Capital (ism) Punishment

The financial market meltdown in the US has shaken the world. The big names of the Wall Street are licking the dust. It all started with the subprime crisis and now the problem appears to have reached its nadir with the collapse of firms like Lehman Brothers. The globalization of financial capitalism and interconnectedness of financial markets mean that the crisis will cast its spell well beyond the boundaries of the United States. A lot of questions hover over our heads. How can everything go so wrong? Is the world of finance so complex and beyond the reach of regulators and governments? It is not rocket science, isn't it? Let us try to decipher how this earthquake happened.

Yes. The world of finance is indeed a complex one. The most worrying aspect is the amenability of financial products to a bewildering possibilities of engineering and re-engineering. An underlying asset may not be a prime one. Or it may be a junk bond which your regulator may now allow you to dabble in. But what if you bundle the prime loans with sub-prime loans and try to offload them to some other lender? This lender might be completely oblivious to the default risk lurking around every such exotic structured product. Worse still, this lender may find some aggressive and smart chaps who provide funds to facilitate such transactions also. After all, your Central Bank has slashed interest rates to help you guys prop up the sagging economy and credit has got cheaper. And who does not want to earn 'risk premium'? You are not here in this world of high finance to dabble in T bills only. You may not like to imagine that real estate boom is not going to be there always. You continue to innovate and repackage securities and loans. You take other decent guys also on board who are sick of doing the mundane job of taking deposits and lending money. Don't banks find their task a 'no brainer'? Why shouldn't they also fuel the creativity triggered by the mortgage market? And who is watching? Most of these innovations are off balance sheet transactions. The Central Banks and governments (if these two entities are indeed considered independent and separate !) are busy reversing the slowdown and burning midnight oil to inject liquidity in the system. And the regulators are still learning the ropes. Let the party go on until, of course, you find yourself at the end of your rope.

The thriller does not end here. Banks are smart enough to insure their exposures with the likes of AIG. You go under. You drag down the system with you. And you look to the governments to pay for the follies which, but for this crisis, would have passed off as creativity and ingenuity. The game starts with a small time home loan borrower who may miss his repayment but stops when the giant insurer finds itself gasping for breath. And you have a government who willy nilly extends an olive branch called a bridge loan worth USD 85 billions to AIG. But the same government, weary of bailing out failed 'innovators' and 'alchemists', turns away, somewhat enigmatically, when it comes to salvaging Lehman Brothers.

AIG has been nationalized. Now we know nationalization is not something which can happen in India only. The state is not in retreat. Governments are still relevant to our lives.

So, that is how the Wall Street has been disgraced. Capitalism does not look confident. Thus, the world of complex high finance, though resting on the foundation of something as predictable and straightforward as mathematics, is still fraught with grave dangers. And here, human inventiveness is the main culprit besides greed and ever expanding desire for netting arbitrage.

Will we learn lessons from this debacle?

MetroNation Attacked

The capital has been bombed again. Terror is visiting our cities with a nauseating regularity. The sense of helplessness has once again overpowered us.

I have been to the Central Park in CP a few months ago. The divine sounds of a Sufi music performance going on in the amphitheatre of the Park almost mesmerized me. As the evening fell and darkness intensified in spite of the soft lights of Central Park, the spiritual ebullience peaked and the listeners appeared to be transported away from the humdrum metropolitan life. Everything was just perfect to create a kind of ecstasy one would never expect to achieve while strolling around the hub of this busy political capital of India. Right beneath the Park is the Connaught Place Metro Station, the epitome of modern infrastructure. The Park seemed to suggest how craftily the government had tackled the so called development and environment trade off.

