The rise of illiberal democracy

Fareed Zakaria’s 1997 article on "The Rise of Illiberal Democracy,"

Also read "Illiberal Democracy Five Years Late"

F A Hayek’s 1973 Wincott Lecture

Economic Freedom and Representative Government

Thanks to Prof Don Boudreaux

Endowed State or embarrassed?

Prof Pratap Bhanu Mehta on The Beast State:

• The terrorists who attacked Mumbai on 26/11 wanted to attack the Indian state.
• No one expected that the state could always prevent such attacks.
• No one expected that the state could always prevent such attacks.
• The staff at both hotels was extraordinary in their bravery and good sense, while the state slept.
• …….the depth of our discontent was directed more at our own state than the perpetrators.
• Truth is the least of the tributes their courage demands.
• ………….how global impact shapes every individual.

Random reading

In his latest column Niranjan Rajadhyaksha writes:

• “……humans can understand bits and pieces of the world, and hence depend on simple rules or heuristics to make choices.”

Gautam Ray says:

• The root of the problem lies in our school education system that rewards ability to memorise rather than ability to think critically and analytically.
• An important feature of this tradition in the US is that high school students are not rigidly divided into science, arts or commerce streams. College students majoring in science and engineering are allowed to choose a wide range subjects in arts and humanities.
  
• Similarly, college students with, say, history major can take physics, chemistry and biology courses and get admission to medical colleges for MD degree after qualifying the medical entrance examination. Liberal arts education imparts an all-round training.
  
• It sensitises human mind by delving deeper into a subject, critically analysing it from a multi-dimensional perspective and expressing such analyses in a cogent manner. Considerable emphasis is given to development of writing skills.
• As the skill of communicating original ideas develops, it spurs new ideas. Thus, analytical writing synergises creative ideas. Besides, such education also ensures that children do not get burnt out due to academic pressure in high school.
• An important feature of this tradition in the US is that high school students are not rigidly divided into science, arts or commerce streams. College students majoring in science and engineering are allowed to choose a wide range subjects in arts and humanities.
  
• Similarly, college students with, say, history major can take physics, chemistry and biology courses and get admission to medical colleges for MD degree after qualifying the medical entrance examination. Liberal arts education imparts an all-round training.
  
• It sensitises human mind by delving deeper into a subject, critically analysing it from a multi-dimensional perspective and expressing such analyses in a cogent manner. Considerable emphasis is given to development of writing skills.
• As the skill of communicating original ideas develops, it spurs new ideas. Thus, analytical writing synergises creative ideas. Besides, such education also ensures that children do not get burnt out due to academic pressure in high school.
  
• Of course, these reforms will not be fruitful unless schools have the requisite infrastructure and trained faculty, and textbooks are rewritten to focus on conceptual learning.

John B. Taylor on Rose Friedman

Chicago Five—Rose, Milton, George Stigler, Aaron Director, and Allen Wallis!

De-link Caste and Colonial system

Today’s Deepak Lal’s article throws many lights on “Caste, gene and history wars”. Of course, the political and left fanatic will ignore, then that is not our problem. A friend of mine recently mentioned that the “left people are not interested in fundamental issues”. Unfortunately, it also true in non left! Actually the kind of education system we have is too not enough to allow the student to question the ‘fundamental issue’.

Some excerpts:

• In the late 1960s, whilst visiting the Padmanabhaswamy temple in Trivandrum, the usual pandas accosted me. One came up to me and enquired about my origins: my jati and gotra. He then rattled off the names of about ten generations of my ancestors. He then asked for the names of the spouses and children of myself and my cousins. He did not ask for any money and was only interested in updating his records. Unless he had imagined my ancestors (and I could check the veracity of at least the last four), this would put my caste-based ancestry into the 15th century!

• A recent novel study (Reich et al: “Reconstructing Indian population history”, Nature, 24 September 2009) by American and Indian geneticists does just that. Though their sample is small — but diversified by language, region and caste — their conclusion on caste seems secure. They conclude: “Six Indo-European and Dravidian-speaking groups have evidence of founder events dating to more than 50 generations ago, including the Vysya at more than 100 generations ago. Strong endogamy (average gene flow less than 1 in 30 per generation) must have applied since then to prevent the genetic signatures of founder events from being erased by gene flow. Some Indian historians have argued that ‘caste’ in modern India is an ‘invention’ of colonialism …However, our results indicate that many current distinctions among groups are ancient and that strong endogamy must have shaped marriage patterns in India for thousands of years (ps.489=90)”. So much for the post-modern turn in Indian history!

