കേരളത്തിന്റെ വികസനാനുഭവങ്ങളെ ആഴത്തില് വിലയിരുത്തി ഭാവിവികസനത്തിന് മാര്ഗരേഖ തയ്യാറാക്കുന്ന മൂന്നാം അന്താരാഷ്ട്രപഠന കോണ്ഗ്രസ് ജനുവരി ഒന്നിന് രാവിലെ 10ന് എ കെ ജി ഹാളില് സിപിഐ എം ജനറല് സെക്രട്ടറി പ്രകാശ് കാരാട്ട് ഉദ്ഘാടനം ചെയ്യും. എ കെ ജി പഠന ഗവേഷണ കേന്ദ്രം സംഘടിപ്പിക്കുന്ന മൂന്ന് ദിവസത്തെ പഠനകോണ്ഗ്രസില് തിരുവനന്തപുരത്തെ വിവിധ വേദികളിലായി 2500ലേറെ പ്രതിനിധികള് പങ്കെടുക്കും.
രജിസ്ട്രേഷന് പൂര്ത്തിയായിട്ടും ആവശ്യക്കാര് ഏറെയായതിനാല് ഒന്നിന് രാവിലെ തല്സമയ രജിസ്ട്രേഷനുണ്ടാകും. പ്രതിനിധികള്ക്ക് സമ്മേളനരേഖകളും താമസവും ഭക്ഷണവും ഉള്പ്പെടെയുള്ള സൌകര്യം ലഭ്യമാക്കും. ഓരോ മേഖലയിലും ഇടതുപക്ഷ ബദല് സമീപനം രൂപപ്പെടുത്തുകയാണ് പഠന കോണ്ഗ്രസിന്റെ ലക്ഷ്യം. കൃഷി, വ്യവസായം തുടങ്ങിയ മേഖലകളോടൊപ്പം പുത്തന് വികസനമേഖലകളും കേരളവികസനത്തിന് എങ്ങനെ പ്രയോജനപ്പെടുത്താമെന്ന് പരിശോധിക്കും. ഭാവി വികസന കാഴ്ചപ്പാട് ഉള്ക്കൊള്ളുന്ന രേഖ പഠന കോണ്ഗ്രസില് അവതരിപ്പിക്കും.
2011 ജനുവരി ഒന്നിന് ഉദ്ഘാടനച്ചടങ്ങിനുശേഷം എട്ട് വിഷയങ്ങളില് സിമ്പോസിയങ്ങള് ആരംഭിക്കും. ആഗോളവല്ക്കരണകാലത്തെ കൃഷി, നവോത്ഥാനമൂല്യങ്ങള് ഇന്നും നാളെയും, മലയാളിയുടെ മാറുന്ന സംസ്കാരം-ഭാഷ-സാഹിത്യം-സിനിമ, അധികാരവികേന്ദ്രീകരണം-കേരളത്തിന്റെ അനുഭവം, കേരളവും സ്ത്രീസമൂഹവും, സമഗ്ര സാമൂഹ്യസുരക്ഷയിലേക്ക്, കേരളം-വൈജ്ഞാനികസമൂഹം, മാധ്യമപ്രവര്ത്തനത്തെ നയിക്കുന്നത് എങ്ങോട്ട് എന്നിവയാണ് വിഷയങ്ങള്. എ കെ ജി ഹാള്, യൂണിവേഴ്സിറ്റി കോളേജ്, മാര് ഫിലിപ്പിയോസ് ഹാള്, ഭാഗ്യമാല ഓഡിറ്റോറിയം എന്നിവിടങ്ങള് വേദിയാകും.
