De-Lurking on the Net

November 9, 2016

Sledge Hammer strike by India’s PM Modi on black economy and terrorism funding

Today, Mr Modi went bold. Perhaps not of his own volition but on behest of what all the economic advisors he could muster in last few months, advised him. He struck the  big denomination Indian currency notes void(Rs 500, Rs 1000). Some say these large notes amount to 86% of economy. Indians have guessed that economy is as much in black as it has been in legal/legitimate or white economy. So, given that both 86% is a guess and dividing line between black and white as at 50% of guess, then Mr Modi is writing off 43% of GDP in one hit. No matter what % is hit, the impact will be to usher the huge deflation in its black economy. It comes on the heel of his visit to Japan, a country staying in deflation since its hay days of 1993, before which it had seen any boom. Perhaps, it is just a coincidence.

pm-modi-ends-rs-500-rs-1000-currency-notes-read-his-full-address-here

His intentions can not be construed as wrong as he wanted to hit the most, two sets of people – 1) terrorists 2) Black economy peddlers who have refused to come out in open in spite of the amnesty to convert their black money into white(The scheme was not failed but could hardly be called a successful scheme).

So, what happens now – he introduces two type of notes – Rs 500 and Rs 2000 . These are not Plastic polymer notes as recently got introduced in number of countries (Australia, Canada, UK, New Zealand, Vietnam, Maldives etc) but it has new security features. Some say , Rs 2000 note has NGC technology . Details of the NGC has not emerged from Govt sources but social media rumors are fueling this. The NGC introduced in Philippines did not have any nano GPS chip as people are talking of Rs 2000 will have one. Without introducing a fool proof arrangement of  temper prevention or making it tough for some people or countries to stay in printing duplicate currency  and sending it to India, this whole exercise achieves nothing but brings pain to India. You merely burn your own notes.

There are terrorists using Hawala market, an arrangement where someone who wishes to send money into India does not go to banks or use legitimate companies. They use individuals who disburse Indian rupees from their black money in India to the recipient and get paid in return in foreign currency in a foreign country abroad. Such transactions were major source for black marketers to convert their money into white, money launderers to launder money, terrorists to get funded for new terrorist acts, drug pushers, smugglers etc . The cinema(Bollywood) largely depended on black money for funding. The Real estate particularly in north India had a big share of black money in it. All the political parties virtually live on black money. There is a domestic currency based trade between Iran and India. India’s currency is also used and particularly popular in Gulf  countries and in a country like Zimbabwe who are in the process of re-introducing their own currency again after a hiatus of several years. So, will all these people or even diaspora spread around the world will have all their money in bank or would be in position to change these notes in time?

So, immediate impact would be less housing activity, less Bollywood Cinema films, less terrorism (at least for now), less smuggling(all the smugglers money is never fully invested in metals like gold or other commodities but also remains in hard currency), less drug trafficking. There will be less activity in air travel and luxury living. There will be suffering for both poor and rich people. Poor people hardly have bank accounts, so will be impacted  a great deal. There are remote , rural areas where there can never, ever be a bank.  Even if such people have notes with honest earning or sent by their relations or kids, they will never know how to go inside a bank and convert it. There will be people not been able to pay to private hospitals. Govt hospitals rarely exist  for most in the country. There will be people who hide the money and unable to return in time to the places where they hid it to convert it or have anyone to access their money to convert it. Virtually all sectors in India have humongous corruption from ISRO scientists to judges, from North to South, West to East India. So, what happens when people suddenly have less financial muscle. Well it means, that their economic activity goes down including expenses on exorbitant weddings. So, hoteliers, caterers, etc all will have impact. It is like dropping a bomb on your own economy or helping your enemies who may all want your GDP to come down to a very low level or to see  your purchasing capacity substantially reduced.

The notes  can be converted in next 50 days . But beyond a threshold  of converting Rs 4000 in cash of new notes, conversion is allowed only by the bank accounts. If someone does not have their own bank account, then they have to use some one else’s bank account by giving them consent to receive his/her money into their accounts. Later on,  such people can withdraw their money in new notes from the account for which they consented. So, this particular activity will make the menace of already accumulated black money  in the economy to reduce substantially and it will become trackable until it stays in bank. It may stay long term in bank accounts but chances of its  staying in bank accounts long term are remote as people are used to cash transactions.  This declaration by Mr Modi, therefore, will not make the economy to become overnight controlled by banks. The networks of black economy generation, terrorists funding or drug peddling mules, duplicate currency circulators, smugglers, betting, bribe givers, bribe takers  are not going to disappear overnight. They are part of the system just like political parties or corrupt judges.  So, a new black economy will start growing as soon as one ends. Yes, there will be  people who will suffer massively and a few may even commit suicides or may even die of heart attacks when they find themselves  ruined totally. Incremental changes like Jan Aadhar Yojana etc would have achieved Mr Modi’s dream of having a economy fully running via banks etc. in few years.

