Apologies for covering the IE again, but today's editorial is simply abysmal ("There goes RBI.") That may be because it has Ila Patnaik's fingerprints all over it.
Yet even Patnaik can't get her economics this wrong: "raising rates is not a good instrument for tackling inflation." Words fail me. This is a national newspaper, how can it get something so basic so completely wrong? How else can inflation be tackled, according to the oracular wisdom of the Express? It doesn't say! Now, every editorial can of course take a position, but doesn't basic argumentation call for a solution to be offered once you've pointed out your opponent's weak points? Flabbergasting.
And what are these weaknesses? The absence of the famed BCD nexus, (straight from the Ajay Shah/Ila Patnaik playbook) and the existence of a huge informal sector (which is an argument for even greater rate hikes, incidentally). All that we can surmise is that the RBI shouldn't have been defending the rupee and flooding the system with liquidity, but we can only make this leap if we have read Patnaik's previous editorial (see below). The action that the RBI should have taken? No action. Please get out of the way, central bankers, as all you can do is spoil things. Neoliberalism 101.
For clarity's sake, note that you can either have a bank-based financial system, as did Germany and Japan for years, or you can have an Anglo-Saxon market-based system. Clearly India has the former, although it is trying to cobble together the latter. The effort is indeed incomplete, but for complicated reasons. The RBI is not independent of the government, why would you blame it for its actions? It is this deeper political economy that is being addressed in a roundabout manner in this editorial: reform the RBI, make it accountable to the markets.
But this is a larger struggle, one that the neoliberals will hopefully lose. With the institutions as they are, the way to curb the monetary economy is to regulate the banks. Either way, under banks or markets, interest rates are the operational variable!
Wednesday, July 30, 2008
Monday, July 28, 2008
Par Patnaik
So is here Ila Patnaik in the IE again, going on about the monetary policy framework and trying to beat poor ol' Dr. Reddy over the head with the Mistry/Rajan reports, ("Pricing the Rupee"). I mean, it's not like she doesn't have a point, but has she no others?
One of her main grouses is that the RBI is burdened with too many objectives (public debt management, banking regulation, exchange rate management, monetary policy, etc.), and that these often come into conflict with each other.
The main bugbear here is the RBI's currency trading, wherein the RBI is basically running a peg to the dollar and therefore has to buy up USD as they come flying into the country least the rupee appreciate. Buying up all these dollars means issuing lots of rupees to do so, and this hits inflation unless this issue is "sterilized" by issuing bonds to mop them up. As Patnaik notes, this stopped happening late last year, and the RBI switched to using hike in the Cash Reserve Ratio to suck cash out instead. Rather than letting the rupee rise and making oil imports cheaper, the RBI kept it low and added to the monetary base in the process. Both measures hike inflation. Reform the RBI to focus on inflation and forget everything else, says Patnaik, and this can't happen.
So is the RBI mad? What's its rationale? For Patnaik, it is "to encourage growth in exports." She makes no mention of the spiralling current account deficit which, if it gets much larger, could make our reserves look puny in the event of a run on the economy. Further, because our reserves are the result of incoming flows rather than earned exports, they are borrowed. So our external position is not that comfortable, and all her recommendations (lift capital controls, open up ECBs and lift NRI caps) could make it worse. The fiscal situation doesn't help matters.
Secondly, what is this model of reform? Transparency? As if that were a virtue in itself. Transparency is the cry of those who wish to hem in the publicly-accountable state and make it predictable so that the unaccountable market can go ahead and make decisions for us. It's a word that uses science to hide politics. She makes no mention of the fact the Bank of England's model of the separation of banking reform and monetary policy was seen as one of the root causes of the recent credit crisis in England, wherein a lack of coordination between the FSA and the BoE made the Northern Rock situation worse.
If she's going to use economic "science" in her arguments, she should not abuse the implicit trust placed in her as an academic to push only one side of the argument. Her inability to be even handed shows her to be an ideologue, pure and simple. Par for the course, Ms. Patnaik.
