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Missing capital: India’s trillions-dollar wealth is chained in slums. Time to unlock it

By @ArguingIndia

@sonaliranade

 

India needs an investment of around $1 trillion a year over the next five years, if Indian GDP is to grow above 10 per cent to create about 70 to 80 lakh new jobs annually to absorb all new entrants to the job market. Finding the required pool of savings, and, more crucially, the entrepreneurs to use this pool of capital productively is a herculean task.

However, as I show below using ideas generated by Peruvian economist Hernando de Soto, a substantial pool of this capital, something like $2-3 trillion, already exists in the country but remains not fully tapped. More than that, some two-three million small entrepreneurs have this capital in their possession but cannot fully deploy it, although they have tremendous experience in running small businesses successfully.

 

 

India’s unproductive capital wealth

 

In his book, The Mystery of Missing Capital, Hernando de Soto writes: “Capital is the force that raises the productivity of labour and creates the wealth of nations. It is the lifeblood of the capitalist system, the foundation of progress, and the one thing that the poor countries of the world cannot seem to produce for themselves, no matter how eagerly their people engage in all the other activities that characterize a capitalist economy.”

Developed countries, on the other hand, are awash with capital despite lower GDP growth and abysmally lower savings rates. Why is it that millions of hardworking, self-employed entrepreneurs, who save as much as 35 per cent of their earnings, are short of capital for expanding their businesses, and are unable to break out of the chains that bind them? What keeps them from greater prosperity despite such hard work and extraordinary risk-taking? This is the paradox that Hernando sets out to demystify.

Before we can get set to this task, we need to understand the link between property and capital on one hand, and how and when property becomes full-fledged capital that can be put to multiple uses in the economy, on the other. Property here means any asset an individual possesses – bank account, financial asset, or real estate. We will focus on real estate since self-employed entrepreneurs mostly use this asset for savings.

What is the problem with holding such a property in a slum? As Hernando explains, these resources are held “in defective forms: houses built on land whose ownership rights are not adequately recorded, unincorporated businesses with undefined liability, industries located where financiers and investors cannot see them. Because the rights to these possessions are not adequately documented, these assets cannot readily be turned into capital, cannot be traded outside of narrow local circles where people know and trust each other, cannot be used as collateral for a loan, and cannot be used as a share against an investment.”

Applying Hernando’s model to our taxi driver’s case makes three points clear:

1. The taxi driver’s ownership of the shanty is not visible to anybody in the larger economy due to the absence of a formal title and its registration in his name. He owns the shanty, he has put years of savings in it, but he cannot use it outside of the local slum’s knowledge. The important point to note is that no asset can become property, and eventually a capital that is fungible with other capital stock in the economy, unless it is legally tied to an individual. That is the irreducible minimum in the process of converting property into capital.

2. The taxi driver’s property has a single use. The owner and his family can use it among themselves but cannot use the shanty as, say, collateral for a bank loan to buy another taxi and expand his business or develop his farm back home in Bihar or finance his child’s study in a good professional college. The utility or productivity of his property is, thus, not going to be fully exploited. In other words, the self-employed entrepreneur is hugely handicapped because he cannot reap the full benefit of his savings for want of a formal property system that can recognise the value of his savings – which, incidentally, are real and as hard-earned as any legally recognised savings.

3. The taxi driver’s property is not fungible with his other assets or with other such assets in the economy as a whole. His property is neither proper capital for himself nor others in the economy. In other words, his capital, created out of hard-earned savings, is hobbled, chained and cannot become productive to create wealth for him or others unless we find a way to make it fungible with other capital stock in the economy. That is the mystery of missing capital stock in the third world. It is there but we have not yet learned how to unlock it and bring it into use as full-fledged capital stock.

Not capitalism, but Indian capitalism’s fault

 

Hernando says that it is this handicap – lack of visibility, missing individual identity tied to title, and lack of fungibility with other capital stock – that makes it look as though capitalism doesn’t work for the poor in third world countries.

“The enterprises of the poor are very much like corporations that cannot issue shares or bonds to obtain new investment and finance. Without representations, their assets are dead capital. The poor inhabitants of these nations — five-sixths of humanity — do have things, but they lack the process to represent their property and create capital. They have houses but not titles; crops but not deeds; businesses but not statutes of incorporation. It is the unavailability of these essential representations that explains why people who have adapted every other Western invention, from the paper clip to the nuclear reactor, have not been able to produce sufficient capital to make their domestic capitalism work,” Hernando explains.

 

 

How can these defects in Indian property systems that prevent recognition of invisible and hobbled pools of capital be cured in order to make them as productive as any other capital?

It requires attitudinal changes and deep reforms in our systems that govern property.

Hernando explains why the process is simple but again not so visible to us. “But only the West has the conversion process required to transform the invisible to the visible. It is this disparity that explains why Western nations can create capital and the Third World and former communist nations cannot. The absence of this process in the poorer regions of the world –where two-thirds of humanity lives – is not the consequence of some Western monopolistic conspiracy. It is rather that Westerners take this mechanism so completely for granted that they have lost all awareness of its existence. Although it is huge, nobody sees it, including the Americans, Europeans, and Japanese who owe all their wealth to their ability to use it. It is an implicit legal infrastructure hidden deep within their property systems – of which ownership is but the tip of the iceberg. The rest of the iceberg is an intricate man-made process that can transform assets and labour into capital. This process was not created from a blueprint and is not described in a glossy brochure. Its origins are obscure and its significance buried in the economic subconscious of Western capitalist nations.”

