Three thoughts for the Republic

Organising our republic, keeping it united and improving its lot

For reflection on Republic day: Pragati’s inaugural editorial; on the grand strategy of uniting India and why we urgently need Reforms 2.0.

The three thought archive:
Three thoughts on on Republic Day 2010, 2009, 2008, 2007, 2006, 2005;
and on Independence Day 2010, 2009, 2008, 2007, 2006, 2005, 2004.

Honda discord

It’s an inflection point

In hindsight, the labour strike at Honda’s auto parts manufacturing plants in Guangzhou and Wuhan is likely to prove a turning point in China’s economic history. It is remarkable because it is the first time that the Communist Party of China has permitted an action of this nature in a very long time.

The strike itself was triggered by workers demanding more pay and benefits. Such demands are hardly unusual, even in China. There are mechanisms—with Chinese characteristics—that deal with this, and the relatively stable labour relations are touted as part of the China advantage for foreign investors. The strike implies that these mechanisms failed. In their failure lies the reason why this is a turning point.

In the current geoeconomic context—with the United States keeping pressure on China to revalue the renminbi—Beijing can no longer use the cheap currency as a source of its export competitiveness. If it can’t keep the renminbi undervalued the other option it could use to stay competitive is to not allow wages to rise. That’s an uphill task, because there is an upward pressure on wages as labour productivity increases and skilled labour tends to be in short supply. Attempts to restrain wages, therefore, will is likely to cause resentment and dissatisfaction.

The Communist Party of China, of course, would not want to be the target of this resentment—not least because it is supposedly a communist party. It might well decide to release the pressure by taking the usual route—stoking ‘nationalism’ and channeling outrage towards foreigners.

This creates a new vector: while earlier China only cared about attracting FDI, it will now have to manage the backlash as well. If these two vectors do not balance, we will see hitherto unknown political resultants.

The Gold Standard – a new blog on The Indian National Interest

Perspectives on finance, economics and policy

V Anantha Nageswaran joins us on INI, with The Gold Standard, where he intends to “improve the information to noise ratio in the world of finance and economics while having some fun and learning in the process.” The blog will cover issues such as “if all currencies have some highly urgent reason to remain weak or be devalued, what happens? Who bears the brunt?”

Do make The Gold Standard a part of your regular reading. (And in case you haven’t done so already, subscribe to our combined RSS feed.)

Defence, public goods and effectiveness of provision

Illuminating a Pakistani debate

Two of Pakistan’s perspicacious commentators on military affairs have thrown in their arguments on the issue of whether defence is a public good. [See Ayesha Siddiqa’s piece in Dawn and Ejaz Haider’s response in Daily Times]

Some confusion arises because they conflate defence and the military. The use of the word adjective military as a synonym for armed forces (noun), in the American style, is already a source of confusion. But it’s not hard to inject clarity into the debate.

The simplest definition of a public good in economics is something that is non-rival and non-excludable. In other words, something is a public good when one person’s consumption does not come at the cost of another’s, and when it is exceedingly difficult to prevent any person from using or benefiting from its use. Like the perfect black body that is familiar to students of physics, perfect public goods do not exist, yet the concept helps create analytical frameworks and derive public policy prescriptions.

So national defence, an abstract noun, is a public good. It is so in Pakistan as much as it is in South Africa and Mexico. It is so because when Pakistan defends Dr Siddiqa against an invasion by Mexico, it does so without subtracting from Mr Haider’s defence; and also because when it defends either of them, it can’t exclude their editors from protection against the Mexican invasion. There is no real debate on whether defence in the abstract is a public good or not.

But because Pakistan, like most countries, employs professional armed forces (the ‘military’) to provide the defence, the debate then becomes one of how efficient and effective the armed forces are in providing the public good. It’s no different from debating just how effective is the national environmental agency in ensuring that there is fresh air in the country.