Prof Lal’s 2002 articles are here 1 and 2

As Nehru’s PRO during his London visit, Khushwant Singh had his hands full

Excerpt from his book “India from Truth, Love and a Little Malice”

Are we thinking?

T N Ninan writes in today’s BS editorial

• “………….most people are only dimly aware of what transformational change will come to mean."

Who would like to see the real Keynes in the twenty-first century?

Thanks to Lewrockwell and Mises Institute for constantly reminding us to understand the real tragedy of Keynes’s German Language and his arrogance towards Mises’s book.

The following paragraphs are from Murray N. Rothbard’s classic article. Till now I have read at least twenty times!!

• “One striking illustration of Maynard Keynes's unjustified arrogance and intellectual irresponsibility was his reaction to Ludwig von Mises's brilliant and pioneering Treatise on Money and Credit, published in German in 1912. Keynes had recently been made the editor of Britain's leading scholarly economic periodical, Cambridge University's Economic Journal. He reviewed Mises's book, giving it short shrift. The book, he wrote condescendingly, had "considerable merit" and was "enlightened," and its author was definitely "widely read," but Keynes expressed his disappointment that the book was neither "constructive" nor "original" (Keynes 1914). This brusque reaction managed to kill any interest in Mises's book in Great Britain, and Money and Credit remained untranslated for two fateful decades.
  

• The peculiar point about Keynes's review is that Mises's book was highly constructive and systematic, as well as remarkably original. How could Keynes not have seen that? This puzzle was cleared up a decade and a half later, when, in a footnote to his own Treatise on Money, Keynes impishly admitted that "in German, I can only clearly understand what I already know – so that new ideas are apt to be veiled from me by the difficulties of the language" (Keynes 1930a: I, p. 199 n.2). Such unmitigated gall. This was Keynes to the hilt: to review a book in a language where he was incapable of grasping new ideas, and then to attack that book for not containing anything new, is the height of arrogance and irresponsibility.[4]

Notes No 4:

• In view of his friendship with Keynes, Hayek's account of this episode characteristically misses Keynes's arrogance and gall, treating the story as if it were merely unfortunate that Keynes did not know German better: "The world might have been saved much suffering if Lord Keynes's German had been a little better" (Hayek [1956] 1984: 219; see also Rothbard 1988: 28).”

Explore all avenues

Actor Kamal Haasan has a point but in different process of thinking:

He said:

• Is everyone in this country mature enough to understand sex and population? …………A grown-up society does not need policing. Discipline has to come from within.

Poverty isn’t some linear

Ramesh has piece on “The picture will not be complete without this pointillism of poverty”

Doomed to fit, in the different world

3 years to live: 'Obama got it, I want a Nobel too!'

"Buchanan-esque"

James Buchanan and Virginia school of political economy

Leadership is often about raising the aspirations of followers and enthusing people with a desire to reach for the stars

Ravi Subramanian has a nice piece on students and teachers relations on values. A bit from that article:

• Those who have sch­ool-going children wi­ll relate to what I am going to write. I was having a discussion with my daughter Anusha about her sc­hool when she turned ar­ound and said, “In the afternoon, there are a lot of people waiting outside my school. All of them come to pick up their childrens and hold up traffic outside the school.”
• Even in companies, it is often seen that leaders who instill this sense of trust, often manage to build a team of a hi­gh-performing, constantly mo­tivated team. These team me­mbers often stick to the same leader and help him deliver on the expectations that the organisation has on him, even in times of extreme crisis.
• Leadership is often about raising the aspirations of followers and enthusing people with a desire to reach for the stars. For instance, Mahatma Gandhi created a vision for independence in India and raised the aspirations of our people. People followed him the same way that Anusha followed her teacher. Everything that Gandhi uttered was go­spel truth. He built that faith in his followers, by adopting a selfless approach to what he was doing.
• This faith takes time to build up. Even a single act of indiscretion, a single instance of selfishness can shatter the faith that everyone has in the leader. When you look back at leaders in our corporate world, good leaders are often defined by how a leader stands up for his people in times of adversity. How he ba­cks them when they are in trouble? How he steps up his engagement with them in ti­mes of crisis. In the words of Seneca, the Greek philosopher, “Fire is the test of gold; adversity, of strong men.” Isn’t all this what a good teacher does with your child in school.
  