What is clear is that property systems to govern property and convert it into productive capital stock were invented by Western nations long ago when they faced similar problems as we face in our shanties and slums today. The so-called squatter problem that bedevilled the USA for 100 years in the 19th century is one such example. So, we do have templates to resolve the problem:

“Western politicians once faced the same dramatic challenges that leaders of the developing and former communist countries are facing today. But their successors have lost contact with the days when the pioneers who opened the American West were undercapitalized because they seldom possessed title to the lands they settled and the goods they owned, when Adam Smith did his shopping in black markets and English street urchins plucked pennies cast by laughing tourists into the mud banks of the Thames, when Jean-Baptiste Colbert’s technocrats executed 16,000 small entrepreneurs whose only crime was manufacturing and importing cotton cloth in violation of France’s industrial codes. That past is many nations’ present. The Western nations have so successfully integrated their poor into their economies that they have lost even the memory of how it was done, how the creation of capital began back when, as the American historian Gordon Wood has written, “something momentous was happening in the society and culture that released the aspirations and energies of common people as never before in American history.” The “something momentous” was that Americans and Europeans were on the verge of establishing widespread formal property law and inventing the conversion process in that law that allowed them to create capital. This was the moment when the West crossed the demarcation line that led to successful capitalism – when it ceased being a private club and became a popular culture, when George Washington’s dreaded “banditti” were transformed into the beloved pioneers that American culture now venerates.”

Unshackle locked up wealth

 

How was it done? Quite simply by recognising that formal law follows custom and what is created by custom in slums and shanties is as valid as any other economic process that converts savings into property and then useable capital. These laws have their own logic, validity, and set of practices that we need to recognise and incorporate into our formal systems. These slums and shanties are decades old. The one at Cuffe Parade is more than 50 years old. The original squatters are all gone. The current owners are third generation occupants who bought these properties with hard-earned savings with legitimate income. These shanties represent a significant portion of their life savings. By keeping them out of the formal property system, we are neither going to get rid of the slums nor can we find a way to use the locked up idle capital productively to create more income and wealth.

 

Such locked up but idle wealth/capital is huge by any measure. A rough estimate – the total capital lying idle at just one of the slums next to Navy Nagar, Mumbai, is in excess of $3-5 billion. The total wealth lying idle in the Dharavi slum is estimated to be upwards of $200 billion. Multiply these slums across metros and major towns and the unused and untapped hidden capital could be upwards of $2-3 trillion. The slums and shanties represent a huge drain on our wealth for what really requires nothing more than a clear-headed policy towards urban property.

If we can find the political will to integrate the property already present but locked up and idle in the shanties and slums across India, we could set free some $2 trillion worth of additional capital to work for creating more wealth and capital for our self-employed and other entrepreneurs. This is not difficult given the requisite political will.

In the second part of this article, we will return to examine the specific in which this hobbled wealth can be put to use in the economy to boost its productivity and increase our GDP growth rate.

This article has been updated to reflect a change. Hernando de Soto is a Peruvian economist.

Categories: Uncategorized

Proud to be a Liberal

By @ArguingUndian

@sonalirande

“Liberals were wrong and have lost,” screams twitter on my time line.  I didn’t know if any liberals were actually contesting the election that they have just lost.  A more subtle form of the above argument holds that the elections have proved liberals no longer speak for the subaltern classes since the subalterns have overwhelmingly voted for Modi ji who is a subaltern personified.  I didn’t know liberals spoke for subalterns because as a liberal I speak only for myself.  Politicians speak for others, not liberals. And I do believe it is right to speak of fairness in society, especially when the underprivileged are given the short shrift, and will continue to do so.  It doesn’t mean I own the subalterns or that they even care for what I have to say.  So why are the liberals the losers here?  It is something worth exploring.

 

 

Populism is often set up as “we vs. them” where “we” represents the masses that shower adulation on the populist leader.  The “them” can be anything opposed to what populism is pushing at any particular point in time.  So if populism is pushing Hindu majoritarianism, then the other are minorities, or termites.  If populism is pushing nationalism then the other are anti-nationals who love Muslims and/or Pakistan.  On the other hand, if populism is pushing right wing orthodoxy then the “them” is communists, urban naxals or tukde tukde gang.  Populism by definition is very light on ideology because it aims to attract voters uncommitted to any particular party or ideology and must therefore be all things to all people. Perforce it picks on a vague thing like “Making America Great Again” or “Strong & Resurgent India” as a coverall for all sorts of things. The trick lies in conflating the slogan with the populist leader through propaganda.  Now who in her right mind wouldn’t want a “strong & resurgent India”? But since the leader is identified with this notion, the moment you oppose the leader you are ipso facto against strong & resurgent India.  On such cheap rhetorical trickery are people branded anti-nationals, urban naxals, tukde tukde gang or whatever.  In this gaggle of emerging epithets the liberal is a catchall category for the “other.”

 

What is a liberal?  The fact is “liberalism” has no meaning outside of a context.  Who were the original liberals in history?  The original liberals were Christians who argued that all souls were equal before God and hence all people should be equals here on earth as well with each being entitled to redemption according to deeds. In time, the first liberal agenda was abolition of slavery and that helped to eliminate the scourge over the following decades starting with the Roman period.  Did the liberals of that era remain liberals after the Church was established, slavery tamped down etc.?  No. Over time, liberals themselves turned orthodox, defending the Church’s orthodoxy as vigorously as they had opposed slavery.  Modern liberalism surfaced with the founding of a number of Universities in Italy circa 1500 that opposed the Church orthodoxy but were Christian in faith nevertheless.  Much like Hindu liberals that Hindutva despises. The liberal cause then was that truth could be discovered through the application of reason and that an individual, not church or society [class or caste], had primary agency.  Church, or the revealed truth, was not the basis of all that was known or knowable.  Truth was something we had to discover through reason applied to facts and experience. And that is what real liberalism is all about.  In short, a liberal is an individual who believes truth can, & must be, discovered by application of reason.  Now try and find somebody who is not a liberal today in this context? The entire edifice of what we know today is owed to liberals starting with the Greeks of antiquity who recognized no Church other than reason and were rediscovered by renaissance circa 1500.

