Who is to Blame?

Is it that the Indian champions of the ‘free- market’ and liberalization-as-magic-wand have disappeared or is it just that I am not reading enough?

One of them, Swaminathan Anklesaria Aiyar, whose column ‘Swaminomics’ has been a byword for the neo- liberal assault in the Indian media for many years, does write on the debacle on the Wall Street, but  blames it on the ‘perils of giving loans to the poor’!

The crisis arose from the bursting of a housing bubble. That bubble was created, fundamentally, by government policies and institutions seeking home ownership for all Americans, including low-income ones. Politicians rooted for such inclusive finance. But this ‘inclusion’ extended finance to ever more borrowers with fragile and low incomes,  causing disaster. This holds lessons for India.

Karl Polanyi’s The Great Transformation and the Wall Street Crisis

Dr Girish Mishra has a very informative piece on Karl Polanyi’s book The Great Transformation (1944). Polanyi’s name has figured in a quite a few places of late in light (or the shadow!) of the Wall Street financial crisis. As neo- liberalism recedes- its most articulate proponents now reduced to a tiny die- hard group of ostriches, it is pertinent to speculate on how things will shape now. Lessons from history may not provide recipes, but help in providing a perspective. The concluding words from the article indicate a much desired possibility, at least on the medium to long term.

A few excerpts:

The mission to create a totally self-regulating market economy is predicated on the assumption that both the human beings and natural environment are turned into pure commodities, that is, they are freely bought and sold.

When US Planned to attack Saudi Arabia

David Harvey, in his A Brief History of Neo- liberalism points to an interesting bit of history, when the United States contemplated attacking Saudi Arabia during the oil crisis of 1973.

The OPEC oil price hike that came with the oil embargo of 1973 placed vast amounts of financial power at the disposal of the oil-producing states such as Saudi Arabia, Kuwait, and Abu Dhabi. We now know from British intelligence reports that the US was actively preparing to invade these countries in 1973 in order to restore the flow of oil and bring down oil prices. We also know that

Re- drawing the Poverty Line

A re- look at the “dollar a day” line for measuring poverty may increase the number of poor below poverty line in China by 300m.

The dollar-a-day definition of global destitution made its debut in the bank’s 1990 World Development Report. It was largely the discovery of Martin Ravallion, a researcher at the bank, and two co-authors, who noticed that the national poverty lines of half-a-dozen developing countries clustered around that amount. In two working papers* published this week, Mr Ravallion and two colleagues, Shaohua Chen and Prem Sangraula, revisit the dollar-a-day line in light of the bank’s new estimates of purchasing power. They also provide a new count of China’s poor.

Thanks to American inflation, $1.08 in 1993 was worth about $1.45 in 2005 money. In principle, the researchers could count the number of people living on less than this amount, converted into local money using the bank’s new PPP rates. But $1.45 a day strikes the authors as a bit high. Rather than update their poverty line, they propose to abandon it. It is time, they say, to return to first principles, repeating the exercise Mr Ravallion performed almost two decades ago, using the better, more abundant data available now.

…

For practical purposes, policymakers will always care more about their own national poverty lines than the bank’s global standard. The dollar-a-day line is more of a campaigning tool than a guide to policy. And as a slogan, $1.25 just doesn’t have the same ring to it. A better option might be to reset the poverty line at $1 in 2005 PPP, which would line up reasonably well with at least ten countries in the authors’ sample. In adding a quarter to the dollar-a-day poverty line, the researchers may cut its popular appeal by half.

via 3 Quarks Daily)

The Low Side of High Growth

I wish I could summarize Amit Bhaduri’s critical take on India’s high growth rates in recent years-titled India’s Predatory Growth from last week’s EPW. It is, however, so succinct that I’d suggest reading the whole article. Here are a few excerpts:

Statistical half truths can be more misleading at times than untruths. And this might be one of them, insofar as the experiences of ordinary Indians contradict such statistical artefacts. Since citizens in India can express reasonably freely their views at least at the time of elections, their electoral verdicts on the regime of high growth should be indicative. They have invariably been negative. Not only did the “shining India” image crash badly in the last general election, even the present prime minister, widely presented as the “guru” of India’s economic liberalisation in the media, could never personally win an election in his life.

…

In contrast to earlier times when less than 4 per cent growth on an average was associated with 2 per cent growth in employment, India is experiencing a growth rate of some 7-8 per cent in recent years, but the growth in regular employment has hardly exceeded 1 per cent. This means most of the growth, some 5-6 per cent of the GDP, is the result not of employment expansion, but of higher output per worker. This high growth of output has its source in the growth of labour productivity. According to official statistics, between 1991 and 2004 employment fell in the organised public sector, and the organised private sector hardly compensated for it.