Economics as driving force

The Finance Minister Shri Pranab Mukherjee delivered ‘Kadirgamar Memorial Lecture at Colombo on “Economics as a driving force of International Relations”.

Some excerpts:

• As students of economics would understand, economic theory is an evolutionary process and undergoes change with every major crisis. The classical theory gave way to Keynesian economics after the Great Depression of 1930s. Thereafter, there were post-Keynesian and monetarist approaches to economic problems during 1960s to 90s. The present crisis, which has also been called Great Recession, would be another watershed in the evolution of economics and is expected to bring about radical retooling of the theory.
• ……the pursuit of individual goals do not necessarily lead to public good. Adam Smith’s ‘invisible hand’ cannot guarantee allocation of resources efficiently.

Teachings of Deepak Lal

There is a great piece in today’s BS by Deepak Lal. Some excerpts:

• ………..why a country with a firmly-established democracy and many world-class institutions and firms, and which is an emerging superpower growing rapidly, should in many dimensions of human well-being have a worse record than many sub-Saharan African countries.
• India, for millennia, has been par excellence an anarchical society held together by its unique cosmology. Hindu civilisation was born in the vast Indo-Gangetic plain, which no single political authority could hope to conquer for any substantial period of time.
• ………the decentralised and apolitical social and economic system, which emerged as a Hayekian “spontaneous order”, local public goods were provided by the semi-autarkic village communities. Thus, the decentralised civil society which developed did not need a state for its functioning.
• India’s ancient civil society has had greater independence from the state.
• For, in this ancient anarchical society, statist solutions will always fail, as these go against its historical grain. The only wise course is to intervene, if needed, by utilising the decentralised social channels which have maintained social order for millennia.
• the state needs to redirect its substantial expenditures away from its own agencies towards a system of vouchers for deserving individuals and households to use these private markets. The vouchers are best administered by local panchayats at the ward level. For, “Panchayati Raj” remains the only channel to get the improvement in human development indices, as it goes with the grain of India’s anarchical society.

Change (on the way) to remember 14 November in future

"My body quivered...but bodily pain I felt was forgotten in a feeling of exhilaration...I am writing in detail about this petty incident because of its effect on me,"

In the same way the people wounded by socialism will now write on the wall for generations. Fortunately, something is changing now but whom to thank is not still clear!!

"I have seldom felt quite so annoyed and humiliated as I did at that election....It would have been a matter to rejoice if I had been elected in the ordinary way...but it was not by main or side entrance; I appeared suddenly by a trap door,"

Nothing to say more or less…

Time is Credible

Debroy and Dickens:

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way.”

‘I only want to enjoy my childhood, ma’

What inspired Dr. Kalam to share his reading was the following article. If you have not already read it, you can read it now. It is amazing….. though I understand it is written by a adult!

‘I only want to enjoy my childhood, ma’ by Inumella Sesikala

(Dear co-parents, some of us might hear a small, fading voice making yet another attempt to reach us)

Amma, I don’t want to go to school.
I am just a child, Ma. I want someone to tell me stories and teach me. I want to watch tadpoles and butterflies and know what they eat, where they sleep. I want to climb a hill and catch a cloud to see what it is made of.
I want to wait with my hands in the stream and feel the fish swimming.
I want to run with the puppies, sing with the birds, and play with paper-boats in the rain.
I want to lie down on the soft green grass and hear the wind whisper.
Only then I want to learn more about them from the printed word.
Only after my imagination is fired, my thirst to know more has begun, a seed of ‘Why?’ is planted in my brain.
Amma, I feel trapped in the prison-like classroom. I feel my spirit slowly weakening with the monotonous teaching. Often, when I ask a basic question our teachers say, “No time for all that. Let us finish the syllabus.”
I get tired of studying just for marks without pausing to truly understand.
I want to go to the museum with my classmates and hear my teacher explain the stories of the artefacts.
I want plenty of nature trips where real Biology classes would be held.
I want to see colourful videos of volcanic eruptions and deep-sea dwellings.
I want our whole school to visit together the historic and cultural places in my city.
I want to learn astronomy after looking through a telescope once.
I don’t want to just read them in my textbooks; I want to see, hear, touch, smell and taste whatever I can. I want to experience.
Why can’t the school make at least one such trip every year?
And, I cannot stoop down anymore to carry my school sack. My back is ready to break. Why should I carry all the books everyday? Why can’t we have only two subjects per day? Or, why don’t we have lockers like in the Western schools? And, why should I squeeze in that over-crowded auto?
But, Amma, growing up no longer seems to be fun. I see only more of homework, winter projects, summer classes, weekly tests, monthly tests, quarterly, half-yearly and annual exams, external competitive exams, more tests, more competitions, more pressure, more stress…
When can I sing, paint, dance, swim, or cycle?
When I can just play cricket or even hide-and-seek?
What happened to that minimum sleep that you always say a child needs?
Why should I always study, study?
Amma, I am scared of increasing atrocities by untrustworthy teachers, ragging-raving seniors, acid-loving nuts, perverted adults…