 

To be liberal is to be political.  For the simple reason that application of reason is what creates new knowledge and new knowledge is what threatens the established order of things.  Reason will uncover new knowledge.  In fact that is the only way we know how to discover & create new knowledge. There is no other way.  And as new knowledge is discovered the priesthood of existing knowledge denies it.  The established order ridicules it, laughs at it, points to the inconsistencies it gives rise to, and quotes authority to hold that since the established order is proven over time, the new knowledge & the liberals who back it, are wrong. This sequence is unchanging in time. But as we know, new knowledge gets applied tentatively at first, then with more confidence, and as people gain familiarity & confidence, new knowledge replaces the old.  Old authority is set aside & new authority created.  Yesterday’s liberals become the new Conservatives and society then waits for the next new thing to emerge.  The enduring liberal then is one who not only believes that new knowledge must be discovered through reason but also keeps in mind that, almost certainly, what is discovered today may well be set aside with new discoveries tomorrow.  I find it hard to believe how the world at large can fault a true liberal unless of course you are establishment and have something crucial to lose from the new ideas.

 

As I said before, Greeks worshiped reason and were the first liberals in thought if not in deed.  [Plato’s liberalism coexisted with a caste system and slavery, worshipped the Spartan totalitarian dystopia as an ideal and denounced his own democratic Athens as debauchery!]  People of Plato’s era would have seen him as a Conservative who preached the ideal of communism to elites & upper castes.  In contrast we have Heraclitus who recommended we celebrate change as new knowledge is discovered and would have rubbished Plato’s theory of the permanent ideal that decays over time because it assumes the perfect is already known and there is nothing new to discover.  That is an idea that runs through Hindu thought & philosophy as well.  Moral of the story?  To be a liberal is to welcome new knowledge & to be ready to apply it.  That unfortunately is neither simple nor easy.  Being a liberal is tough while being a conformist is to go with received wisdom.  Bracketing a liberal with an ideology forever is futile and a negation of the very idea of liberalism.

 

So why are liberals pilloried all the time? Why is a liberal always intensely political?  The reason is simple.  All new knowledge will always be followed an argument in society about if it is wrong, right, its correct scope, application, changes need etc. And there will be a liberal argument for it just as there will be conservative argument against it.  But more than just the validity of the new idea, there is the political.  An example from the times of Pythagoras may help. Back then Mathematics was revered much like religion because it was so useful & magical in constructing houses, buildings, bridges, monuments etc. Temples were raised to the glory of perfect rational numbers.  Until a mathematician named Hippasus arrived on the scene arguing that there could be no rational root of the natural number 2 and that there many such irrational numbers. There was no way around Hippasus’ argument and so what did his fellow mathematicians do?  They took him out to sea for boating and drowned him rather than see their temples demolished!  And you thought the Hindutva lot was luddites? New knowledge is usually not as welcome as you might assume from a casual reading of history.  As Michel Foucault famously said, every new idea creates its own priesthood. But before it can do so, it falls to the liberals to demolish the old.  Which is why we liberals are the permanent enemy of the old & the new establishment. And so rarely found except in the wild.

 

Liberalism without a context is meaningless and must always be discussed in a frame of reference. Liberals in a communist society argued against communism with as much vehemence as conservatives argued for orthodox totalitarian communism.  Likewise liberals in a Capitalist society will argue against orthodox laissez faire as conservatives argue for it.  Liberalism is neither pro this dogma nor anti-that.  A liberal is against dogma of the left & the right, whether economic or social, because she wants to remain open to the possibility of change but also because dogma inhibits the agency of an individual to pursue new knowledge.  Note a liberal is not always anti-establishment either.  If for instance you find a society where the individual is celebrated and individualism is encouraged as in the US, then a liberal is very much pro-establishment. Which is why you find liberalism more of a conservative virtue in the US rather than in the collectivism of the left. Liberalism in India is much misunderstood term in politics.  Who is true political liberal in India?  Very few. The leftists would almost never count among them.  Neither would the Hindu right.  But a distinction needs to be made here between the personal and society at large.

 

At the personal level, I can hardly think of any educated person who would not be a liberal in the sense of choosing reason over dogma as the way to discover the truth.  Most of us are liberals in that sense.  The political liberal though is hard to find.  A liberal being one who wants maximum agency, economic & political freedom for an individual, is most unlikely to found in the left parties, communists or Hindu right.  Ever since independence India has lost its individuals.  They don’t exist.  We see individuals only as a part of collective categories – caste, class, religion, student, teacher, haves, have-nots, nationalist, anti-nationalists, male, female, termites, non-termites, whatever.  India has lost her individual. And without individuals, there are no liberals.  We have reduced liberalism itself to a permanent category of empty ritual. In India the idea of a liberal is still stuck at the level of an individual and has yet to be adopted as a norm for society as a whole.  As a society we are steeped in religiosity and conservatism/orthodoxy to the core.

 

 

So which liberal lost the election that the populists won so handsomely?  The correct answer is none.

 

India needs an army of liberals to break the chains of economic and political orthodoxies that constrain Indian enterprise and Indian ideas.  Our contribution to the world’s store of new knowledge and new ideas over last 500 years & more has been pathetic.  Revolutions have come and gone bypassing us while we remain stuck in orthodoxies of an irrelevant past, our economic & political prowess a fraction of what it needs to be.  Remember an entrepreneur is a liberal first, an entrepreneur second. And our orthodoxies set up such perverse incentives for entrepreneurs and liberals that we revere those who kill them. No, the liberals haven’t lost because there weren’t any liberals in the fray to begin with.  What has happened is that left wing orthodoxy has lost to right wing orthodoxy.  That is at best a pyrrhic victory for India. India will win only when liberals & entrepreneurs win and that won’t happen under any orthodoxy, left or right.