ജനുവരി രണ്ടിന് രാവിലെ ഒമ്പതുമുതല് 75 വിഷയങ്ങളില് ടെക്നിക്കല് സെഷനുകള് ആരംഭിക്കും. ശാസ്ത്രഗവേഷണവും സാങ്കേതികവിദ്യാവിനിയോഗവും, നൂതന സാങ്കേതികവിദ്യകളും നയപരമായ ഫലങ്ങളും, ജൈവവൈവിധ്യവും വനവിഭവവും, പരിസ്ഥിതിസംരക്ഷണവും മലിനീകരണനിയന്ത്രണവും, പ്രകൃതിവിഭവ വിനിയോഗത്തിലെ വൈരുധ്യങ്ങള്, ശുചിത്വപരിപാലനവും മാലിന്യസംസ്കരണവും തുടങ്ങിയ വിഷയങ്ങളിലായിരിക്കും ചര്ച്ച. കേരളവികസന മാതൃകയ്ക്ക് സംഭാവന നല്കിയ വിദേശ പ്രതിനിധികളും, രാഷ്ട്രീയ-സാമൂഹ്യ-സാമ്പത്തിക-സാംസ്കാരിക മേഖലകളിലെ പ്രമുഖരും നേതൃത്വം നല്കും. യൂണിവേഴ്സിറ്റി കോളേജിലെ വേദികളിലാണ് സെഷനുകള്.
ജനുവരി മൂന്നിന് രാവിലെ ഒമ്പതിന് എ കെ ജി ഹാളില് പ്രവാസലോകം എന്ന വിഷയത്തില് സിമ്പോസിയം. 12ന് അന്താരാഷ്ട്ര പ്രതിനിധിസമ്മേളനം. രണ്ടിന് സമാപനച്ചടങ്ങ്. ഇ എം എസിന്റെ നേതൃത്വത്തില് 1994ല് സംഘടിപ്പിച്ച ആദ്യ കേരളപഠന കോണ്ഗ്രസാണ് ജനകീയാസൂത്രണത്തിന് ആദ്യരൂപം നല്കിയത്.
Monday, December 27, 2010
Sunday, December 26, 2010
Neo-liberal ‘reforms’, Corruption and Crony Capitalism
With a series of scandals like the 2G scam hitting the headlines and the coming out of the Radia tapes, the unholy nexus between powerful business interests and those vested with the power of exercising public authority stand starkly exposed. These belie liberalization’s promise of creating an environment where market competition rather than cosy relationships with politicians and bureaucrats would be the ultimate arbiter of the fortunes of business enterprises. In the neo-liberal doctrine, corruption and ‘crony capitalism’ have always been portrayed as phenomena that breed in an environment of state intervention and regulation of the economy. Based on such a diagnosis of their cause, the standard neo-liberal prescription for such ills has been the ‘retreat of the state’. By that reasoning however, two decades after the initiation of the so-called “economic reforms” corruption and crony capitalism should have been in rapid retreat in India. Instead they are scaling unprecedented heights. Rather than squarely confronting why such is the case, some commentators still continue to flog the dead horse that the solution lies in getting politics and the government out of the economy. In the process they ignore, deliberately or otherwise, the systematic tendencies that the liberalization process itself has generated for manipulation of policymaking by powerful business interests. Given the reality of these tendencies, the idea that politics should be kept out of the economy is not only wrong but downright dangerous.
The notion that liberalization would erode the basis for corruption and crony capitalism was always based on a great misconception. This false perception was that liberalization meant the state ceasing to be important factor in the economic arena. The truth as in India is quite the opposite. If the interventionist economic policy regime of the past had the potential for creating a smokescreen for crony capitalism, the same also holds for liberalization and on a much greater scale. Moreover, the liberalized environment has eroded in more ways than one the capacity of the state to rise above narrow corporate interests and therefore made it more prone to capture by such interests. Several reasons and arguments can be put forward in support of these propositions.
Firstly, even the lack of ‘intervention’ in the economy or assuming a minimalist role are specific choices exercised by the state which suit those who stand to gain most from the more spontaneous working of markets. In many circumstances where they enjoy an element of monopoly power, business firms can be major gainers of the state looking in the other direction. Even the existence of competition that could check such monopoly power may be dependent on appropriate regulation. Had these not been the case there would have been no need for a competition commission, something created after liberalization. As such corruption and cronyism can always lie behind deregulation while intervention and regulation may be the necessary means of curbing the abuse of monopoly power.