Ma, right now, I don’t want to be a doctor, engineer or anything else.

I just want to feel safe and secure, play and learn without any stress before I become an adult like you.

I only want to enjoy my childhood, Ma.

Hayek, Keynes and Friedman era....

Amity Shlaes on F A Hayek: Keynes, Friedman Give Way to the Master of Gloom

The Idea of Student

Don’t impose on me what you know,
I want to explore the unknown
And be the source of my own discoveries.
Let the known be my liberation, not my slavery.
The world of your truth can be my limitation;
Your wisdom my negation.
Don’t instruct me; let’s walk together.
Let my richness begin where yours ends.
Show me so that I can stand
On your shoulders.
Reveal yourself so that I can be
Something different.
You believe that every human being
Can love and create.
I understand, then, your fear
When I ask you to live according to your wisdom.
You will not know who I am
By listening to yourself.
Don’t instruct me; let me be.
Your failure is that I be identical to you.”

A man under water will know nothing of what is going on outside

"…..the Azhvars, immersed in Lord Narayana, were unaware of anything but Narayana. So total was their involvement in Narayana.

Their verses were not carefully thought out compositions. They were spontaneous outpourings of their bhakti. They made no effort to write grammatically, and yet their verses turned out with grammatic perfection."

NREGA: An exchange with Jean Dreze and Swaminathan S Anklesaria Aiyar

In today’s ET Mr Aiyer states his position on NREGA and the idea of direct cash transfers.

Other readings on WALL-I

• Yesterday Communism, Today Radical Islam
• How The West Failed Eastern Europe
• Mr. Gorbachev, Tear Down This Wall

More

• Twenty Years Without The Wall

Other readings on WALL

• From Berlin To Bengal
• Barun on Writing on the Wall

Random readings

• Jagdish Bhagwati on “Trade In The Time Of Recession”
• Kick-start your talent machine
• Y V Reddy on Asia in a post-crisis 'new normalcy'
• Will Manmohan acknowledge the Modi model?
• Surjit S Bhalla on Need for a change in climate

• Von Mises: the man who predicted the Depression

• Will the mindset from the past change?

Indian Education System: The bad Dad of India! And Chitrahaar

Have you read it, probably yes or no? But have one more bite!

Moral of the Story: “Kapil Sibal has created a storm in a tea cup by suggesting that there could be a higher watermark of performance in Class XII for students aspiring to enter the hallowed portals of IIT.”

See K Vaidya Nathan’s action:

Bites of Two Folks at IIT!!