Misery awaits India in short term and this will have impact on  the growth of the world economy too. Perhaps, it will teach a lesson to the other leaders to be patient.

June 11, 2016

Fixing capitalism – Will taking away, knighthood from Mr Green prevent another BHS?

 

From India, recently, Britain gave refuge to a liquor tycoon, Mr Vijay Mallya. He had multiple companies including an airline. The company was extended loans from Indian Banks (State owned and Private) when the petrol prices were double than what is today. The company kept getting loans because without it massive unemployment would be created. Moreover, the man, Mr Mallya had political connections and he himself was a member of Indian parliament’s upper house. These loans were given to his airline company without any collateral support or risk assessment. So, this man sold his other main company to British company Diageo. He flew out of India, without paying anything to banks . Now banks are holding merely the brand name of bankrupt company Kingfisher as a collateral. But, no one is interested to buy this name. Banks now can not recover anything of this 1.4 billion dollars debt. Mr Mallya, from his safe abode in UK wants to settle these debts at his own terms (say around 55 %  haircut)  as per this article in FT on.ft.com/1ThQLnt. GOI has cancelled his passport and he has been given refuge in UK. It was clear from CBI investigation that this man was diverting loans from banks for buying assets abroad. He was also running a formula 1 team, an IPL franchise, two football teams etc.

Kingfisher Airlines Chairman Vijay Mallya speaks to the media during a news conference in Mumbai November 15, 2011. REUTERS/Vivek Prakash/File photo

Kingfisher Airlines Chairman Vijay Mallya speaks to the media during a news conference in Mumbai November 15, 2011. REUTERS/Vivek Prakash/File photo

Giving refuge to runaways like him is not a one off event. In 2010, there was another chap on these British Isles given refuge from India – Mr Lalit Modi. He was the czar of Indian Cricket Premier League for first 3 years. He diverted money in  various accounts overseas, bought assets abroad etc. There are many charges in this wiki page on LalitModi. So, Britain is good for fugitives as these people are given special protection by the British crown and are beyond repatriation.

One can understand, if British only overlooks the deeds of those who come from outside but how about the ones, who were very much part of this land from first day, they were born. The debacle of Royal Bank of Scotland was far more profound than the current crisis of BHS (British Home Stores). BHS owes 1.1 billion pound at the point, it  entered administration. RBS needed bailout of £45billion  in year 2008 when the British chancellor was told that the bank can only last 2 to 3 hours max. Both Mr Fred Goodwin and Philip Green were given knighthood.  The telegraph is publishing one article after another revealing gory details of current financial crisis in BHS as how Mr Philip Green did the asset stripping and lined up his pockets before selling the shell to a novice in retail business for one pound. While Mr Goodwin is now stripped of knighthood, but the debate is on if Sir Philip Green should follow. But should the debate be reduced to the knighthood. It will do nothing to correct the mistakes of the system which allows this.

Sir_Philip_Green1

Sir Philip Green

Before, these two episodes, there have been plenty others, but I will mention two related to famous football clubs – Liverpool and Manchester United. Both did not have any debt some 10 years back. Manchester United ‘s current debt is £322 million, its turnover is £133 million. The peak  debt as per this BBC report was £778 million in 2010 summer. So, this debt is going down at least. The Liverpool has quite a similar tale. From no debt to £313 million debt as per this guardian article in 2009. Liverpool has current debt is £47 million as per this article of daily mail after it has converted £69 million debt into equity last year. So, both these clubs are moving in right direction with having reduced debt every year. But the question is should a personal debt (to buy the debt free club) of an owner be allowed to be moved to the company. Where should the line be drawn. There are plenty of stories where the debt has sunk a club. Leeds Football Club is a good example of that.

