At my university, a generous alumnus, Stephen Bruce, has funded an
initiative on “Rethinking Capitalism.” As the fallout of the financial
crash of 2008 drags on, now with the banking crisis in Spain, the topic
seems inordinately relevant. Even in India, the crisis has given critics
of economic reform ammunition against that direction of policy, aside
from the direct impacts on India of the weakening global economy.
In April, the Bruce Initiative took its efforts from the
redwoods of Santa Cruz to the closest academic precincts of the centre
of capitalism, with a conference at New York University, a stone’s throw
from Wall Street. And the opening remarks were delivered by NYU’s
Goddard Professor of Media, Culture and Communication, who happens to be
a very famous expatriate Indian, Arjun Appadurai. Professor Appadurai
began as follows, “Why does there appear to be no one to blame for the
ongoing destruction of the economy, society and environment? The
government, banks, experts, and regulators have all claimed innocence,
while taxpayers have had to speculate on their futures. It is time to
point the finger: it is the discipline of economics that has brought
about this state of affairs. From business to the media to academia,
economists now run the world.” I have heard this sentiment in different
forms from several colleagues across the other social sciences and the
humanities, along with complaints that economists should now show more
humility, since we got things so wrong.
Are economists to blame for where we are now? My first thoughts
on reading Appadurai’s remarks were that he was tarring the whole
profession with the misguided optimism of a part of it—Alan Greenspan
musing on the taming of the business cycle, for example—and that he was
confusing economists with business people and politicians, who indeed
did much to bring about the current mess. Towards the end of his brief
talk, however, Appadurai states, “We can move toward a new form of
social inquiry that looks at the relationship between quantity, quality
and personhood. This is a different theory of social action that moves
away from rational choice.” So clearly he has a problem with the core
methodology of economics.
More....
Friday, June 15, 2012
The Politics of Emotion: Understanding India's Current Predicament
Many observers have commented at length on India’s apparent policy
drift, in which economic reforms are being stalled, or even reversed.
The last Union Budget’s retrospective taxation and anti-tax-avoidance
moves prompted The Economist magazine to answer its question, “what does
the Indian government want?” with a discussion of “three theories:
that it is clueless, that it wants symbolic control, and that it wants
cash.” The tax and investment policy mess is just one dimension of an
odd state of affairs in Indian policymaking. What the government wants
is perhaps best understood by considering what the individuals in the
government want. And here the underlying emotions may be the best guide
to understanding what is happening and what will come next.
In 2009, Dominique Moïsi came out with a slim volume titled, The Geopolitics of Emotion, with a subtitle, How Cultures of Fear, Humiliation, and Hope Are Reshaping the World, which summarises his central argument. Moïsi’s analysis is impressionistic and broad-brush, focusing on fear in the West and humiliation in the Arab or Muslim world, with hope associated with Asia, particularly China and (ironically) India. Indeed, hope had been rising for many in India for the first decade of the 21st century, making the current mood a stark contrast. The informal nature of the book’s arguments should not detract from the theme that emotions are powerful predictors of behaviour. With this in mind, one can extend this theme to the level of policymakers in India.
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In 2009, Dominique Moïsi came out with a slim volume titled, The Geopolitics of Emotion, with a subtitle, How Cultures of Fear, Humiliation, and Hope Are Reshaping the World, which summarises his central argument. Moïsi’s analysis is impressionistic and broad-brush, focusing on fear in the West and humiliation in the Arab or Muslim world, with hope associated with Asia, particularly China and (ironically) India. Indeed, hope had been rising for many in India for the first decade of the 21st century, making the current mood a stark contrast. The informal nature of the book’s arguments should not detract from the theme that emotions are powerful predictors of behaviour. With this in mind, one can extend this theme to the level of policymakers in India.
More....
Imagining India 2.0: Innovation, Entrepreneurship and Growth
Recently I attended the US-India Business Summit West, in Silicon
Valley. The stellar array of speakers was capped by a closing keynote
from former US Secretary of State, Condoleezza Rice, making the case for
a global alignment of nations to promote “free people and free
markets”. The US-India Business Council, which represents US business
interests in India, naturally expressed concern over the policy
uncertainties and lack of some key economic reforms in India. The pause
on FDI in multi-brand retailing and the recent Budget pronouncements on
taxes, seemingly threatening arbitrary discretion in making tax claims
retroactively, figured prominently in these concerns.