The bombs have gone off on 13th Sep at the Central Park also hurting and killing innocent people. The terrorist attack on Central Park like the one on Parliament has a lot of symbolic importance. The attack has taken place right under the Government's nose. The Indian state is helplessly watching the sad stories unfold in various cities- Delhi, Varanasi, Jaipur, Bangalore, Hyderabad, Mumbai, Ahmedabad, Surat. And many more may be in the offing. When such gruesome attacks happen with undiminshed force and frequency, you can't help but laught at the talks of our superpower status. We are good at winning software contracts. We are good at economic growth. We are almost the best at holding free and fair elections and running democracies at various levels. How about national secutiry? Why are these challenges not taken seriously?

What we need is a professional and technocratic response to crimes like terrorism. We do not need any inputs from politicians to combat this problem. It is a war like situation. Do generals consult political parties to frame strategies during war? Just leave the professional agencies and forces alone to deal with terrorism.

There is nothing political or ideological about terrorism. It has a lot to do with national security. It is a crime that bleeds civil societies and claims lives of innocent non-combatants. And governments just cannot faff about or fool around.

For me, the pictures of the blood stained lawns of the Central Park have replaced the memories of that divine musical evening.

Good Bye, America?

The world has started dreaming of a strange but exciting future, the future where America is no longer a leader. Most of us may call this a pipe-dream. Some of us have already predicted the contours of this brave new world. The succession planning is already underway and the likely candidates are China and India. There are other emerging players also in this 'leadership pipeline'.


The US has dominated our imagination in almost every walk of life since the World War II. Its rising power, prowess and influence continued to awe us. We looked to US for almost everything a developing nation is normally concerned with: education, military technology, nuclear power, industrialisation, administrative efficiency, electronics and computing, economic aid, space science and the like. Our IITs and IIMs are modelled upon the US institutions of excellence like MIT and Harvard Business School. Our research institutions and industries have profited from their association with the US technology and knowhow. We have toyed with an idea of adopting US-style presidential model of political executive many a time. We are fascinated by the success of private initiative and entrepreneurship in the US. And Indian parents are still anxious to send their children to American universities for higher education. The US consulate in Mumbai issues about 1,80,000 nonimmigrant visas every year.

Why then do we all dislike America to some extent? Do we envy them or are we sure of never scaling the dizzy heights this country has achieved? Is America invincible? Does this notion of invincibility put us off? Is this how we start grudging against every point the country scores? Does it make us realize how slothful and contented we have been all these years?

The degree of US-bashing varies from country to country and it is really an interesting idea to think up an index to measure a country's anti-US sentiments at regular intervals. Notwithstanding our general stance of skepticism towards US policies and accomplishments, we know deep down that this nation can show the way. And every developing nation ends up emulating the US and nurses a hope to achieve parity with this global superpower inspite of what the noisy nationalistic rhetoric says back home. Here are the leaves a country like India can take out of the US book:

(1) Though our constitution does draw upon the US one to some extent, there is a need to borrow more from this exceptional document of democratic spirit and social justice. The US Constitution is relatively simple but rigid and has been successful in holding the nation together. Also, it is harder to run a Constitution than to frame one (Woodrow Wilson). The US has toiled enormously to raise administrative effectiveness to a level needed to achieve the lofty goals of the Constitution. India has been content with inventing 'All India Services' only. No other significant innovation has been tried in the area of public administration since independence.

(2) Even in the late '90s the US had an inkling of what Osama Bin Laden was upto. (The world hardly knew how to spell his name). And post 9/11, the US government has put terrorism on the global political and security agenda with the kind of fervour the world has never witnessed in the recent political history. Every government and national leader began talking terrorism. That's how you get 66.1 million entries of 'terrorism' on the Google. Pursue the goal and have a heart for any fate. Work hard and wait. That's the message the US sends out. The country stands for unrelenting pursuit of objectives you believe in and convinced about.

