governance, political economy, institutional development and economic regulation

Archive for March, 2018

Getting nationalism right

nationalism

If the term nationalism and the sight of the national flag generates a warm, comforting feeling in your heart, your government is doing a great job. If, however, this term and the flag, leaves you cold, clammy and resentful, there is something the government is not doing right.

Nationalism – an abstract construct – acquires a real dimension on rare occasions, like when you need visas to travel; or if you lose your passport whilst abroad; deciding whom to root for in international cricket; when a hate crime is reported against an Indian citizen; when P.V. Sindhu shines in badminton; when a stranger turns to you for help with her mobile, assuming all Indians are techies or when a cortege trundles, past draped with the national flag.

In comparison, ethnic, religious, professional, social or economic ties are more immediate and experienced daily. Should it be otherwise?

Nationalism versus globalization

Till recently, nationalism was a waning concept, marginalized by the increasingly interconnectedness of the world. The two decades post 1990, saw the world became unipolar; international trade boomed; the threat of wars receded – except in a few fragile regions. Poets dreamed, and the world seemed united, in solving the collective action problem of global warming.

Nationalism, it appeared, had bowed down to globalization and become just a set of civic duties and rights for citizens – a sub-set of broader rules governing the entire planet. High border walls, to keep citizen from escaping abroad or stopping those wanting to get in, became an aberration. Foreigners eager to become citizens became a metric of a country’s success and in the United States, the reason for it.

India appeared well placed to walk the talk. Our constitution is an enabler to pursue globalization. Our history places us at an advantage. We are no strangers to foreigners settling permanently in India. Foreigners ruled India for seven hundred years prior to 1947 and were assimilated into the mainstream. India did not come ready-made in 1947. It has been built, since then, using a mix of persuasion, pressure and perquisites. Parts of the North East, which had remained restive, have now joined the national mainstream, driven by the pervasive influence of Bollywood, domestic economic migration and adaptive political alignments. The valley of Kashmir however remains an outlier.

Drivers for sustained nationalism

The best glue for national integration is the perception that every citizen and every region is getting more from the nation than they are giving back. A positive balance, for every individual and every region is possible because in economics one plus one is more than two. Collective decisions create opportunities for adding net value, which do not exist if individuals were to decide separately. Managing climate change – a negative externality – and the beneficial scale effect from integrated markets – a positive externality – are both examples of the benefits from collective action.

Nations with complementarities should stick together. Sadly, they often don’t because of political noise or perceptions of inequity. Consider that our trade with South Asia is abysmally low. Imports are less than 1 percent and exports 7 percent of our total imports/exports. But India is not alone in such errant political behavior. Brexit happened because Britons felt, or were made to believe, they were giving more to the European Union than they were getting from it.

Inequity and discrimination – a leading cause for nations breaking up

bangladesh

Nations can splinter if systematic inequity persists and not enough is done to address the problem proactively. The creation of Bangladesh in 1971 is one such example. Pakistan managed its province of East Pakistan (previously part of Bengal) on an extractive basis, like the colonial masters prior to independence in 1947. It did not help that the new colonial masters were heavy handed, often brutally repressive fellow Muslims from Pakistan who ignored the deep Bengali cultural roots of the region. A perception of inequity fed on the fact of cultural differences and significant economic disparity between the two regions.

In comparison, India has been better at managing actual and perceived inequity at the regional or provincial level. Quotas for recruitment of tribes into the civil services have benefited the North East areas. Special benefits built into the scheme for devolution of central grants and share in union taxes, make additional resources available in tribal areas for infrastructure development. Caste, in Hindu majority India, is a significant driver of inequity. But quotas in government jobs and special schemes for livelihoods for the lowest and mid-level backward castes have levelled the field somewhat.

Embedding liberal, democratic principles in nationalism is tough

MK Stalin 2

Democracy breeds contestation. Tamil Nadu is the economic and cultural powerhouse of South India.Tamil, claims to be older than even Sanskrit,  With firebrand DMK leader, M. K. Stalin annointed to succeed strongman M. Karunanidhi; intense infighting in the ADMK after Amma and film star Rajnikanth exploring political waters, expect populism and rhetoric to prevail. A favourite ploy is to play victim and seek special status for a pan-Dravidar region, comprising the six southern states (including Puducherry). The cone of south Indian states comprises 21 percent of the population with an outsized share of 29 percent in national GDP and higher than average social indicators. Industrialized southern states benefit from access to the markets of the less industrialized northern, central and eastern India. The underdeveloped hinterland is a source for cheap, unskilled, migrant labour and a market to absorb skilled southern migrant workers.