Secondly, liberalization is a process of transition whose key agent is the state. It creates in its wake numerous opportunities of conferring benefits on businesses having a privileged relationship with decision-makers. Privatization—the transfer of ownership of assets from public to private hands—is a classic example of an integral part of the liberalization programme where largesse of very large economic values can be showered on favoured businessmen. The same is the case with the opening up for private entry of many sectors which were earlier mainly earmarked for public sector development. The very nature of many of these meant that free and unrestricted entry of private sector firms was not possible and regulation of the selective entry inevitable. The telecom sector, in which the issue of allocation of spectrum arose precisely because of private sector entry, is just one example of such a sector. Many other major sectors that have been de-reserved and/or opened up for increased participation of the private sector— power, mining, petroleum and gas, banking and finance, insurance, airlines, etc.—are also of this kind because in them the state has to set the rules of the game. Another important component of the liberalization programme, public-private partnerships in infrastructure development, also has a similar potential for favouritism.
Thirdly, it is not merely in the process of liberalization and private sector entry but also in their aftermath that regulation is necessary. The displacement of public sector production by the private sector in many of the sectors like telecom mentioned above, where properly competitive markets are not possible, inevitably means their regulation. The state’s role therefore does not disappear in them but becomes redefined. Indeed it is after liberalization that, apart from the creation of a competition commission, a whole spate of regulatory institutions has had to be created specifically for many of these sectors. Other than these, financial markets too need regulation. This continuing necessity for regulation over large and critical sectors of the economy only serves to highlight the fact that even under a liberal economic regime the state remains an important actor in the economic arena. The state also plays a critical role in making land available to corporate entities for industrial and real estate projects and also SEZs. In other words, liberalization and the spread of private sector presence to a larger range of activities have enlarged the area in which decisions of public bodies have a significant bearing on private profits. Moreover, it is not some small sums but mind boggling levels of profits that hinge on such decisions.
Fourthly, competition even when present is not always an effective substitute for disciplining of private capital by the state. Competition’s disciplining role is circumscribed by the fact that it is a competition in the process of profiteering and money-making. It reinforces that objective and often reinforces the tendency to cross all boundaries rather than to observe limits. If taxes are evaded, accounts cooked up, stock-markets rigged, very low wages paid, working conditions kept abysmal, environmental regulations flouted - it is because it is profitable to do these. Competition itself cannot enforce discipline in such matters; it can only strengthen the inducements to go in the opposite direction and therefore are situations where businesses would benefit from lack of intervention by the state. In sectors where decisions of public authorities have a large bearing on profits, business rivalry also has the automatic effect of inducing the participants in that rivalry to try to influence the decisions in their favour. In other words, competition can strengthen the tendency for big business to corrupt and capture public institutions in pursuit of their private ends.
Fifthly, liberalization has affected both the ideological outlooks as well as values of public officials in a manner that makes them more inclined to act in the interests of private capital. The positioning of the private sector as more efficient than the public sector, the idea that the state should not interfere in the working of the market, and the concept of public-private partnership, are integral elements of the worldview associated with liberalization which public officials have also tended to internalize. Moreover, in a globalized context, private business enterprises also become the standard-bearers of “nationalism”, “national-interest”, and “national achievement” so that national success tends to be seen as something that coincides with their success. There is also an inherent celebration of money-making in a liberalized context that increases the proneness to corruption of public officials, and the greater permissiveness towards international transactions has also added a new dimension to the possibilities of graft. To add to this is the prospect of a lucrative post-retirement career in the private sector for bureaucrats and administrators involved in regulating that sector.
Sixthly, with the ceding of the commanding heights of the economy to private enterprise the state has structurally become more circumscribed and its ability to act autonomously of the influence of private capital seriously compromised. Once the private sector is placed in the privileged position of driving the economy’s growth and development process, the state has to willy-nilly adopt a friendly attitude towards it. In a liberalized context, ‘concessions’ and ‘incentives’, and maintaining through these the ‘state of confidence’ become the means available to the state to guide private capital of different kinds – foreign and domestic, speculative and productive - towards the attainment of definite objectives and to dissuade them from doing damage to them. This increases the leverage of private capital on the State, and in a federal set-up like India’s, this leverage is also enhanced by the competition for investment between states that liberalization forces them into. The very large number of tax sops granted to corporate India, like the one enjoyed for a long time by the highly profitable information technology (IT) sector, stand testimony to this power of business.
