In India a budget to be proud of

July 6, 2009

The free marketers are crying foul. In his budget speech on Monday, Minister of Finance, Pranab Mukherjee disappointed them by not detailing a plan for allowing foreign investment in the insurance sector, for privatization of public sector companies and of education.

Even as Mukherjee was making his budget speech, the Sensex of the Bombay Stock Exchange dropped.

To a large extent, big business led to its own disappointment by its euphoria after the re-election of the government of Prime Minister Manmohan Singh. Share prices soared on the stock markets as investors believed that the UPA, freed of its dependence on the Left parties, would now pursue a reformist agenda.

The term “Reformist” has usually been defined by business and the pro-business media in terms of free market policies that liberalize cross-border capital flows, open new sectors to private investment, and make labor markets more flexible (read ease out labor unions).

The evening after Mukherjee’s speech, the pro-business The Wall Street Journal is making a spectacle of itself, claiming interestingly that Mukherjee’s budget was ” a pretty dreadful spectacle”. Newspapers are expected to report and analyze, and not espouse causes, but that is a subject for another post, another time.

What industry and media like the WSJ mis-understood is that the Congress party, which is the main partner in the coalition government, has traditionally had a stand of its own on social policy, which is social democrat and far from pure capitalist.

Mukherjee used the budget speech to remind viewers that India was protected from the global financial meltdown because its large banks are government controlled and did not expose themselves to speculative activity, and stocking up on CDOs. He credited his former leader, the late Indira Gandhi, for nationalizing the banks when she was Prime Minister of the country.

By his focus on inclusiveness, on rural development, on expanding the economy through stimulus spending, Mukherjee has sent out a strong signal that social democracy is not dead in India.

By refusing to privatize education, and by in fact making a budgetary allocation for new IITs, Mukherjee is making the point that Pt. Jawaharlal Nehru’s strategy to spend on education and research as core competencies is still relevant.

Mukherjee’s budget in fact creates the opportunity for the emergence of more people from out of the pale of poverty, into becoming beneficiaries (and consumers) of the economic boom. The question is; will foreign investors decided this is a good market opportunity for them ? Or will they continue to demand what seems to be quite impossible in a country that is moving to its social democractic roots ?

There is some concern about the deficit in the budget, but at times of economic crises, deficit financing and government spending is the way out to stimulate the economy and create jobs. The challenge for Mukherjee is to rein in inflation when it happens, by a reduction of the deficit, and other appropriate fiscal measures.

There are also issues such as the implementation of the programs that aim to bring India’s vast rural poor into the mainstream of economic development. There will undoubtedly be leakages, corruption, and some of the money will not reach the target group.

But unbridled capitalism won’t solve that problem. Civil society and good politics can.


India’s economic boom is lopsided

June 26, 2009

It is fashionable among India’s new business elites to talk about the boom in the economy, but a lot of it has been awfully lopsided.

About 600 million people, or 60 percent of India’s population, live off the land, according to CNN. Majority of farmers depend on rainwater for crops — irrigation, electricity are a luxury.

Yet presumably in a bid to attract investors, Indian business and investment analysts have trumpeted India’s economic boom. Their comments often reflect a divide in urban/rural perceptions, a lack of knowledge about what goes on outside the cities.

Rather than provide a counter-balance to such skewed perceptions, the Indian media has by-and-large gone along with the urban point of view.

The same business classes are also planning to get the private sector into education, healthcare, and insurance, little realizing that private services are not a substitute for government. If government services are bad, fix it…….let’s not talk about privatization as a panacea.

The few instances of privatization in these sectors in India have shown that the costs of the new privatized services are way beyond India’s poor who are not only in its villages but also in towns.

The boom in India, which has been largely confined to its cities, and particularly in its outsourcing, retail, and telecom industries has created a new class that demands the best in schooling for its kids, the best in food, the best in healthcare, quite regardless of the price.

But these schools, hospitals, and other services are beyond the reach of the poor both in the cities and the towns, further accentuating the huge economic divide in the cities. School fees in some of the better private schools would add up to over US$3000 a year. That is a cost that is way beyond a woman working as a maid in the city who would earn less than US$500 a year, at the peak of her career.

The moves to have private services in education and healthcare and other areas are therefore designed to serve the new elites, and cannot compensate for government action.

While there is no objection to the elites pampering themselves like their counterparts in the U.S., there is a case for the government to set up more of its services. In these sectors there is case for more government.

The poor also have their aspirations for a better quality of life, and if that is not satisfied by government, it will find other avenues, in some cases in increased loss of faith in the system and criminality.

If the political class, corrupt and suspect, have already contributed to an erosion of faith in the system, self-serving prescriptions from parvenu Indian elites can only increase the alienation.

