Anna - The end of a beginning

Democracy is defined as “rule of the people” – and the Indian democracy showed that it is just that. Last evening was a red-letter day in Indian democracy - as Parliament passed a resolution to take on board the three demands that Anna Hazare had raised before it.

Anti-protest commentators which included a pro-government channel, and members of the NAC (an extra-constitutional body that "advises" the government on law-making - a clear case of constitutional impropriety) kept up the charade that these protests in some way detracted from India's democracy. My take on three key issues that were raised :

1.       Supremacy of Parliament – huh? What’s that?

A key claim was that Parliament is supreme in law making and that the agitation somehow diminished the “prestige” of parliament. Absolute Balderdash!  Nowhere in the constitution is there either a direct or implied “supremacy” given to the Parliament. Quite the opposite - The constitution is clear that the PEOPLE are supreme, when it states “We the People of India..... do Hereby Adopt, Enact and give to Ourselves this constitution”. MP’s are but representatives of the wishes of the people. The "confused" are mistaking procedural matters for “fundamental” issues.

2.       This is “mobocracy” and somehow sets a bad precedent. First, we have to agree that self regulating bodies rarely work. Allegations of corruption and nepotism in higher judiciary, a medical council that refuses to book errant doctors, and failed self-regulation in the case of life insurance companies are cases in point. If we agree, then when it comes to making laws that effect the law-makers and the bureaucracy, self-regulation will not work, and we HAVE to take into account the wishes of the people directly.

Can this be repeated? We have only to look at the case of Swami Nigamananda, who died earlier this year fasting against the government's inability (or worse) to implement a supreme court decision against illegal mining in the Ganga river bed, or that of Irom Sharmila from Manipur who is protesting against Armed Forces Special powers Act for the past decade. In both cases, the public imagination could not be captured, and while both causes are legitimate, they have failed to attract anywhere near the kind of public participation to force the government to act. To see Anna's protest as something that can be easily replicated displays a misunderstanding on what led to the massive public support that the movement generated. If our politicians do not get this, they are really not in touch with their constituents and should anyways be voted out.

3.       The Lokpal bill will not stop corruption. This must rank as among the silliest complaints. Courts and police do not stop crime, they just create enough of a disincentive to stop most people from committing them. Likewise, Lokpal may not stop corruption – where ever there are people, there will be greed and some will succumb. However, it will hopefully create some disincentive. Additionally, as I have argued in the past – what prevents us from modifying and improving the law once it is enacted. Should we start with an imperfect law or wait another 50 years in the hope we will get a “perfect” one.

The debate in parliament showed up the real leaders. Sushma Swaraj sparkled, Sharad Yadav argued like a has-been, and Anand Sharma rambled. Our PM was ofcourse silent - but could you expect anything else?

Anna - The idea

Watching the "release" of Anna from jail - its an uplifting moment.

The spin doctors of the government - viz NDTV have this as a comment - "Anna's rally a traffic hazard?" This statement says it all - when the popular mood is fired like rarely before, when people have left their work to vent their frustrations against their elected representatives and are protesting against rising prices, looting politicians and corporate leaders and general corruption, our Nero's in government are hiding behind bluster and legalese.

The mark of political leadership is to sense the popular mood and to take a position that allows one to LEAD it. The bureaucrat will fight it, and sulk if not successful. I have always believed that in a democracy, when enough people feel that they need to do something, things change. It appears that we are at one such defining moment in our history. All power to Anna Hazare.

What scenario is likely to play out? The UPA will no doubt attempt to use delay as a tactic - submit the bill to a standing committee for discussion, and hope that the momentum behind Anna fades away.

What can the Anti-corruption camp do? As I see it, the best option is to co-opt the politicians - now that they have them on the mat. I hope Anna asks all his followers to call up their MP's and ask a simple "yes/no" question - are they willing to support the bill UNCHANGED in parliament. If enough answer yes - its game over. If not, we will have clearly identified who needs to be voted out. The finessed argument that PARTS of the bill are acceptable is silly - any law can be amended later. What is the harm in setting up a law and then allowing its functioning to determine how it is to be modified. After all, there is hardly any law that works well when first drafted!

Another scenario that can play out is that the UPA partners withdraw support, and let the government fall. An early election would be the best opportunity for this country to find new leaders. Who will come in is anyone's guess - but we would have restored the primacy of the people over the parliament - something that the current lot seem to have forgotten.