Panels on innovation and investing were the most enlightening, however, almost exclusively featuring entrepreneurs and investors of Indian origin. As one would expect from those trying to make the future, either through implementing new ideas or funding them, there was a quiet optimism that provided some balance to the macro concerns expressed at other times during the day, which also dominate the headlines. This is not to say that the only optimism came from Indian Americans. Senior executives from Cisco, VMWare and Walt Disney International also gave examples of how India represents opportunities, or how it can take advantages of emerging opportunities.
More....
Panels on innovation and investing were the most enlightening, however, almost exclusively featuring entrepreneurs and investors of Indian origin. As one would expect from those trying to make the future, either through implementing new ideas or funding them, there was a quiet optimism that provided some balance to the macro concerns expressed at other times during the day, which also dominate the headlines. This is not to say that the only optimism came from Indian Americans. Senior executives from Cisco, VMWare and Walt Disney International also gave examples of how India represents opportunities, or how it can take advantages of emerging opportunities.
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Promoting Financial Inclusion in India
In my last column, I argued that reforms to relax short-term financing
constraints for small producers can have a high payoff in terms of
economic benefits. Directly improving the business environment for small
firms seems more consistent with avowed goals of inclusive growth than
letting in large multinationals, though the latter may provide a
different set of benefits that come with size and global experience. I
looked at the recent development of the factoring industry in India as
something to be encouraged and widened.
The topic of financial inclusion is worth considering more broadly than just improving small businesses’ short-term financing. Access to financial services is so limited in India that there are any number of areas for reform and expansion. As always with finance, the worry is that expansion will result in instability, but careful institutional reform can minimise the potential risks of reform. A look at some of the proposals for reform of financial sector components, as mentioned in the Union Budget last month, suggest that much is going on in terms of a detailed clean-up and modernisation of legislation, some of which goes back to the 19th century. Besides individual legislative reforms, it is useful also to step back and think about how to serve the objective of inclusive financial sector development.
More....
The topic of financial inclusion is worth considering more broadly than just improving small businesses’ short-term financing. Access to financial services is so limited in India that there are any number of areas for reform and expansion. As always with finance, the worry is that expansion will result in instability, but careful institutional reform can minimise the potential risks of reform. A look at some of the proposals for reform of financial sector components, as mentioned in the Union Budget last month, suggest that much is going on in terms of a detailed clean-up and modernisation of legislation, some of which goes back to the 19th century. Besides individual legislative reforms, it is useful also to step back and think about how to serve the objective of inclusive financial sector development.
More....
Where Should India Reform and Why?
To start with, I want to reaffirm that India needs economic reform, and
lots of it. Reforms should strengthen governance institutions as well as
the working of markets. An increased role for markets and competition
will, on the whole, benefit the Indian economy. If reforms are done
well, they can promote inclusive growth. With all that clearly stated, I
want to question some of the reform rhetoric around FDI in multi-brand
retail, and argue for making a different set of reforms a priority if we
want to improve the supply chain, whether farm to fork (or fingers,
really, for India), or for manufactured goods.
Certainly, Western retailers such as Walmart and Tesco can bring in knowledge that comes with vast experience, as well as large dollops of capital. If we can have McDonald’s in India, bringing in new ideas, high standards of customer service and process efficiencies, why not foreign retailers too? Certainly, it will help to increase competition and innovation in retailing. But some of the arguments being made seem to have shaky foundations.
More....
Certainly, Western retailers such as Walmart and Tesco can bring in knowledge that comes with vast experience, as well as large dollops of capital. If we can have McDonald’s in India, bringing in new ideas, high standards of customer service and process efficiencies, why not foreign retailers too? Certainly, it will help to increase competition and innovation in retailing. But some of the arguments being made seem to have shaky foundations.
More....
Reading the Budget Entrails
This year I happened to be in New Delhi the day the Union Budget was
presented in Parliament. I was at the India Habitat Centre for an
academic conference, but much of that complex was turned into a media
circus, with TV stations offering live coverage and instantaneous
commentary from pundits scurrying from room to room. The next day’s
newspapers overflowed with examinations of the still warm body of the
Budget speech and its accoutrements. By now, anything I say will seem
like reading the entrails. The hot news moment has passed.
Many reactions from academic and industry commentators that I have read have been very critical of the Budget. I read them before I had a chance to read the Budget speech itself. Perhaps as a result, I was somewhat pleasantly surprised when I did so. In any case, given the political events that preceded the Budget, I was not expecting too much. Finally, having studied the evolution of the Indian Budget over several years, I have come to expect that the Budget speech has moved away from being a vision statement, focusing instead (properly in my view) on setting out revenue and expenditure policies and estimates. Of course one can infer some important things from these policies—a bit like reading entrails.