One of her main grouses is that the RBI is burdened with too many objectives (public debt management, banking regulation, exchange rate management, monetary policy, etc.), and that these often come into conflict with each other.
The main bugbear here is the RBI's currency trading, wherein the RBI is basically running a peg to the dollar and therefore has to buy up USD as they come flying into the country least the rupee appreciate. Buying up all these dollars means issuing lots of rupees to do so, and this hits inflation unless this issue is "sterilized" by issuing bonds to mop them up. As Patnaik notes, this stopped happening late last year, and the RBI switched to using hike in the Cash Reserve Ratio to suck cash out instead. Rather than letting the rupee rise and making oil imports cheaper, the RBI kept it low and added to the monetary base in the process. Both measures hike inflation. Reform the RBI to focus on inflation and forget everything else, says Patnaik, and this can't happen.
So is the RBI mad? What's its rationale? For Patnaik, it is "to encourage growth in exports." She makes no mention of the spiralling current account deficit which, if it gets much larger, could make our reserves look puny in the event of a run on the economy. Further, because our reserves are the result of incoming flows rather than earned exports, they are borrowed. So our external position is not that comfortable, and all her recommendations (lift capital controls, open up ECBs and lift NRI caps) could make it worse. The fiscal situation doesn't help matters.
Secondly, what is this model of reform? Transparency? As if that were a virtue in itself. Transparency is the cry of those who wish to hem in the publicly-accountable state and make it predictable so that the unaccountable market can go ahead and make decisions for us. It's a word that uses science to hide politics. She makes no mention of the fact the Bank of England's model of the separation of banking reform and monetary policy was seen as one of the root causes of the recent credit crisis in England, wherein a lack of coordination between the FSA and the BoE made the Northern Rock situation worse.
If she's going to use economic "science" in her arguments, she should not abuse the implicit trust placed in her as an academic to push only one side of the argument. Her inability to be even handed shows her to be an ideologue, pure and simple. Par for the course, Ms. Patnaik.
Sunday, July 27, 2008
All That Matters (to the Neoliberals)
Two edits are comment-worthy on today's TOI edit page (which is pompously entitled "All That Matters")
This first is an interesting piece from Shashi Tharoor on the massive worldwide market for naklis (fakes; "Get Real, we are living in a fake world"). He traces how fakes are attracted to free trade zones like Hong Kong and especially Dubai by the absence of regulation therein. The interesting information notwithstanding, (apparently this is a $60 billion market!), he chooses to leave some important things out.
For instance, how is it that the attraction of fakes to free trade zones doesn't become a critique of the very idea of a free trade zone that is utterly devoid of any speck of regulation? Instead, we get the standard defence of the one form of regulation the neoliberals are in favour of, namely intellectual property: it's not just that fakes can sometimes kill, as Tharoor points out in the case of fake drugs, but worse, "fakery stifles innovation, depriving the world of the creativity that is our only source of progress."
Now, anyone who knows anything about economic history knows that all nations, when they were developing, learned the tricks of the low-tech manufacturing trade by copying: this was true of the British, the Germans, the Japanese, and yes, the Indians (ask the pharma companies about the deal they cut with the Indian government all those years ago). By copying and learning-by-doing, these nations moved up the value chain. So it was not so much innovation per se but innovating through a learning-by-copying process that developed nations.
On the other hand, it is the now-developed nations, out-sourced out of their manufacturing capabilities, who cling to "innovation" as their sole source of growth; this is nothing but the flip side of their deindustrialization. When innovation no longer occurs through industry, it becomes an argument in itself. Hence all the talk of creativity, hence the ever-expanding worldwide regime of intellectual property. Knowingly or not, Tharoor is parroting this argument.
In so doing, he doesn't see the Economics-101 reason for fakes: When monopolists keep prices artificially high, you get a black market that reflects the "true" market equilibrium. This was true in License Raj India, (hence Bombay!), and it is true of the drug companies today. Intellectual property is nothing but an artificial monopoly, an intentional "market imperfection" introduced to encourage innovation. But is by no means the only way to get there: the Swiss had no patent law until 1888! By keeping the prices of their drugs ridiculously high, via patent laws, the drug companies generate the market for fakes.
