyama talked about the ‘end of history’ with the liberal-democratic model having emerged for all times as the final resting place in the political evolution of the nation-states of the world. I believe there is now a serious case for the “reopening of history” and to start talking about the impending decline of the democratic powers and their substitution by enlightened autocracies, as in China, Singapore … hmmm… Russia etc.

That, however, will be the subject I propose to deal with in a future article, hopefully, before the Chinese have taken over.

THE BRIDGE NOT BUILT

2007-12-06T03:16:00.000-08:00

It is almost 20 years to the day when socialism in the former Soviet Union and Eastern Europe imploded with such startling spontaneity. There is now both a general awareness, and a general consensus, that the collapse came about because socialism as an economic and political system was deeply flawed.

In India, our own extended flirtation with socialism came to an unhappy end a little later, sometime in 1991. A legacy of the four decades under a socialist mindset is a continuing and widespread ignorance of what really makes the free market economy tick. That is why, at the slightest hint of trouble in the market place, so many voices can still be heard calling upon the government to intervene. Like so many idiots asking to be shot in the foot.

That India’s reforms began (unlike in the socialist bloc) a little before our economy had well and truly fallen into pieces, has another unhappy consequence. Many of us have at best a half-baked understanding of the contradictions in socialism which so thoroughly undermined this wonderful piece of theoretical construct. And, while faith in socialism has suffered extensive erosion, it has not been replaced by outright hostility, as in Eastern Europe. This is understandable. For the people of Eastern Europe, the experience would have been like being thrown into an inferno and coming out burnt and scarred. The Indian experience, by contrast, was milder and involved rescue before permanent damage. This explains why a decade and a half after that near-fatal encounter, ideas inspired by socialist idealism still keep popping up in our public discourse with such appalling regularity.

Why did socialism give up the fight without a fight? Within the unrepentant leftist movement, some of the more moderate voices attribute the collapse to political reasons like the lack of the essential freedoms of a democracy. A prominent left wing economist speaks of a “democracy deficit” that let the system down. This is a hypothesis easily refuted. All you have to do is to think of the major economic success stories in the last two decades.

The most talked about example is China and we know very well that this country has an acute democracy deficit. Singapore, a city-state that began its existence in the 1960s as a collection of fishing hamlets, is now an economic powerhouse but far from being a model democracy. Hong Kong was administered for long as a colony by the British, without much of a say for the local people and that is how the Chinese are carrying it forward today. South Korea, Taiwan and Chile are prosperous democracies these days, but at the relevant points in history when their economies took off, they were dictatorships for prolonged periods.

The point is clear, beyond debate, and therefore needs an emphatic reiteration; the collapse of communism in the Soviet Union was driven by economic failure. It took 70 years in the making because this was, after all, a militarised and totalitarian society. The order and enforced discipline made sure that some good things would also come out which served to paper over the cracks. That is why even as its foundations were eroding and the contradictions catching up, the socialist state managed impressive strides in education and healthcare and maintained a semblance of full employment (The quality of output from the ‘full’ employment was, however, a different matter altogether).

When socialism collapsed, the largest pillar that gave way was the role of the government in the economic sphere. Under socialism, government was an overbearing, overarching presence which stifled creativity and initiative and standardised mediocrity. The example of collectivised agriculture in the former Soviet Union is telling. About 97percent of the total land under cultivation was farmed by the state either through collective or state farms. The remaining 3 percent was allowed for private farming and it accounted for 1/3rd of the total agricultural output of the country. Not surprisingly, the Soviet Union was a frequent importer of food grains, from Australia, Canada, Argentina, and its nemesis, the United States.

The United States is today is the richest and most powerful country in the world. It has been so for the best part of the 20th century. It stands to reason that for this country to have come so far, its government must have done a lot of things right over the years. The US does not have a public sector in the way we have, although the federal government does run a bureaucracy that, critics say, has become too vast and too costly. The US government does not own any airlines, oil refineries, commercial banks, factories producing armaments, warplanes, cars or whatever. And yet, this country has a powerful, influential section within its intelligentsia who distrust big government and want its role to be kept to the minimum possible. They believe in the government getting off the backs of its people.

The contrast with India is striking. For the best part of 40 years after independence we wasted our time trying to build a welfare state on a foundation of unrelenting poverty. In the pursuit of equity, our national preoccupation was with dividing the cake, no concerns about growing or enlarging it. Our government invested heavily in airlines, oil refineries, commercial banks, insurance, factories making armaments, warplanes, cars, watches, scooters, metals, textiles, coal … name an activity and there’s a fair chance that there is a public sector enterprise involved in that. Our experience in economic development gave birth to the notion of the ‘Hindu’ rate of growth, to this day one of the finer examples of sarcasm in economics. It is painfully obvious that our government got it wrong on so many counts. And yet, our intelligentsia continues to be dominated by people whose most creative utterances are peppered with “the government should do this, the government should do that.” Having shot themselves in one foot, they now seek parity for the other foot.

Our greatest achievement to date  our world class IT industry  grew into a giant because the government for many years was unaware of what was taking shape and forgot to both tax it and throttle it. Our next best achievement  the telecom sector  took off when the government of the day had the courage to step back and let in the private players after the state monopoly had become a model of sloth and inefficiency.
In fact, examples abound to show that whenever the government steps back, productive forces are unleashed in the economy.

Why, then, do governments have this uncanny knack of making a mess of it even when their intentions are good? Here is an example that gives more than an ample hint.

As usual, I shall ask you to imagine that you are the top government official in a remote poverty-stricken district entrusted with the mandate of improving the lot of the people. During your travels, you come across two neighbouring villages separated by a river. There is frequent movement of people and a flourishing trade between the two sides carried on country boats operated by a community of indigenous boatmen. In a particular year, you receive substantial funds from the government to be spent on roads and infrastructure projects. And you decide to build a bridge across the river at the point separating the two villages. After all, it makes so much sense with all its potential for improving the lives of people on either side, with improved connectivity, access to markets and by further integrating the economies of the two villages.

But no sooner is the decision announced  although a thought experiment, it is still set in India  that all hell breaks loose. There is a virtual revolt by the community of boatmen. They fear, and rightly, that once the bridge is built, their livelihood will come to a halt. Fortunately, unlike our current crop of politicians, you are made of sterner stuff. So, even when you get frantic phone calls from the local MLA and then one from the MP, you remain steadfast. You are convinced that this is what progress is all about. The likely harm to a few cannot and should not be allowed to hold back progress for so many.

And then one day, you receive word that the leader of the boatmen is at your office and wants to meet you. He walks in with a young boy, a spare, slightly-built man with the weather-beaten face of one who works in the sun all day. There is no hostility, no defiance in his tone, only an abject helpless pleading. “In my family, like all our community here, we have all been boatmen for generations. But my son (and he indicates the boy) is the first to go to school. My only hope in life is to see him grow up with an education so that he does not become another boatman.” He pauses, as he gathers his thoughts. “But if that bridge goes ahead, that will be the end of an occupation for me and the end of school for my son. I just don’t know what will happen to us.” The tears well up in his eyes and he looks down. This is a proud man but today he looks beaten.

Even as you don’t say anything, you look at his son. And, as he holds your gaze, his eyes have the same look of helpless pleading. It is a poignant moment. What you hold in your hands is a power that in its own way is greater than that of life and death. It is the power, literally, to make or break a life. And you must decide.

I will end the story here because my purpose is not to tell a tale but to make a point. It is a simple proposition that by now should have been drilled into our consciousness. And yet, we are in many ways farther from this truth than ever before; that when governments overreach into the economic sphere and arrogate to themselves the powers to decide what should and should not, what can and cannot be done, more often that not, the decisions go against the long term interests of its own people. And this is particularly true in a democracy where it is necessary to be seen as being responsive to the people. Because, in practice, it is always expedient to respond to the pressing concerns of a section of the people, than to be true to a general concern for progress of an entire people.

And that is why countries where governments have a large, disproportionate say in the economy end up poorer and more backward than those where the government’s role is limited to, and subject to, well defined and robust boundaries. The United States of America is today the richest and most powerful country in the world today. It is not a coincidence.