• "Me: Hi, congrats on cracking IIT JEE big time.
• Roomy: Thanks! Wasn’t such a big deal.
• Me: I am curious why you say so. If I had your rank I would be shouting from the rooftop of my house to anybody who would care to hear.
• Roomy: Well, it’s not such a big deal because I have been programmed to perform well over the years.
• Me: I am not sure I understand your ‘programmed to perform’ thing.
• Roomy: See, while my classmates wasted their time watching stupid cricket, enjoying stupid Hindi movies and playing stupid games, I never did any of those stupid things.
• Me: Let me confess that I have done all the things that you call stupid. I have watched a lot of one-day and test match cricket. I have also ‘wasted’ time playing cricket apart from other games. Though I haven’t seen tonnes of movies in theatres, I surely have watched most of the movies that came on DD. In fact, I have watched countless Chitrahaars as well.
• Roomy: What’s Chitrahaar?
• Me: Skip it. You still haven’t answered the ‘programmed to perform’ part.
• Roomy: Oh yeah! While others used to stupidly while away their time, I used to attend memory enhancement classes, speed reading classes, vedic mathematics, etc apart from programming classes like BASIC, FORTRAN, etc. So you could say I was programmed to perform.
• Me: No wonder you made it to computer science and I am in a lowly electronics and electrical engineering department.
• Roomy: Yeah, that’s because I never did stupid things.
• Me: I notice that you use the word ‘stupid’ more than any other word to describe lesser mortals. Anyway, I am still curious to know how you prepared for JEE.
• Roomy: Well, I started to prepare when I was ten.
• Me: You mean when you were in class ten.
• Roomy: No! when I was ten years old.
• Me: I hadn’t even heard of IIT then. Anyhow, how could a 10-year -old prepare for IIT JEE. I thought you had to be a Ramanujam to solve complex math problems as a child.
• Roomy: No, I started to mentally prepare myself for IIT JEE.
• Me: How do you do that?
• Roomy: See, actually my dad is an engineer. He wanted to do his engineering from IIT but couldn’t get past JEE. When I was ten years old, my father told me, “come what may, you got to make it to IIT.”
• That’s how my mental preparation started.
• Me: Have you heard of some such thing as ‘human rights commission’. They could have rescued you.
• Roomy: What do you mean?
• Me: Just kidding. But seriously, when did you really start preparing for JEE?
• Roomy: I started by attending coaching classes for IMO/IPO (international
• mathematics/physics Olympiad). After that I enrolled for FIITJEE. I used to study at least six hours a day apart from school.
• Me: I guess summer vacations would have been fun since you had no school to attend.
• Roomy: Yeah, during summer vacations, I did not have to attend school. During vacations, I used to study twelve hours a day.
• Me: I hope you had enough time to sleep, at least.
• Roomy: Actually, when I used to feel sleepy, my dad would suggest that I do math. Good way to save on sleeping hours. I am glad my dad was there to guide me.
• Me: Good Lord! You don’t have your dad here, so you can at least sleep well here.
• Roomy: Well, my dad has asked me to enroll for coaching classes for CAT. He wants me to do finance at IIM.
• Me: Maybe, we are too young to decide for ourselves what we should do, but can’t help wondering, if your dad wanted you to study finance, why bother with IMO, IPO, JEE and the four years of engineering.
• Roomy: You see, I am programmed to perform. My dad would feel bad if he can’t boast to everybody that his son has aced all exams in the country. I would feel guilty if I did not live up to his expectations.
• Me: I had heard stories about suicides here. I think I relate to them now.
• Afterthought: One of my friends actually committed suicide at the end of the first year because he did not have good grades. I have heard from friends in school how they felt suicidal when they could not get through JEE. I hope the education minister doesn’t add to their woes by indirectly making them slog even more and stressing them further."

Who knows how many stories are going like this ever since the establishment of IIT.

The fall of Wall and that of freedom story

So without nationality or mere with narrow nationality people have celebrated the 20^th anniversary of the fall of the Berlin Wall. Some one said “the past two decades have been, … the "best in Central Europe for 300 years".

Here are some of stories:

• After the wall fell
• Those born free in 1989 & our young
• Berlin, August 1961: An Anniversary We Should Never Forget
• France to Mark Fall of Berlin Wall With Musical Tribute
• Thousands cheer 20 years since fall of Berlin Wall
• World Leaders Revisit Berlin Wall's Fall
• Twenty Years of Stimulus for East Germany

Economically died but politically alive-III

Coomi Kapoor has a piece in today's Indian Express on Mrs. G, but this one, she has subsumed views of few who have commented very gregariously. “To give a cross-section of views by prominent journalists on India's controversial iron lady:” She writes.