 

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Was Indian Election 2019 a Victory for Populism

By Shealja Sharma  @ArguingIndian

Sonali Ranade @sonaliranade

 

Modi’s victory in 2019 is a triumph of populism over a liberal democracy.  Populism has often been defined as an illiberal democracy that relies on majoritarianism but bypassing many of the others aspects critical to a democracy. Populism poses a direct threat to democracy and its institutions.  Democracies are uniquely susceptible to populism and have a way of being waylaid by it from time to time.  India itself has witnessed a spell of populism under Indira Gandhi in the early 70s that did not play out well and culminated in an emergency where democracy itself was derailed.  It is imperative therefore to pause at this juncture to understand what is exactly is populism, and how and why democracies succumb to it. Political scientists have studied Populism’s political character and it well worth reviewing this here in order to be better placed to negotiate the perilous way ahead.

 

 

Populism may be defined as a process of political mobilization that transcends party structures and seeks to build people’s support around a charismatic personality by creating a direct link between the leader and people using mass communication technologies like the media, including social media, mass rallies, propaganda etc.  The essential difference between a populist mobilization and other forms of political mobilization is that the link between the leader & supporters is direct, non-intermediated by political party or institutions, and light on ideology. The person of the populist leader is the rallying cause per se. The causes he or she espouses are transitory, ever changing according political need, and are usually formulated in such way as to cut across all established political parties and structures. For instance Modi’s appeal to Hindu nationalism is designed cut across the usual caste and class structures around which normal politics has been built so far.  Populism also seeks to create a people vs. other paradigm where the other may be economic, social or political elites, minorities, and liberals, whatever. The aim is to fragment existing political structures and attract support of the floating opinion towards the strong & charismatic personality of the leader.  The causes could be anything from ethno or religious nationalism, communal polarization, to vaguely structured peoples vs. established elites.  The cause itself is secondary but focuses on an existing political fault line.

 

 

Populism doesn’t arise in vacuum.  It is usually a reaction to something else that happens in the polity or the economy.  Looking at the way populist movements arose in history, from that in Germany in the 1930s, to those caused by failing economies in Latin America to our very experience with populism under Indira Gandhi, we may surmise that populism is occasioned by a breakdown in the ability of existing political parties to cope with change in the polity.  In the case of Indira Gandhi, the patronage distribution system on which the Congress party was built broke down after Nehru’s death.  Without control of the brokers who worked the system, Indira Gandhi had no choice but to resort to populism appealing directly to people with a catchy “Garibi Hatao” slogan over the head of the Congress party.  This ruptured the party apparatus, split it into two, but she was never able to rebuild the patronage system in full in all geographies.  With that began the decline of the Congress party structures. Elsewhere in the world, populism has arisen out of an economic crisis as in Latin America or collapse of political system as in the post communist soviet system.  Presently, we are seeing populist movements in Europe and US triggered by threat of immigration.  Whatever be the proximate cause, populism is invariably accompanied by an inability of existing political structures to cope with a discontinuity in the political, social or economic environment.

 

Closer to our times, we witnessed such a discontinuity in the system occasioned by bankruptcy that necessitated economic reforms. As consequence of those reforms, the patronage system of the Congress party was shattered in 90/91 because they transferred effective power over resources from Centre to States. Effective control of the patronage system had already faced considerable dilution as sub-national actors within or outside the Congress captured power in the States.  They developed their own patronage networks and cultivated their own satrapies often using populism as the means to build support for themselves using sub-nationalism & regional pride.  We saw such satrapies in Andhra, Bihar, Tamil Nadu, and West Bengal. Indeed we saw one in Gujarat under Modi himself.  This shattering of the patronage system within the Congress party structures at the Centre created a vital power vacuum that was never filled under Sonia Gandhi or Manmohan Singh.  Irony is that Congress lost power because it dismantled its own funding model without creating an alternative.  It is not corruption but lack of it under UPA I & II that led to its downfall. Which not to say there were no corrupt ministers in UPA.  Merely, that the funds they raised didn’t get to the central kitty.  Which perhaps explains the alacrity with which BJP filled the vacuum with anonymous electoral bonds.  Corruption is now fully sanitized & legal.

 

Modi’s populism is therefore a reaction to the breakdown of the patronage system and an effort to resurrect it under a different name.  However, Modi’s populism is not just the garden-variety pure populism.  Political mobilization is usually characterized as progmatic, patronage based or populist.  A core of progmatic political mobilization represented by the RSS and its vast organizational & ideological resources backs Modi. This progmatic agenda of the RSS relies heavily on communal polarization as well as upper caste opposition to affirmative action. It is anti-Muslim and anti-lower castes. This core however cannot produce the required numbers for electoral domination of the polity. Historically, BJP’s vote share has struggled to get past the 25% mark.  Modi’s utility lies in energizing this core with Hindutva and adding to the core with a lot of floating supporters and unattached voters attracted by his personality as strong leader who has a vision of a strong and prosperous India. That this additional layer of support is ideology-thin is by design, not accident.  The lack of a clear-cut ideology/program gives him flexibility to go for whatever sells at the moment.  It also has the effect of amplifying the Hindutva message which otherwise would be restricted to just the core.

