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.

 

Advertisements

Underdeveloped-Developing-Transforming-Third World-New South

In an article in the ‘Hindu’ by Jorge Heine from the Balsille School of International Affairs, the subject is very interesting, the author speaks of the World Bank President Robert Zoellick now officially stating that the term “Third World” is now made redundant. This term was coined by Peter Worsely  in his book “The Third World: A vital force in International affairs”. The author of this book had spent many years after World War 2 in Africa and India, he had the first hand experience of how these post colonial countries were emerging. The author was particularly impressed by seeing how Nehru, Castro, Nkruhma, Nyere left behind the debris created due to colonialism and started the work of nation building.

Going by this perception of Mr. Worsely the term Third World seemed appropriate at that time, many other people at that time gave other terms like Underdeveloped, Developing, lower income each more disappointing than the other. These terms only tried to suggest that these Post Colonial countries only were a mere footnote to the real history.

In the sixties and seventies many nations in Asia, Africa and the Carrribbean were economically weak and were dependent on trade from the north, hence they created groups like Non Aligned Movement (NAM), UNCTAD, and forwarded proposals in the U.N  like New International Economic Order, sometimes these proposals got passed but very often they were not backed by any concrete reasons, they had little power apart from the voting rights in the U.N.

But over the last 10 years this scenario has changed substantially, countries like India, China, Brazil who are some of the fastest growing economies now “speak from strength not weakness”, they do not ask for aid but they want to trade. They expect a stronger say at the IFI, high table of global economic governance. Also another trend that has been observed is that these countries are not dependent only on the north countries for trade, they also trade among themselves.

Noted historian Ram Chandra Guha in a recent lecture spoke about why India is not and should not be a super power. The lecture was a kind of refutation to the media’s favourite headline “The Global Indian take over”, when there exists so much tension, conflict and disparity in our own society the take over in the world is “premature”. India’s domestic challenges and the situation with the immediate neighborhood demands more of settling immediate issues than any take over.

Therefore concludes the author the New South in the new century is going to be a strong force to reckon with. And the term Third World has been done away with.

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.   

 

Roaring corporate sector and a booming economy!! But what about the last man standing on the street??

“20000 points on the sensex, the economy growing at 9% have a good weekend” wrote economic times on one Saturday. It is indeed great to have a booming sensex and it’s equally good to know that we are one of the fastest growing economies of the world. But does it end there?? Is a booming sensex and a roaring corporate sector all we want for our country, where millions of people still sleep on the road. In the history of our country this is truly one of the most important eras because on one hand we are the front runners in economic growth and global investments. In fact in the Presidential debate of 2004 between President Bush and Senator Kerry, Senator Kerry assured the people of America that if he becomes President then he will prevent American jobs from being “Bangalored” and sent to India where a booming IT sector awaits the best talent on the globe. On the other hand we are also known to be the front runners in mal nutrition and poverty and illiteracy. Do these people who are mal nourished and illiterate even know why their country is respected globally? They don’t, and why should they?? When the hyped growth and the boom that Economic Times raves about has not gone even remotely close to them.

Therefore the time has come when we need to make economic growth more inclusive. The current pattern of economic growth is only favoring specific sectors of the economy. And therefore people associated with those sectors are also benefiting. But the people who do not come under the purview of those sectors are experiencing stagnant growth. An article recently published in the Navbharat Times pointed out that the present government or for that matter any government has a tendency to start worrying about things only when a worrisome situation gets created. While the situation is gradually going from bad to worse they are indifferent. The economic policies being followed by the current government have undoubtedly increased foreign investment, boosted economic growth and made India one of the preferred destinations on the globe for any kind of business and financial activities. But at the same time as a result of all of this, the government is forced to reduce the fiscal deficit as per the terms and conditions of IMF and WTO. Reduction in fiscal deficit results in declining expenditure for essential services like health and education. According to the Kothari commission led by Dr Vijay Kothari in 1966 expenditure on education has to be minimum 6% of the GDP but for the last several years it has remained between 2.5% to 3.5%. In the eleventh plan it is estimated to be at around 4%. Recently it was reported the IITs don’t have enough funds to pay proper salaries to its professors. IIT Bombay made a request to the government to give a grant of 20000 crores, so it can look after its basic expenditure. This is one of the implications of reducing the fiscal deficit that even the premier institutes are down in the dumps. IMF tells our government to reduce the fiscal deficit to control inflation. According to an article on the Indian economy, when the government borrows money from the RBI it tends to increase the quantity of money and hence it results in inflation. This argument has two flaws one that the new quantity of money doesn’t chase the same goods conventionally perceived. While the quantity of money circulating in the economy increases the production and output also increases. But apart from these technical details and principles, it is important to note that if the government reduces its expenditures on health and education then any significant development for the masses is not achievable, and then it’s meaningless to merely float on the fact that sensex is on 20000 and economy is growing at whatever percent when it is of no consequence to majority of the population.