 But does it not make one wonder how in the land where industrial revolution took shape and capitalism was born, the rules even today allow anyone to pocket any money from any company, only if they know how to play the game. The state has no control to prevent the plight in time. In case of RBS, the whole country (UK) suffered as the govt or tax payers had to rescue the bank. UK suddenly found so much in debt after all these mega bank rescues after recession started since 2008. In the present case of BHS, the plight certainly hinges on to the massive job losses and depleted pension funds of employees. Asset stripping to fill your pockets has still not disappeared . Movies have been made on this. So, how to prevent unscrupulous creatures exploiting the system while everyone else languishes? Perhaps, company law needs amendment. Could these be the solutions to prevent the owners from taking advantage –

  • The working capital should not be allowed to be touched.
  • Only a certain percent of retained profits be allowed to be withdrawn
  • It must be a rule that auditor and board be involved in a withdrawal bigger than a particular ceiling
  • A ceiling must also be placed to withdraw more than the capital injection done by any owner/investor
  • The shifting of individual loan onto company books must not be allowed

October 25, 2015

Make-In-india Initiative, is it viable?

India’s GDP stood at 2.066 trillion dollars in 2014. Amidst the plethora of initiatives, funding and new policy moves in India, there is one news that said India launches one stop Reserach funding for Research. It seems a good initiative on the surface as India was spending abysmal amount on research in comparison to other top countries. The latest data available from world bank was from 2012. But since it was not available for some countries,  2011 was chosen here to compare –

Global Research Spending by Major Countries

Country Year 2011
Korea 4.04
Israel 3.97
Japan 3.39
Swedan 3.39
Germany 2.89
Austria 2.77
USA 2.76
Iceland 2.6
Slovenia 2.47
France 2.25
Singapore 2.23
Belgium 2.21
Netherlands 2.03
China 1.84
Canada 1.79
UK 1.78
Russia 1.09
India 0.81

So, India spent 0.81 % of its GDP in 2011 or 15 billion US dollars. The west in general spends more than double to 5 times of India in percent terms. After adding this new spending,  does it change anything.  Well, with  this miniscule addition of 0.09%, it amounts to nothing when India’s biggest IT company TCS spends 900 Crore Rupees (14 million dollars)  itself which is close to this figure of 1000 Crore Rupees (15 million dollars) announced by govt of India. Also, if  this change will bring research from scientific labs of the govt or universities, institutes etc to the commercial entities is not clear. One can not think any new bridges have been built there between labs and industry.

Lately, India has made lots of interaction on international stage either by visiting their countries or inviting them over. India has been focussing to get some Foreign Direct Investment (FDI) from all these countries. But given that except few countries all are in deep hole. The few who have deep pockets are in Gulf, China or Norway(having largest pool of Oil related sovereign fund).  The UAE, China, Japan, US, Germany etc pledged to invest in India but how much does it really fructify remains to be seen. To attract this FDI, India of course had to give away something – which is market access. In some industries as defence and insurance, it has given access to 49% equity holding but in many areas the foreign companies or individuals can get access to  even 100% equity.

Only the other day, India’s one mobile infrastructure company Viom was sold to American Tower Corporation (ATC). After the deal in which it buys 51% holding of Indian which has 11.5% share of the market, the combined entity will have close to 15% market share or to the number three position  in the fragmented market. It is expected that this type of M&A activity will gather pace. Though a private law firm, “Linklaters” operating from Hong Kong says this – “The largest interest in Indian M&A has come from investors in the US.” The overall volume is down by 10% to second half of 2014 but in value terms the new FDI amount brought in  is now 15 billion dollars.

There is another Gold Monetisation Scheme announced for the festive Nov Season by govt of India. it is estimated  to mobilise a part of 20,000 tonnes (about 750 billion dollars) of idle gold lying with households and temples. What will it do to the International  bullion market also remains to be seen as that depends heavily on the Indian gold demand. Will it effect the gold jewellery makers as the people will deposit their gold in the banks to to earn interest on their gold. The logic says the state will melt this gold and use this to sell overseas to use the fund for development project like infrastructure building. So, two things should happen – first the state will give full interest only if it is allowed to melt the jewellery into gold, that means  who will spend money to  make jewellery . It means it should certainly affect the jewellery sector work. It also should affect the gold prices. it seems that the only way is down for them from here onward. Will it affect the international gold mining – of course it should. With most of the mining sector already sick, this certainly should drag gold sector in doldrums too. Being the largest gold producer of 300 tonnes, South Africa should be affected most of them all. But given nothing much came out of many pre-election promises (return of black money from abroad) , one should not assume that this scheme will definitely take shape or  be successful.