 

It is also essential to realize that Modi’s populism is the effect of, not only the breakdown of the established patronage system of the Congress, but also a deep response of the people to the populism of populist leaders at the regional and/or State level.  Modi did not invent populism.  That form of political mobilization has long been in use in States be it Tamil Nadu, Andhra, West Bengal, Odisha, Gujarat, Mumbai, Bihar and even Uttar Pradesh under many regional populist leaders like MGR, Karunanidhi, NTR, Mamata Banerjee, Patnaik, Lalu Prasad Yadav or Mayawati.  They were all ideology-thin, non-patronage based political players, who built their parties around a single idea, ranging from regional autonomy in Tamil Nadu, caste based mobilization in UP/Bihar, to regional pride in Gujarat, Bengal etc.  Shiv Sena in Mumbai began its politics as labor union busting organization favored by tycoons but latched on to Shivaji & regional Maratha pride later.  So populism is not something new.  However, these regional populisms have asserted themselves against the center at times, and are seen as centrifugal tendencies that are gathering strength.  At times, populism can only be fought with populism.  Modi has been able to build his version of populism as something countering fissiparous trends in the polity, vaguely portrayed as misguided liberalism, minority appeasement, regionalism or separatism, etc.  It helps that the Border States like Kashmir, Punjab, Bengal, Assam, Tripura, even Kerala with its Dubai connection, have higher percentage of minorities and have been among the first to fall to regional populist leaders.  Tamil Nadu too falls in this category but for a different reason.  This feeling of a latent sub-nationalism led by populist regional leaders evokes a counter in the form of Modi’s potent nationalistic appeal. Whether it is the right response or not is a different matter.  What is important is that Modi is not the only populist in town.

 

Congress has largely failed to grasp the emerging political challenges after PVNR.  The failure began not with Rahul Gandhi but his mother and at two levels.  Firstly, despite the stunning success of 90/91 reforms, Sonia Gandhi failed to take pride in them and rebuild her party around them.  Instead she continued the party’s hugely dysfunctional and largely futile alliance with a Marxist cabal around her that frustrated all meaningful reforms after PVNR. Secondly, she was unable or unwilling to rebuild the patronage systems her party depended on and allowed a free for all system to evolve that amplified the perception of corruption in her party.  There is simply no escape from the reality of party funds.  If you don’t centralize them, you hand over the party apparatus to regional satraps and pay a double price.  Corruption not only increases but you cannot escape the blame for it.  So under Sonia Gandhi, not only did the Congress lose its ideological moorings to economic reforms but gained a stench for corruption, – largely unjustified and grossly exaggerated – that it has been unable to shake off since.

 

Rahul Gandhi has been unable to rebuild the Congress party as per his dreams despite a decade of trying.  But like Sisyphus, he keeps trying to roll his heavy rock up the hill in the same way as before, hoping for a change of luck. Just as there is no free lunch in a dog eat dog world, there is no such thing as a lucky break in highly competitive politics.  The fact is RG will never be able to rebuild his party the conventional way because the building blocks no longer exist.  As his party’s empty treasury should tell him, the old patronage system is gone from his grasp.  It has been captured by Modi-Shah and they aren’t about to do him any favors. Without funding party machines cannot be kept in good repair.  They wither away.  Congress now faces the uphill task of finding a charismatic leader who can fashion a populist movement to take on the party juggernaut of the BJP.  It is an advantage that his party once enjoyed.  Now the shoe is on the other foot.  Short of populism, there is simply no other viable alternative for political mobilization available to the Congress any more.  In short he has to the charismatic leader with a powerful populist program that can work on a shoestring budget or it is game over.  He has no other choice.

 

What of the polity?  It is hard to say how this “national” populism vs. regional populism will play out.  The future is portentous. We can pretend everything is normal now that we have a strong popular leader at the center.  But two things should be clear.  India is a State with 20 odd potential nations who fulfill the criteria of a distinct people, culture, history, language and geographical contiguity.  The regionalism that we see at the periphery is well grounded in latent sub-nationalism. The glue that holds the Indian state together against the regional pull of latent sub-nationalism is a common market, common law, growing economy and most important of all, lived experience. What does not hold it together is a “strong center”. RSS may fondly hope that Hindu-Hindi-Hindustan will hold everything together but this is far from proven.  We will never be able to resort to coercion, alone or in a major way, to hold the periphery.  We will hold them only through a shared vision of the future.

 

Populism will not suffice to tamp the divisive forces arising out of stoking of Hindu sub-nationalism that has become the defining signature of the Hindu Right.  If anything, it will accelerate the fissiparous tendencies by legitimizing sub-nationalism and provoking regional leaders to exploit it in order to cement support for themselves.  Tamil Nadu provides a classic example of how to build a two party regional political system that shuts out pan-India parties.  The model can be easily copied in other states as well.  The Hindu-Hindi-Hindustan formulation has very limited appeal.  That fact should not be obfuscated by the pan-India appeal of Modi. Nor should we buy the idea that Hindu nationalism per se will unify the polity.  India is just too diverse for that.  We should also not forget that no meaningful economic reform is possible without real economic decentralization and the latter is impossible without regional autonomy.

 

Wisdom demands Modi dial back on Hindu nationalism. It has served its limited purpose. If at all it had a purpose. Wisdom demands Modi moves to restore the critical institutions of the State & dial back on the cult building around his persona. And wisdom also demands opposition parties sit down together & evolve a common program.  If they don’t hang together, they will hang separately.

 

Populism has rarely ended well despite good intentions. It is inherently illiberal and impatient with democracy and rule of law.  It is impelled to justify every shortcut with the mandate that the populist leader enjoys.  It refuses to abide with checks and balances of institutions.  And it has scant respect for dissent.  It is impossible to say how India’s second tryst with unabashed populism at the Centre will end.  We can only hope rule of law, democracy and its institutions & the innate good sense of our people will prove enough of a check against its excesses.

 

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Lord Ganesha: Why INR is over-valued in relation to Renminbi using wage rates and how that destroys jobs in India.

April 26, 2019 Leave a comment

The basic problem is that because Modi ji kept the INR over valued to the $, it became cheaper to make a Ganesh idol 4 puja & ship it to Mumbai rather than have the same thing made at Urnoli, in Uran District,a village some 30 km from Mumbai wiping out artisans of generations.