Liberal Democracy is under stress internationally. Nationalism, conflated with authoritarian, even whimsical rule from the top, is on the ascendant. President Trump’s America First is the most distressing example, because it is a betrayal of existing international compacts. Russia, under President Putin remains whimsically self-centered. China, backed by recent economic success and the ascendancy of “Emperor” Xi, represents the most troublingly compelling, muscularly proselytizing, alternative to the liberal, democratic model of nationalism.

Partnerships, across nations, can secure the liberal, democratic order

In this dystopic, political landscape, ageing Europe and Japan emerge as beacons of liberal democracy.  Partnerships with them and select countries in Sub Saharan Africa and the Asia-Pacific can provide demographic and market dividends whilst fostering our common political and civic values, rooted in the Magna Carta.

Also available at TOI blogs March 30, 2018 https://blogs.timesofindia.indiatimes.com/opinion-india/getting-nationalism-right/

 

India’s 50-50 reforms

half reforms

Unlike politicians, who can choose their targets, business leaders have to dance to the tune of  shareholders, who buy or sell, based on the existing or the future bottom line. In politics. it is relatively easy to change the goal posts or indeed, shift the goal itself.

Changing goals

In India, the current metric for political performance, is jobs. Self -selected by the Bharatiya Janata Party, this may become a self-goal because even globally, there are few, near-term solutions.Prior to jobs, in the noughties, it was all about boosting economic growth — where again headwinds have built up. Before growth, it was about ending poverty in the 1990s. Earlier, in the late 1960s and till the mid-1970s, it was about boosting agriculture, becoming self-sufficient in food and avoiding famines. Even further back in the 1950s, heavy industrialisation and infrastructure were the mantra. Of course all these are part of development. But sequencing matters. Also, pancaking more reform targets on the existing ones, confuses even the reformers.

Partial success abounds, but excellence less visible

Seventy years on, we are only narrowly competitive in manufacturing; our infrastructure is vast but shoddy; agriculture has low productivity levels; 40 per cent of us are either poor or are vulnerable to poverty; we are still stretching for sustained real growth in high single digits; unemployment is rife and the participation rate in the workforce is a low 44 to 48 per cent, with women faring worse than men.

This is not to trash what we have achieved. But it is useful to look beyond the efforts made by the successive governments, at the outcomes and ask the question, why are the results always worse than expected?

Elusive transformative change

Tribal protest

Transformative change is disruptive. We have been slow in embedding credible instruments to mitigate the cost of disruption. This increases the risk perception of change, leading to a public push-back on reforms. Consider how poorly we acquire land in public interest. The instruments for identifying, determining and managing the acquisition are loosely supervised, at the cost of ensuing inequity and poor transparency.  Massive amounts of mineral resources continue to lie buried in tribal areas, whilst tribes prefer to eke out a subsistence level traditional life, rather than participate in the process of development. The overriding fear of every property owner, or occupier, is of being gypped in the process of acquisition, by forces beyond their control. In a democracy we cannot ignore insulating people, especially the poor, from the cost of disruption.

Public trust and credibility in short supply

Managing change successfully, requires a governance system good at modern parenting rather than a patriarchal approach to directing and controlling people and events. Our governance systems still follow the colonial legacy of collaborating with entrenched elites to get things done, somehow. Those affected at the bottom become a hindrance rather than participants. There is very limited institutional appetite or capacity to deal directly, as a change agent, with those who are most affected by change. Even when specific processes, like consultation are provided for, the approach degenerates to ticking the box, rather than using the opportunity to gather feedback on the process, test assumptions and obtain buy-in for the way forward.

“Accountable discretion” is not an oxymoron

It does not help that there is a near ubiquitous ban on the transparent use of executive discretion — prompted by misuse of the privilege in the past and a judicial preference for impossibly rigid rules, regardless of their negative impact on implementation.Consider, for example, the burgeoning non-performing loans of banks. The rule bound approach to bank lending insures the lender- manager, if sufficient security against the loan existed, on paper, when the loan is approved. The focus is on achieving secured lending targets rather than adding economic value. This makes gold plating of projects, to increase the notional value of an asset, a mutually convenient tactic between the lender and the borrower, especially at times when the real lending rate is low. Never mind that it can adversely affect the project’s viability and thereby the repayment capacity of the borrower. The public sector no longer trusts its employees. But ending supervised, executive discretion has significant efficiency costs.