Retail sector in India and corporate houses

Entry of the corporate houses in the retail market or for that matter into any sector is popularly perceived to be a part of economic growth. The increasing participation of the private sector is considered as one of the instruments of economic growth and job creation. Economic growth by itself creates jobs says Lord Desai a professor of economics at the London school of economics. But this I reiterate is a popular perception, whether the entry of corporate houses into every market and field is justified or not is a different matter. In my view it is incorrect to make general statements about economic growth and job creation, one has to be very precise when dealing with this subject. Economic growth I agree does create jobs; it does push the economy to a more productive stage. As the economist Rosenstein Rodan has said in his theory the “Big push” that for a plane to take off it requires a certain minimum ground speed, anything less than that and the plane wont take off, similarly to pursue economic growth we need to mobilize a certain minimum amount of investment, anything less than that is inadequate. And investment mobilization happens through the corporate houses or the private sector. So Im not against the private sector per se, but for the government and people to jump to a conclusion that the corporate houses no matter what they do and where they go will bring beneficial results certainly comes under a cloud of suspicion. To prove that the entry of the corporate houses into the retail market is beneficial we would have to rely on the theory of trickle down effect, but the trickle down effect is simply another way of saying that what is good for the business houses is good for the country, which is obviously not true. Trickle down effect has been named the horse and sparrow theory by JK Galbraith “if you feed enough oats to the horse, some will pass through to feed the sparrows.” Unfortunately today the horse is the corporate sector and the sparrow is the working class.

When we speak of the retail market we are primarily dealing with a section of society where the people are not economically privileged. Retailers at the lower end, like the vegetable sellers, the fruit sellers basically are the underprivileged section of the society, and when the government permits the corporate houses to enter this field with their attractive pricing strategies the government is practically wiping these 4 crore middle men out. And the justification given is “growth will create jobs for them as well”. For people who say my question is can you give a guarantee that those very 4 crore people will get their jobs back. And they are 4 crore human beings not ants who can be trampled under the feet of men.

Entry of the corporate houses into the retail market is a part of the de licensing policy which was started in 70s. Before the 70s most of the industrial production was handled by the public sector. In the 70s it was realized that the participation of the corporate houses is also very essential if we have to be on par with the rest of the world in terms of technology and capital. For this reason the license policy was scrapped out. Only industries of national importance like defense, railways, atomic energy were to be kept in the control of the public sector. So the purpose of the de licensing policy was to increase productivity. Today in 2007 if we analyze the repercussions of this policy we find that the corporate houses have increased productivity no doubt, but have also increased the divide between rural areas and the urban areas, between the bourgeois and the proletariat. This divide has very unfavorable social consequences which need to be settled first than increasing productivity for only a certain class of society.

 

Urbanization and environment

This was my speech for a competition, the topic was “Urbanization improves environment” and i was speaking for the proposition.

Urbanization this term has economic as well as social significance. Economic because it brings about a structural change in the way people function and seek jobs and this influences the economic activity of individual units of the population and the economy. Social significance is the natural outcome of the economic significance, as Karl Marx once explained, that a change in the economic system and structure has its social repercussions as well. Urbanization today is a natural and independent process; the percentage of population migrating to the urban areas is rising inexorably irrespective of the developments taking place in the rural areas. According Warren Thomson an American demographer as the economy expands its people move from the rural to the urban, now this movement may not necessarily be geographic movement of going to urban cities but a change in the basic character of a place where people live, a change from the rural character to the urban character. So taking into account this principle urbanization in my view is an inevitable process and a natural outcome of development.