MOORE’S LAW AND THE END OF THE COLD WAR

2007-11-29T19:34:00.000-08:00

An important reason why life has changed so dramatically for so many of us, and in such a short span of time, is the spectacular progress achieved in the world of computers and technology. In 1965, Geoffrey Moore predicted (in words to the effect) that every two years, there would be a doubling in the processing power of computer chips. This is now known as Moore’s law and it has broadly held true ever since.

As much as this law is about the exponential growth of computing power, I also believe it is about the power of human enterprise, initiative and open markets, united by freedom and undivided by borders, to deliver results far beyond what the human imagination can realistically conceive.

I like to imagine how this law would have played out in the former Soviet Union. Here is my guess about the likely scenario. To begin with, all research into computers, microchips, semi conductors etc. would be centralised at the massive, publicly funded, V I Lenin Institute for Information Technology, employing an army of scientists, bureaucrats and assorted hangers-on.

At the beginning of the year, the Director of the institute would receive a mail from the country’s planning commission setting out the targets to be achieved in the various areas. The planning commission would, very likely, have set ambitious targets for the growth to be achieved by the economy as a whole and also the various sectors within it. So, if the country is to grow at 8 percent, it would make sense to demand that the Institute deliver chips with a processing power 12 percent, 15 percent and maybe even 20 percent (the sheer ambition!) more than what was achieved the year before.

Assuming that the institute functions like any other government run establishment, it would likely end up at the year-end achieving an increase somewhat short of the given target. Also, they would work hard on good, scientifically plausible excuses as to why the entire target could not be met. Of course, it is also conceivable that the scientists at the institute are fully aware of the true potential in this field (unlike the planning commission mandarins), and actually achieve a 40 percent increase. But then, they choose to deliver only 20 percent for now, in order that the next year’s target becomes a breeze, when they can sit back and relax and yet deliver the plan target.

The reader is welcome to think of alternative scenarios but it is unlikely that the Institute (or the wider research establishment in a command economy) would have delivered double the processing power every two years and that too over a span of three to four decades. Not surprisingly, Moore’s Law under central planning would then have been a doubling of processing power not every two years as in a free economy, but perhaps every four years, or more, and with no warranty about the bugs.

With this kind of difference, and over the course of a decade or two, it is quite likely that staggering differences in the processing power would have opened up between the western chip and the Soviet version. I have long suspected that one of the reasons why the Soviet economy fell significantly behind its western peers  a process beginning in the mid-70’s, and really the basic reason for its collapse  was the shortage of computing power for day to day economic activities. In order to compete militarily with the west, the Soviet economy would necessarily have had to reserve the major chunk of its best computers for military uses like designing warplanes and missiles. This would have starved the civilian sector which would then have been forced to rely on inferior alternatives like the humble calculator or even the pencil and paper (with assistance from the good old logarithm tables).

Of course, such a view would run counter to the established wisdom in the west, cherished particularly by the Republican right-wing in America, that the Soviet Union bled to death because it could not keep up with the quantum jump in military expenditure during the Reagan years. Add to this, the huge cost of fighting the unending war in Afghanistan (where the insurgency was armed and funded by the CIA), and it became the final tipping point. From the Republican perspective, this is all very convenient. You can now follow up with the claim that Reagan was the (Republican) President who won the cold war for the west. And from this point, it is only a short walk to putting a halo around his head.

I must say that even as I disagree with the Republicans on this one, I also sympathise with the view. It does convey the desirable impression that the cold war was won the hard way, the macho way, by standing up to the enemy and not blinking. As for my view (admittedly less popular), it has to be said that Moore’s law would likely have held true irrespective of the actions of the American government and its military, and without heed to the billions they spent on armaments. After all, it draws its momentum from the efficiency and otherwise inherent superiority of the capitalist economy, and not from orders barked out by someone wearing the Pentagon’s stripes.

An admission, therefore, that the cold war was really won by Moore’s Law holding true over a couple of decades and more, would be a let-down. It is hard to imagine an American general puffing up his chest to say, “Yeah, we won the war, and we’ve just figured this out. It was thanks to Moore’s Law.”

THE HAMMER, BUT NOT THE SICKLE

2007-11-29T11:13:00.000-08:00

In the world at large, there are some economies that perform well and some that do miserably. Many would belong to the middling, mediocre category. Whatever the category, it is a fact that all economies suffer from distortions of some kind or the other. For example, in India, distortions at the social level like our rigid caste system or norms that prevent large sections of women from entering the job market have historically inhibited growth in the economy.

In this article, I’ll focus on economic distortions, i.e. affecting the way wealth is created and distributed and the way people earn their living. Distortions, in this context, may be understood as systems and practices or ways of doing things that prevent the economy from attaining its full potential with the given level of resources. Incidentally, the impetus for economic reforms springs largely from the recognition that even without throwing in more money, and by creative tinkering with systems and practices, an economy can deliver better results.

Even as distortions persist in an economy and become impediments to growth, there will always be a section of the people who profit from them. Accordingly, in a country where the banking system has limited reach, money lenders would gain. In a place where the infrastructure for supply of water is poor, there will be a thriving community of traders who bring it in tankers or sell bottled water. And where the electricity supply is poor, a whole industry develops around generators, inverters, UPS, voltage stabilisers etc. To the extent that they fulfil a need arising from the inability of the state to fully perform its services, it is perfectly in order.

The problem arises when they become focal points for successful opposition to efforts aimed at tackling those weaknesses in the system on which their livelihood depends. This would give birth to a new distortion. Indeed, prevailing distortions in an economy are not always of historic origin that emerged years ago and that we now have to live with. As a matter of fact, new ones are created all the time. Like when a new technology threatens redundancy for some sectors of the economy and the government steps in to protect those at risk. This compels the economy to carry on with the burden of a sub-optimal technology or system with lasting consequences.

The government’s refusal to permit FDI in the retail sector for fear of its impact on the local kirana stores and the ban on some large retailers like Reliance Fresh by certain state governments are just the recent examples. India has a hugely inefficient retail sector with high levels of wastage (of perishables) and very high mark-up in prices from the time goods leave the producers to when they reach the consumer. A large format retailer sourcing directly from the producer and who also sells directly to the consumer would make a lot of sense. And yet, thanks to the government, we’ll now live with this inefficiency for a few years more.

Similarly, decades of socialist oversight have so distorted the labour market that the overwhelming majority of our workforce (over 90%) toil in the unorganised sector with little or no benefits. The tiny minority who gained an early entry into the organised sector (the entrenched labour aristocracy) have benefited hugely and their unions are now the main stumbling blocks for much-needed labour law reforms.

It follows therefore that what we call economic or structural reforms is nothing but the practical process of removing the distortions that have taken hold in the economy. It also follows that the starting point for any serious effort in this direction would be pain. This is the pain felt by that section which was so far profiting from the distortions and are now deprived of their easy pickings. Experience would suggest that such groups are rarely anything more than a minority. But quite often they are organised and have a voice louder than their numbers. Also, economies where poverty and backwardness go back over many years are likely to have many such distortions often feeding on each other. In this scenario, it can happen that while the different groups benefiting from the various distortions individually remain in a minority, collectively, their numbers can add up to a majority and more. And typically these countries would present the greatest obstacles to economic reforms. Since everyone gets to dip a finger in the pie, the minimum consensus for change of any sort will be sorely missing.

In a society where everyone gets to take advantage of a prevailing atmosphere of lawlessness, it can be taken for granted that support for enforcing law and order will be minimal. That everyone suffers in some way or the other from the lawlessness will probably not make a difference. It used to be said about Australia that a thief running away from a policeman in hot pursuit was more likely to get help from bystanders, simply because too many Australians have ancestors who came to grief on the wrong side of the law. In India, many of our otherwise law-abiding citizens would feel uneasy about reforms in the electricity sector, what with an unwelcome prospect of accurate metering. Not surprisingly then, even when economic reforms make perfect sense, it is always difficult to get it started. And where the process has begun in earnest, it will always present an easy target for the anti-propaganda.