This is by no means to condone those rapacious sods who sell people poison. They should be locked up and the key destroyed. But by setting them out in front, Tharoor is throwing us a red herring. These sods are merely fishing in a pond that the drug companies constructed and maintain. Instead of painting all fakery as life-threatening, Tharoor should openly acknowledge that the best fakery takes a great deal of innovation to get right!
-----------------------------------------------------------
The second piece is one by that arch neoliberal, Gurucharan Das. In trying to make the case for a post-ideological polity ("Go beyond Left and Right"), he only illustrates how solidly the Right's perspective is in place globally. The Indian Left's ideology is indeed exhausted, but one should not say the same for that of the BJP. While the more extreme versions of Hindutva might be abjured by most of the polity, the very fact of the BJP being the only other "national party" indicates the rightward tilt of the nation. As for the Congress, venality mixed with the divine right of kings should not be confused with an absence of ideology.
And as for the rest of the world, that the only argument is over how the market should be regulated doesn't get away from the fact that a) the best regulation is seen to be minimal regulation, and b) even a post-Sarbanes-Oxley, post-Basel II financial world was not saved from the credit crisis; ie regulation in its current state often fails miserably. If the argument over regulation is not one over merely degree but over kind as well, then it is a very ideological one indeed.
Then there is the classical neoliberal desire for the benign technocrat to take over, hence the applause for China and Sreedharan. Das is absolutely right to note that extreme ideologies have never won out, but why does he leave out right-wing market ideologies from the list of failures? When he talks about the need for our politicians to "shed ideology, acquire implementation skills, and focus on the real needs of people," he fails to note that the socialists he dismisses thought that they were doing exactly that, not in the name of ideology but science!
The cry to move beyond ideology often comes from that ideology that is so naturalized and dominant as to think itself free of it. This was the danger of Lenin, Mao, and Hitler: they were ideologues who thought that there weren't ideologues. They were also in charge of unaccountable regimes like China. Das is in fine company.
This first is an interesting piece from Shashi Tharoor on the massive worldwide market for naklis (fakes; "Get Real, we are living in a fake world"). He traces how fakes are attracted to free trade zones like Hong Kong and especially Dubai by the absence of regulation therein. The interesting information notwithstanding, (apparently this is a $60 billion market!), he chooses to leave some important things out.
For instance, how is it that the attraction of fakes to free trade zones doesn't become a critique of the very idea of a free trade zone that is utterly devoid of any speck of regulation? Instead, we get the standard defence of the one form of regulation the neoliberals are in favour of, namely intellectual property: it's not just that fakes can sometimes kill, as Tharoor points out in the case of fake drugs, but worse, "fakery stifles innovation, depriving the world of the creativity that is our only source of progress."
Now, anyone who knows anything about economic history knows that all nations, when they were developing, learned the tricks of the low-tech manufacturing trade by copying: this was true of the British, the Germans, the Japanese, and yes, the Indians (ask the pharma companies about the deal they cut with the Indian government all those years ago). By copying and learning-by-doing, these nations moved up the value chain. So it was not so much innovation per se but innovating through a learning-by-copying process that developed nations.
On the other hand, it is the now-developed nations, out-sourced out of their manufacturing capabilities, who cling to "innovation" as their sole source of growth; this is nothing but the flip side of their deindustrialization. When innovation no longer occurs through industry, it becomes an argument in itself. Hence all the talk of creativity, hence the ever-expanding worldwide regime of intellectual property. Knowingly or not, Tharoor is parroting this argument.
