Populism and America

Populism is one tool which is expensive for every government. Not every government in the world can afford it, but many indulge in it without realizing the dangers and hazards that will surface in the future because of exploiting this tool. The picture of every government with a huge fiscal deficit is similar to that of a farmer who is caught in a quagmire of debt. The obvious difference is that unlike the government which is bailed out by the IMF and World Bank and other such “kind” and “noble” organisations, nobody bails out the farmer.  The farmer is left to fend for himself and eventually he commits suicide. After the IMF bails out the government, despite being bailed out, the government still commits suicide, guess why? Because after the bailout package the government is forced (by IMF) to reduce expenditure and increase taxation, and this is political suicide isn’t it, because that almost ensures that the present government might not come back to power.

It’s interesting to note that in the last 30 years, if there has been one factor which has been largely responsible for major economic restructuring and introspection by democratic governments; it has been a rising fiscal deficit. This is what we saw in the 1980’s in the Latin American countries, who wanted to adopt an import substitution industrialisation program, which needed them to develop their domestic manufacturing and industrial capacities. Around  the same time oil prices had sky rocketed, the petroleum exporting countries were making huge money and all this money was deposited with the international banks. These banks recycled this money to the Latin American countries in the form of loans for their industrialisation program. Soon Mexico declared that it couldn’t pay back the loans, and had a huge current account deficit, because the foreign money was flowing in the country and now they couldn’t pay it back. The other Latin American Countries soon followed in similar fashion. IMF typically intervened, gave a bailout package and made the government change its plans from an import substitution industrialisation program to export oriented industrialisation. A complete change in policy, also not to mention that the governments had to reduce expenditure and raise tax collection.

Similarly the Indonesian countries in the late 1990’s went through a similar crisis. Thailand, Malaysia had huge deficits, which they were unable to pay back. These were countries that had a growth rate of more than 8% for about a decade and they enjoyed the confidence of most foreign investors, this phenomenon was called by the IMF as an “Asian miracle”. It dint take time for the miracle to become a mess, and soon these countries were unable to return the money which was flowing in from abroad, all that money had come in with a short term profit in the mind of the investors. Once again the Noble IMF intervened and bailed out the country with austerity measures as the condition and that lead to change in policy.

Similar story in India, in 1991 when the fiscal deficit was high and the current account deficit was high, and the country had foreign reserves which could barely take care of the expenditures of the next few weeks. The then Finance Minister and Prime Minister decided to take the help of the IMF before they offered it themselves. And the result of that help is what we see today, the liberalization of the economy and the removal of the license raj system.

Therefore it is very clear that if there is one major factor which leads to restructuring of the economic policy, it is a rising fiscal deficit. Currently the US and Europe is faced with the same crisis.

The Debt/GDP ratio of many of the western countries has gone above 100%. It is but obvious that the US government has to reduce its debt. Let’s look at their possible options: (A) They raise the taxation, but for that to happen effectively the GDP has to rise which seems difficult in the near future. (B) Reduce expenditure, which seems to be the most sensible thing to do. Currently 40% of the expenditure of the government is from borrowed money. And (C) is to print so much money that they blow the debt away, at the cost of huge inflation and the reduction of the value of the dollar. The option of reducing expenditure seems to the most viable.

It’s very clear that US can no longer afford to keep low taxes while giving high social security benefits and wage wars on foreign soils.

 

Access to justice

There is currently an interesting debate on in the Supreme Court about establishing more number of regional courts which would be the final court for appeal. One proposal says that the Supreme Court should establish more number of branches so that even people coming from far off need not worry about access to justice. The second proposal is, the Supreme Court cannot be split into various branches but we can have more regional courts which will be the final courts of appeal.

This comes in view of the high number of pending cases in the Supreme Court, in 1950 the pending cases before the Supreme Court were 680, as of September 2010 are 53,221. It is argued that one of the reasons behind this is that the appellate jurisdiction of the Supreme Court has been stretched too far. Whereas the constitution wanted the Supreme Court to be the apex court to decide matters of national importance and concerning public good. But it is believed by many that the Supreme Court has entertained too many appeals which should have been decided by the High Court itself.