I once saw a Polish film on television in the days when Doordarshan was the only channel available and they had this wonderful late night series of the best in international cinema. It opens with an elderly, unkempt man with a flowing white beard living in seclusion in the woods. He was in fact a doctor who, for some reason I could not make out, had fallen out of favour with society. One day, he is approached by a man who brings his young son along. The boy is crippled in one leg and has not walked since a childhood accident. We see the doctor examining the boy and telling the father that he can be cured by an operation on the knee. The father agrees (possibly because he was his last hope) and we see the boy lying on a makeshift table, his eyes trustingly following the doctor as he goes about preparing himself for the ‘operation.’ The doctor is now ready. What follows is a moment I shall never forget. As the camera closes in on him, we see him positioning a hammer over the boy’s kneecap. “Don’t.” I remember screaming within myself. “The man is a quack.”

Well, as it turned out, he was a brilliant doctor who knew precisely what he was doing. After the accident, the bones in the boy’s knee had healed improperly and had fused into each other in a wrong manner preventing proper movement. By bringing down the hammer on it, the existing improper alignments were dislodged and in the operation that followed, he ensured that it would set again in the right way. Needless to add, the boy was able to walk again.

I know the director of the film would not have had this in mind. The fact is, I see a metaphor for how distortions in an economy often need to be undone with the shattering impact of a hammer so that a crippled economy can be made to walk again. And one day, it may even sprint.

***

GOVERNMENT SPENDING AND PUBLIC WELFARE

2007-11-10T01:33:00.000-08:00

(On the economics of the heart vs. the economics of the brain)

In a poor, developing country (which, by the way, India still is) a problem the government faces is how to spend the limited money it raises by way of taxes and other sources. The means are modest and the claims on resources are many. In such a situation, how should the government prioritise its expenditure.

Here is an experiment that gives an ample hint. Imagine you are the top government official in a poverty-stricken village with the mandate of improving the lot of the people there. You have at your disposal a very modest grant from the state budget but full freedom and authority to decide how it should be spent. Since this is only a ‘thought’ experiment, and since you are the government official, we shall assume that your intentions are noble and that corruption is not part of the equation (somewhat divorced from reality but acceptable for an experiment under ‘controlled conditions’ as they say in science.) In the course of your duties, you come across the following cases where the money you get from the government can be well spent.

There is an elderly gentleman living alone, in failing health and badly in need of unaffordable medical care. Next, there is a tragic case of a pregnant young widow with no means of support whose husband had recently died in an accident. The third case is that of a family with a young kid in school where the husband has recently lost a job in a city textile mill. He now survives on menial jobs and feels he must pull his son out of school. And lastly, there is an ambitious young man who works in the city as a petrol pump attendant and would like a loan to get started with his own grocery store in the village. The funds with you are sufficient to support only one of the above claimants and no more. Who would you support with the government’s funds at your disposal? Take your time and think over it. In the meantime, here is my conclusion.

Societies where the prevailing value system mandates the flow of scarce resources towards any of the first three claimants (does not really matter which one) are those likely to remain poor and backward for extended periods of time. The society which makes it easier for the ambitious petrol pump attendant to have a first claim on the funds would be in the forefront of countries breaking free from the confining shackles of poverty and underdevelopment.

The logic may be explained thus. Government expenditure is most effective in promoting the long term and sustainable welfare of its people when there is a multiplier involved. In other words it must do good and that good in turn must lead to other good things coming out of it. More precisely, government expenditure should head in that direction where the multiplier is the greatest among the competing alternatives. In the example I have given above, there is clearly no multiplier at work in aiding the elderly gentleman. There is some long term multiplier in the case of the young pregnant widow and that of the family with the school going child. But not to the extent as in the case of the petrol pump attendant who wants to invest in a village store, with all its potential for fulfilling a real need of the villagers and of kick-starting the local economy.

The funds given away to the first three cases would essentially constitute charity and would necessarily entail more of such spending in the coming years with little visible difference to the village economy at large. The petrol pump attendant, on the other hand, would require money only for this one year, to get started. Not only are you free to fund other projects or cases in the coming years, the likely repayment of the loan would allow you to double your future outlay. Incidentally, the choice of occupation for the young man was no accident. Dhirubhai Ambani began his career as a petrol pump attendant.

In a sense, what I have outlined here is an example of the perennial clash between the economics of the heart versus the economics of the brain. One is all about feelings and emotions, and those essentially fuzzy notions of justice and equity. An extreme and distorted form of this is what we would call populism, where rather than merely ignoring the long term benefits, you actually go about doing harm to it to secure your short term compulsions. The other side of it, which may aptly be called ‘economics of the brain,’ appears heartless and cruel, but over the long term works wonders for its citizens.

In India, improbable as it may sound, something like this actually happened and with remarkable success. Back in the mid-sixties, during the early phase of the Green Revolution when the country was reeling from food shortages and from the ignominy of the PL-480, it was consciously decided that the target group for spreading awareness about the use of High Yielding Varieties of seeds would be not the poor marginal farmer but the relatively better off farmers with larger land holdings and better education. It was reasoned (and quite correctly too) that these farmers would be in a better position to assimilate the new techniques and deliver results. In the event, one of the criticisms against the green revolution is that it increased rural inequality. But considering that it freed us from both the food crisis and the PL-480, few of us would care to deny that the exercise was well worth it. Indeed, to this day it remains one of independent India's greatest achievements.

This is a critical lesson people in India are yet to fully understand. The matter of economic policy has to be guided by reason accompanied by a sense of detachment. When you bring in the heart, what you get is a palliative and never the bitter medicine that actually cures the disease.

A government that defines its purpose as the business of attending to sob stories, is never out of business.

CAN BUDDHA SMILE AGAIN : Part II

2007-11-09T04:45:00.000-08:00

(Suggesting a new payment mechanism for land acquisitions)

Much has been made of the fact that the land at Nandigram sought to be acquired was fertile farmland. The opposition to the idea of using fertile land for industrial purpose is fundamentally flawed. By this logic, any state blessed by nature’s bounty with fertile land throughout its length and breadth, will be condemned for eternity to agricultural pursuits only. Imagine we discover huge oil deposits beneath fertile farmland. Do we hold back from drilling because the land in question gives you two, three and more crops a year? The economic logic is very clear and we can ignore it only at our own peril. Land, like any other asset, must be put to that use which fetches the maximum returns.

What about the price offered to the land owners, was it too little? It is not easy to arrive at a conclusion one way or the other. All the same, it is human nature to feel short-changed and perpetually aggrieved in such matters. That is to say, the price could well have been double or three times of what was offered, without any significant dent in the opposition to the acquisition. Because, in addition to a fair price, there is also a very touchy emotional aspect to it: how do you put a price to the livelihood gone astray, especially where alternatives are hard to come by. That is why this is the right time to think about alternative approaches to payments for land acquisition by the government for purposes like setting up an SEZ.

I propose that instead of the government merely making a one-time payment as a “fair” price for their land (and livelihood), it should be declared at the outset that this is only the first of what may well turn out to be a series of payments. And here is how the remaining payments would be arrived at.One of the reasons why governments (both state and central) are keen to set up SEZs is that they increase our industrial competitiveness, generate employment and ultimately bring in increased tax revenues. Keeping a track of this increase in tax revenue may not be a simple task but it is also not very complicated in this age of information technology. The second part of the scheme would be a declaration that a certain (to be determined) share of the revenue earned by the government and attributable to the commissioning of the SEZ would be passed on to the evicted landowners by way of, say, an annual payment for a defined period of time. Obviously, the amount available for this purpose would depend on just how successful the SEZ is in bringing increased revenue to the government.

I believe this would go a long way in easing opposition in land acquisition because now there would be a reasonable expectation that the future too will have something good in store for them. Indeed, they would actually become stake-holders in the SEZ with a keen interest in its success, because the greater the success of the SEZ, the more their future earnings. And then, even as it satisfies the need for future security, it also does something for that gambler’s instinct that is there in all of us. What if the SEZ were to turn out to be a massive success? Wouldn’t I be rolling in wealth? The possibility is exciting and definitely worth looking forward to.

It takes only a little extra thought to realise that this mechanism has wider relevance. For example, tribal people displaced by the construction of a dam can be additionally compensated by a share from the future electricity generated. Or if an expressway is to be built by forcibly acquiring land, perhaps a part of the toll collected over the years should be passed on to induce people to willingly give up their land (and livelihood.)