Some excerpts:

• "Vir Sanghvi praises Indira for her strength and leadership. He says her critics attack her mainly for her dynastic ambitions and her Left-wing economic policies. The Emergency she imposed, he believes, has been forgotten. Sanghvi credits Indira for keeping India together and gives her high marks for strengthening the electoral process and for her foreign policy.
• MJ Akbar believes that India welcomed the realism of Indira Gandhi after the travails of Nehru's idealism. He applauds her for calling elections in 1977 rather than following the example of so many post-colonial dictatorships in Africa and Asia.
• Karan Thapar opines that Indira Gandhi's imprint is not just resilient, but perhaps indelible. "She is not only the best remembered of our politicians, but also, I suspect, the most misunderstood," he says. He recalls his personal interaction with the Gandhi family and recounts an incident when as Prime Minister, Gandhi wanted to make sure that she was not later than the President in arriving for a screening of the film "The Pink Panther". Thapar's sister remarked in amazement, "She is virtually a dictator, yet she's so particular about protocol and politeness."
• Shekhar Gupta, with a more balanced view, feels that Indira was a different Prime Minister in each of her three spells in office. "She changed and evolved, often for the better, sometimes not quite so. She was "insecure about losing power. The extreme leftward swing in her politics came not from any genuine commitment to socialism, but as an ideological camouflage for a series of dictatorial and subversive blunders which she was to regret later."
• Pratap Bhanu Mehta argues that during her tenure, Indira willfully assaulted every single institution: the judiciary, federalism, the police. She tolerated and created a style of politics that was lumpen at its core; an odd combination of corruption, violence and the use of arbitrary power. Her economic policies were largely a disaster. He adds, however, that she was the last leader who truly belonged to the whole of India. The reverence and nostalgia for her has survived, in part because her personal qualities seem to transcend her politics.
• Tavleen Singh notes that Indira Gandhi was a charismatic politician with an amazing ability to convince ordinary Indians that she was their one and only benefactress. But "when I try to remember anything good she did for India from an economic or political point of view, I come up with a very short list. By 1984, when she had ruled India for over 16 years, she succeeded in turning India into a country in which everything was in short supply and everything second-rate."
• My own assessment of India's iron lady comes closest to those of Tavleen and Mehta."

Ideas of Mill and the Future society

There are many narrative is going with the following ideas ever since Mill had penned it down the On Liberty particularly the following a bit.

• “The object of this Essay is to assert one very simple principle, as entitled to govern absolutely the dealings of society with the individual in the way of compulsion and control, whether the means used be physical force in the form of legal penalties, or the moral coercion of public opinion. That principle is, that the sole end for which mankind are warranted, individually or collectively in interfering with the liberty of action of any of their number, is self-protection. That the only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others. His own good, either physical or moral, is not a sufficient warrant. He cannot rightfully be compelled to do or forbear because it will be better for him to do so, because it will make him happier, because, in the opinions of others, to do so would be wise, or even right. These are good reasons for remonstrating with him, or reasoning with him, or persuading him, or entreating him, but not for compelling him, or visiting him with any evil, in case he do otherwise. To justify that, the conduct from which it is desired to deter him must be calculated to produce evil to some one else. The only part of the conduct of any one, for which he is amenable to society, is that which concerns others. In the part which merely concerns himself, his independence is, of right, absolute. Over himself, over his own body and mind, the individual is sovereign.”

An awakened, empowered people would become creative and transform the world

That is the last line of an article published in the ET today by T K Arun. By and large the article is a marathon towards creating a new ministry called “The ministry of development”.

Let the critic take their bite on ‘if’ and ‘buts’ on the issues at hand. To my mind the thinking is the following wonderful narrative of the word ‘development’.

“Development should be understood as realising the creative potential of all individuals. Admittedly, this simple definition rests on much conceptual complexity. No one has any predetermined creative potential — it constantly expands, depending on the growth of the individual’s cognitive skills and the scale and manner of his interaction with nature and society.

…….mainstream political parties fail to empower them, but only seek to secure their silence, at best, by throwing them some crumbs, they will end up with the Maoists, who seek their empowerment in the overthrow of the present social order.

……..the key task is political mobilisation ….deprived to realise their right to life, liberty and dignity.”

In other word, the killing of spontaneous order is the prime motive of the State in any society.

Economically died but politically alive-II

On this Monday Ila wrote another article which is very opt to the titled of this post.

Some excerpts:

“..Many sectors of industry were not allowed to grow large by deliberately keeping them small. Bank nationalisation was followed by small-scale industry reservation. The policy of explicitly reserving certain items for production by small companies was created. Indian industry has lost out for years because of being unable to harness economies of scale. While the list of reserved items has become shorter, it has not been before China has thundered ahead building large scale industry, while Indian industry has helplessly stood by and watched.