GoldJewelleryGoldBars

What about reforms on land, labour and GST(to transform india into one integrated market) etc. While GST is definitely on the schedule, it will be implemented on 1st April 2016 as per the govt website GST India. The growth estimated to be boosted by GST is estimated around 1.5 to 2% . This will give definitely boost to manufacturing. But any boost to manufacturing also needs many more ingredients e.g. increase in capacity of transportation networks, power generation  besides  the ability to hire labour at short term basis. There was a short one day strike in Sep, 2015  by labour unions. As per Economist’s article where union leaders claimed  150 millions downed their tool. The article said “The government wants to streamline India’s 44 labour laws into five codes covering wages, conditions, social security, industrial relations and training. It also proposes to raise the employment threshold at which employers must ask for permission from government to lay off workers—from 100 employees to 300—a reform that has already been adopted in the state of Rajasthan. In return it has offered unions a national minimum wage and a broader social-security net. Since only a small proportion of India workers are protected by any such legislation, there ought to be a new labour deal that would work for all. Sadly, many union bosses think otherwise.” So, chances of labour reforms succeeding do not look good. But even without it, labour laws are not completely archaic.There are many sectors where hiring and firing is easy and in Govt also  the voluntary retirement schemes are running.

The land reforms are already rolled back for now as the current incumbent govt do not control both houses and the opposition was in no mood to oblige the govt. But while land may be an issue in short term, it is not an issue in long term. The govt has time on its side to wait for this.

What about power sector reforms – well an article in June 2015 of Livemint, a financial paper asked its readers at the end of article “Will the government enact pricing reforms in the power sector?“. That says it all which means the reforms need one of the biggest courage from the govt. The chances of that happening looks slim at best as there are no talks seem on the horizon for its reforms.

There is one good initiative of integrating rural hinterland into banking sector by opening some 10 new banks  each with initial paid up equity of 200 crores rupees.  In her talks with Bloomberg, ICICI bank chief Mrs Kochar(youTube video) said  recently that  this initiative  will bring 180 million new bank customers, but the sword of Damocles keeps hanging in the form of non-performing assets (NPAs) of banks as the problem stays untackled. The patent regime to protect its own industry let alone companies of outside countries also needs strengthening and so does the capacity enhancement to judicial system. It is creaking at the moment. So, where does this all leave India.  Well, it amounts to nothing much for now.  But India is gathering steam bit by bit. One has to hold the breath. Perhaps, it will definitely achieve its potential or  bring success to the “Make in India” initiative if  it tackles many crucial ingredients mentioned here and it is definitely looking good at the moment.

June 19, 2015

Greece Induced Euro Meltdown reaching to its climax

Filed under: Currencies,Europe,Finance,World — Geekay @ 1:18 am
Tags: , , , , , , ,

The turmoil in Greece due to its inability of committing to austerity pledges as proposed by Brussels & IMF etc. makes one imagine of the day when this turmoil will end. It makes one compare the situation of the country with a company who becomes bankrupt. US companies, who owes others and unable to service their debts, gets protection under chapter 11 keeping its lenders etc from dissolving the company and meanwhile some more funds are arranged by the company from some others source to carry on running. Ford and Gen Motors came out stronger after this situation when it got rescue funds from US govt itself. Not every company is salvageable. So, willy-nilly one cannot fund any amount of loans to such a sinking company. Chapter 7 deals with protection to creditors when a company‘s assets are sold and given to creditors first before returning the rest to owner of company. Important issue is to identify in the sinking company if the salvage plan is any good. It usually rests on selling the currently produced items with the better design and better competitive price or sales with some incentives. Now, in the case of Greece, clearly Greek people want to pay the same pensions or other benefits as before. So the costs for the govt will stay the same and current account deficit will stay just the same. How can the solution lie in sticking to austerity without building some additional revenue generating capacity in Greece. So, if the Greece not only gets funds to service its loans but also additional money to build such a capacity then there may be a ray of hope. The productivity cost in Greece should now be comparable to the best in Europe. The ideas could be to produce new items in Export promotion Tax Free Zone areas. The richer countries should not only commit to buy from such zones but also help in setting it up in the first place. It means the richer countries basically shifting their own industries to Greece.