We work not just to earn a living but also to feel good about ourselves. There is a sense of self-respect involved. The land that is sought to be forcibly acquired has a fair price, a market value. But not the sense of self worth arising from the ownership of the land and of being engaged in a vocation. That is why the present practice of a one-time payment of a ‘fair’ price, no matter what that is, is just not the best way to go about it.

There is a popular television ad for Mastercard that makes the point that the best things in life are priceless. It is a lesson our politicians, bureaucrats and economists sometimes tend to forget.

***

CAN BUDDHA SMILE AGAIN

2007-11-09T04:27:00.000-08:00

(The acute dilemma facing the government in West Bengal after Nandigram and in the second part, a suggestion for a revised payment mechanism for land acquisitions with potentially far reaching implications)

In the way of tragedies, Nandigram goes well beyond what the common perception would believe. The official version, possibly a model of understatement, says 14 people were killed. They died because in our sixth decade as a democracy, we are still unable to manage our differences and carry out our debates within the bounds of civilised conduct. The other tragedy, with lasting detriment to the people across West Bengal, is that a set of sensible economic policies much needed to pull that state out of its economic morass, has now been laid to rest.

West Bengal is a state where the land reforms agenda is more or less dealt with and now, by all accounts, desperately needs a transition to industry led growth. The fact is that land reforms are not always the unmixed blessing they have been made out to be. In the beginning, the original beneficiary may well get land adequate for his needs and sustenance. But later on, as it gets sub-divided into two, three or more plots, there is very little to live on. In West Bengal, land reforms were pursued with missionary zeal and the state is littered with farming households subsisting on marginal holdings (Official statistics suggest that 91.4% of its farming households have land holdings less than 2 hectares against a national average of 78%.)

Moreover, it is well known that the process of economic development tends to marginalise agriculture, with a steadily declining share of the national income. In India, 70% of our population is engaged in agriculture (mostly small and marginal farmers) and we are just about able to feed ourselves. The US on the other hand has less than 3% of its population employed in agriculture and is capable of feeding almost the entire world. Across the developed world, the proportion of people engaged in agriculture is minuscule compared to those in services and industry. Put another way, these countries have attained development because, among other important reasons, they were also successful in diverting employment away from agriculture, towards industry and services. Land reforms, in this context, can actually be counterproductive over the long term. And that is because by providing a sense of comfort (false, or at best temporary) it merely delays this inevitable and secular movement of people away from agriculture. It is not so much a remedy as a palliative that postpones the pain without doing much for the disease. Worse, with those superficial improvements, it gives rise to an impression that the disease is under control when all along it might well be getting worse.

Of course, when talking about a movement away from agriculture, the underlying assumption is that industry and services are being allowed to develop unhindered to their potential. In West Bengal, ruled for long by wise folks who sincerely believed they knew best what was good for its people, this has singularly not been the case. The official Party line was always about the development of agriculture and the welfare of the rural areas where (and we were often reminded thus) the great majority lived. As for the industrial sector, the Party either did not care or cared only to the extent that it was a hunting ground for its CITU goons.

And that is why West Bengal presents us with something of a double whammy. On the one hand, there is severe pressure on land from the second generation beneficiaries of land reform. On the other hand, there is very little development in the industrial and services sector to offer them an alternative worth pursuing. Incidentally, it is also a pointer to why a centrally planned economy is always a disaster over the long term. Because planners (and they may all be well-meaning economists, politicians and bureaucrats) try to address today’s problems with the tools and solutions available today. The opportunities presented by new developments and the long term trends (including the impact of technology) are rarely grasped because their true significance is seldom realised in time. Nearly 30 years after the Marxists took over power in the state, NSS data indicates that the average consumption level in rural West Bengal is well below the national average and only about four percent higher than in rural Bihar. For a party that has laid claim to rural development as its focus, it is unhappy news indeed. This is not to suggest that the agricultural pie in the state has not grown, only that even as it has grown, there are more and more hands clamouring for a share, because the industrial pie has shrunk and there are no other options open.

Severe pressure on land with no alternative employment, this is the predicament that Buddhadeb Bhattacharya and the Marxist led government of West Bengal find themselves in today. They have scorned at and negated the role of private industry for too long. Now, there is belated realization that the state desperately needs to regain its lost industrial footing. It’s difficult to believe that West Bengal was once in the forefront of India’s industrial growth. Unfortunately for the Party leadership, they have cried wolf so often about profiteering, exploitation (the most exploited word in the leftist lexicon) and other evils of private enterprise, they are now the victims of their own past success. A generation of the rank-and-file indoctrinated by Marxist dogma finds it difficult to let go of its ideological hang-ups and embrace the new-found pragmatism of its leaders.

The Titanic is heading towards an iceberg. The captain is aware of it, but the crew below the deck are yet to get the message.

The lie called subsidy

2007-10-23T01:48:00.000-07:00

Whenever, as a matter of public policy, goods and services are sold for a price less than what it costs to produce and deliver, with the government bearing the loss, the resulting transaction is what we would generally call a ‘subsidy’. The problem with this term is that it is a little too academic and does not fully convey what is at stake. It is somewhat like referring to a murder as a ‘homicide.’

A subsidy is, to begin with, a lie. Because it conceals the truth from both the buyer who often pays far less than what he should, and from the seller who is compensated out of state funds. The buyer believes that what he is getting for a song is only worth so much. The seller, on the other hand, loses a powerful motive to innovate, improve efficiency and cut costs. Because, thanks to the subsidy, he has an assured market. In the erstwhile USSR, the price of bread was heavily subsided as a matter of state policy befitting the workers paradise. True, there was no hunger among its people. But farmers in the country who were allowed to tend to a small plot of their own land (even while working on a collective farm) ended up feeding bread to their pigs.

In a chaotic democracy like India, there is another aspect to this issue. More than subsidies going to the poorest and therefore to those who need it and deserve it the most, they end up being cornered by those whose voices are the loudest. The prices of petrol and diesel at the pump have not budged an inch since November of last year when they were revised downwards following a dip in the international price of crude. Since then, prices have risen sharply by more than 50% (offset to some extent by the appreciation in rupee) and our oil-sector PSUs (effectively the public exchequer at the final resting point) long habituated to operating on an undemanding cost-plus basis, are bleeding. Likewise, the massive subsidy on LPG or cooking gas for domestic use is another example of an outrageously distorted sense of priorities. India has many poor people who are deprived of the most basic necessities of life. Yet, our largest subsidies are on commodities that we know for certain are not consumed by the poor.

And then, by not raising the prices of petrol and cooking gas (or better still, giving a free hand to market forces to set the prices), it is not that nobody is paying for it. On the contrary, we pay for it everyday in the form of reduced services from the government and higher taxes in other areas. Very often, the payment is by way of a debt to be paid off by the succeeding generations. When a parent does that to his child, it is called being improvident. When the government does it, it suggests responsiveness to the needs of the people.

Even as subsidies distort and corrupt, we know from experience that in the real world we have to be practical. An occasional lie here or there, hurts no one and often makes life easier. And so it is with economics. A well-targeted subsidy here and there does not hurt. Indeed, it can even do a world of good, by keeping a lid on discontent and preventing things from boiling over. But what happens when it gets totally out of hand, as happened in the centrally planned economies of Eastern Europe and the USSR, where prices were determined by fiat and seldom had any equation with cost or with market forces like demand and supply. In other words, where everything is one lie after another leading to a series of unending lies.

Well, when that happens, what we have is a work of fiction belonging to an unlikely genre called economics. Unlike the literary version, this one invariably has a nasty ending.

LIBERATING THE POOREST OF OUR POOR

2007-10-16T02:21:00.000-07:00

(A radical new plan for attracting private sector investment into the education of the poorest and most deprived of our children to give them a way out of the vicious circle of poverty)

There is just no denying that despite India’s recent economic achievements, large parts of our population continue to see little improvement in their day-to-day lives. What is perhaps worse, they also have very little hope for a better future. A telling statistic is the continuing and widespread prevalence of malnutrition among children in India. At more than 40% (and greater than in sub-Saharan Africa), it is the surest indicator of the blighted future that lies in wait for so many of us.

The problem is not just that so much poverty exists, but that given current realities, it is likely to be handed down as a cruel legacy from poor parents to children who remain poor because they would lack the skills to pull themselves up. Either they do not go to schools or they are forced to drop out early on.