That is the problem with Dr Siddiqa’s argument that “defence is a public good so long as it is beneficial to the general public. When it is restricted to a few hundred or thousand people, then it ceases to be a public good, which must be provided for all.” She should have said that Pakistan’s armed forces are not effective in providing the public good, effectiveness being the ratio of actual beneficiaries to the targeted beneficiaries. Since this is a wonkish post, it doesn’t hurt to add that efficiency is another criteria by which the provision of public goods might be assessed. Efficiency is about bang for the buck, and is the matter for another debate.

Stating the obvious

Nothing ideological about it

First he said that his government had no ideological view on anti-terrorism laws. Now Prime Minister Manmohan Singh—he who is the much celebrated ‘father of the economic reforms’—says he has no ideological commitment to markets either.

Asked if the current global financial disorder was an occasion to revise the faith in the markets, he argued that “we have no ideological positions. We have been cautious reformers, [carrying out] reforms with a human face. We do not have a strong ideological commitment to the markets; markets are useful servants but markets also need regulations, purposeful regulations.” [Hindu]

Well, it shows.

What is even more revealing is that Prime Minister Singh should think that purposeful regulations should somehow be inconsistent with an ideological commitment to markets.

And it is left to your imagination whether it was caution or lack of ideological commitment that has entirely buried the ‘second generation reforms’ that were being talked about just before he became prime minister.

By invitation: No time to lose heart on Kashmir

The costs of giving in to separatist demands are exhorbitant

By V Anantha Nageswaran

Pratap Bhanu Mehta has arrived at, in more elegant prose, the same conclusions that Swaminathan Aiyar advocated in the Times of India and Vir Sanghvi did in Hindustan Times.

Dr Mehta asks: “Will (India) live with the permanent rebuke to its democracy that Kashmir represents, or will it risk a new paradigm that might achieve what this endless cycle of mutual suspicion has not?”

The problem with these columns is that they end with a tantalising question and with an implicit answer (explicit in Mr Aiyar’s column) that India let Kashmir go. Go where? To what state? What would be the consequences? Costs and benefits under different scenarios?

It is incumbent on those who advocate change from the status quo to spell out the rationale for change and make a case that it would improve things at the margin from their perspective. One presumes that that perspective is that of the rest of the billion-plus Indians. That the present is unsatisfactory is a necessary but hardly a sufficient condition to recommend change without even attempting to make a case for it.

[Update: Dr Mehta clarifies his position in a comment.]

Continue reading “By invitation: No time to lose heart on Kashmir”

Dear Mr Ramachandra Guha

Patience is immoral

Your essay (via Streetcar) arguing that India will not, and should not attempt to become a superpower is simply too long. It does deserve to be read, though, though at leisure. For now let’s examine your concluding paragraph.

To follow the Naxalites is to plunge India into decades of civil war; to follow the Hindu right is to persecute and demonise large numbers of one’s own countrymen; to follow the market fundamentalists is to intensify the divisions between the consuming and the surviving classes (and to destroy the global environment in the process). Rather than nurture or act upon these utopian fantasies, the Indian patriot must focus instead on the tasks of gradual and piecemeal reform. We need to repair, one by one, the institutions that have safeguarded our unity amidst diversity, and to forge, also one by one, the new institutions that can help us meet the fresh challenges of the 21st century. It will be hard, patient, slow work—that is to say, the only kind of work that is ever worth it. [Outlook]

From your comfortable drawing room it is easy to argue that reform must be gradual and piecemeal and that the Indian patriot must be patient.

But it is immoral to keep hundreds of millions poor, to deny them economic freedom, to deny them a chance to improve the lot of their children, and climb out of poverty in a generation. Even if the divisions between the consuming and surviving classes intensifies in the process. Even if the global environment is damaged in the process. It is immoral to plead for patience, for one extra day of poverty is one day too many.

Look around you, Mr Guha. Look at the number of countries that have managed to extract their citizens out of poverty in less than the span of one generation. It’s quite all right if you reject the notion that India must not try to be superpower (although it is unlikely that you—like Gurcharan Das—fathom that India can’t improve the lot of its citizens unless it holds its own against the world’s powers). But why should you reject the idea that Indian people should get out of poverty as fast as they can?