 

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he village in Urnoli has made these idols 4 generations. It is located by a backwater Channel to Mumbai harbour, home to lots of clay & free water. The idols are made by hand by families. They are dried in the sun & painted by hand. Used once, they have no further value.

So you see my case? Clay is free, so is water & sunshine. Colouring paints & wooden scafolding are the only raw material which costs less than 5% of sale value. The idols are transported in mini-tempos at night to Mumbai. The only major cost is labour. So …

… we have a village, 30 km from Mumbai, unable to competitively sell a low tech product requiring little more than skilled labour to make against imports from China?

How is that even THINKABLE? Yet it is true across a swathe of industries. What economic factor accounts 4 this?
The example implies manufacturers in China are virtually using slave labour at slave wages in order to be able to compete with labour in Urnoli. Or that the INR is so highly overvalued in relation to the Renminbi, that to workers in Urnoli, Chinese labour is cheaper by that much.

Note there is no slave labour in China. And here we are directly comparing wages in China with wages in India. Now since wages in India are cheaper, the only thing that makes Urnoli workers uncompetitive in India’s over-valued INR or dysfunctional exchange rate policies.

The problem predates Modi ji’s 5 years. But the exchange rate problem was exacerbated by Modi ji’s penchant for strong INR. He had to retreat in the face of an explosive rise in crude but the bias continues.

Now there are a army of sarkari economists & others there who will point REER to me. All I say to them is REER itself is bunkum. Firstly despite REER we have hair-cut devaluation every decade or so ranging from 15 to 20%. If REER worked, these devaluations would be unnecessary

Second, in the Urnoli idol case we are directly comparing Chinese & Indian wages. 4 all practical purposes, there are no other costs involved except transportation. 30km in one case, 3000 km in the other. So how does China beat India in Mumbai?

You can go to Urnoli’s villages 2 ways. Firstly via JNPT by ferry/car. Or you can turn off from the Goa Mumbai highway after Pen going towards Mumbai. You can’t miss the turn now that it has flyovers etc. The place is beautiful 4 bird lovers. Verify & tell me how this works.

That is the tragedy of our Sarkari economists. They dare not go beyond sarkars models to apply their trade. They don’t ask stupid questions like me b/c they can’t afford look stupid.

As you can see from the map [load it into your Google Earth] the clay & water are both abundant & free & there villages I speak of are on the banks of the channels. The place is home to millions of sea birds.

 

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An Anonymous Post.

April 26, 2019 Leave a comment

Warning:

 

I am not entirely comfortable posting it here because I don’t have the author’s permission to do so.  In fact I don’t know who the author is.  But it makes some important points & offers crucial insight into how “appropriation” works and why it is important to recognise it.  Akaar Patel had once offered a similar insight but he appears to have lost his voice these days.  So take with a pinch of salt.

 

Text of DM:

 

 

“There is a proverb in Malayalam that says that when a trivial man suddenly becomes wealthy, he will hold an umbrella at midnight to avoid the sun. That’s the story of cringeworthy Modi.

His latest interview shows the extent of his megalomania, his vanity, his pretensions and pomposity. He is so in love with himself as PM, so enamoured at getting such a plum post that he perhaps never dreamt would be his, that he now cannot see any boundaries to that ambition. It’s overvaulting. It’s unchecked. It’s urgent. A monumental personality flaw.

So, in his manic hurry to grow exponentially in stature,he merely appropriates all the symbols available of greatness. In the first year, the monogrammed suit and meeting with Obama where he broke all protocols and went into first name calling and informal bear hugging on the first meeting, was intoxicating. It turned his head irrevocably. It catapulted him into a rarified space of wealth, influence, and most importantly power leading to hubris. It’s what classically happens when you get something too precious too soon. You lose its value. You begin to think it’s your birthright. You take it for granted. A niggle of worry about losing it ignites rabid fear.

Then your humble past, the housemaid status of your mother, the tea selling boy, the chowkidar nomenclature, the begging fakir, the visits to the lower middle class house of mother (almost stationed there like a prop) all simply add to the heights you scaled. You use it to fill the ordinary people harbouring modest ambitions, with extraordinary awe.

It is clear from the recent puke worthy interview with Akshay, that that first brush with the most powerful world leader, even today, makes him blush and flush with pleasure as he very immaturely brings in Obama’s name, completely irrelevantly into an unrelated question and claims intimacy of a childhood friend’s familiarity. The tu nonsense will be trolled for a long time. This paints over the grimy beginnings and appropriates all that Obama stands for. Education, class, power, wealth and prestige. In one sweep you try to own it. People who see through want to puke. Many, who don’t, are impressed.

This macro appropriation of colossal power is seen in the speeches where he never fails to tell you he represents 1.3 billion Indians. He made it 6 billion at Davos appropriating 80% of world population in a Freudian slip.

Then he talks about purana naata with all countries he visits thereby creating an earlier bond that increases his network of influence.

The travels, the hugs are part of this appropriation of international spaces where he probably thinks he has conquered hearts and loyalties by landing on the soil in a Caesar-like veni vidi vici mode. This is reflected in his bhakts telling you about how he put india on the international world map.

Then we have the threats. If you are not with Modi you are anti national, traitor, seditionist, terror sympathiser, Pak lover etc. Here, he appropriates nationhood, patriotism, loyalty, pride of all ancestral history, in order to again, in one giant sweep glutton up the country of its past, present, and future.

Furthermore, recently he appropriated the might and significance of our entire armed forces. His minions will swagger about how it is ‘Modi’s army’ as if he were Alexander on an interminable mission of conquest. He tries to buy votes on martyrs as he genuinely thinks they are his foot soldiers.

He will use every tragic event to politically push his agendas. All work done by previous governments are disregarded so that he can have that last applause by placing the cherry on top and claiming to have done the whole job himself.