We know from experience – so much so it’s now an entrenched part of our collective wisdom – that there are limits to what the government can do. The Indian story, in common with many other countries, has been that government efforts have in-built elements of waste, inefficiency and graft that compel the use of disproportionate resources to achieve even modest goals. Therefore, attracting private sector investment into this whole area of educating and otherwise taking care of our most vulnerable children  those who have clearly slipped through the mesh of the existing, woefully inadequate schooling system  would be an ideal solution to strengthen and supplement government efforts. But having said as much, the problem is also equally clear. How do you draw their interest into ventures that offer no profits and therefore no motives other than charity? To some extent, it can be remedied by a well-structured series of tax incentives. But the prospect of losing out on current revenue when governments are generally strapped for cash, has strictly limited appeal.

Here then is a new idea. I propose that the private sector be invited to set up schools and educational institutions for the very poor and disadvantaged (or take them into existing quality schools and colleges) with the incentive that as when such children grow up and start earning their livelihood, the income tax paid by them to the government over their life-time would go to the entity that nurtured and educated them. The beneficiaries will be under no obligation whatsoever to their benefactors. Nor will they be required to do anything out of the way. Instead, using modern information technology, the system would essentially involve a centralised database that would automatically pick up the income tax collected from them and match it with their benefactors.

The basic idea – of enlisting the services of a more efficient private sector for an identified national cause, by offering them a share of the future gains that accrue from the venture – is actually not very new. Something like this has already been put into successful practice for building up our physical infrastructure, as in getting private entities to build roads by allowing them to collect and keep the toll for a defined period. Thanks to this, India’s highways have changed beyond recognition, all in the space of a few years. And now, I suggest it is time for this idea to be extended to our social infrastructure as well.

Of course, once it is required to be put into practice, a lot of detail and fine-tuning would be needed. Should it be the whole amount of the income tax paid or only a part? Should it be for the lifetime or for a pre-determined period? How do you ensure that only the genuinely poor benefit? What about kids who do so well out of it that they get jobs abroad and do not pay any tax here? Or how about someone who becomes a successful businessman and understates his earnings? And then, if there are different schools and colleges involved in a particular case, who gets what and how much?

I believe these are at best minor quibbles. After all, we live in an age where technology offers many easy solutions to problems of centralised data and record keeping. While there are procedural aspects to be sorted out by thought and debate, the important issue is to reconcile to the idea of private participants motivated not by altruism, but by future profits. Yes, this idea is about bringing in the element of windfall gains into the area of education for our poorest and most miserable. Much in the way that privately owned companies drill for oil and continue to drill even when some wells turn out to be dry, the private entities would have a powerful incentive to look after and take care of some of our most vulnerable children and their families and lead them out of the vicious circle of poverty. They would know that even if a small minority plucked from our poorest could be nurtured to join the ranks of our wealthy and successful, they would be looking at mega profits.

As for the beneficiaries, every child who emerges with some degree of success would have pulled up one family out of this vicious circle of poverty begetting more poverty. And as for the government, the only sacrifice is the loss of that future income tax revenue that anyways would not have accrued but for this idea. Besides, in a country like India where indirect taxes account for much of the tax revenue, it is not that by forgoing the income tax component, the government loses out on everything. On the contrary, it will continue to earn (and earn substantially more) from all his purchases and consumption that will continue to be taxed.

I believe it is a revolutionary idea. I also believe that it is a simple idea that can actually be implemented without too much of a hassle. I hope that this simplicity is not its undoing. After all, we are once again in a milieu where ideas to fight poverty are considered worthy and genuine only if it involves the government stepping in with ever more grandiose ‘poverty alleviation’ schemes involving hugely increased expenditure riding on the back of increased tax collection from the rich.

The idea of doing good to the poor has only so much appeal. The idea of being seen to be hurting the rich carries more cachet.

But that is another sad story.

The Controversy about the Ninth Schedule

2007-04-24T04:46:00.000-07:00

INTRODUCTION

The ninth schedule was included in the Indian constitution along with article 31 B by the Constitution (First Amendment) Act, 1951. The objective was to deny the courts the power to challenge the validity of certain laws framed by Parliament on the grounds of violation of fundamental rights under Articles 14 and 19 of the constitution. In introducing the amendment, the Government was mainly motivated by the apprehension that the judiciary, dominated in those days by conservatives, would strike down the progressive land reforms laws.

THE JUDGEMENT

Like all functional democracies, the Indian constitution too subscribes to the doctrine of separation of powers between the legislature and the executive on the one hand, and the judiciary on the other. The Supreme Court judgement in the I.R Coelho vs. State of Tamil Nadu and Others case delivered on January 11, 2007 has once again shifted the balance of power in favour of the judiciary. The court re-iterated that it had power to pronounce on the legality of the laws enacted by Parliament including those laws placed under the ninth schedule. A nine-Judge Bench of the Supreme Court gave the verdict after examining the constitutional issue involving the nature and character of the protection provided by Article 31B of the Constitution of India to laws added to the Ninth Schedule of the Constitution. Article 31B says that none of the Acts and Regulations specified in the Ninth Schedule shall be held void on the grounds of inconsistency with the fundamental rights guaranteed under the Constitution.

The Bench unanimously held that even when an Act is placed in the Ninth Schedule by a constitutional amendment, its provisions would have to be compliant with the “basic structure” of the Constitution. The court also ruled that all laws inserted under the Ninth Schedule after April 24, 1973, can now be challenged on the grounds of violation of fundamental rights amounting to an attack on the basic structure of the Constitution. It was on April 24, 1973 that the basic structure doctrine was enunciated by the Supreme Court in the Kesavananda Bharati case. Essentially, the doctrine holds that Parliament cannot exercise its amending power so as to damage or destroy the basic structure of the Constitution.

The Ninth Schedule presently comprises 284 Acts and Regulations, of which about 218 were inserted after April 24, 1973. The post-April 1973 expansion of the Ninth Schedule has apparently alarmed the court. The judgment makes the point that many subsequent additions are unrelated to land reforms : "Article 31B only provided restricted immunity and it seems that original intent was only to protect a limited number of laws, it would have been only exception to Part III and the basis of the initial upholding of the provision. However, the unchecked and rampant exercise of this power, the number having gone from 13 to 284, shows that it is no longer a mere exception. The absence of guidelines for exercise of such power means the absence of constitutional control which results in destruction of constitutional supremacy and creation of parliamentary hegemony and absence of full power of judicial review to determine the constitutional validity of such exercise."

However, it also needs to be noted that the addition of laws under the Ninth Schedule is not a common occurrence. The last addition to the Schedule was in 1995, when Parliament enacted the 78th Amendment, bringing up the total number of statutes to 284.

WHAT ABOUT THE JUDGEMENT

The loudest voices against the SC judgement have come from the left parties who see it as yet another assault on the socialist character of the constitution by the forces representing neo-liberalism and globalisation. For the layman who chooses to stay clear of partisan and ideological battles, a more nuanced view would be in order. A dispassionate analysis reveals a variety of reasons why this judgement may be the natural, if not perhaps the best possible, outcome, considering the murky waters that politics in India has now become.

a) The theory of democracy would have one believe that Parliament represents the will of the people. The recent reality in India is that the people’s verdict, more often that not, is fractured and represents a variety of opinions and concerns. The advent of coalition politics is, in a sense, nothing but governance by compromise and accommodation, often at the level of the lowest common denominator. The balance of power between the parties is delicately poised and tends to shift all too often. Most of the political parties are unwilling to embrace positions likely to antagonise any section of the population with an influence on the electoral arithmetic -- even when it is in the country’s long term interests. Therefore, when we have a political system where the short term view consistently overrides the long term, the criticism that the judgement amounts to a negation of the “will” of the people is does not hold water.

b) When the ninth schedule was introduced, the country was led by Jawaharlal Nehru, a leader of stature and with deep commitment to the rule of law. The leaders who followed him have not had his stature or his levels of commitment to the rule of law. Indeed, it can safely be said, most of them have not been above petty politicking and resort to expediency. This being the wider reality, it makes very good sense to not give our politicians the freedom to both make laws and then have them declared beyond scrutiny by the judiciary.

c) During the first four decades of India’s independence, there was a broad consensus about socialism and the socialist path as the way forward for the country. Much of the political establishment in the country defined itself as socialist of one shade or the other. After the collapse of the Soviet Union and the sweeping rejection of socialism across Eastern Europe, the 1990’s have seen this consensus break down. In particular, after the reforms beginning in 1991, large sections of people in the country have ceased to regard themselves as socialists in any sense of the word.