I hope for the first, will be happy for the next, and dread the status quo. 

Bungling government

India is an emerging economy. We are now emerging as one of the important players on the world stage. There are many forces that would not like to see India realize its true place in the Comity of Nations. We must not play into their hands. We must not create an environment in which our economic progress is hijacked by internal dissension.

Indira Gandhi reborn? Not really, this is the never-elected Manmohan Singh who is seeing signs of a "foreign hand" in the popular uprising against the corruption in his government. The hamhandedness of the government response - trying to put the blame of Anna Hazare's arrest on the police, portraying Anna as corrupt, and last but not least - attempting to present Rahul Gandhi as the person responsible for his "release" - reflects the lack of leadership that the party currently suffers from.

Perhaps, the bunch of lawyers advising the PM should seek solace in Chidambaram's earlier statement - the response cannot be termed "intelligence failure" - there was no intelligence after all !

More on Patents

A well written article on why patents used to "defend" against potential lawsuits are destructive. The article refers to a recent academic work - worth reading.

Patent Wars

An explosion in patent litigation, .... threatens to stifle innovation

Sounds like the crib of an "smoke stack" company out of an emerging economy? Heck No. Its none other than Google thats complaining about software patents as it spends millions on purchasing patents to defend itself against litigation. Google bid $900m for patents of Nortel. Nortel's patents were valued at $4.5bn.

As reported in Businessinsider.com, Jefferies analyst Misek explains how: "Through litigation and licensing, Apple could cause the free Android OS to actually become a burden for OEMs, forcing them to become more conservative in their aggressive pricing plans. This is likely to slow the price cuts Android OEMs are likely to bring. So rather than a $150 Android smartphones, we could see a ~$200 device that is less likely to hurt a lower-cost iPhone ."

Google finally bought more than 1000 patents from IBM.

Readers of this blog will remember my long-standing objection to patents. Big budget lobbying has convinced many that patents are needed for innovation - despite overwhelming evidence to the contrary. It remains one of the key barriers to free trade - a non-tariff barrier that wealthier countries impose on poorer ones. One can only hope that rising costs of litigation, and healthcare will convince the consumers of the "developed" world, that protecting corporate profits for a few is NOT in the larger interest of humankind.

Nuclear Upsets

If it seems to be a season of "I told you so", I cant help it ! The PM's much touted success in the Indo US nuclear pact is now in tatters. To use the words of my favourite strategic affairs writer Brahma Chellaney,

the deal has come to symbolize the travails of the Singh government — scandals, broken promises, malfeasance, poor public accountability, and the resort to casuistry to camouflage reality. The cash-for-votes scandal in Parliament set the stage for the other scams that have followed.

Even writers who were earlier supporting the deal, have had to do an about face. Writing for the Hindu, Dr Anil Kakodkar, who had earlier been co-opted by the government in negotiating the "deal" with the NSG expresses

Nuclear Suppliers' Group (NSG)..additional restrictions for transfer of ENR (enrichment and reprocessing) technologies with adherence to the Nuclear Non-Proliferation Treaty (NPT) being a condition for transfer has caused huge unease in India

 Vardarajan, the Hindu's strategic affairs analyst, and a former supporter of the deal too, has had to admit that the deal is dead.

Meanwhile, China has gone ahead and "grandfathered" another two reactors for Pakistan. In other words, without committing anything, Pakistan has as much access to technology and fuel as India has after it has waived its sovereign rights to develop its own nuclear techology for its protection. Ofcourse, India is open to buying reactors from the rest of the world, when Germany and now Japan have taken legislative steps to shut down nuclear power, given its unviability when total cost of operations and accidents are accounted for.

It may serve our negotiators well to remember that NSG was set up as an Anti India cartel. Nothing has changed. The latest guidelines on technology transfer impact only one country - India.

The cost of attack - revisited

I started this blog in the aftermath of the attack in Mumbai in 2008. Life has come a full circle. The terrorists have struck this again this week. At that time I had mentioned that it was almost inevitable that there would be another attack since India did not have a strategy to increase the cost of attack for the terrorists.
This view is being echoed now by Brahma Chellaney when he writes

"The ugly truth is that transnational terrorists see India as an easy target because it imposes no costs on them and their patrons."