(3) Don't dump science, technology and innovation, no matter how high you have started ranking yourself in the global order. The US universities are the greatest tribute to the spirit of scientific enquiry and knowledge. India cannot afford to remain smug in this critical area. IT is just the first chapter of the 'superpower in the making' story of India. Just think how poor we are at research in defence, industrial automation and engineering, pharmaceuticals, medicine, environmental protection, clean energy solutions and numerous other fields of basic science and technology. We have found an easy way out. Build as many IITs as possible and the picture will improve dramatically.

We may secretly smile at the waning global influence of this so called hegemonistic world power but we all would do well to remember what America stands for. It may have devastated Iraq but look at how it is toiling to bring Rwanda back to health after being ravaged by one of the most horrific ethnic carnages of the last century.

We will look over the downside of Uncle Sam in the next post.

ANSWER KEY

The post on 15th Aug highlighted the problems plaguing our country. How do we crack the code?

(1) Breaking down implementation programme of each policy initiative into monitorable and measurable clusters of activities to be carried out by public servants in a time-bound manner. The objectives must be clearly laid down for teams of employees responsible for each cluster. Accountability for failure or suboptimal performance should be fixed at all levels of the executive as well as legislature. (MPs/MLAs should be made equally accountable for shoddy implementation of development work). A comprehensive system of incentives, rewards and punishments can be built into every implementation programme. Names of performers and underperformers should be widely publicized to generate informed public opinion. If MPs/MLAs fail to implement a government scheme/development programme in accordance with the pre-determined standards, they should be recalled before the end of their terms.

(2) Thrust on basic science research is the need of the hour. We need to understand the simple fact that we are still not good at basic research in science and technology and the physical and social infrastructure available in the country cannot help us excel in these areas. Encourage the youth to opt careers in basic science and technology. Take the glamour off the professions which are going to get us nowhere. Extol science. Laud our scientists. Creat a climate for private initiative and innovation. Debureacratize the scientific organizations. Universities cannot remain content with only churning out graduates/PhDs. They need to connect with the larger world outside which crave for new research relevant to society and industry.

(3) Why the government departments only should implement government schemes ? Let NGOs/civil society organizations take on the actual task of execution of development work (say, activities under each cluster) in their areas of specialization. Monitor such NGOs and subject them to social/performance/financial audit. This would impart private sector-like dynamism and transperancy to the corruption-prone and slothful development machinery. You can also progressively shrink the bureaucracy this way. Keep the critical mass of public servants which can oversee performance of NGOs.

We can at least start off with these three steps..The journey is long and arduous

Dipan Anjaria

THE 'INDEPENDENCE DAY' Puzzle

Celebrations on Indian independence day eclipse the areas that still concern all of us. Let us show the guts to look into such issues. It is time for introspection. It is time to assess how far we have progressed since Nehru's 'tryst with destiny' speech at the dawn of political freedom in 1947.

(1) About four million children still remain outside the ambit of formal primary education in the country which does not hesitate nowadays to broach the topic of economic superpowerdom at every international high table and forum.

(2) Poverty has only been managed in terms of statistics which a common man hardly understands. To a common citizen like me, poverty alleviation still remains the single largest challenge to our governance.

(3) We are an IT-superpower. But we are a laggard when it comes to basic research in science and technology. And this is in spite of IITs and a host of premier universities and research labs.

(4) We have nearly dumped our model of democratic socialism. We have never ceased talking 'money' since our economy was opened up in early 90s. We are embracing values of Western civilization and taking to the path which was shunned by the likes of Gandhi and Tagore. We have started identifying development with swanky glass-and-steel commercial buildings and titanic fly overs criss- crossing one another.

(5) Our sensitivity to moral and social problems of the day is abysmally low. We are now mere 'consumers' catering to the market-seeking brands of foreign corporations. A mode of transport as simple and primaeval as railways (local trains, to be specific) claim about 9 lives every day in the modern megalopolis of Mumbai. Buildings collapse in every monsoon with a nauseating regularity in this ambitious city that dreams to become world-class and equal those in the league of Dubai, Singapore or Shanghai.