So, to rescue the EU currency project, not only other member countries have to commit to extend new loans to service the debts of Greece but also shift some of their industrial base out of their own country to Greece.  One cannot see that happening.  The Europe’s centre is pretty weak. The member countries have no desire to help those sinking members unrestrained. The centre has no ability to impose its own taxes and build reserves. Currently EU raises money from member countries’ VAT receipts(0.3%), its gross national income (usually around 0.7%) and export duties it collects on non-EU  products imported. So, if EU parliament cannot decide tomorrow to levy a new tax to build emergency rescue funds for countries in trouble and the individual country‘s largesse does not exist. So, why should Greece not be left to drift away. Of course, it will mean once untethered from Europe, it will seek saviours from where ever the cash pockets can be found in the world.  It could be in China, Russia, Gulf Countries etc.

It gives a lesson to those blocks or groups (like ASEAN, NAFTA, MERCOSUR, SAARC, BRICKS etc) who want to follow EU trading block example to build tighter integrated block. Any block should never attempt the currency union without building a strong centre. No matter how effective the intra trade within the block may be. For a currency union to succeed depends on giving up power from the member countries to raise the tax for the whole group. Merely imposing an austerity formula cannot keep the currency union safe. But if an austerity formula is devised, then countries should be allowed to join and leave at will. A mechanism should be built to entangle and disentangle. Perhaps, writing off debt to creditors after a forced ejection may mean losing the capacity to raise any money at all unless a saviour country outside EU can be found.

A picture of Greece debt (in billion Euros)

GreeceDebt

A wilderness for years like Argentina  following its second default in 2014 in last 14 years awaits Greece, if it doesn’t agree to those willing to bail it out on their terms. On the other hand, will EU risk Greece to move into the arms of unsavoury company of countries? An example of Zimbabwe could be followed where it has now adapted the stable global currencies in place of its own currency. After leaving Euro project, Greece will be free to default on its debt. It can still use Euro and does not have to stick to austerity plans imposed by IMF, Brussels. It can stabilise and build its reserves, economy gradually. Of course, being outside the EU project means it  will probably not able to trade with EU any more but perhaps EU may allow some trade on some conditions.

February 6, 2013

The GDP Growth, Inequality in China and India and trusting any Statistical Data

Sometime back, I was looking at the data on equality. Since, I was mainly interested in the subcontinent plus China etc. So, I compiled this data.

Country                Gini Coefficient (%)                             Year

China                            47.0                                                  2007

India                            33.4                                                   2005

Pakistan                      30.0                                                  2008

Sri Lanka                    40.3                                                  2007

This data is based on World Bank sources as reported in Wikipedia. Here, point to remember is that all the countries aspire for the lower Gini coefficient as that means there are less unequal citizens . Therefore, it is also a measure of the stability of the political system of any country as it  indicates less room for strife (crime, protests etc) by  unequal citizens of a country.

Looking at this data, I noticed that India is better in terms of equality than China but perhaps, it is worse than Pakistan. I tried to reason why. I thought perhaps, Muslim organisations are more charitable (Islamic Zakaat concept) and even if the people are poorer there they are redistributing the wealth in such a way that people are not feeling the poverty as much as they are in India or may be even in China. Pakistan data is even more enigmatic given the worst level of corruption and instability it has in comparison to India and China. But then after coming across this report recently from US govt on China, I felt differently. It says this about the data that comes from China and trusted by all.

NBS surveys continue to provide inadequate samples of important sectors of China’s economy. Small-scale businesses in manufacturing and retail are hard to capture, while sectors like transport logistics are almost completely unaccounted for. Although the NBS measures 94 sectors of the economy on an annual basis, it does so for just 17 sectors on a quarterly basis.

Surveys also fail to capture “opaque spots” in the economy. One of the most egregious is household income. In the United States, tax returns provide a proximate indication of household income. Indeed, personal income tax accounts for about 40 percent of U.S. government tax revenue. But in China, the personal income tax in 2011 makes up just six percent of revenue. A big reason for this is that even the wealthiest Chinese households are taxed directly on their wages, but not on their non-wage income, such as real estate, stocks, bonuses, and personal gifts. Households must actively report such income – but many understate their income in tax returns, or refuse to participate in sample household surveys. In this way, they can evade taxes and also avoid the political implications of having excessive wealth in a nominally socialist state. Chinese economist Wang Xiaolu has determined that national spending on real estate, luxury goods, and travel in China implies much higher income among the top 10 percent of earners than is given in official income data.