The sad part is that the government's response is pathetic. In Jan 2009, I had pointed out the hollowness of Mr. Chidambaram's remarks when he commented the price that the perpetrators of the attack would pay if it were repeated would be enormous! So what is the price they are paying? Mr. Chidambaram's credibility for one. His latest comment that "there was no intelligence failure because there was no intelligence" seems kafkaesque.

Mention must also be made of the perversion of the Congress spokesperson Digvijay Singh, who yet again raised the issue of "Hindu Terror" by pointing a finger at the possible involvement of RSS in the blast, while admitting that he had no evidence to back it. Considering that he is supposed to be the mouthpiece of Shri Rahul Gandhi, who had earlier mentioned the same "terror" to the US Ambassador (wikileaks report), it is a wonder that we are not heading for another split based on religion (ofcourse, the communal BJP is to blame, not the "secular" Congress).

My sincere condolence to those who lost their dear ones, and a word of advice - stay away from crowds - this attack is not likely to be the last !

Lessons from West Bengal - the Left front is dead, long live the left

Didi, with her emotive appeal to mother, land and people, has brought to an end the over-three-decade rule of the left front. A rule that had many capitalists in a tizzy, but apparently enjoyed the support of the masses.

One of the early successes of the left front was a much-touted redistribution of land to the landless. While I studied in school in Calcutta in the 70's, most economists sung praises of the land reforms made by the Left. Redistribution of natural resources was expected to lead to even development, and uplift the poor. This "redistribution" often took a grotesque turn - I remember hearing of the "rich" being attacked in Calcutta's bustling markets - the attackers angry that they spent money while the poor slept hungry. The exodus of industry that marked this phase of Naxal violence did little to erode the popular base of the Left Front. Of course, the electoral victories were often cemented by thugs ensuring that areas that were prone to vote for the opposition were often under siege at the time of elections.

Ironically, while the cognoscenti have often written off the left front, it began losing its popular sheen only when it started to adopt a more capitalistic approach. Much is being made of the fact that the Left's loss will now promise a phase of economic growth for Kolkata - but will it? The victor is not a right leaning party with proven will to foster development - instead - it is the very same party that took on the government when it attempted to procure land for the Left governmernt's strongest attempt in recent times at getting large industry to come to the State.

Earlier attempts too have not succeeded. When the State government allotted land for an IT park at the outskirts of Kolkata - at Rajarhat, most of the IT majors expressed support, but very few set up their campuses. Despite a well developed education inftrastructure (at least in the capital city) and with low wages, adequate electricity and good infrastructure ( Rajarhat had its roads made well before even the first building came up), the area even today remains a ghost town - a promise unfulfilled.  

What does this mean for the new government? TMC has come to power with industry friendly faces - the new finance minister will likely be Amit Mitra, the former Secretary General of the Ficci - the industry association. Apparently, more money has been raised from business houses in Mumbai - for the election campaign of TMC than from Bengal. But is the mandate one for development? or is it simply a desire for change (even the lugubrious bengali has finally decided to lift a finger to vote against the long rule of the left front), and importantly, a protest by rural Bengal against land acquisition and industry? After all, while Kolkata and its "bhadra log" have often voted against the Left, it is perhaps for the first time in decades, that the left has lost its mandate from rural bengal.

So while we in the Capital markets may celebrate the possibility of "economic reform" in Bengal - which ironically, usually means more money for the rich and greater income diversity, I think it would be naive to believe that the mandate is for this. What I do expect, is that the first couple of years will be pay-back time for the capitalist backers of the TMC. So, one way or another, the Capital markets will applaud Didi's wooing of capitalist India with offers of cheap resources from west bengal. Once the first couple of years are over, however, it will be a time to really examine what the voters want - and that, I am afraid, is perhaps not more capitalism!

Unfortunately, I think this election is more about the defeat of the Left front and less about the defeat of the Left ideology. Hold the champagne.

Spot the difference

“Pakistan, perhaps the world’s greatest victim of terrorism.... Let us be frank. Pakistan has paid an enormous price for its stand against terrorism.”  May3, 2011-05-09

“it is also true that incidents take place in Pakistan also. That Pakistan is also a victim of terrorism. These groups, whether it’s Lakhsar-e-Toiba or Jaish-e-Mohammad, they can act autonomously” Sep 11, 2006

Same thought, two speakers - guess who? The first was written by Pak President Zardari in a recent op-ed in the Washington Post. The second is a quote from a gentleman who originated the idea - our own venerable PM Dr Singh.