In so doing, he doesn't see the Economics-101 reason for fakes: When monopolists keep prices artificially high, you get a black market that reflects the "true" market equilibrium. This was true in License Raj India, (hence Bombay!), and it is true of the drug companies today. Intellectual property is nothing but an artificial monopoly, an intentional "market imperfection" introduced to encourage innovation. But is by no means the only way to get there: the Swiss had no patent law until 1888! By keeping the prices of their drugs ridiculously high, via patent laws, the drug companies generate the market for fakes.
This is by no means to condone those rapacious sods who sell people poison. They should be locked up and the key destroyed. But by setting them out in front, Tharoor is throwing us a red herring. These sods are merely fishing in a pond that the drug companies constructed and maintain. Instead of painting all fakery as life-threatening, Tharoor should openly acknowledge that the best fakery takes a great deal of innovation to get right!
-----------------------------------------------------------
The second piece is one by that arch neoliberal, Gurucharan Das. In trying to make the case for a post-ideological polity ("Go beyond Left and Right"), he only illustrates how solidly the Right's perspective is in place globally. The Indian Left's ideology is indeed exhausted, but one should not say the same for that of the BJP. While the more extreme versions of Hindutva might be abjured by most of the polity, the very fact of the BJP being the only other "national party" indicates the rightward tilt of the nation. As for the Congress, venality mixed with the divine right of kings should not be confused with an absence of ideology.
And as for the rest of the world, that the only argument is over how the market should be regulated doesn't get away from the fact that a) the best regulation is seen to be minimal regulation, and b) even a post-Sarbanes-Oxley, post-Basel II financial world was not saved from the credit crisis; ie regulation in its current state often fails miserably. If the argument over regulation is not one over merely degree but over kind as well, then it is a very ideological one indeed.
Then there is the classical neoliberal desire for the benign technocrat to take over, hence the applause for China and Sreedharan. Das is absolutely right to note that extreme ideologies have never won out, but why does he leave out right-wing market ideologies from the list of failures? When he talks about the need for our politicians to "shed ideology, acquire implementation skills, and focus on the real needs of people," he fails to note that the socialists he dismisses thought that they were doing exactly that, not in the name of ideology but science!
The cry to move beyond ideology often comes from that ideology that is so naturalized and dominant as to think itself free of it. This was the danger of Lenin, Mao, and Hitler: they were ideologues who thought that there weren't ideologues. They were also in charge of unaccountable regimes like China. Das is in fine company.
Saturday, July 26, 2008
The Times of India Inc
Now, one knows that the Times is a business, but it really is shocking sometimes the extent to which it is by business, for business, and of business. Take today's editorial, "Fast Forward." It would appear that the business classes' desperation at achieving more reforms cannot be contained now that they are rid of the Left; how else can one explain how reforms have leapt to the headlines? That is, it really needs to be explained how the opening up of the insurance sector has anything to do with our current economic situation.
That the editorial takes this as common sense is a reflection of how normal it has become for particular interests to masquerade as public interest. (As if "the public" at large would benefit from the privatization of PSUs, as recommended). Likewise for pensions and banking. These specifics speak simply to the concerns of the financial classes and are given disproportionate weight in the editorial, while key matters are addressed with bland generalizations like "agriculture" and "infrastructure" as an after-thought in the final para.
The piece appropriately begins by making reference to the SP; it could not have been a better parrot of narrow interests than Amar Singh was for Anil Amabani. How this passes for reasoned opinion is beyond me, its baldness only an indication of how firmly entrenched these interests are.
That the editorial takes this as common sense is a reflection of how normal it has become for particular interests to masquerade as public interest. (As if "the public" at large would benefit from the privatization of PSUs, as recommended). Likewise for pensions and banking. These specifics speak simply to the concerns of the financial classes and are given disproportionate weight in the editorial, while key matters are addressed with bland generalizations like "agriculture" and "infrastructure" as an after-thought in the final para.
The piece appropriately begins by making reference to the SP; it could not have been a better parrot of narrow interests than Amar Singh was for Anil Amabani. How this passes for reasoned opinion is beyond me, its baldness only an indication of how firmly entrenched these interests are.