Coming to environment, environment isn’t just air, water, land and resources, it also includes man, his activities and his material welfare. The two major factors determining the environment in the urban setting, is the population and the economic development. One of the distinguishing factors of urbanization is capital formation. Goods are made to sell and money is earned to buy, but certain amount of consumption has to be kept away for future use. Current consumption has to be used for creation of capital in future. As Prof Shahuraja has put it “It is necessary to break away from the vicious circle of poverty and initiate the virtuous circle of prosperity. To improve the environment investments in education and health are important and this happen only through capital formation. The rural economy tends to be self sufficient, now self sufficiency is not bad per se but to move to a productive level interaction between resources and saving of resources is necessary and it happens only through urbanization. Also urbanization facilitates mobilization of huge investments to initiate and implement new policies. As the economist Rosenstein Rodan has said in his theory “the big push” that for a plane to take off it requires a certain minimum ground speed, anything less than that and the plane won’t take off, similarly for improving the environment we need a certain minimum investment to be mobilized, anything less than that is inadequate.

Now speaking of development it is not just the addition of physical capital but also human capital Urbanization facilitates the training of human capital we may have the best of equipments and machinery but to match that, we need equally good human capital. We need skilled human capital for economic growth and development and we need sensible human capital to maintain social tranquility and political stability. Urbanization gives importance to education and practical training. Education ultimately has the power to pull the poor people from the lower end of the poverty line and push them to the upper and through urbanization education assumes importance. Urbanization also increases the prospect of revenue generation and revenue collection for the government. And this revenue is utilized to give essential services like education and health at a subsidized rate. So essential services like good health care and education are given at a subsidized rate.

Coming to the point of natural environment, at the outset I must say that man has always been in a conflict with nature. Man, in pursuing his interests and the interest of the community at large has had no choice but to alter the physical structure of nature. A water power project requires the construction of a dam and a reservoir and this may have an impact on the physical environment, it may even force a number of people to relocate themselves. But on the other hand, it’s difficult to exist without electricity. If environment is for the people even development is FOR the people. If we are sacrificing the natural environment to some extents we are creating value at the same time. Development always comes with a price, we have to ensure that the cost of any project or plan does not outweigh the benefits; if this balance can be maintained then we can certainly have sustainable development.

Now let’s examine the commodity of land under urbanization. It so happens that in the rural areas the population is scattered over a vast region of land, almost every piece of land is utilized either for living or for cultivation. And as we all know that the supply of land is scarce in relation to the demand, so effective utilization of land is very important since it’s a very important natural resource. Now urbanization concentrates the population into smaller land areas, leaving more land undistributed and therefore protecting it and making it available for other important activities like farming, and other agricultural activities.

Resources are constantly needed by cities. And one of the outputs of resources is waste and this waste has to be properly handled to prevent any serious damages to the environment. The waste hierarchy system plays an important role in waste minimization, it refers to the three “R’s” reduce, reuse and recycle. The aim of the waste hierarchy system is to extract the maximum practical benefits from products and to generate the minimum amount of waste. Another method is the extended producer responsibility, in this system the producer has to be accountable for the entire life cycle of the product, so firms which manufacture are required to be responsible for the products during manufacture and even after their useful life. Also the standard sanitation technology in urban areas collects waste water and treats it so that it can be left in the sea or lakes. So urbanization provides safer and better water and provides better sanitation facilities. So the crux of the matter is that although urbanization harms the environment and creates waste it ALSO ensures its proper handling and disposal, infact the input of resources and output of waste has been described as the metabolism of cities.

And finally at a social and cultural level urbanization improves environment because it increases the credence given to status of education or other merit based achievements and reduces the credence given to birth status which originally existed. So urbanization does improve the social, economic, political and cultural environment and it does sustain the natural environment.