The USA has released documents that show the complicity of ISI in the Mumbai attacks. It makes Dr. Singh's willingness to "talk" to Pakistan - with no emphasis on them attempting to show remorse - much less take action against the perpetrators, even more inexplicable.

Dr. Singh's governments continues its focus on "hindu terrorists" rather than on those from across the borders. One can only conclude that perhaps Dr. Singh, when he was a little toddler, was nursed by a particularly ferocious member of the hindu community. After all they say that childhood trauma can leave deep scars!

When right meets left

Paul Krugman's recent article on emerging market inflation continues to blame the regulators of these emerging countries for not penalizing their population by slowing GDP growth. Krugman writes:

So what the world economy “wants” to do is have large capital flows from North to South, and, correspondingly, large current account deficits in the emerging world — which would, of course, help the advanced economies recover.

But ... the transmission mechanism by which capital flows get translated into trade balances has to involve a rise in the relative prices of goods and services produced in the emerging nations. The natural and easy way to get that would be via currency appreciation; but governments don’t want to see that happen. So the invisible hand is in effect getting the same result — gradually — by pushing up nominal prices in these countries.

In other words, emerging economies should allow higher imports and lower exports (the consequence of a rising exchange rate) thereby reducing their own GDP growth - since this policy would "help advanced economies recover". I wonder if the prescription would be the same if the economist were to be based in Asia rather than Princeton.

The idea that the US needs to cut back its own consumption, and pay down its debts - is not on the table. It is not "keynesian" after all. That this ruinous policy is leading to inflation is completely negated - "core inflation" remains sub 1% according to official estimates. Notwithstanding that "core inflation" eliminates all prices that have a propensity to go up. Shadowstats.com estimates CPI at close to 10%!

This propensity to blame others for protecting themselves against the economic mismanagement unleashed by the USA exists not only in academia, but also in the seeming loony fringe of USA society. I came across this apparent "right wing" website - that seems to see everything that the world does with the "if you are not with us, you are against us" prism that has now become the touchstone of US policy. So the recent "BRIC" meet that concluded with a statement of the need to find an alternate to the US dollar is a conspiracy of Russia and China to undermine the US economy. The same aticle points to another paper: Economic Warfare - risks and responses whose central thesis seems to be that it is Al-queda that is indirectly responsible for the collapse of the US financial system, and high oil prices (thrown in for good measure). Talk of conspiracy theorists!

Forgotten lessons of Economics

Pranab Mukherjee, the finance minister, last evening again repeated a falsehood in the hope that if you repeat a false statement enough times, it will appear to be true – he mentioned that if inflation were to be tamed, growth would have to come down.

This reflects the lack of ideas that the government has in increasing production. Supply side issues abound. Complex land laws prevent quick transactions relating to land, and create an artificial scarcity that raises land prices beyond what any legal economic activity can support. Poor legal administration increases the cost of all economic transactions, while raising the cost of credit. Bureaucratic delays and complex compliance prevent entrepreneurship from flourishing without flouting some arcane rule. Tax compliance is reliant on interpretation of officials empowered to harass the tax payer without adequate redressal mechanisms. All this leads to large scale unemployment, resulting in corruption and an environment where government appears to don the role of a “largess distributor” rather than that of a servant of society.

Other capacity building measures – good quality and high availability public health system, and education systems are conspicuous by their absence. Instead, the economic survey and planning commission – the economic “think tanks” of the government – continue to propagate irrelevant ideas of increasing foreign investment limits in health insurance, and in multi-brand retail.

One has to only look at the disaster that the USA is heading towards in its Medicare and Medicaid programs to see the problems that arise from unrestrained private sector growth in health insurance, and from a patent law that protects corporate profits over the need of human life. The economic rationale for foreign investment in multi-brand retail is even less obvious.

A government that is mired in corruption, increasingly dependent on the support of regional parties for its existence and devoid of any ideas on how to progress India’s aspirations is going to present challenges to India achieving its true potential. If India does well inspite of these challenges, one has to believe that there is a God somewhere – more importantly someone who has Indian citizenship!! 