A master of image management he will announce schemes with pomp and pretend they are achievements merely by virtue of their having been announced. He is not a man pretending. I do believe he is in a mentally delusional state where he believes that he has truly achieved. Hence the allergy to questioning. It will break the mould. That pain, a lot of self deluding mental patients living in denial will tell you, is excruciating.

Several interviews, created on the eve of the elections have put paid to the criticism that he fears the Press. But then, in those meticulously crafted interviews of Prasoon Joshi and Akshay Kumar, we clearly see impotent anchors asking benign rhetorical questions that are all couched in predicated glorious praise embedded in, and preluded by How can you be so amazing Mr. superhero? Are you for real? There’s no one quite like you baby! kind of trash. Yes, it puts your teeth on edge.

This very small dwarf of a man then smiles in self indulgent pleasure desperately trying to control his ecstasy and dons a benevolent, self satisfied, karmic, wise expression before spewing forth a bunch of hallucinations, scripted to make him look progressive, contained, objective, magnetic and well connected. None of which is remotely true. A congenital liar needs no cloak of shame. One that has begun to believe his own lies lives in a parallel, altered universe.

The submissive, obsequious and pusillanimous anchor putty clan simper along with the patience of Job. They could be interviewing God Himself! No counter points, no uncomfortable questions, no interruptions, no interventions, no screaming , nothing! The one with Akshay on mangoes and other trivia tried to paint him as an accessible human while heaping praise and allowing for truckloads of bragging.

If Modi could make a trip to outer space, even if they flew him to a satellite station, he would appropriate the stars, the galaxy and the universe. They would come back with stories of miracles. And the bhajan mandali on Earth would say he is an avataar of none other than Sri Ram.

The megalomaniac’s journey from the regional, through the national and international, to the cosmic and divine would then be complete.”

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Restricted Access Model of Corruption:

April 23, 2019 Leave a comment

These are basically my tweets on the issue of some innovations that have surfaced in the sphere of corruption of our political economy that I made some time back.  People have been asking me to consolidate my tweets at one place on some topics.  So this represents the first of such consolidations.

 

I am a rather poor writer with little patience for the art. Will try & blog some ideas and see how it goes.

 

Thank you for reading.

 

Innovations in corruption.

There has been a lot of talk about ushering in a corruption mukt Bharat. The truth is that there has been some fresh thinking about corruption under the new Government & I would like to share my thoughts on the same with you.

So here goes. 1/n
The first is that the earlier regime was riddled with hypocrisy. The fact is running a party machine, fighting elections, and motivating & rewarding political workers is an expensive business. It requires funds that only the wealthy can provide & so there is the inevitable deal.

Under the Congress, prior to 90/91, a combination of the license/permit raj and patronage to those who could pay rents, provided the key funding for Congress. Which is not to say the opposition was chaste. Their chastity was mere lack of opportunity. Model was the same.

The Congress system was “free-for-all”; anybody who could pay was welcome. Everybody had equal access. The highest bidder won. Second, when the people at lower echelons saw this game, the replicated it at their level. Corruption ballooned. Politics became business.

90/91 changed the game by ushering in economic reforms destroying the old rent seeking model by abolishing the central licensing. This had an unintended consequence. As the Central Govt. shed its control over levers of patronage, the action shifted to the States.

Although no license required, entrepreneurs had 2 still line up before state Govts 4 allotment of land, water, electricity, labour permits & a host of other things. So rent extraction shifted from Centre to states & regional leaders gained power of patronage from the centre.

As power of patronage shifted to States, the Congress leadership in Delhi grew weak and the regional leaders far stronger. So much so that by the end of PVNR Govt., Congress party itself began to unravel as regional leaders revolted or struck out on their own.

As U can see, corruption at all level except Delhi multiplied. It was in the milieu that BJP stepped in. ABV followed the Congress model. Paid the price. When Congress returned to power, it had learned nothing from experience. The old State level rent extraction continued.

The present Govt. did learn important lessons from BJP experience. You cannot decentralize power of patronage & still control a pan-India political party. That’s was the Gandhi family’s political blunder. Modi ji therefore concentrated all such power in himself.

But if money is generated by state level leaders, how do you centralize power of patronage. Hence anonymous electoral bonds. Those seeking patronage go to the top, make the deal, contribute anonymously to the party kitty. Regional leaders are not involved. U control the treasury.

That is why Congress also supports anonymous electoral bonds. If & when it returns to power, it will help the Gandhi family to reestablish central control over the party as it was before 90/91. So they make noises but favor electoral bonds. Now 2 the 2nd innovation.

Recall I said the Congress system was free-for-all & widely emulated at lower levels by those controlling patronage. This model is terribly flawed in game theory terms.

2 simplify, if everybody can corrupt [free access] and everybody can accept bribes, the earnings of all fall.
As usual economics tends to be counter-intuitive but bear with me. First the demand side from tycoons. If tycoons have to compete 4 patronage, they will bid the highest bribe they can afford. Competition puts costs up. Where will they recover these costs from? Obviously you.

So if rents that can be extracted from you consumers are R and the bribe paid is B, [R -B] is the profit to the tycoon. As many tycoons are competing & its is competitive bidding, the [R-B] over time falls to 0. So the tycoons gain nothing from corruption.

On the other side bribes are the total rent that can be extracted. More people you share it with, the per capital share falls. So the free-for-all corruption under the Congress model is very inefficient. Not only that, it is also very noisy b/c prices must be disclosed 2 bidders.

The present Govt. has wisely moved to eliminate the free-for-all model and replace it with a restricted access model. Now everybody cannot bid 4 patronage. Only a selected few crony tycoons may bid. And secondly, the bids are tightly controlled at the highest level.