Chasing impossible scale 

We succumb easily, to the insidious temptation to effect instant change at sub-continental levels, rather than build change, bottom upwards, block by block. India is heterogenous without parallel. For us, the political model should be Europe, rather than China. Multi party politics in India requires sufficient elbow room for diverse political agendas. The political architecture may prescribe the objectives and principles of public management. But being flexible in program implementation is a must.

The Constitution fixed past challenges, but under-provides for the future

Our constitution reflects the challenges faced at the time of independence rather than today’s priorities. Integration fears at the time led to a centrist constitution. This is what enabled the Union government in 1959 to dismiss the first elected E M S Namboodiripad government of Kerala. The governor of a state, appointed by the President, acting on the advice of the Union government, is another centrist feature as are the emergency powers of the Union government.

Overlapping mandates

The capacity constraints existing at independence shaped the lop-sided division of mandates between the Union and the state governments, with the former unduly burdened. The sub-state or local government came into existence only through a 1993 constitutional amendment.Delhi is a good example of poor inter-governmental allocation of mandate resulting in a governance logjam. Overlapping mandates confuse citizens. and reduce accountability. Consider that Members of Parliament get elected by getting drains made and Members of Legislative Assemblies by promising higher prices for agricultural products or by proposing a separate flag for their state — all areas outside their mandates.

Poor arrangements for resource management

The constitutional scheme for recruitment and management of the bureaucracy is unduly complex and diffuses accountability. Officials must be “owned” by the level of government they serve. Fiscal resources, at every level of the government, must be aligned with form, which should fit the functions executed at that level.

Avoid the Banyan Tree 

banyan tree

The top-down, centrist approach has the disadvantage of an overblown apex crushing the little people below. Remember, nothing grows under the Banyan tree.Change, sensitive to mitigating the costs thereof, flexible implementation of norms driven from below, with primacy for real value addition can deliver 100 per cent results in reforms.

 

Adapted from the author’s opinion piece in the Business Standard, March 27, 2018 http://www.business-standard.com/article/opinion/india-s-half-baked-reforms-why-are-the-results-always-worse-than-expected-118032601102_1.html#

Trump’s – “ugly American” redux

Trump

President Donald Trump’s administration is showing its a mean. mercantilist machine. Unsurprisingly, for it, international trade is a one-way street, with exports increasing wealth in America, at the expense of the importing economies and imports stealing American jobs. The psychosis is familiar territory for India and scores of developing countries. What is truly unusual is the conversion of the United States of America to this flawed concept and the abandonment of the open economy model, by the erstwhile foremost exponent of this philosophy.

Nǐ hǎo ma America

In today’s topsy-turvy world, Mr Trump is aping the Great Qing emperors of China during the mid-19th century. At that time China was more than willing to sell Chinese silks, ceramics and art in exchange for silver, but felt no need to import any foreign goods or influences. The result was a burgeoning trade surplus. It took export of cheap opium and gunboat diplomacy by the Western colonial powers to balance the trade.

Emperor Quinlong

Unlike China under the Great Qing, the United States runs a massive trade deficit equal to around three per cent of its GDP. This is normal for many developing countries but unusual for a “great power”. American consumers are accustomed to the “opium” of cheap imported goods. It helps that the appetite of foreigners for AAA-rated US dollar securities finances the deficit. But what matters to Mr. Trump is protecting US jobs. Hence the plan to reduce the deficit, particularly versus China, by $100 billion. Hiking import tariffs on metals significantly is part of that  endeavor. Mr. Trump hopes that metals, being intermediate goods, the resultant rise in price of final goods will not be immediately visible. More bizarre tactics may follow.

Jobs for the boys, at any cost 

But higher tariffs will rob both American consumers via higher prices eventually and jobs in ancillary, user trades, which are sensitive to price rise. All this, just to keep jobs alive on life support, in the metals production business. This is bad politics and worse economics – at best a short-term tactic — to signal the Trump administration’s sympathies for Republican rough-necks. The economy wide negative impact will be diluted over time. Mr. Trump believes in deals. So expect to be able to evade the higher tariffs if you are willing to buy enough of iconic American products – like Harley Davidson motorcycles, stetsons and Boeing aircraft.