The day the baker in my town closed shop

June 26, 2009

There was once a baker in the town I lived in. He and wife and two daughters each evening mixed the dough, let it ferment, and in the wee hours of the morning lit his oven with firewood to bake fresh and fluffy breads. He then delivered the labor of his love to his customers in the town on a bicycle, with a rubber horn heralding his arrival at the crack of dawn. His job done, the baker went to sleep.

Competition and modernization caught up with the baker and his family. He toyed at one point with mechanization, but that required capital. An entrepreneur who knew very little about the art of making breads, but had a lot of capital, started a mechanized bakery which offered breads that were very cheap, and yes excited the local consumers who were told they were made hygienically, made in accordance with modern global practices, and even had vitamins added to the dough.

Soon the entrepreneur was supplying to a number of towns and cities in the state, and re-located his factory in a cheaper town. To make his operations more cost-efficient, he began delivering bread to my town every three days. Preservatives in his breads kept them going that long.

Our neighborhood baker in the meanwhile folded up his business, and to avoid the ignominy (as he saw it) of working as an employee for the mechanized bakery, took to home delivery of newspapers. All this has happened in the last about ten years or so.

To be sure, there will be a section of folks who will say that worrying about the baker is useless sentimentality as modernization, free markets, and development have to wipe away what is inefficient and outdated. Implicit in this theory is the bias that what is dated is essentially not worthy stuff, unless it is an antique that can be packaged and auctioned to collectors.

Somehow I don’t think that I am alone in my sentimentality for the baker. Even commerce is playing on it. These days bakery chains are talking about the virtues of whole wheat breads, and oven fired breads, and fluffy breads. We had them when the traditional bakers were around, and we didn’t value them enough to preserve them.

The upshot is that free markets and competition cannot be counted on to meet our gastronomical, emotional, and community needs. Supermarkets will kill corner stores, large book chains will kill traditional small book stores, mechanized manufacturers will kill businesses where people work with their hands.

Some of these cornerstones of the past will however come back some ten years from now with a vengeance, this time positioned as boutique stores, designed and priced for the rich. The unassuming and functional corner bookstores or retail store will come back in a new avatar, with another owner, and a lot of snobbery and affectation that will drive off traditional customers.

Civil society has to protect what it values, whether it is the corner store, the local bakery, the vegetable cart, or the local vendor of victuals, by actively supporting these enterprises, buying from them. We are not doing them a favor, but keeping our sanity through this whirlwind of change.

Preserving small businesses has a lot to do with preserving our culture as well. Our culture is not only about owning expensive paintings and listening to music (these days more spectacle than participative). It is about the common relations, the institutions, the people that make up our life. The corner shop where one can stop for a bit of the local gossip, the baker who knows everyone around for mile, and other such notables where part of a community, of the fabric and culture of a society which is fast giving way to impersonal businesses.

Preserving traditional businesses also has to do with empowerment of the people who run these businesses. As the businesses close the self-employed join the ranks of the factory employed.

People also stop taking ownership of what they produce, and that reflects on quality. Once a year, the baker I spoke about used to gift his regulars with a cake stuffed with raisins and nuts. It was his creation, he was proud of it, and the kids loved it. It was not delivered with a large corporate logo in a fancy box, and there were no photo ops for the media. No, this gift reflected a man’s dedication to put in his best efforts to thank his fellowmen for their support.

It was about community, humanity. The baker was one of many who participated in a way of life that is not inexorably doomed to die away.

Coming up for air

June 25, 2009

I am back…..and this time I don’t care if millions of people don’t read this blog.

I am blogging again to keep my sanity in a world where we are indundated each day by marketing hype, cant and bluster in a world where truth has become like the plasticine, the clay our children play with.

It is a world where executives of banks that have taken TARP bailouts are using their company jets for private excursions, according to the Wall Street Journal.

It is a world where the gods of the financial Mount Olympus believe they should get a bail out, and they do get it courtesy US President Barack Obama, if only to save the economy.

A world where the new regulations for the finance industry proposed by Obama sounds like a lullaby, rather than a warning against future misbehavior. It won’t put speculators to sleep, but maybe all of us until the next bubble bursts.

It is a world where corruption and doublespeak continue not only in Iran or China but in democratic countries like the US, Europe and India.

It is a world where norms of decency and civility are fast dying out, and getting replaced by individualism and anomie.

I need to blog, to come up for air.

Nandan Nilekani: a dangerous flirtation

June 25, 2009

Nandan Nilekani is the best among India’s businessmen. But just because he has run a company well, it does not translate into core competence to do a government job well, more so when the job is in welfare.

India’s elite and the media will predictably welcome the move to induct people from the IT industry into government, and from that standpoint Prime Minister Manmohan Singh may score a big point with some of the urban intelligentsia.