Sanjay Dutt’s sentencing

Equality before law and the rule of law was reinforced in the public mind when Sanjay Dutt was sentenced to six years rigorous imprisonment. His matter had come on the board of TADA court about six months back and the judge kept adjourning the matter, finally on 31 July the judge pronounced the verdict. From the legal point of view the verdict was quite satisfactory, since the minimum sentence for illegal possession of weapons is 5 years. The judge used his discretion and gave six. After the acquittal of Manu Sharma the son of an industrialist and the acquittal of the Chief Minister of Jharkand, there was a general feeling that the high and mighty always get away and that the law is systematically twisted from time to time to suit those in power. This view was dispelled when Sanjay was sentenced.

The judicial process in our country can be very predictable, as soon as Sanjay Dutt was sentenced to rigorous imprisonment he was immediately released on bail on the grounds that he did not receive a copy of the judgment, till he receives that copy he can remain on bail and after he receives it from TADA court he can apply for regular bail and thereafter the matter regarding his conviction. But explanation can there be for not giving the judgment?? The very fact Judge Kode has sentenced Sanjay implies that after hearing the matter he dictated a judgment, then why is a copy of it not given. It is not possible that the TADA court doesn’t have the printing machinery to take out a copy of the judgment. From the given circumstance it is quite clear that there is some element of manipulation involved with this issue otherwise there is no reasonable explanation for this delay.

Another aspect which must be dealt with is the public reaction to Sanjays sentencing or rather it should be called public sentiment due to its very nature. There are people who are writing blogs, saying that the sentencing is too harsh and “Munnabhai” must be dealt with some compassion and care. Here particularly I would like to quote the lines of a charted accountant who writes Column’s regularly on the website of CNN IBN.

Many will agree that Sanjay Dutt, though had a different image earlier, now, apparently, reflects a complete transformation as a human being. His apparent soft & humble gestures, the hand shakes, his statements in the court, the feeling of guilt, et al. are clearly the reflections of his makeover in the past years. Sanju Baba’s characters in his recent movies Munnabhai MBBS and the sequel Lago Raho Munnabhai carried mind-boggling touching messages which ended up leaving lost lasting & worth following impressions on several minds (I will say at least mine).

Tell me, what we are going to achieve by putting this person behind the bars. We will be seriously wasting 6 years of an amazing talent, which can be put to better use of spreading more Munnabhai messages around. But as we have to keep the punishment also in mind, so Sanju Baba can be let free to work for movies and other noble & social projects – but with the strict caveat that all the remuneration he receives from these projects should go to fund a specific social project, which can help lacs of ailing and poor families of our country by providing basic amenities of food, clothing & shelter. Besides, there can be other restrictions with respect to his moving out of country or doing or not doing certain acts or many such other things for which judiciary is more capable to decide.

Really, no one is going to achieve anything by imprisoning a worthwhile talent who is also capable of earning huge sums of money in a short period of time, which in turn can help countless deprived families in our nation. The case is set to be appealed and heard in the highest court of the country and, possibly, it is a rare chance for the judiciary to do something imaginative and create new benchmarks and examples for the years – rather generations to come.”

As soon as I read this post I wrote a comment on the website which was not published by CNN IBN, I said that im really surprised that educated people who are also regular columnists have the audacity to say this “His apparent soft & humble gestures, the hand shakes, his statements in the court, the feeling of guilt, et al. are clearly the reflections of his makeover in the past years” This Mr. Columnist of CNN IBN apparently does not know the rule of law, and the behavior of a person can hardly be judged from his films and his public appearances where he will put up his best behavior. The columnist further says “Tell me, what we are going to achieve by putting this person behind the bars. We will be seriously wasting 6 years of an amazing talent, which can be put to better use of spreading more Munnabhai messages around.” Just because a person is talented and spreads messages doesn’t mean he will be granted a lesser sentencing than what the statue prescribes, and if he does get lesser sentencing, it amounts to discrimination by the judiciary. The public reaction to this case is truly disappointing. People are not so vocal when it comes to fighting poverty a problem which we have had for decades, for those police officers who are dying in naxalite areas, for those farmers who are committing suicides for the last 100 years since 1907 (earlier it was due to British imperialism and today it is because of globalization). Had public sentiment acted for these issues we would have had a better place to live in today.