By Invitation: On Rivals in Asia

A review of Bill Emmott’s Rivals: How the Power Struggle Between China, India and Japan Will Shape Our Next Decade

By V Anantha Nageswaran

Mr Bill Emmott, former Editor-in-Chief of “Economist” has written another book. It is on China, Japan and India and is appropriately titled, Rivals. The temptation to go for “Pillars of the new Asian century” would have been too high to resist for some others. But, Mr Emmott is not one of those woolly eyed observers of Asia to take the common consent that this would be Asia’s century for granted. He sees plenty of risks and rightly so.  

For the most part, the book is an engaging and easy read. As it winds down, the pace appears to slacken and the reader gets impatient. But that could quite legitimately be put down to the reader’s unjustified lack of interest in the subject of North and South Korea that comes up in the end. The book has at least two fascinating chapters on the environmental risks of the rise of China and India, not just to the rest of the world but also to themselves. Whereas India’s pollution comes from its poverty, China’s comes from its breakneck capacity addition. In other words, the story of India’s pollution and environmental decay is in its early chapters. 
Continue reading “By Invitation: On Rivals in Asia”

The knave of bad times

They destroyed the paddle. Schitt creek* is coming up

Growth in industrial production fell to 3%, the lowest in six years, indicating that bad times might be ahead. There’s worse. As Niranjan Rajadhyaksha demonstrates, the UPA government has frittered away the opportunity to put the economy on the footing to handle the coming problems. In the “misery index” he constructs, among emerging market economies, only Pakistan and Egypt fare worse than India.

But there is little doubt that the economic fundamentals are deteriorating. The hole in the government’s finances is getting bigger. It could now be close to 1991 levels, if measured correctly. The current account deficit, too, is growing and could conceivably touch 1991 levels by the end of this year. The foreign exchange market has already picked up these worrying signs. The rupee has been slipping against most major currencies over the past few weeks. Somewhere in some tax haven, a few hedge funds must be seeing these trends and sharpening their claws.

It is unfortunate and inexcusable that India is now at a point when it seems far more vulnerable than most other emerging market economies. The government should have used the splendid five-year economic boom and soaring tax collections to slash its deficit and prepare the economy for an economic downturn. It did not.

History will not judge the United Progressive Alliance government too kindly on this score. It is distressing that some of the same people who helped pull India out of trouble in 1991 have done so little to prepare for the next round of economic turmoil. One expected more from a team led by Manmohan Singh.[Mint]

Mr Rajadhyaksha is being charitable to Dr Singh and the UPA government. Not only did this crew fail to prepare for the coming storm, but actually damaged the boat. It’s a sin of commission. [Also see Swaminathan Aiyar’s piece on fiscal deficit]

* Thanks to Chidanand Rajghatta for revealing the decorous use of that euphonious euphemism

Pragati May 2008: Towards liberal nationalism

Issue 14 - Apr 2008

Issue Contents

PERSPECTIVE

Liberals, culture and nationalism Ravikiran S Rao
An opportunity exists for a new politics

Changing the broken wheel Raj Cherubal
The secular-right must champion economic freedom

Towards “that heaven of freedom” Gautam Bastian
A free nation of free citizens

Out of court Rohit Pradhan, Shashi Shekhar & Mukul Asher
Carry on the battle, but respect the court’s verdict

FILTER

India as a rising great power; climate change and national security; India-Iran relations; to the brink; and trade across the Line of Control

IN DEPTH

The new currency of power Nitin Pai & Aruna Urs
A discussion on strategic affairs with K Subrahmanyam

ROUNDUP

Use the Tibet card Zorawar Daulet Singh
To settle the India-China dispute

Consensus must endure Dinesh Wagle
Maoists have the upper hand in the construction of the republic

Bottom-up dynamics Sushant K Singh
What attracts Africa to India and how it can be strengthened

Pressed by inflation Gulzar Natarajan
Easing supply bottlenecks is the right way to go

BOOKS

Memories of 1971 Amardeep Singh
A review of Tahmima Anam’s A Golden Age

Read excerpts | Download