The US remains the biggest single country, market. It imports $2.7 trillion of goods and services. But the European Union’s market for imports is much bigger, at $6.7 trillion. Japan alone imports $0.8 trillion and China imports $2 trillion worth of goods and services. So the US is steadily dropping away from being a dominant market for world exports.

India is not the target, but we suffer collateral damage

The new import tariff of 25 per cent on steel and 10 per cent on aluminum are of marginal consequence for India. Our share in world steel exports is just 2.5 per cent. Steel exports to the US, over 2012-16, averaged around 6.5 per cent of our total steel exports. We also export metals to other big markets like the UAE, Europe, East Asia and South Asia. Our share in world aluminum exports, averaged 1.5 per cent over 2013-16. The share of the US in our aluminum exports is significant, at 10 per cent. But our largest importer is South Korea, with significant volumes also exported to Mexico, Malaysia, the UAE and Turkey. Indian exports to the US are not of the scale where they could threaten the economic security of American industries. Also, our special relationship with the US, since the 2005 US-India Civil Nuclear Agreement, the shared commitment against terror and common military logistics arrangements, can facilitate privileged access to the US market.

The US – a willful ally

The elephant in the room is US intransigence, amounting to the “ugly American” behaviour. Starting with the US walking out of the 2015 Paris climate change agreement; and its recent regressive approach to immigration — in sharp contrast to responsive European policies; and its most recent arbitrary protection via high import tariffs of steel and aluminum manufacturing jobs — all these have damaged its “soft power”.

 

Of course, the US has the firepower, bolstered by its $600 billion defence expenditure, to promote “gunboat” diplomacy. But faced with China’s relentlessly expanding economic muscle which makes it an implacable adversary in the superpower sweepstakes, the US will be hard pressed to convince its own allies that it can back its brash words with action.

Indians have indelible memories, from 1971, of the threatening deployment of the US Seventh Fleet in the Bay of Bengal seeking to prevent the liberation of East Pakistan by the Bangladeshi Mukti Bahini from the oppressive, quasi-colonial rule of the Pakistani-Punjabi mafia — a long-time close US ally. It was only the counter deployment of Soviet nuclear submarines and warships, in response to a request for help from India, which rendered the USS Enterprise and the rest of the Seventh Fleet toothless. If the US was not willing, in 1971, to face down the Soviets, to help its ally Pakistan, then how credible is its willingness and ability to come to the help of India in facing down a possible threat from China?

mujib

China, our awesome, prickly neighbour

In a networked world, trade, investment and security are intertwined. The US views China as its primary adversary. Luckily for it, China is several thousand miles removed from the American land mass. But China lurks on our northern borders. It spends $180 billion on its military alone — almost equal to the total budget of the Indian government. Whilst, lining up to seek favourable trade terms from America, it would be foolhardy to provoke a trade war with China. India did well, recently, to dilute the potential use of the Dalai Lama’s April 19, 1959 flight to safety in India, as an irritant for “Emperor Xi”.

Navel gazing better than eye-balling

Modi emerging

Prudence lies in following the Chinese strategy of subordinating muscular diplomacy to economic growth till the time is ripe. It remains in India’s interest to adhere to the open economy model. We have limited capital and governance capacity. We must be frugal in allocating them to first build our domestic infrastructure and facilitate private investment, whilst keeping our markets lightly regulated and open to competition and foreign investment.

Let us not obsess about job creation or force-feeding the formal economy. The US creates two million jobs in a year. Non-farm jobs are scarce everywhere. We should become better at generating fiscal resources to redistribute as income support to the “lost generations” of unskilled, unemployed Indians who are older than 50. This will boost domestic demand and fuel economic growth, far better than resorting to failed economic solutions — such as protectionism, subsidies and publicly financed businesses to chase impossible dreams.

Adapted from the authors opinion piece in The Asian Age, March 17, 2018 http://www.asianage.com/opinion/columnists/170318/ugly-american-is-back-shun-all-the-failed-ideas.html

Sridevi – a superstar till the end

sridevi 4

Bollywood superstar Sridevi chose to opt out of the frenetic circuit of movie stars soon after her mother passed on in 1996. The glamorous superstar got married, had two children — one of whom is an actor in her own right now. But then she had the gumption to do what no other actress has been able to do — make a comeback in lead roles, after an absence of 15 years, with two well-received films — English Vinglish and Mom.