The ninth schedule mostly shields laws that clash with the right to private property. It had relevance as long as there was a broad consensus about the socialist direction. Confronted by evidence that too much state regulation and interference has done tremendous harm to India’s economy and with the shift in mainstream consensus towards deregulation and an expanded role for the private sector, it is entirely in order that these laws should now be treated as any other law and subject to the same degree of judicial oversight. Having said this, there is also no reason to fear (or hope) that the existing laws in the ninth schedule will be struck down in entirety by the courts. The judges in the Supreme Court are eminent and learned men who can be trusted to act with reason and circumspection.

d) While the left is peeved that the so called “progressive” laws enacted by Parliament would come under judicial review, it has not considered the possibility that the ninth schedule has the potential to be a double edged weapon. After all, it is not inconceivable that a future right wing government may enact laws favouring the industrial and entrepreneurial class – say for instance, acquisition of property from individuals for the purpose of Special Economic Zones, Industrial Parks etc. – and have it placed in the ninth schedule. Powerful arguments can be made out that this would be necessary for India’s economic growth. Equally conceivable is to have draconian laws infringing upon fundamental rights enacted in the name of national security and the need to confront terrorism. The developments in the United States following the attacks on the WTC and the enactment of the Patriot Act are an eye-opener. In India too, the POTA and TADA laws have been very harsh and were often misused. One of the true weaknesses of the democratic form of government is that in times of stress and national crisis, large sections of the electorate become victim to nationalist passions and think nothing amiss in the government denying basic civil liberties to minorities.

e) The ninth schedule began with the objective of shielding the land reforms legislation. Had matters rested here, perhaps things would not have come to this pass. However, the subsequent expansion of the schedule to encompass laws unrelated to land reforms has truly been a cause for concern. Some notable examples include:
The Mines and Minerals (Regulations and Development) Act, 1957; the Monopolies and Restrictive Trade Practices Act, 1969; the Coking Coal Mines (Emergency Provisions) Act, 1971; the Coking Coal Mines (Nationalisation) Act, 1972; The Sick Textile Undertakings (Taking over of Management) Act, 1972; the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974; the Essential Commodities Act, 1955;

Moreover, the MRTP act was one of the chief weapons in the hands of the license-quota-permit Raj and did much to stifle India’s economy. That such an absurd piece of legislation was, in its time, considered “progressive” suggests that there is no relying upon the absolute wisdom of the political establishment.

CONCLUSION
The Supreme Court judgement in the I.R Coelho vs. State of Tamil Nadu and Others case is a reiteration of the idea that the basic structure of the constitution should not be tampered with. In doing so, the court has only reclaimed its legitimate authority. At a time when the state is increasingly becoming an overbearing presence, the judiciary in India would do well to act as a forceful counterbalance. As for what happens when the judiciary fails in this function, we only need to look at the USA under the Bush Presidency.

Ira

2007-04-24T04:40:00.000-07:00

Ira came into our lives on the 20th of April, 2005. I was at work in Silvassa and took a day off the next day to be in Baroda where she was born. Ira was of course very tiny. Her skin was all red and blotched, her eyes were like little slits and her head was oversized. She had no hair on her head, not even a hint of it. She was, however, recognisably human.

I went back the very same day. The next I saw her, a couple of weeks later, the skin had become clearer and there was now a hint of hair on that still ridiculously oversized head. She slept a lot and her waking hours were few. Since I was away at my place of work, coming down to Baroda once in a couple of weeks or so, I saw Ira grow up essentially as a series of snapshots taken at intervals.

Over the days, she had come to identify her mother, realizing instinctively when passed on to strange hands, including her fathers. I would sing to her and she would look at me intently, her judgment not having matured enough to identify poor talent. On occasions, she would even chip in with her own blabber.

The massage lady was her pet aversion. That even at two months, a baby can bring down the roof, I would not have believed had I not heard her. And then, it became worse. Even before the massage had begun, she was able to tell – by the lady’s voice, by the ambience of the bathroom – she was able to tell what was coming and she would howl in anticipation.

Looking back it all seems to have happened so fast. It was not so long ago, she was all red and blotchy. And now, she is a playful bundle with a finely developed sense of imitation and mischief, for whom life is mostly all play, a little cry and no work. She likes to be taken out for walks in her pram. She also likes to watch the older kids in the neighbourhood at play. She has a basketful of toys which we keep on a low table for her to reach at. It is her job to overturn it and spread the toys all over the floor. It is her mother’s job to pick up the lot and return them to the basket when she is done. She loves it when I toss her in the air, giving her a free fall for that fraction of a second. And sometimes, when I hold her up in mid-air, and she knows what is coming, her eyes light up with anticipation.

Since she sleeps till late, she wakes up alone and usually crying. On this day, I happened to be there, when she opened her eyes. She was silent for a long while, merely watching me as I went about getting ready to leave for work. And then, all of a sudden, she brought her hands together and it sounded like a clap. And she smiled at me. For Ira, a new day had dawned.

A fiasco celebrates its fourth anniversary

2007-04-24T04:07:00.000-07:00

The Iraq chapter of George Bush’s war on terror has recently marked its fourth anniversary. What began as a spectacular success - within three weeks of the invasion, Baghdad was captured - is now widely acknowledged to be a disaster. The story is far from a conclusion. Yet, it is already a fascinating tale with valuable lessons not just for the US, but also for all countries with inclinations and pretensions to being a superpower, including India. Because Iraq, at a fundamental level, is a lesson in humility where arrogance and hubris have been seen biting dust. Somewhere along the way, in the course of its journey to the status of sole superpower, America had acquired notions of invincibility, made worse by a conviction among sections of its ruling clique that it possessed a monopoly over truth and wisdom as well.

Had it gone to script, this war would have wiped out the memories of Vietnam. Instead, in its fifth year now and with no end in sight, it has resurrected those very same ghosts. Every day, for the past three years, the US has been losing two or more of its soldiers. The steady drip of casualties has now badly eroded the initially euphoric support for the war. It has brought home to the people of America the harsh truth about the war, that contrary to what their government had been telling them all this while, it is not going well at all. And in these four years, America has learnt that there are limits to what even a “sole” superpower can do.

But, for all its troubles, Iraq might well turn out to be a salutary lesson for America. After all, the reason we do not poke our fingers into fire is the memory of what had happened the last time we had done that. The lessons and memories of Vietnam are now four decades old and faded. If only Iraq can serve as example that Americans would remember for the next four decades or so, not just America but the world as a whole would be a gainer. And that is a perverse vindication of an uncalled for war of choice that has already cost the lives of tens, if not hundreds, of thousands of Iraqi civilians.

The folly of socialism

2006-10-10T07:19:00.000-07:00

To appreciate the true folly of socialism and socialist rule and to understand why it has laid waste this country of ours, think of the population as divided into two classes: the majority donkeys and the less numerous, more endowed, and therefore the elite, horses (much as you may dislike the analogy, it remains a fair approximation to reality). When the donkeys are given the reins of power (after all, they have the numbers), the first law they pass is that no horse will be allowed to run faster than the average donkey. Soon, there are other equally stupid laws. Horses that want to run faster than a specified speed would be required to apply for a license from an authority manned by donkey bureaucrats. As the quota is limited, only one in ten would be given the license. Needless to add, the license goes to the horse that does the best job of licking the donkey arse. Fifty odd years after we became the masters of our own destiny, is it any wonder that we are so wretchedly poor.

Just Another Commute

2006-10-10T07:12:00.000-07:00

Sometime in October of 1998, I was transferred from Baroda to Anand. The two cities in Gujarat are about 40 kms apart. I had trouble locating a suitable place to stay at Anand. For about three months, I commuted between the two places taking the convenient 9 O’ clock train which dropped me off at Anand by ten.

