governance, political economy, institutional development and economic regulation

Posts tagged ‘Washington consensus’

Restart: The last chance for the Indian Economy

Restart

Mihir Sharma’s book (Random House 2015) is the one for you if you are a policy wonk but at a loss for arresting sound bites; a businessperson looking for bright and engaging things to say at your next meeting; a student of economics, politics or sociology grappling with the question why things are so difficult to do in India; or an expatriate keen to remain in touch with the undercurrent of “happening” things in India

Priced at Rs 1.38 per page this is an attractively packaged book for the itinerant reader, which is possibly the only kind of reader available today, in this networked, audio-video afflicted world. Its six parts consist of 68 handy chapters, each of just two to three pages, with its very own evocative title – very readable just after take-off; before landing or in those rare moments between the last public announcement and the arrival of the meal trolley.

Mihir is a master at reeling in the reader and keeping her engaged with very stark opinions, some of which are seemingly evidenced but all of which are likely to strike a chord in the reader….gosh! Wish I had thought of it that way or…wish I could have said that!

He is an entertainer at heart and pulls no punches in going all out at doing just that.

This is not however a 101 quickie to brush up on the Indian Economy complete with a statistical abstract. The relentless but sparkling wit is uplifting for those who like the play of language and know English well; have the time to be titillated and have a rudimentary awareness and interest in the Indian economy and politics.

For those who don’t share these interests “Restart” will most likely nudge them to delve deeper into more serious tomes on the subject or at the very least start reading the newspaper Mihir currently works for-Business Standard.

Despite the tough talk and brusque tone of the book, Mihir is at heart a romantic with a touching but wholly misguided belief in the possibility of “clean” or moral” capitalism.

Crony capitalism can’t “make in India”

He castigates Indian industrialists, as government stooges and mere rentiers, living off their ill-gotten gains gathered in cahoots with an obliging and corrupt government. This naïve 1990’s belief peddled by the multilateral and bilateral donors, principally to assure tax payers at home that their money is not going down the tubes as aid, assumes that it is possible to do business “nobly”.

Sadly the murky history of business fortunes, not just in India, but across the world, does not substantiate this belief except in the new age IT world where innovation trumps connections. But vast amounts of wealth is generally acquired by outwitting the next guy and hanging on to as many monopolies as one can. As Warren Buffet put it- owning the only bridge over a raging river is the best investment.

One would expect Mihir, the realist and straight talker, to defend business a bit more and castigate the government a lot, for perpetuating the crony capitalism we see around us. The job of business is to protect the bottom line of its shareholders in whatever environment it operates in. It is the job of the government to create the right environment.

Poor regulation and worse infrastructure-the missing link

His vision of manufacturing led growth and jobs is “old word” of huge assembly lines like in the US and China. In this world the key to competitiveness is producing to scale. No space here for the virtues of micro, village or small industry. Mihir uses harsh words, albeit deservedly, for industrial and labour regulations, which constrain scaling up by small but outstanding entrepreneurs.  This is now conventional wisdom. But are poor regulations really the key constraint to create an additional 6 million jobs a year or is there considerable scope for additional employment creation just by improving the abysmal and pervasive shortage of infrastructure-an outcome of poor governance and worse public decision making over the last decade?

The urban pot of gold

He subscribes to the view that there is no substitute for rapid urbanization- again something which has become conventional wisdom. Villages are sinks of depravity per Mihir. His analysis of why Indian cities do not live up to his expectation of being social modernisers- breaking down traditional social cleavages and forging new, modern identities is that they are not built as work places and instead are just better places to live in than villages.

Could his view be shaped by the cities he has lived in? Jamshedpur, the TATA exemplar industrial town; the ageing but genteel Calcutta with its heritage of absentee landlords languidly taking in the country air as their barge sailed up the Ganges on their annual soiree to collect rent and its more modern but still investment starved, going-to -pieces, version of Kolkata; babudom afflicted Delhi and Chandigarh where nothing is produced but files? Would he have a different view of he had grown up in Tirupur, Ludhiana or Dhanbad- workplace associated developments all. Is this vision also founded on a premise that good, rewarding work has to be associated with industrial activity? In Mihir’s words good work is that which produces things other people value and will pay for.