To sum up then, liberalization has created a situation where the incentives for big business manipulation of public policy, their ability to capture the policy making process, and the scope for the masking of such capture as legitimate national policy, have all increased considerably. Individually as well as collectively, India’s big business houses have benefited tremendously from this situation. Their profits have multiplied manifold even as levels of corruption and the scale and frequency of scams have grown tremendously. This correlation is neither accidental nor a mere coincidence. In the process however India’s already limited democracy has been further undermined. In such circumstances, to argue for getting politics out of the economy is to make the case for strengthening corporate control over policy-making and regulation. Applied to the case of regulatory institutions, for instance, this would mean that these institutions would not have to be accountable to even the Parliament, a sure-fire recipe for their complete capture by business. What is needed instead is that political processes have to work towards subjecting policy-making, regulation and regulators to much greater scrutiny and thereby check corporate power. It is not therefore a matter of getting politics out but of getting it correct.
*****
Surajit Mazumdar
കടപ്പാട് : pragoti.org
The notion that liberalization would erode the basis for corruption and crony capitalism was always based on a great misconception. This false perception was that liberalization meant the state ceasing to be important factor in the economic arena. The truth as in India is quite the opposite. If the interventionist economic policy regime of the past had the potential for creating a smokescreen for crony capitalism, the same also holds for liberalization and on a much greater scale. Moreover, the liberalized environment has eroded in more ways than one the capacity of the state to rise above narrow corporate interests and therefore made it more prone to capture by such interests. Several reasons and arguments can be put forward in support of these propositions.Firstly, even the lack of ‘intervention’ in the economy or assuming a minimalist role are specific choices exercised by the state which suit those who stand to gain most from the more spontaneous working of markets. In many circumstances where they enjoy an element of monopoly power, business firms can be major gainers of the state looking in the other direction. Even the existence of competition that could check such monopoly power may be dependent on appropriate regulation. Had these not been the case there would have been no need for a competition commission, something created after liberalization. As such corruption and cronyism can always lie behind deregulation while intervention and regulation may be the necessary means of curbing the abuse of monopoly power.
Secondly, liberalization is a process of transition whose key agent is the state. It creates in its wake numerous opportunities of conferring benefits on businesses having a privileged relationship with decision-makers. Privatization—the transfer of ownership of assets from public to private hands—is a classic example of an integral part of the liberalization programme where largesse of very large economic values can be showered on favoured businessmen. The same is the case with the opening up for private entry of many sectors which were earlier mainly earmarked for public sector development. The very nature of many of these meant that free and unrestricted entry of private sector firms was not possible and regulation of the selective entry inevitable. The telecom sector, in which the issue of allocation of spectrum arose precisely because of private sector entry, is just one example of such a sector. Many other major sectors that have been de-reserved and/or opened up for increased participation of the private sector— power, mining, petroleum and gas, banking and finance, insurance, airlines, etc.—are also of this kind because in them the state has to set the rules of the game. Another important component of the liberalization programme, public-private partnerships in infrastructure development, also has a similar potential for favouritism.
Thirdly, it is not merely in the process of liberalization and private sector entry but also in their aftermath that regulation is necessary. The displacement of public sector production by the private sector in many of the sectors like telecom mentioned above, where properly competitive markets are not possible, inevitably means their regulation. The state’s role therefore does not disappear in them but becomes redefined. Indeed it is after liberalization that, apart from the creation of a competition commission, a whole spate of regulatory institutions has had to be created specifically for many of these sectors. Other than these, financial markets too need regulation. This continuing necessity for regulation over large and critical sectors of the economy only serves to highlight the fact that even under a liberal economic regime the state remains an important actor in the economic arena. The state also plays a critical role in making land available to corporate entities for industrial and real estate projects and also SEZs. In other words, liberalization and the spread of private sector presence to a larger range of activities have enlarged the area in which decisions of public bodies have a significant bearing on private profits. Moreover, it is not some small sums but mind boggling levels of profits that hinge on such decisions.
Fourthly, competition even when present is not always an effective substitute for disciplining of private capital by the state. Competition’s disciplining role is circumscribed by the fact that it is a competition in the process of profiteering and money-making. It reinforces that objective and often reinforces the tendency to cross all boundaries rather than to observe limits. If taxes are evaded, accounts cooked up, stock-markets rigged, very low wages paid, working conditions kept abysmal, environmental regulations flouted - it is because it is profitable to do these. Competition itself cannot enforce discipline in such matters; it can only strengthen the inducements to go in the opposite direction and therefore are situations where businesses would benefit from lack of intervention by the state. In sectors where decisions of public authorities have a large bearing on profits, business rivalry also has the automatic effect of inducing the participants in that rivalry to try to influence the decisions in their favour. In other words, competition can strengthen the tendency for big business to corrupt and capture public institutions in pursuit of their private ends.