The shuttle trains were a class apart. They are designed more on the lines of a cattle car, to pack in as many standing room passengers as the peak hour rush would require. You get in into this dull, dingy yellow paint all over the walls and roof. The floors are a muddied shade of worn out red. And the seats are wooden and uncompromisingly hard. They are available to those who can make it at least half an hour before the scheduled departure time. I was always in a race against time, so I never had the luxury of a seat. The idea then was to find a place to stand where, among other comforts, I would be able to breathe and where I would not be pushed around beyond tolerance and endurance. It meant that I had to stand away from the entrance where you get tossed around at all the intervening stations. The space between the seats were always the first to get filled up. That would leave me with the aisles. Not a bad place had it not been for the unending stream of vendors.

The vendors had done so much to make my commute painful. There were so many of them and they sold so many different things. I have seen them all. The bhelpuri and chaatwallahs, the fruits … bananas, apples, chikoos and guavas (when in season), followed by the waterman, the masala chaiwallah (always garam), the cold drinks man (always thanda), the peddler of keychains and cheap Chinese toys at Rs.10 each and the pan masala and cigarettes man.

The way they went on with their business negotiating an effortless way through the tightly packed spaces defied the laws of physics. They could squeeze their way though the narrowest of non-existent gaps. To someone like me standing in the aisle, they were a constant irritant. Hardly five minutes ago, you thought you had found for yourself a cosy space of your own. The next moment, you are leaning at this uncomfortable angle into the sweat soaked shoulder of your neighbour because the chaatwallah has to get his basket through. And on occasions, when he has drawn a customer in your vicinity, you have to hold your pose till the chaat is readied, delivered and payment collected.

One of the paan-masala vendors whom I saw regularly was blind. He always had a satchel slung over his shoulder and pouch-packets of various brands of paan masala worn around his neck, like garlands. His eyes were small and sunken and so light in colour that the eyeballs seemed to merge into the white giving it that vacant, empty look of the sightless. By the time I first ran into him, it was obvious he had become a practised, surefooted veteran who knew his way around. He could count notes and coins by touch and return the exact change to his customers. He had established up a rapport with some of the regular passengers who, having timed their travel to a clockwork precision, were always to be found at the same place in the same coach. I remember once hearing him call out cheerfully for a Leuva Patel only to have someone else tell him that he had not come that day.

Despite his handicap, I never had any sympathy for him. After all, sighted or blind, all of them make you go through contortions. And then, there was about him a smell of the unwashed. On occasions (I cringe my nose when I say this) it was a smell that suggested he had not washed well after the morning ablutions. This was particularly offensive to my finer sensibility.

I changed my opinion about him the day I first saw him get onto the coach. Until this moment, I had seen him as someone who came in from somewhere behind me and moved on to some place ahead after putting me to some bother. I never really thought about where he came from and where he went on to. His life, his troubles, his secret sorrows and hopes … none of these were ever my concern.

I was standing in the aisle somewhere near the door. I saw him get on to my coach at this station where the train had stopped for barely a minute. He was one among all the other passengers crowding to get in. A slender figure with those sunken light eyes that could see no light, dressed in loose untidy clothes, the satchel going over and across his shoulder and those absurd pouch-garlands around his neck. I saw him feeling his way along the sides of the coach, lightly but surely touching each window and possibly counting them, till he had come to the entrance. Here, without fuss, and without anyone else making way for him, I saw him await his turn for a foothold.

In a sense, what I saw had the impact of a revelation. A blind man takes on a career where his entire day is spent feeling his way in and out of crowded trains and working through gaps. And he does this day after day, without pause or break. He could so easily have chosen to become a beggar, staying rooted at one shady spot and earn probably as much as he did now with so much less pain and effort. Instead, he had chosen in his own resolute way to tread a path where he could earn his own respect, feel useful and good about himself.

History has recorded many heroes. I have a feeling there are far more who get left out.

The fallacy of the strong response to terror

2006-08-17T05:09:00.001-07:00

Hardly had the dust and the debris settled after the multiple terror strikes on the Mumbai trains on 07 July, that certain media pundits began pontificating about the role of Pakistan and whether a retaliatory strike inside Pakistan would be an apt response. Even as the investigations are yet to make headway and shed light on the actual perpetrators, arguments have been made about the necessity to stand up as a “strong” state that sends out a robust message to Pakistan. India, it is being suggested in these circles, has become a “soft” state. Israel -- in particular, its military action in Lebanon in response to the Hezbollah kidnapping two of its soldiers -- is cited as an example of the resolute way in which strong states deal with terrorism and threats to their security. This is nothing but a dangerous self-deluding fallacy.

One month after Israel started pounding Lebanon, it is clear that its strategic objectives remain unachieved. The Hezbollah continues to put up stiff resistance and the rockets keep coming down on Haifa and other places in northern Israel. What is more, the anger and resentment it has aroused among the Lebanese and the wider Arab and Islamic world will ensure that in the days ahead, Hezbollah will never be short of funds and recruits to replenish its ranks. So far, the fighting has killed over a 1000 Lebanese civilians – a third of them children -- and close to a million are homeless. On the Israeli side, 120 people have died, the majority of them being soldiers and army reservists. Not that the financial implications are any the less grave. According to the Israel’s finance minister, the war has already run up a cost of $ 1.6 billion and it may just be the beginning. The minister has also asked the government to cut $650 million from the 2006 state budget to help pay for the war (Israel's total budget for 2006 is $56 billion).

The wider question to be asked at this point is whether all this has done Israel any good. Even assuming that at the end of the current operations, Israel succeeds in destroying the Hezbollah’s military power and in securing its northern border – and this is by no means certain – in the long run it may not prove of any significance. After all, in 1982 Israel had invaded and occupied southern Lebanon to root out the PLO which had then also become a state within Lebanon. While the PLO was indeed forced out, what followed in its wake was the birth of the Hezbollah. Something similar happened in Palestine where the combined Israeli- American vilification campaign Yasser Arafat has now thrown up an even more extreme challenge in the form of a democratically elected Hamas. The underlying principle then, is not hard to grasp. Violence begets violence, more violence begets more.

The greatest success a terrorist can hope for is not when a bomb kills and maims many but when democratic societies respond by altering their behaviour to indulge in or condone violence against the innocent and when in the name of national security, they begin to hack away at the rights of the individual, in the process narrowing the difference between terrorism and its victims. Indeed, it does not take much thought to realise that while Al Qaida succeeded in knocking out the twin towers of the WTC, the damage that America has subsequently inflicted upon itself – in the name of a strong, robust response to terror, i.e. the war on terror – has been far greater. After all, the unfinished business in Afghanistan, the mess in Iraq, the blow to American credibility (or perhaps American pretensions) caused by Gauntanamo Bay, Abu Ghraib, Haditha, the scores of Iraqi civilians routinely shot and killed at check posts across Iraq etc. are all the consequences of this misguided brand of the strong response to terrorism.

The true strong state then, is the one which can in the face of extreme provocation retain sanity and composure. It is the weak state that feels the overwhelming compulsion to prove a point by lashing out in the general direction of an amorphous enemy branded as terrorist, sometimes for little more than expediency. Indeed, it may well be said that the distinction between the soft state and the strong state is of little relevance when what is needed is a “smart” state that can bide its time and not lose its cool.

It is not often that one gets a chance to say this. But the fact is, for a change, India has done well
***

The demise of socialism, a non-scholarly treatise

2006-08-06T11:37:00.000-07:00

I was a socialist once upon a time. No, that won’t do. It’s a little weak and does not tell the full truth in all its acute gravity. For the truth is -- I am over with all of it, and therefore the truth can be told -- I had actually become a communist. Passionate, unyielding, and now that I know better, unthinking. Had it not been for the fact that I was still in school then, and my serious commitments out there, I would have become a card carrying, red-flag waving member of the Communist Party of India.

How did I manage to go so dreadfully wrong? I really have no clue, no worthwhile defence to offer. Except perhaps this. Those were also days when I wore bell-bottomed trousers that look so absurd now. Indeed one of my favourites, an oft-worn specimen, was one whose colour tended to tread on that perilous borderline between maroon and red. When I look back upon it, I am convinced that compared to my communism, this was the more egregious folly.