Washington calling?

He subscribes to the Washington consensus theology of markets, price decontrol, delicensing and private investment led growth to solve problems and unclog the pipes of the economy. But curiously, he is silent on the associated conundrum of increasing inequity in assets and income, highlighted by Thomas Piketty recently with concentration of wealth in the top 0.1% of the world population which threatens the consensus around growth and possibly throttles any chance of developing a less “angry” society sharply divided between the “haves” and the “have nots”.

The chicken or the egg of social change and economic development

Ironically, albeit correctly, for Mihir social change is fundamental for economic development. His silver bullet for social change, growth and economic development is to “get women working”. This may sound odd to those who believe women already do that and more, though not necessarily in a formal workplace. Consider that across the hilly and tribal regions of India it is women who are the “workers” at home and in the forests and yet this does not automatically lead to women’s empowerment or substantial change in aggregate economic outcomes.

Indeed, the evidence seems to show that it is economic development which provides new entry points by delinking financial reward from ritual status allowing those previously marginalized by culture, ethnicity or religion to empower themselves. This, in fact, is one key driver for migration of the marginalized to where work is available.

But this book is not about options or prescriptions for change. That will follow, one hopes, possibly in a Steven Levitt (Freakonomics) type problem solving sequel to Restart. This book is designed to perturb our placid intellect; churn the mind; force it to react, even aggressively, to challenge Mihir’s outrageous, cynical, trite, trivial and acerbic but always delightfully insightful, in-your-face, logic.

The publishers have been unfair to Mihir Sharma by marketing “Restart” merely as a book on the Indian economy and its problems. Yes, Restart does use the economy lens. But it is actually about all-of-India, in the style of a Ramachandra Guha epic- minus the scholarship.  This is of course as it must be because decision making, attitudes and behavior, which are at the heart of Mihir’s discourse, are interlinked processes.

Is this really the last chance for the Indian Economy as the title claims? I would seriously doubt that. These are turbulent times, which India is negotiating quite well, thank you. But I would have titled the book as “Restart: A pill to shake up India”.

 

Mega-cities are inhuman

Unlike monkeys, it is not in the nature of humans to huddle though we take to cuddling quite easily. The instinct to explore new frontiers and the excessive demands which we impose on natural resources; both push us to put space between each other. The ancestors of today’s Indians trekked all the way from Africa to the sub-continent around 500,000 years ago, possibly to put space between themselves and their African cousins. It is not for nothing that the self- sufficient, “Marlboro Man” was an icon for three decades starting from the 1960s albeit now discredited in a tobacco-less World.

monkeys huddling

There already are too many humans at 7 billion. Of these, 1.2 billion souls are concentrated in India, making us the most densely populated, large country in the World. Worse Indians are huddled in habitations in just 9% of the land available. The rest is forests (an implausible 23% in government data), private groves, pastures and agricultural land.

Humans huddle in cities more out of necessity than choice. Group living does not come naturally to humans, unlike lions, elephants, antelopes and penguins. The Swedish alternative lifestyle experiments in the 1960s, demonstrated that whilst cuddling was definitely in, huddling was out. Commune members tended to pair off, even if temporarily. More evidence on human choice is available from the preferences of the rich, who sprawl in gardens, whilst the poor are crammed into tiny, multiple stories precariously piled on houses.

Babus, in India, are willing to serve the government, even without pay, for the privilege of living in Lutyen’s green, heritage, garden city. The nouveau rich meanwhile are busy buying up unauthorized, “farm houses” in Delhi suburbia. Part of the fascination of “going West”, particularly to the US, is the affordability of sprawling houses as compared to the tight, modular, frightfully expensive “paper” abodes of the Japanese.