Anna Hazare - India's greatest hope

The fast that Anna has undertaken has focused the attention of the nation on the greatest internal threat - that of corruption. The popular response that this has generated can only restore faith in India's democracy. There is one aspect which I find very puzzling. In countries like Egypt entrenched autocracies needed popular movements against them to change. In India, we can simply vote them out. Why is the people movement not focused on demanding that their representatives take the lead in Parliament in championing the Jan Lokpal Bill - the focus of current attention. Instead, the focus seems to be on ignoring the political class.

A true reflection of the maturity of Indian democracy would be to have each constituency summon its representative and question him on his stance on the bill and demand that he support it. I think that would make it difficult for any government or party to NOT pull in the same direction.

Another possibility would of course have been for the "honest" PM to accept the demand to set up a committee to evaluate the bill. However, that would require a thinking man - and a leader, something this country certainly lacks. 

"Inside Job" - a must watch

Last week, I had the occasion to watch "Inside Job" a documentary on financial sector meltdown in the US - and its consequential effects on other economies. First, it is great to see Sony release a movie such as this in the mainstream theaters. Second, it emphasized yet again (as if reiteration was at all needed) that when confronted with self-serving greed, a system supposedly working on "self-regulation" is destined to fail.

The fact that the "freedom of markets" has been taken to an extreme - and needs urgent correction is there for all to see. Painfully, the lobbyists are so strong that the system continues - in fact becomes worse as the "solutions" turn out to be even sillier than the cause.

"Too big to fail" has now translated into "Even bigger" - rather than regulatory action breaking up large companies posing systemic risks into smaller entities that can be regulated better, the reverse has happened. The industry has managed through fear and favour to lobby the regulators and law makers from passing any laws that curtail the industry's ability to cause another catastrophe.

One hard hitting fact that emerged was the lack of intellectual integrity in the so-called thought-leader academic institutes. Leading academicians - deans and professors from Harvard and Columbia were filmed acting like petty thieves caught with their hands in the till. They apparently found nothing wrong in writing research as original work - where the recommendations benefited clients who paid for the research - and these august institutions apparently have no policy to avoid this conflict of interest.

In essence, one comes away from the movie - more than a little disgusted with the worshippers of the mammon - and of the antics of the "intellectuals" in business schools. Is it any wonder that with ethics such as theirs, the students have no compunction in causing misery to the millions in the real economy - so long as they get their bonus.!

Japanese earthquake - lessons for India

The earthquake, followed by the Tsunami in Japan has been devastating. In the words of PM Naoto Kan, Japan is facing the "worst crisis since WWII".  Despite extremely strict building norms, over 10,000 people are feared dead.

What initially started as one nuclear power plant shut down, has now (as I write this) extended to three - Fukushima (now in its third day), Onagawa, and Tokay No2 plant. Japan is the only country to have suffered a nuclear explosion. A nuclear power plant in Japan would necessarily have followed the strictest possible building norms. Besides, Japan is anyway an earthquake prone area - and even regular buildings are constructed to withstand the earth shaking. Despite this, nuclear power has again proven to be risky and dangerous.

Imagine the consequences in a country like India - where building norms are generally lax, and casually enforced. Add to that the lack of liability of foreign suppliers, and a high density of human population - with minimal emergency systems - and you get a potent recipe for disaster. Recent reports suggest that the Buoys that were floated as part of India's early warning Tsunami system are already part of the inventory of  junk dealers.

Someone needs to ask - do we REALLY need those nuclear reactors - just so that some multinational can grow rich? After the fiasco of the CVC, perhaps this is another policy where the PM needs to admit to the mistake of his decision.

India's strategic loss

My first post in the new year, from a new location - Hyderabad (I should now rename the blog perhaps) has to do with some sad news - the passing away of K. Subrahmanyam – regarded as the father of strategic planning on issues regarding defence and foreign affairs. Unfortunately, I had no interaction with him – except for reading most of his columns appearing in the press – where he was a prolific contributor.

Subrahmanyam – a one-time nuclear hawk – inconsistently supported the nuclear deal that India signed up with the US – a move I would ascribe to advancing age, and a lack of appreciation of the economic realities of the new world. That opinion notwithstanding, I always found his writing to be interesting and well informed. While his insights were called upon by many governments – the Congress government, and the NDA, they were not always taken to their logical conclusion - many of the recommendations of his report after the Kargil war remain unimplemented.

In his demise, India has lost a strategic thinker who had the best for India at heart. May his soul rest in peace.