(6) We are content as our economy has grown at 9 per cent rate lately. Barring economy, almost everything appears to be in a mess.

(7) Our democray is functioning well apparently. On closer examination, it looks no better than a spoils system. An educated youth hailing from a humble socio-economic background still does not dare to enter politics. Debates and discussions are still confined to air conditioned studios of NDTV or IBN-CNN.

-DIPAN ANJARIA

THE ECONOMY & COMEDIANS

I do not understand my instincts nowadays to link almost everything I see changing around me to the economic superstardom of India. A case in point is our entertainment industry. It can be looked at from several vantage points but I tend to look at it through the prism of our scorchingly growing national economy and rising international stature. Though the inflation blues have dampened our spirits and made life tougher for the common citizen, the creativity of our entertainment sector continues to be on a roll. It all began with the boom in satellite TV channels. 'The Great Laughter Challenge' heralded a new era of innovative 'comedy shows' that made us rediscover our funny bones. This creative explosion churned out bright comedians hailing from almost every corner of India. I suspect India may soon come to be known as a 'country of comedians' rather than snake charmers and saints. I think the spate of comedy shows on various channels have made comedy a solid and dependable vocation. And thanks to the Western-style economic change and technological advances (we no longer need to stand in long queues to pay telephone and electricity bills), the Indians have got all the time to hook on to their TV sets. As an evening falls, our TVs are turned on and the funny bones begin to tickle transporting us away from the absurdities of a hectic work day. It does not take an economist to conclude that economic advancement leads to a well-rounded development of a society and a nation. When a comedian from Kanpur or Chandrapur launches an offical website, we can't help but to believe the trickle down effect of rising national income. Isn't it an example of distributive justice? Can we still say globalization and liberalization have only made the rich richer?May this 'upside' of a growing economy is not confined to entertainment and arts only but percolate down to our politics and governance also.

Mission N-Deal

It is heartening to see our government hanging on to the US nuclear deal. It is not very common to see national governments finding a mission and leaving no stone unturned to achieve it. These are the qualities we usually identify with private sector. Isn't it an example of management by objectives? The most essential point about the whole saga of N-deal is that it is not driven by any political ideology. The concerns about energy security are driving the government to burn midnight oil and bring the N-deal initiatives to their logical ends. The BJP, if it were in power, would have striven to achieve the same deal.

Were we ever seen discussing issues like energy security with such a high level of publicity, earnestness and volubility? As a nation, we have come of age. A common man now fairly knows what the N-deal is all about. If pulled off, the deal will go a long way in ensuring Manmohan Singh's august place in the annals of political history of India. Some demerits notwithstanding, the deal is historic and is of a far-reaching strategic importance to us. The deals assumes greater importance if we are serious about developing our nuclear power generation sector. On the other hand, our relations with the US will not be affected very adversely if the deal comes apart. Be that as it may, the deal and the debate it has entailed in the country augurs well for our democracy. Like good 'argumentative Indians' let us continue debating the deal. We have a government that is keen to answer our every query and dispel our every doubt.

On their part, the Left must find out the alternatives of securing our energy future if the N-deal route is not acceptable to them. They must say they are not interested in nuclear power and do not give a damn about the need for accessing the global nuclear commerce. (In fact, they have never been believers in any kind of nuclear energy development). They must also suggest an alternative model to achieve the ends which are supposed to be achieved through the N-deal with the US. In 21st century and in a country of a large upwardly mobile middle class, you cannot just play the politics outside 'circle of reason'. Nobody is going to listen to the left, if their arguments continue to have a smack of ideology. Let your message be clear and constructive. Let your arguments be reasoned and logical. You must be seen being concerned about the issues like energy security and must work hard to think up an alternative solution. Your politics cannot be effective if you make yourselves seen as perpetual naysayers by your own countrymen.

In the meantime, let us wait for a few more Mulayam Singh Yadavs to emerge from the backstage and show support to this historic initiative.