In January 2012, the NBS in fact admitted that it does not publish the Gini coefficient –a leading measure of income inequality – because data on high earners is inaccurate. It is also notable that, in an economy with a large state sector, government officials have only recently begun to disclose their own salaries and wealth to the public, and none are under any legal obligation to do so. Opacity extends to other sectors as well. Many state-owned enterprises remain secretive about their income statements, especially if they are not publicly listed. New types of large corporate entities, such as fund management companies and real estate arms of conglomerates, often go unaccounted for in both the direct reporting and enterprise survey systems. In local governments, “off-balance sheet” budgets can also skew fiscal revenue and expenditure.

Opaque Areas of the Economy

The Outdated System of Direct Reporting Enterprise revenue determines which firms are eligible for China’s direct reporting system. As China’s economy grows, so does the number of firms with sizable revenue, which combines to overwhelm the data processing capacity of the NBS. The NBS has tried to reduce the number of firms by continually raising the revenue threshold for direct reporting. When this reform began in 1998, the number of direct reporting firms was decreased from 460,000 to 165,000. However, by 2009, 434,000 firms were again reporting. As of 2011, only firms with annual revenue exceeding RMB 20 million report to the NBS, a measure that has again reduced the number of reporting units.


This data unreliability from China has big similarity to under reporting of data in Indian economic system The Indian economy has a parallel black economy which remains unaccounted for.  I had a chance to meet someone on my last trip to India. He is not only an industrialist but also sells his finished goods from his retail outlet besides distributing it across the country. This person does not use banks most of the times for his business transactions. He uses cash and prefers it over any debit or credit cards. He chose not to have any. It helps him to remain anonymous or untraceable for any tax liabilities. It was incredulous to hear that all his capital (turnover) remains fully invested in the market all the time either in raw material or lent to the buyers who will repay it at different dates all in cash . As his business grows, the extra generated capital also gets absorbed into the same business hands.  When a big spending need arrived for him, he merely clears some lent positions and invests it or spends it on the required need e.g. to buy land or spend on something like children’s expensive (no hold bar) marriage. He also gave me another insight how they have never paid full excise duty. Excise can indicate the produced goods or turnover of the firm. He said, “Usually, they fill just one excise form for the whole day and every time the transport  carries the goods from manufacturing unit, it goes with the same excise form. The form did not register any loading time or departure time of the goods vehicle . So, this way they could report whatever turnover they are comfortable to pay tax on. Since, they never bank the business money and only do it when some customer is making a payment via bank draft or cheque.  The whole of the business community in the capital region of India employs this same method. Of course the problem just does not lie with business community alone. The officials(bureaucrats) who are prepared to accept either bribes, donations for their respective parties or some gifts and favours on various occasions are hand-in-glove. The problem of under reporting by business is considered so much high as to 50 to 60 percent of real data. But this remains a guess in the absence of unreliable official data.

This indicates that India as well as China are growing at far larger rates than they report. They hardly know themselves the correct figures. This national data is from the trading economics Website.

The unreliability of income data makes the estimate of inequality even more difficult to judge. The official Gini
coefficient, the measure of inequality around the world can never be worked out in reliable manner as in corrupt countries (most of the world is) the estimate of income of top earners as well as that of poor can never be done reliably. Just like rich, the poor also does not want to give their real income so as to seek bigger handouts from govt or charities. But, I still relied on Indian data far more because first of all India is reporting far more indices than China does and there is also a possibility of cross checking of its data . Also it has so many NGO and some world bodies like UNESCO, ILO operating in India. Its democratic system and open, free press certainly should cause less data manipulation. I saw my this view-point resonated in this Bloomberg report which wanted to bet on India for investment and growth more than it does on China but no matter how much India may be a better bet in terms of growth, I certainly have been very naive to trust any data quality on equality or the GDP. Let that be  from India, China or elsewhere.

January 8, 2013

Thanks Karl Marx, the world is still changing the right way.