…

At the extreme ends of income distribution the picture that emerges is one of striking contrasts. According to the Forbes magazine list for 2007, the number of Indian billionaires rose from nine in 2004 to 40 in 2007: much richer countries like Japan had only 24, France 14 and Italy 14. Even China, despite its sharply increasing inequality, had only 17 billionaires. The combined wealth of Indian billionaires increased from $ 106 to $ 170 billion in the single year, 2006-07 [information from Forbes quoted in Jain and Gupta 2008]. This 60 per cent increase in wealth would not have been possible, except through transfer on land from the state and central governments to the private corporations in the name of “public purpose”, for mining, industrialisation and special economic zones (SEZs). Estimates based on corporate profits suggest that, since 2000-01 to date, each additional per cent growth of GDP has led to an average of some 2.5 per cent growth in corporate profits. India’s high growth has certainly benefited the corporations more than anyone else.

The March of Neo Liberalism in India

The current issue of Frontline has a series of articles on ‘The March of Neo liberalism‘, including one by economist Utsa Patnaik on the agrarian crisis.

The story starts from 1991 when Manmohan Singh as Finance Minister started hounding farmers by reducing the fertilizer subsidy, cutting development expenditures so sharply that per capita GDP actually fell in one year and the death rate rose in one State, virtually doubling the issue prices of foodgrains from the Public Distribution System over three years in order to cut the food subsidy (which predictably boomeranged since the poor were priced out and the first episode of build-up of 32 million tonnes of unsold food stocks took place by 1995).

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During the NDA period, the complete submission of the government to U.S. pressure and rapid removal of protection to agriculture between 1996 and 2001 – before the deadline set by the World Trade Organisation, resulted in farmers being exposed to the fury of global price declines. Between 1996 and 2001, prices of all primary products (cotton, jute, food grains and sugar) fell by 40 to 60 per cent and farmers who had contracted private debts in particular, became insolvent. The syndrome of hopelessly-indebted farmers committing suicides in Andhra Pradesh and Punjab started in 1998 and rapidly spread to other areas where cultivation of cash and export crop was predominant. The crash in pepper, coffee and tea prices came a few years later after 1998 and farmer suicides in Kerala and insolvency of tea estates in West Bengal date from around 2002.

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Most alarming is the situation of the Scheduled Castes and Tribes, among whom extreme poverty has increased dramatically during the reform decade, with over three-fifths moving under the lowest level of intake, 1800 calories, by 2004-05 in urban India.

Meanwhile, at Foreign Policy, its editor Moises Naim asks whether the world can afford to feed the growing middle class in China and India.

If they don’t find the bread, perhaps they can eat cake, while the children of the poor will be fed via mid- day meals according to the Indian Finance Minister

“If we continue to grow at this rate, India would be among the most prosperous countries in the world” dominating in education, services and goods….

“Next year, thanks to growth, I will provide Rs 15,100 crore for this scheme. Similarly, in 2003-04 we had provided Rs 1,175 crore for the mid-day meal scheme.

The “growth” he is referring to is the 8-10 percent annual growth rate during the “reform” decades, of course. The amounts mentioned for his schemes are drops in the ocean of poverty that may engulf the small islets of “growth” in urban India, sooner than later. Of late, I have been wondering if I need to go back and re- read Mao’s thesis on the villages encircling the cities.

As to India soon dominating the world in education, it is a joke in a country with the world’s largest illiterate population and the UPA government’s continuing disinterest in it.

(you need to register at the outlook site to eat the cake… read the article in the link)

A Common Indian is a Poor Indian

In this article (pdf) in the latest issue of EPW (alternate location), economists Arjun Sengupta et al contest the official levels of poverty and indicate that 75% of Indian population is poor, which is twice the official figure. This means a staggering 836 million as of 2004–05.

The difference in the approach is their criteria for measurement of poverty that they insist needs to measure relative poverty as opposed to absolute poverty. Also interesting is the authors’ analysis by community (SC/ST, OBCs and Muslims- the overlap between poverty and these communities is evident.)

I do hope this stirs up debate around the jingle of ‘trickle down’ economics that one has heard over the last two decades and recognize the darkness in the noon of unprecedented growth rates.

Our estimate that a little more than three-fourths of the Indian people are poor and vulnerable in 2004-05, based on a value that is double the official poverty line, is consistent with other estimates. For example, the World Development Report 2006 of the World Bank reports 35 per cent of the Indian population as living below the extreme poverty line of one PPP $ per day.

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The notion of an absolute minimum of a basket of goods yielding a calorie value plus some essential items loses most of its significance in a growing economy relative to per capita income. Poverty should be reckoned in relative terms to capture the inequalities in the system. There is nothing absolute about an absolute minimum for a poverty line when the economy is on a growth path of an unprecedented kind. That this point has not been factored, not just in India but even in some other countries with much faster rates of growth (e g, China), perhaps reflects an eagerness to show a declining trend in poverty or, for that matter, the magic of “trickle down” growth. There is no doubt that the case for revisiting the poverty line could become stronger as the economy continues to grow.

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