The centre of my universe lay in Moscow. The leaders I held in esteem lived there. And the economic system that I believed in, was administered from there. This was the system where everyone was equal. There was no rich and no poor. People worked to the best of their abilities and were paid according to their needs. There was no unemployment and no homelessness. I lived in India but managed to cultivate a deep sense of patriotism for the Soviet Union. If it was the Olympics, I would eagerly scan the sports pages of the newspaper to check out on the latest Soviet medals tally (India has never really mattered in the Olympics). It was a matter of deep personal pride that they always came out on top. The one team that I backed in the World Cup of Soccer was the team from the Soviet Union. When the referee failed to notice that Diego Maradona had used his hand (yet again) to palm away a certain goal, I felt cheated. When it rained in Moscow, I would open out my umbrella in Trivandrum.

Those were days when we did not have television. For news of the world -- and the bi-polar world of those days was a matter of deep concern to me, as happens when you are convinced one pole is yours – for news of the world, I listened to the BBC world service radio. I knew that their claim of impartial news reporting was bogus. Therefore, to get the perspective right, I would also listen to Radio Moscow. I can still recall the news read by the deep, metallic voice of Karl Yugorevich. Their news was of the kind to be expected from a totalitarian state – one-sided and blatantly propagandist in content and tenor. This did not bother me. What did bother me was that Karl and the other news readers spoke English with an American accent, when my own preference was the polished British variety as was to be heard on the BBC.

I was also bothered by something else which, in fact, happens to be the point of this exercise. This was a major problem I faced as a communist of such deep conviction -- and this is beside the other major problem that I was wrong all along -- I could never ever summon up the sporting spirit to laugh at the many socialism jokes, which I constantly ran into. And there were so many of these. One of the very first anti-communist jokes (and a good one at that) I heard was after the Carter-Brezhnev summit meeting (sometime in the late seventies).

Brezhnev was in the U.S. and during a break in the meetings, was told about this remarkable telephone invented by the Americans through which one could talk to the dead. Not convinced, he asked Carter for a demonstration, which was immediately arranged for. Among the dead, whom did he want to talk to? Well, Brezhnev had no doubts. He had to speak with Stalin. Carter picks up the phone and asks the operator to connect him to hell. Stalin is located and Brezhnev has a long and hearty conversation with him. When the call is over, the operator comes back with the bill amount. Brezhnev had to pay 30 dollars. All the same, he was so impressed, he arranges for a similar instrument to be taken back to Moscow with him. In Moscow, at the very first politburo meeting thereafter, Brezhnev is found brandishing his latest toy to an incredulous audience.
“Comrades, I have here a telephone through which we can talk to our dead comrades”.
After the initial commotion had died down, Brezhnev proceeds to dial the operator and asks to be connected to Stalin once again. And this time, every member of the politburo insists on talking to Stalin. Finally, at the end of the lengthy call, Brezhnev retrieves the phone and asks the operator for the bill amount. “That will be 30 cents”, says the operator. Brezhnev cannot believe what he has just heard. “But when I was in the U.S. and talked far less, I was billed 30 dollars”. “Yes sir, that was an international call. This is a local call.”

The suggestion that the Soviet Union was hell, was not acceptable to me. I tried passing on an inverted version of the joke with the Russians as the inventors and the U.S. as hell but the early attempts fell flat and I did not persist in my folly.
Another good one was about an American, a Frenchman and a Russian who happened to die on the same day and found themselves waiting at the gates of heaven for an appointment with St. Peter. They get talking to each other and discover that each of them had died, in different ways, because of an automobile. Talking about his death, the American had this to say “Well, it was just a month ago that I had bought this bright red Corvette. Gee, you won’t believe it. She could do 0 to 60 miles in 6 seconds flat. Well, this was the kind of trouble I could not resist. All that I know is that it happened at a very sharp bend in the expressway , and here I am”. The Frenchman was next with his tale, which had nothing to do with speed and a lot with love. “ See, I was in this car with my girlfriend. We had parked it in this quiet place on a slope on the banks of the Seine and we were in the backseat deeply involved with each other, and the hand brakes failed and the next thing I know, I am here” The Russian had the most tragic tale. “ I never actually owned a car or drove one. But I wanted one badly. So, I saved and saved. I starved to death”.

Nikita Kruschev once found himself in Belgrade on a delicate mission to pacify Marshal Tito. While unpacking his suitcase, he discovers that the suit which he was supposed to wear for the next days’ meeting with Tito, was not to be found. Not long thereafter, he finds himself at a Belgrade tailor, who was taking his measurements. “You will need 3 metres of fabric”, he was informed. Krushchev is not sure if he has heard right.
“How can that be. Back in Moscow, my tailor demands 6 metres.”
“Back in Moscow, you are a big man”

Communism was all about the promise of a workers paradise. Yet, life for the masses was a struggle. An aspect of daily life, common to all of Eastern Europe was the need to stand in long queues for even the most basic of necessities. From onions to tooth-brushes, everything was in short supply. Indeed, the prevailing wisdom among shoppers was that if you ever saw a long queue, you must join it at once no matter what because it could only mean that something much in demand and out of stock had made a dramatic reappearance.

This joke is from Romania where the people were doubly traumatised. By communism, the ideology, and equally by its resident exponent-in-charge, Nicolae Ceausescu. Ceausescu was a megalomaniac and was the Romanian party leader for a very long time. The joke has a man standing at the back of a long, slow-moving queue who finally decides he has had enough. “I can’t take it any more”, he shouts out. “I am off to kill Ceausescu.” And he stomps away angrily. Barely 15 minutes later, he is back again, looking thoroughly downcast.
“What happened, is Ceausescu dead?”
“No, the queue there is even longer”

Indoctrination of the masses was one of the pillars on which the great edifice of communism rested. State propaganda was everywhere. You were greeted by it at birth and it would be there to walk you to your grave. Television, radio, newspapers, the school textbook ... they all said the same thing, over and over. Even the bill-boards were not spared, for they carried the slogans of the revolution. After all, the objective of indoctrination is to have everyone wear the same set of party-approved blinkers. As if all this was not enough, there would also be an over-active local chapter of the communist party which expected folks to turn up without fail for their week-end meetings.

To the Poles I owe this joke about an elusive character who makes it a point to never turn up for the meetings. The local party boss is out to teach him a lesson and one day, literally drags him by the scruff of his neck to the meeting. He begins by launching into a monologue on the achievements of socialism, with many references to the brotherly help rendered by the Soviet Union and in course of which he also speaks about the contributions made by Lenin to the Great October Revolution. This is where trouble begins. Pointing to him in the crowd, he asks “Comrade Jerzy, tell us, who was Lenin?”
“I don’t know”
This was just the answer he expected.
“Comrades. This is what happens when you don’t attend our meetings. Our comrade here has not even heard of Lenin. Lenin, the founder of the Bolshevik party, the father of the Great October Socialist Revolution, one of the greatest thinkers of our time”
He promptly digresses from his prepared text to deliver a very public tongue-lashing. Our man gives a patient hearing to all of it and then puts his hand up.
“Can I ask you a question now ?”
“What is it ? ”
“Who is Novak?”
The Boss is sure he has never heard of any such personality.
“Aha! this is what happens when you attend so many party meetings. If you stayed at home more often, you’d know that Novak is the man who sleeps with your wife when you are away.”

The last of my jokes is also the one that, in its own way, is the most profound. In a few lines we are given a pointed insight into the fundamental folly of socialism, which even the most well researched, scholarly effort could not have.

Two Irishmen were discussing Socialism. This was evening and as is the wont with all good Irishmen, they were at the local pub. A lot of beer had already flowed and one of them was waxing eloquent.
“Oh, that will the good days to come. Workers, folks like you, and me, and shakin’ Joe o’er there, we shall rule the world. No rich, no poor. All equal”
He turns to his companion, jovially slaps his thigh and puts this question. “Mate, if you owned two palaces , wouldn’t you give me one?”
His mate had no doubts whatsoever. “Oh, that I will, that I will”
“And if you had two cars, wouldn’t you give me one?
“Yes, one of that too”
“And if you had two pigs, wouldn’t you give me one”
“MOST certainly not. You know very well I HAVE two pigs”

Is socialism then dead for ever? I suspect not. One of these days, well into the future (and this is my great prediction) the science of bio-genetics would have advanced so much that humans will have a gene for unselfishness implanted into their embryo. Socialism will make a come-back then, and for a change, it might even work.

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