She gave up the camera – her first love, for her family

sridevi 2

Sridevi was a “wholesome” star in much the same way that Hema Malini is. Both transited from stardom into other interests and nurtured families. Patriarchal India likes its women to be family makers and Sridevi played that role perfectly. The sudden news of her demise late on Saturday was shocking, not least because it happened immediately after an over-the-top, big, fat Punjabi wedding of the Surinder Kapoor clan, in Dubai. Sridevi, at 54, had seemed the picture of elegance, beauty and wellness. To be snatched away so rudely by fate just seemed too unfair.

The suddenness of it all made the reservoirs of goodwill that her fans and the public at large had for Sridevi spill over. Social media was flooded with a sympathy wave for the woman who had it all, till life abruptly left her, without even time to say goodbye. Sridevi drowned in the bathtub of her hotel room in Dubai. Of course, we have all seen the warnings that a human being can drown even in a bucket of water, or in mere inches of standing water, let alone a bathtub. At the Jumeriah Emirates Tower, the hotel where she was staying, the bathtubs look more like small pools.

But such is the vigilante spirit — free of accountability or any sense of responsibility — let loose by private television stations, desperate for TRPs, that around her tragic death, conspiracy theories — some akin to mini-film scripts — were immediately spun, spelling out how and why the accident might have happened. Assisted by social media “warriors”, who have the urge to spread such “news”, as they see it, the digitally enabled sections of our nation became engrossed in a two-day orgy of simulated voyeurism.

Sridevi, the superstar, who struck fans dumb with her charisma and beauty in life and captivated audiences with her spirited acting on the screen, did not fail to enrapture a massive audience, even in death. As befits an actor, Sridevi exited this world with a bang. Thus ended a public life, which began in 1967, when she first acted in a Tamil film, at the age of four.

Unsavory reporting difficult to digest

But this is also the time to introspect whether journalistic restraint would not have better served the occasion. This is not to suggest any muzzling of the media’s (including visual media’s) freedom to report events, as they happen. But surely a red line can be drawn between the casual airing of hurtfully, salacious opinions and the more deliberate sharing of verified, but inconvenient or unpalatable news?

Media can well take the view that it is its duty, to report what is being said or even what is being rumoured. After all, they say, there’s never any smoke without fire! It may even be possible to seek technical refuge behind the argument, that the media only reports what other celebrities say. But surely, some kind of editorial oversight should excise “news” that is no more than conjecture, and which may be hurtful to those, suffering from the trauma of a shock, till facts emerge, which makes full disclosure overwhelmingly compelling. In the Sridevi saga, much of the visual media, and of course social media, failed this smell test.

Efficient Dubai

Luckily, the police, public prosecutor and other authorities in Dubai did their due diligence swiftly. This put paid to the conspiracy theories being spun at home. The Indian consulate in Dubai, as well as the embassy in the UAE, also appears to have played an exceptionally positive role in facilitating the speedy investigation of the case, which was closed without compromising due process.

An actor with pan-India appeal

Sridevi was an actor with a pan-Indian appeal. She had acted in Tamil, Telugu, Malayalam, Kannada, English and Hindi films, and was married into a Punjabi family. Her fans are spread across the world. But, most important, she was also a modern, Indian woman — born in Sivakasi, Tamil Nadu, she achieved superstardom in Mumbai, which became her home. In 2013, the Government of India awarded her the prestigious Padma Shri, recognising thereby, her talent and her achievements as an actor.

Sridevi’s legacy – “An actors work must speak for itself”

It is never easy to pin down the legacy of an actor. Many consider themselves to be nothing more than a lightning rod between the school of life and their audience, faithfully passing through experiences and emotions, as required by the script, that they are playing to.

sridevi 1

Here is how Sridevi, the empress of Bollywood during the 1980s and 1990s, described her role: “I had done my bit as an actor.” This was surely the understatement of the century — for someone who acted in 300 films over five decades.

Adapted from the author’s opinion piece in The Asian Age, March 1, 2018 http://www.asianage.com/opinion/oped/010318/sridevi-a-superstar-till-the-end.html

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