More....
Many reactions from academic and industry commentators that I have read have been very critical of the Budget. I read them before I had a chance to read the Budget speech itself. Perhaps as a result, I was somewhat pleasantly surprised when I did so. In any case, given the political events that preceded the Budget, I was not expecting too much. Finally, having studied the evolution of the Indian Budget over several years, I have come to expect that the Budget speech has moved away from being a vision statement, focusing instead (properly in my view) on setting out revenue and expenditure policies and estimates. Of course one can infer some important things from these policies—a bit like reading entrails.
More....
Lessons from India's Voters
In my last column, I wrote about learning from China. The experience of
other countries, especially those that share key characteristics with
India, is obviously important as a guide for policymakers. But there are
important lessons from India’s own experience. Democratic voting allows
the individual experiences of citizens to be articulated, albeit in an
aggregate and imprecise manner. Drawing the right lessons from India’s
latest elections is vital.
The stock market seemed to conclude that the outcome in Uttar Pradesh was a bad one for India’s economic future. Since the UP state assembly election did nothing to consolidate the political position of the ruling party’s heir apparent, it may be that uncertainty and jockeying for position at the Centre will continue, both within the ruling party, and in the wider coalition. Capricious coalition partners and powerful ministers may continue to block or divert needed and potentially beneficial economic reforms.
More....
The stock market seemed to conclude that the outcome in Uttar Pradesh was a bad one for India’s economic future. Since the UP state assembly election did nothing to consolidate the political position of the ruling party’s heir apparent, it may be that uncertainty and jockeying for position at the Centre will continue, both within the ruling party, and in the wider coalition. Capricious coalition partners and powerful ministers may continue to block or divert needed and potentially beneficial economic reforms.
More....
What Should India Learn From China?
Arguably, China’s successful embrace of one form of capitalism (“to get
rich is glorious”) in 1978 ultimately played a role in steering India’s
path of economic reform. Since then, China has often served as a
benchmark for judging India’s progress, because it is the only other
country that matches India in population size. Sorting out the lessons
from China’s experience is always useful, beyond the comparison of the
countries’ planning exercises, the subject of my last column.
What should India learn from China, and what should it not?
One should start by rejecting the political values of China’s regime. Suppressing the free expression of ideas, or the exercise of political voice, is not necessary for economic development, or even for political stability. India’s previous flirtations with such suppression were never associated with economic progress, and recent attempts to impose broad censorship of the internet are indicators of insecurity of the political elite, and nothing more. The notion that China’s authoritarianism has virtues (often part of the “Asian values” school of thought) to be copied by India must be totally rejected. Democracy is not incompatible with inclusive economic development.
More....
What should India learn from China, and what should it not?
One should start by rejecting the political values of China’s regime. Suppressing the free expression of ideas, or the exercise of political voice, is not necessary for economic development, or even for political stability. India’s previous flirtations with such suppression were never associated with economic progress, and recent attempts to impose broad censorship of the internet are indicators of insecurity of the political elite, and nothing more. The notion that China’s authoritarianism has virtues (often part of the “Asian values” school of thought) to be copied by India must be totally rejected. Democracy is not incompatible with inclusive economic development.
More....
A Tale of Two Plans
India is moving toward finalising its Twelfth Five-Year Plan, for
2012-17. The process is long and fascinating. A 140-page draft approach
paper was made available late last year, and has been followed by an
exceptional process of consultation and discussion, including meetings
across the country, a website that allows citizen discussions of
specific points and issues, and even a Facebook page. The Plan document,
and the framework of 12 strategy challenges, are encompassing in
nature, as befits the ambitious goal of faster, sustainable and more
inclusive growth.
The world’s other emerging giant, China, also still has Five-Year Plans. In this case, it is only a year or two ahead of India—its Twelfth Plan was finalised last year, and covers the period 2011-15. One cannot imagine the Chinese government having online discussions by citizens for shaping such a document, and certainly not a Facebook page. But more than the process, which is ultimately mostly top-down at the formulation stage for both countries (because that is where the expertise and knowledge mostly reside), the tenor and goals of the two Plans are quite different.
More....
The world’s other emerging giant, China, also still has Five-Year Plans. In this case, it is only a year or two ahead of India—its Twelfth Plan was finalised last year, and covers the period 2011-15. One cannot imagine the Chinese government having online discussions by citizens for shaping such a document, and certainly not a Facebook page. But more than the process, which is ultimately mostly top-down at the formulation stage for both countries (because that is where the expertise and knowledge mostly reside), the tenor and goals of the two Plans are quite different.
More....
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