But the flip side of these proposals are that if the Supreme Court only confines itself to issues of national importance then the injustice done to the citizens and which should rightly be placed before the Supreme Court if the High Court has mislead itself is necessary.

Access to Supreme Court is in a way is access to justice and if these doors are closed on the grounds that the issue at stake is not of national importance then it is a violation of the very principles of justice. Injustice done is injustice done whether at the local level or at a national level and it has to be given its due importance.

Economic growth a global trend……………

 

MS Swaminathan wrote an interesting article in the Times of India on 16/3/08. The article basically spoke about the high growth rates that India and many other countries experienced for about a year or so. He argues that the sudden high growth rate that we experienced is not only because of the government’s economic policies and efficiencies; it was actually a global trend which was originating from America. We know at the moment most Americans are living beyond their means, this is reflected in the sub prime crisis, the housing market slump and the mounting losses of financial companies due to increasing number of loan defaulters.  The demand for goods and services had tremendously increased for the past 2 years, which resulted in America having a trade deficit of $700 billion. China being the biggest exporter of electronic goods to America and India exporting various other goods and mainly services, thrived because of this one factor of excessive consumption in America. And because there was huge demand for goods there was automatically a huge demand for raw materials and semi finished goods which came from Africa and other less developed countries.  Hence even these countries immensely benefited. Therefore Swaminathan says that every country remotely associated with America enjoyed high economic growth, the African countries which were growing at 3% also started growing at 5%, similarly in India economic growth was 6% to 7% for many years it suddenly became 9%. If the above reasoning is true, then we have to ponder over a very important question, what is going to be the state of the Indian economy if there is a recession or slow down in the US economy which is very likely. There has already been a dip in the industrial production rate for the last 3 months. And the industrial production also determines the government’s collection of the excise duty. As it is as per the Union budget 2008 excise duty has been reduced from 18% to 16%, combine this with a fall in industrial production and it results in a loss of revenue for the government.   

 

Zone family……Education and Health

There has been an addition to the “zone” family in our country, now along with SEZ (special economic zone) EPZ (Export processing zone) the intended SAZ (Special agricultural zone, we will now have SDZ (Social development zone. The setting up of this zone comes as a response to the increasing questions and concerns about our educational and health systems. On the educational front, problems are present at every junction right from funding to quality of teachers to receptivity of students to infrastructure and many other things. Institutes of Higher learning have their own problems as well, as we recently read that IIT Bombay doesn’t have enough money to pay regular salaries to its professors and non teaching staff, they have requested for grants from the Central government of about 20 crores to meet all these expenses.

Apart from the IIT’s several other institutes for engineering also come under criticism from the HR managers of various firms, for example Infosys claims that till two years back they had to interview only 3 or 4 candidates everyday to find the correct profile for the job, today they have to interview nearly 14 to 15 people everyday. We all know that there has been a gap between the classroom and the industry, what is worrying is that this gap is now increasing at a faster pace.

Then comes the health sector, there are main parameters to judge the performance of this sector in our society. First, equitable access, low cost and good quality. The third factor is a requirement all over the world, but the first two are much more important in our country due to the increasing inequalities between people. Even in this case the problems exists in much severity at two different levels, the rural poor or for that matter even the urban poor have very little access to any proper medical treatment, infact their living conditions are so deplorable that they are duped by people who conduct the illegal business of selling kidneys by promising the donor a good amount of money in return.

At the higher level, it is estimated that in India all offices loose almost 14% of their working days on account of poor health of their employees. It was estimated by Indian council for research on International economic relations(ICRIER) that in 2006 India’s loss in GDP due to health hazards was almost $8.7 billion and if the existing situation persists then this loss can go up to $54 billion in 2015. Hence on recognizing these two major problems of education and health the government has come up with the SDZ as a tool to minimize this problem if not completely eliminate it. The details of this zone are not yet officially declared, let us wait and watch whether there is something in store for everybody!!