Neither time not technology, augur well for huddling or cuddling. Thanks to digitization of information; the internet and social media, human relationships are now virtual and often best conducted remotely. Many a face to face encounter has spelled disaster. Business is also increasingly digital and even government is going that way. All of this reduces the need for huddling in cities. The modern “Morlboro Man” is a woman with her Iphone.

Gandhiji’s vision of “self-sufficient” villages and Julius Nyrere’s vision of “Ujama villages”, on which the Washington Consensus smart set poured scorn, now increasingly seems not only a reality but a potential option for preserving the best of humanism. Consider that with the revolution in printing technology, it is already possible to print out a plastic tumbler or bowl in one’s home. Consumer durables are most likely to follow suit. This will completely change the “scale economy” for manufactured goods. The most scalable part of the new technology would be the software, which in all probability may have been conceived in a garage! Of course we would still need some “old industry” type factories to make the chips, the computer accessories and most importantly the printer, which makes all this possible.

Old age technology and industrial habits have fueled the international trend in urbanization towards mega cities (population of 10 million and above) whose number increased from 2 (Tokyo and Rome) in 1970 to 28 in 2013 and will likely go to 37 by 2025. India today has 3 mega cities and Mumbai is the second most densely populated megacity after Dhaka. The demise of the mega huddle of a mega city is not immediately imminent because the available “industrial age” technology still makes them scale efficient. But in India recent data indicates that growth in the mega cities is slower than in second rung cities which shows that they have reached the economic limits of their efficiency.

Mega cities are bad news for the following four reasons.

First, humans are bad huddlers because with the existing technology, cities with a density in excess of 4000 persons per sq km, end up severely polluting the air, land and water. Our mega cities have a density of around 12,000 persons per sq km and are unsustainable, as are China’s.

Second, as population density increases, the pressure on land drives up the price of realty, making “land intensive” business like “international scale multi-brand retail” uneconomic. Contrary to popular criticism, the AAP knows that no international multi brander would want to locate in Delhi because land is too expensive and hence had no downside in siding with the populist naysayers.

Third, increasing population density requires a higher spend on environmental mitigation of local pollution further driving up the cost of doing business.

Fourth urban led growth is inherently iniquitous. It creates pockets of luxury amidst vast swathes of wretchedness. The IMF (the bastion of the erstwhile Washington Consensus) estimates that in the US, 90% of the incremental wealth from growth benefits just 1% of the population.  Inequality is a growing concern and a key driver of political and social instability and crime and a major threat for poorly governed countries.

The term SMART city is the current buzzword to make cities efficient. This is a misnomer since cities by definition are not SMART. SMART is to digitize; connect electronically; disperse population; integrate rural and urban areas seamlessly and not to huddle.

Our cities should be self-financing and not draw on central or state funds. Public spending on infrastructure should focus on making rural areas more productive. It should improve the quality of life for rural residents since dispersed habitations make market based solutions for basic services unviable. At the best of times, making sensible public investment is tough. It becomes unconscionable when public funds are used to artificially drive up the demand for realty through public expenditure on creating cities. This growth pattern has also been a key source of corruption with elite capture of the land just prior to its development into an urban area using State finance.

The US is the best example of publicly funded investment in highways since the 1950s. However, even they found it difficult to do so efficiently. They also have bridges to nowhere. The recent publicly financed programs of demand creation since 2008 have been downright wasteful. California, for example, is persistently broke because it is wedded to “big government”. Publicly funded research and infrastructure can only be attempted by very efficient governments and India is not one of them.

We should go back to our roots in communities. Public finance should be used primarily to subsidize connectivity (ports, airports, rail, roads, airwaves and electricity)in segments where market solutions are not available and private investment unviable. Building and maintaining stuff is best left to the private sector.

The urban-rural divide is an artificial cleavage. Gandhi’s village need not be devoid of modern facilities. Migration should be a choice enabling people to vote with their feet but it is demeaning as a necessity. Spending public money on urban areas is like giving a hungry woman a fish to eat. But investing seamlessly across the country is like teaching people how to fish. Only the latter is sustainable.

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