India Bought and Sold
The impetus for this self-publishing came from a refusal of the Indian Express to publish what I thought was quite a reasoned response to an editorial from Pratap Bhanu Mehta after the recent political spectacle. (See "Remains of the Day," IE July 23rd, at http://www.indianexpress.com/story/339087.html). I felt, perhaps somewhat dramatically, that the refusal to print the letter itself demonstrated part of the content of the letter (reproduced below), namely the media's reflection of the impoverished range of political debate in the English mainstream.
What this blog sets out to achieve, therefore, is an expansion of this range through a thorough examination of the English opinion pages. The examination will try and question the unstated assumptions and presuppositions of our columnists in an attempt to introduce a little diversity into what has become a baleful monoculture.
I'm sure this will be a useful exercise for myself, and I hope that it might be for others. I haven't plunged into the Indian political blog scene as yet, so there's a serious danger of reinventing the wheel here, but we are supposedly the land of self-reliance. Please feel free to use this space to rant about the state of Indian political commentary and provide some yourself.
What this blog sets out to achieve, therefore, is an expansion of this range through a thorough examination of the English opinion pages. The examination will try and question the unstated assumptions and presuppositions of our columnists in an attempt to introduce a little diversity into what has become a baleful monoculture.
I'm sure this will be a useful exercise for myself, and I hope that it might be for others. I haven't plunged into the Indian political blog scene as yet, so there's a serious danger of reinventing the wheel here, but we are supposedly the land of self-reliance. Please feel free to use this space to rant about the state of Indian political commentary and provide some yourself.
Dear Express,
Pratap Bhanu Mehta has raised the level of the present debate by bemoaning the level to which our polity has sunk. But he has left out two critical aspects. The first is the deal itself: it represents a secular expression of the rightward shift in the polity achieved by the BJP. The deal gives the "good guys" a chance to be nuclear nationalists; even its opponents on the Left crow on about "strategic interests." That the baseline common sense in the polity is that we must have nuclear weapons---that there is no room in the mainstream for a reasoned non-proliferation position that embraces a civilian nuclear program---represents a dangerous narrowing of democratic debate.
Secondly, the venality of the SP---which Mr. Mehta rightly sees as inevitably infecting the government and the PM---is merely the front-end of the forceful corporate incursion into the formal polity. This is where the real money in politics comes from, as we all know. Money in politics is not merely a matter of morality; it simply undermines the principle of one-person-one-vote, the very soul of democracy. Certain sections might celebrate the shareholder-democracy that formal lobbying, US-style, promises, but this is no less corruption. The breaching of the divide between editorial content and advertising in our media---especially its electronic version---is another symptom of this money creep.
Disintegration is indeed in the air, but from dinosaur Left to robber-baron Right, all members of the polity are playing their part in it.
Best,
XXXXXXXX
Pratap Bhanu Mehta has raised the level of the present debate by bemoaning the level to which our polity has sunk. But he has left out two critical aspects. The first is the deal itself: it represents a secular expression of the rightward shift in the polity achieved by the BJP. The deal gives the "good guys" a chance to be nuclear nationalists; even its opponents on the Left crow on about "strategic interests." That the baseline common sense in the polity is that we must have nuclear weapons---that there is no room in the mainstream for a reasoned non-proliferation position that embraces a civilian nuclear program---represents a dangerous narrowing of democratic debate.
Secondly, the venality of the SP---which Mr. Mehta rightly sees as inevitably infecting the government and the PM---is merely the front-end of the forceful corporate incursion into the formal polity. This is where the real money in politics comes from, as we all know. Money in politics is not merely a matter of morality; it simply undermines the principle of one-person-one-vote, the very soul of democracy. Certain sections might celebrate the shareholder-democracy that formal lobbying, US-style, promises, but this is no less corruption. The breaching of the divide between editorial content and advertising in our media---especially its electronic version---is another symptom of this money creep.
Disintegration is indeed in the air, but from dinosaur Left to robber-baron Right, all members of the polity are playing their part in it.
Best,
XXXXXXXX
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