Unfolding however is a far more dangerous trend, that of hard core free-marketers, who have made their fortunes from private enterprise, wriggling their way into government, and trying to influence policy. Their prescriptions are almost always built around privatization of vast swathes of the economy, of the education sector, of healthcare, and probably even the air we breathe.

It is the only language a businessman knows. It is also the most fashionable political ideology which many educated people thoughtlessly spout. But it is not an ideology that addresses the needs of the teeming poor. It is a self-serving ideology of the super class.

That the IT industry introduced stock options and high salaries does not reflect its social conscience, but again a high market demand for engineers which pushed up their salaries and perks.

Free market ideology cannot solve a country’s problems as the current economic crisis in the US and Europe has shown.

The country needs as leaders not business people, but people who know how the masses think and feel, and who are also accountable to those masses for those votes. Handpicked technocrats, particularly of the free market variety, will not do.

Like traditional aristocracies, the elite in the IT industry is trying to perpetuate their prominence beyond business, and beyond retirement, by selling the myth that IT professionals can bring a new and positive perspective to government.

Free markets do not necessarily mean democracy or quality of life

October 3, 2007

“The kind of economic organization that provides economic freedom directly, namely, competitive capitalism, also promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other.”
—- Milton Friedman in “Capitalism and Freedom”

Friedman’s attempts to link political freedom and free markets were belied even in his time in some economies outside the US. India, for example, had a vibrant democracy from the 1950s, even though the country had adopted a socialistic, public-ownership route to economic ownership and development.

Friedman, writes Robert B. Reich in his new book “Supercapitalism”, traveled to Chile during the rule of military dictator, Augusto Pinochet, to urge Pinochet’s junta to adopt free-market capitalism. In lectures in Chile, Friedman spoke on his pet theme – that free markets were a pre-condition to political freedom and sustainable democracy.

Pinochet took Friedman’s free-market advice, but his brutal dictatorship lasted another 15 years, according to Reich.

India has since the 1990s liberalized its economy for economic reasons, starting with a balance of
payments crisis. But the economic prosperity of the country has not reached its vast number of poor, and arguably also weakened the political process.

One of the offshoots of liberalization and the economic boom in India is that a sizeable section of the middle class, a bulwark of the country’s democracy, have got transformed into producers or consumers from their original role also as active participants in the political process.

A successful software engineer in India, for example, has neither the inclination nor the time to discuss political issues. In part the middle class may have also got alienated from the political process often by their own will, because of disgust with the rampant corruption in the political class, and a sense of “powerlessness”.

India’s neighbor China has adopted free-market principles, and is enjoying an economic boom. But this prosperity has not been coupled with political freedom and democracy. Nor has economic prosperity made democracy a more distinct possibility.

A common theme running through most free-market ideology is that markets left to themselves can solve about anything, by their ability to efficiently organize , resources, production, and consumption.

But free markets as we have found out cannot guarantee equity, or environment protection, or better quality of life. That is the work of public policy and in a democracy, policy is more likely to be influenced by citizens.

In “ Supercapitalism”, Reich, former Secretary for Labor under US President Bill Clinton, says that the US economy has been on a roll since the 1970s. Consumers have been treated to a vast array of goods like iPods, while cost of standard goods and services have declined.

However CEOs of companies cannot be counted on to be munificent, and statesmen-like as in the past. Deregulation, technology, and foreign competition have transformed the limited competition in traditional capitalism to hyper-competitiveness in a “supercapitalism”. CEOs and senior corporate executives have been instead forced by investor and consumer demands to become ruthless, profit-obsessed managers.

While consumers and investors in the US have scored big wins, this was achieved by a break down of the democratic process.

Some of the first signs of the breakdown of democracy was the weakening of the trade-unions, which was to the advantage of the individual as consumer or investor. As access to government and the ability to influence public policy becomes a competitive advantage for companies, individuals are finding themselves powerless, Reich says.

Big business is running the US as in many other countries. Contrary to Friedman’s thesis, economic and political power do not offset each other any longer, but economic power influences political power.

The answer, I think, is not in more government, but in greater, and transformed public participation in government. It is not enough to shout and be heard. You have to be able to influence. A lot of Americans, for example, oppose the Iraq war and are demanding the scaling down of US troops in Iraq, but they have not been able to influence US government policy. This is because the US, and for that matter most democracies around the world, have become once in four years, or once in five year events, when you vote or reject a government.

The need is for continuous democracy. The institutions for that will have to be created. We as citizens will have to evolve new processes for coming together as active citizens, and arriving at a consensus on issues. We will have to devise new tactics, including boycotts, protests, and demonstrations. To start with, we have to stop thinking as consumers, and start thinking about our freedom, quality of life, and issues of environment degradation and inequity.

Since only people can be citizens, only people should be allowed to participate in democratic decision making, Reich points out.