When Karl Marx published Das Kapital in 1867, the world had seen just capitalism and exploitation of masses. It was the time, the capitalism was looked down for its labour exploitation . The exploitation gave way to the thought of equality. The feudalism, capitalism and class culture started melting down across Europe and gradually elsewhere. In some societies, the class distinction was not very visible like in Americas (North and South). In place of feudalism, there the capitalism took roots as  neo rich people wanted to achieve the same social status which was denied to them in their European home countries from where they had emigrated.  The new class system based on wealth now took root in all countries. The wealthy people wanted to see capitalism to flourish and therefore abhorred those who wanted to finish this off.  Marx’s economic theories were changing the thought process . His books had affected the minds of Russians first as Russia was emerging out of profound  serfdom.  The book had got translated in Russian first before in English. Whether  Marx got the inspiration from the French Revolution(1789), melting away of slavery around the world (1833 in UK, 1865 in US)  and serfdom abolition in Russia (1861) to expound that theory  on the use of  capital, one can not be sure.

Somehow, that theory from Marx led  the Russia and the world to try communism . While the neo rich and capitalists in US and other countries carried on fighting to establish whether  capitalism and wealth should be  worshipped or the equality (socialism).The Marx has infected the minds of millions . A new social order has become desirable where those people who work are not looked down upon by wealthy and indolent people and they have more freedom.

When colonialism was giving way to democracies in late 20th centuries, all  the leading lights of the day were embracing socialism like Nehru, Tito, Bhutto, Nasser etc.  But, after the 1989 breakdown  of  communist bloc , the communism  is now considered a failed ideology whose time is gone. The socialism as being associated with communism is therefore a word people want to retreat from even though every body still wants to bring equality to masses.

In recent past, the socialism was just used by many to come into power and then forget about it. The socialist halo was also present in Sukarno, , Indira Gandhi and in military men Gaddafi, Suharto, Nasser & Anwar Sadat. The socialism  led many leaders to nationalise the  production assets, the banks etc. However, the nationalisation was on the retreat after the Margret Thatcher‘s show in UK to claim back the world from that ideology of socialism where the  labour unions had virtually paralyzed the country. So, for operational aspects the world began to see the folly of putting everything under the state control. But this retreat of socialism has also affected the effort in elimination of exploitation by few of the masses.

Arab Spring of 2011 began to claim back the rights of have-nots in Muslim world  and  let people have freedom. The democracy which was thought is not suitable model by some Muslims was now wanted by them. It also inspired other countries too by stressing that however entrenched any govt or system may be, it can be thrown away. The trigger was a single incident of Mohamed Bouazizi self immolation in Tunisia for the start of Arab Spring.

The advent of internet and means of mass communication like mobile phone has allowed people to see that the things can be changed . So, the aspirations of people are changing too. Why would they be willing to put up with the same exploitation and denials of their rights which they had in the past. But there are always those who have the capital, the power . They would not be willing to change and give it away so easily without struggle. So, Syria has simmered on and on.  While some struggles have started in some countries and some will have it some day  but the danger lurks that it may come suddenly to that country causing widespread misery and chaos.

Recently, this struggle manifested in a movement to claim back proper gender equality in India after the death of a woman following a rape but the govt  muzzled the protest. The govt may have had success in controlling the protest by closing lots of metro stations, water cannoning the protesters etc. but any such success of govt and the failure of masses to register protest stores the mass fury for the next time.

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In Pakistan, there was a march scheduled to the capital Islamabad calling for the end of feudalism.  The march  organisers have been under tremendous pressure to scrap the march in case it derails the democracy and allow the military to usurp power again. So, whether anti-feudal  struggle remains in abeyance will become clear on Jan 14, the March date to see if it has any effect. China is still waiting for something to happen as it is yet  keeping the individual freedom at bay. If its new leadership of 2012-13 does not take small steps now to let people allow  some protests, there is a danger that it will boil over in big way one day which will then also affect the whole world.

So, some govts will be changing a little and some will remain the same until the mass fury visits that country one day. But it is thanks to Karl Marx and his ushering a thought of socialism, the world after about 150 years of his book looks lot better place to live and breathe in as it is little more equal and allows lot more freedom.