Until then factories with over 1,000 workers used to require government permission for lay-offs. The size threshold was amended in 1976 to 300. In 1982, when Indira Gandhi was back in power, this was further reduced to 100. Even today many industrial establishments require prior permission of the appropriate government before lay-offs, retrenchment and closure. Most problems connected with the IDA arise from this since the government becomes a third party to the dispute even if the employee is satisfied with the severance package. These sections of the Act need to be considered along with other elements of the act which makes any dispute between an employer and an individual workman an industrial dispute.

The central planning logic went into other areas was well. For example, on February 17, 1976, the Urban Land Ceiling Act was passed. It covered 73 towns and cities and imposed a ceiling of 500 to 2,000 square metres on urban land holdings. It constitutes a major distortion of the urban land market. While this was a state subject, the Constitution allows Parliament to pass a bill if more than two states agree, and this path was chosen during the emergency. Another law giving disproportionate powers to the state was the Monopolies and Restrictive Trade Practices (MRTP) Bill proposed in 1967. It became an act and came into force from June 1, 1970. The MRTP Act, which gave huge powers to the government, sought to check the expansion of large industrial houses with assets over Rs 1 crore or where their share in the market exceeded 33 %.

….Until governor Subbarao changed the rules recently, they even needed licences to open ATMs. Only 18 foreign bank branches are given the licence to open every year. If banks open branches abroad, they need permission. Every product that is launched needs permission from RBI. The authorities decide what the savings bank interest rate is. The authorities decide what the interest rate on lending to certain sectors is. The authorities define who to lend, how much to lend and at what rate to lend. They decide how much a bank has to lend to the government, to the central bank, to agriculture, to small-scale industry, to exporters, to students, to rural businesses and so on. Every element of the life of a banker is dictated by the authorities.

………..everything that can kill the growth of a healthy and competitive banking system plagues Indian banking. Undoing all this is going to be a formidable task.”

Tim Harford on India’s Bank Nationalization and Airport Infrastructure

In an interview to ET Tim said:
Do you think India did the right thing by nationalising its banks?

According to the conventional wisdom, the mainstream economies were in recession and India was perhaps right in its strategy because it avoided recession, especially the Asian downturn. But, when it comes to openness for foreign capital, there is need to be more rational.

What do you observe when you look at India as an economy?

One of the first things that strikes me is that India is leaping forward in chunks. So, the airport infrastructure is fantastic, hotels are really good, but there is problem with traffic and other infrastructure. I see new and old worlds exist together in India, which is a good thing, but it’s going to put India under strain.

Here come two important piece of argument on Indian bank nationalization and airport infrastructure development.
Very convincingly Ila Patnaik says what is true in bank nationalization.

"The larger employment generated by PSU banks is a cost to the economy. PSU banks have much lower productivity than private banks. The profit per branch of public sector banks is Rs 0.5 crore, a fifth of the Rs 2.5 crore for private banks. The profit per employee at Rs 2.6 lakh is only a third of the Rs 7.6 lakh for private banks. This is despite much higher wages at private banks. They lag behind on efficiency and profitability, thereby making financial intermediation costly for the economy. This reduces growth and productivity in the Indian economy.

However, as the Raghuram Rajan report argues, if efficiency and profitability are not the correct yardsticks by which to measure the success of public sector banks, and “social goals” such as financial inclusion and credit to the priority sector are the right objectives to look at, PSU banks have failed even on those. India continues to have a very poor performance on financial inclusion, even though a certain recipe of bank nationalisation, directed credit, etc, has been tried for many decades.

While in the ’70s and ’80s, opening branches to raise deposits may have been a priority, today the experience of many countries, including India, has demonstrated that access to credit is very important in the reduction of poverty as it helps smooth consumption. It is claimed that the right way to get this done is to force PSU banks to open rural branches. Empirical evidence shows that these approaches are not delivering results. In addition, these old approaches have failed to take into account India’s urbanisation and the increasingly important needs of financial services by the urban poor. The anti-competitive policies of the authorities, such as preventing branch opening or preventing the entry of new private banks, directly hurts the agenda of improving access to finance for the urban poor."

Bibek Debroy on airport infrastructure development