What the Restricted Access model does to increase both tycoon level & party level yields from rent seeking. Since competition is restricted to few cronies they need not make competitive bids. So B is smaller, [R-B] is bigger, they are happy. And B is not shared. Happiness.

Not only is the Restricted Access model more profitable 4 tycoons & politicians it is also not noisy as before. Since bidding is not competitive, there is no need to disclose price. Lower level corruption is not allowed but actually punished. So corruption visibly decreases.

That then is magic of the Restricted Access Model. You can reduce visible corruption, you can prosecute corrupt people lower down 2 discourage competition, be a corruption fighter & still maximize rent yield to your party. What could be better?

Now you will better understand why even BJP has copied the Congress model of appointing CMs from the central level. U can’t let state level people compete with you for share of rents.

That’s where we are. BMKJ.

 

Some additional notes to above tweets for further study & research:

  1.  The idea of restricting access to rents from corruption to a selected few is not new.  It is based on the ideas of Nobel Laureate Gary Becker who first showed that it makes great sense for the corruptors [rent seekers] & the corrupted [the politicians who create rents] to restrict competition for rents by restricting access to them through creating barriers to entry.  This prevents dissipation of rents through competition thus ensuring the maximum returns to both groups.

 

Screenshot 2019-04-23 at 8.06.10 AM.png

 

2.  The RAM of corruption has the added advantage of reducing visibility of corruption that accompanies wider participation in rent seeking.  Secondly, it allows the elite rent creators [politicians] to claim the hallo of corruption fighters by being seen as keeping out those rent seekers who are in any case to be denied the benefit of rents.  In fact the more you eliminate corruption at lower echelons of Govt. the higher the rents for sharing available to favoured rent seekers & politicians.

 

 

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The excerpts from the book “Political Capitalism” by Randall G. Holcombe.

 

 

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GUEST POST by @ArguingIndian : Profound Simplicity to Confused Complexity: Modi’s journey from Hope to Fear

March 23, 2016 Leave a comment

When the current Prime Minister of India Mr Narendra D. Modi started his campaign in 2014 for the Prime Minister post, He builds all his campaign around the word “HOPE”, A hope of brining “Acche Din”, Is he able to fulfil his promise ? If we go by the events since he took the oath and analyse it from the socio-political prospective, the result looks quite disappointing. While selling his product ( Acche Din) to his customers, i.e. voters the value proposition Mr. Modi has offered is not yet delivered. What could have been the implication if you put this in the professional scenario, of course you would have been fired. Critics could say democracy work in a different way and he would be judged after five years. Agreed, so how the relation of voters and Government does works; let’s go to the very basic of government role defined by Social Contract Theory1. In the trade-off of surrendering natural rights, Individuals in return are guaranteed civil liberty, freedom, rights, and equality by the govt. And, “Will” not the “Force” could be the basis of enforcement of social contract.
What forced Modi to adopt the divisive agenda or it is the natural outcome when you identify yourself as a Hindu Nationalist? BJP and its followers since beginning have focused on exclusion of minorities and opposition. They don’t see them as the actors of democratic society. In the last two years many incidents took placed; Dadri incident when Akhlaq was killed by the religious fanatics, exclusion and target of minorities over the issues of love Jihad and beef ban, JNU incident where civil liberty has been put under the lock. And it’s not only the socio structure which is under the pressure, Economy is in doldrums and the failure to revive economy has squelched the hope. Current govt has failed to implement the social contract. And his silence has been amplified by his supports by going berserk. Modi and his followers have tried to shut every legitimate voice of criticism by labelling it Anti- National. Hounding one community has become the hallmark of BJP followers, while doing so, they forget that in comparison to the west, Indians believes in collective identity. Therefore, when you are offending a person’s belief you are not offending a single person, it’s the whole group which get offended.
We all have witnessed how Modi’s campaign of hope has been turned into a fear. Why Hope always worked in the case of mobilising people and not fears? For an individual hope’s cognitive process releases an endorphin like emotion. Hope creates resilience and requires lots of resources and broad focus to fulfil that desire. In contrast to hope, fear operates in primitive areas of a brain. Fear trigger anger and frustration and operates with a very a narrow focus. Modi and his followers while playing with these emotions should realise that over using both, hope and fear can lead to distractions. Has the all Hope is lost or Mr. Modi has lost the focus? How he could revive the Hope and get away with the atmosphere of fear. For that he needs to show the attribute of a leader where a leader change his roles form autocratic to democratic as the time demands. While his silent node on all the incidents has been amplified by the supporters, as a PM of the country he should address the concern of minorities. To get the economy back on the track reconcile the differences with opposition on the crucial bills. And lastly, should avoid useless confrontation of interfering in educational institutions and rewriting the history. All can be achieved if Modi and his supporters adopt the policy of inclusiveness instead of divisiveness, though it is not the forte of Modi supporters but desperate times demand desperate measures therefore instead of pandering to his core base the time demand to rise above to the party politics and lead the India.

 

Mr Modi role in the new govt was to convert the Hope into the reality instead what we see all around is fear. In a society every role has fixed part to play with the predefined rules. When the role system2 collapsed, it leads to panic. “If a role system collapses among people for whom trust, honesty, and self-respect are underdeveloped, then they are on their own. And fear often swamps their resourcefulness. If, however, a role system collapses among people where trust, honesty, and self-respect are more fully developed, then new options, such as mutual adaptation, blind imitation of creative solutions, and trusting compliance, are created. When a formal structure collapses, there is no leader, no roles, no routines, no sense.”2 if we look closely we could see that currently India is going through the same phenomena.

 

References:
1 Rousseau, Jean-Jacques (1762) “Du Contrat Social”
2 Weick, Karl E. (1993) “The Collapse of Sensemaking in Organizations: The Mann Gulch Disaster” Administrative Science Quarterly GUEST

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