October 7, 2012

Dreaming a Governance Model for Europe and India

European Parliament

Markets finally made Mrs Merkel (Chancellor of Germany) to agree to second European integration step recently. The first step was the launch of Euro and now the new step of a month ago was the unlimited bond issues by ECB for the need of member countries. This is the akin to quantitative easing (QE) in a way though it is sterilised in spite of effectively expanding money supply by printing currency or doing repo auctions and buying bonds of member states. This bond buying may be soon be needed for further rescue of Spain, Italy and who knows even that of France one day. It is not sustainable in the long run, as there will be a need of higher contributions needed by some member states of European Stability Mechanism(ESM) as some will not be able to contribute anything to ESM bailout funds. So the next integration step will be inevitable within 2-5 years. At present, there are tax provisions for financial transactions, pollution (carbon tax, air travel tax) etc on individual states. But perhaps a direct taxation has to be on the table soon to cope with ever more growing need of finance. The taxation without representation or elections of authorities can not happen as member states would not agree to current model of positions to EU governing bodies by mere nomination or selection. For more integration through election, the Europe will need to evolve parties across member states. They also have to agree to a model of governance.

Interior of European Parliament

At present, the Europe has variety of models – the republic model of France ( team of President and PM), the Chancellorship of Germany and constitutional monarchy with prime-ministership of Belgium, Holland, Spain & Britain etc. So, the new important issue will be of selecting a governance model for Europe. The debate on this may take very long. But I assume it will settle something close to US model of President system rather than of the current models of governance in number of European countries. The parliamentary model based on British model lacks direct public participation and any subsequent interactions with the public. The local authorities governance may seem to assuage the feeling that local population have direct control over their affairs but it seldom does. Even the local representatives fight it out between themselves in councils rather than listening to the majority voice of the public after the elections. In days gone by, without electronics means the public participation in decision making was never there but now the public is armed with the new means of communication, so the politics has to be more engaging with the public. The online petition system to start a debate in British parliament may be alright for now but the need to consult on all kind of issues with the public will be important in future for any MP.

In countries like India, Pakistan, where the democracy is only skin deep. The parties do not have the democracy within themselves as there are no elections of party post holders and are considered to be owned by one family or a bunch of individuals. The systems in Australia, Irish etc. suffer from the ills of proportional representation system and not following the first past the post system in vogue in most countries while Brazilian presidential model brings a mix of both system in play in such a way that there is over-representation of smaller states which they exploit to the hilt. However, the US system has one big advantage over the 2 round election system (also called run-off system) of French. It enfranchises the public in direct voting of the country’s leader and therefore gives them more satisfaction. It also pushes the minor parties to aspire to become big parties by joining these major parties or perish. It does not incentivise the smaller one leader parties to prosper over a longer term. In a way, it is good for the integration of the very big geographical areas which Europe could indeed be and avoid the kind of coalition politics of paralysis India is engaging in for last 25 years. India’s current leader was anointed by the victor of last elections, so neither victor (proxy leader) feels responsible to the public nor the anointed one. The only problem I foresee in US system is the inclusion of electoral college voting system or the indirect election along with the direct election of president and vice-president by public. The decision of a election or arbitration by a court in tied results like the world witnessed in 2000 at the Bush V Al Gore election is never right as the election outcome will become dependent on the selected judge. Even the electoral college’s extra 5 votes for Bush also tilted that election in spite of the more overall votes for Al Gore across the whole country. So, this all could be avoided altogether if the overall % votes should be considered the first measure. If somehow that still leave a result tied then number of overall states won by any candidate should decide the result. The electoral college system should be eliminated completely to make the election fairer as it was the need of the hour some 200 or so years ago in both France and US but it can not serve today’s need of direct representation.

The system that should be adapted from France however is on regulation of spending and financing of campaigns by any political parties. The cap in France on spending is at approximately 20 million Euros. The government public financing of 50% of spending is done if the candidate scores more than 5%. If the candidate receives less than 5% of the vote, the government funds €800,000 to the party. The advertising on TV is forbidden but official time is given to candidates on public TV. An independent agency regulates election and party financing. Just like US, now France also has maximum 2 terms for president . The length of term however is 5 years which may not be that bad at present but perhaps it may prove really long and antique in 20 years time. Well, not only I am dreaming of a fast tracked presidential system in Europe but also for India to chuck away their parliamentary system for this so as to speed up their governance as there is a fear in the air that India will go into yet another election without letting public know who will lead the country. Suddenly an undesirable leader may reach to the top of the winning party and therefore may win the right to lead the country.  If public were to know about such a person before elections they may never vote such a party.   Well, I know some dreams always stay dreams but there is no harm in dreaming .

September 20, 2012

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