Fifthly, liberalization has affected both the ideological outlooks as well as values of public officials in a manner that makes them more inclined to act in the interests of private capital. The positioning of the private sector as more efficient than the public sector, the idea that the state should not interfere in the working of the market, and the concept of public-private partnership, are integral elements of the worldview associated with liberalization which public officials have also tended to internalize. Moreover, in a globalized context, private business enterprises also become the standard-bearers of “nationalism”, “national-interest”, and “national achievement” so that national success tends to be seen as something that coincides with their success. There is also an inherent celebration of money-making in a liberalized context that increases the proneness to corruption of public officials, and the greater permissiveness towards international transactions has also added a new dimension to the possibilities of graft. To add to this is the prospect of a lucrative post-retirement career in the private sector for bureaucrats and administrators involved in regulating that sector.
Sixthly, with the ceding of the commanding heights of the economy to private enterprise the state has structurally become more circumscribed and its ability to act autonomously of the influence of private capital seriously compromised. Once the private sector is placed in the privileged position of driving the economy’s growth and development process, the state has to willy-nilly adopt a friendly attitude towards it. In a liberalized context, ‘concessions’ and ‘incentives’, and maintaining through these the ‘state of confidence’ become the means available to the state to guide private capital of different kinds – foreign and domestic, speculative and productive - towards the attainment of definite objectives and to dissuade them from doing damage to them. This increases the leverage of private capital on the State, and in a federal set-up like India’s, this leverage is also enhanced by the competition for investment between states that liberalization forces them into. The very large number of tax sops granted to corporate India, like the one enjoyed for a long time by the highly profitable information technology (IT) sector, stand testimony to this power of business.
To sum up then, liberalization has created a situation where the incentives for big business manipulation of public policy, their ability to capture the policy making process, and the scope for the masking of such capture as legitimate national policy, have all increased considerably. Individually as well as collectively, India’s big business houses have benefited tremendously from this situation. Their profits have multiplied manifold even as levels of corruption and the scale and frequency of scams have grown tremendously. This correlation is neither accidental nor a mere coincidence. In the process however India’s already limited democracy has been further undermined. In such circumstances, to argue for getting politics out of the economy is to make the case for strengthening corporate control over policy-making and regulation. Applied to the case of regulatory institutions, for instance, this would mean that these institutions would not have to be accountable to even the Parliament, a sure-fire recipe for their complete capture by business. What is needed instead is that political processes have to work towards subjecting policy-making, regulation and regulators to much greater scrutiny and thereby check corporate power. It is not therefore a matter of getting politics out but of getting it correct.
*****
Surajit Mazumdar
കടപ്പാട് : pragoti.org
The Strange Story of the Single Market
For the past few months global attention, especially in the international financial media, has been focussed on the eurozone. The reasons are obvious. The group of countries that make up the European Union together constitute the largest economy in the world. Instability within it -- which now seems inevitable, no matter how the current problems of countries like Greece, Ireland, Portugal and possibly Spain and Italy are dealt with -- will have huge repercussions in the rest of the world.
And of course the story of the economic union is itself a compelling one, unique in the history of the past two centuries: how countries that had been quite recently torn apart by war and strong economic nationalism came together in progressively more intense ways, culminating in the common currency of the eurozone. There is no question that this was always a remarkable project, and the extent to which economic union proceeded apace without political merger always seemed unbelievable to some observers.
Whether one sees the creation of the eurozone as a tribute to idealism with respect to regional co-operation, or a reflection of the triumph of political will over economic barriers, or simply as a desperate response of a group of countries to the currency volatility created by mobile capital flows, really does not matter. The point is that it has been a fascinating experiment. For at least a decade, its apparent stability called into question a belief that was axiomatically held by many economists: that monetary union is difficult if not impossible without fiscal federalism underpinned by more comprehensive political union.
In fact the European Union, and within it the eurozone, was the culmination of the century-long drive in Europe towards greater integration, punctuated by wars, other conflicts and instabilities, but proceeding regardless of those hurdles. The initial driving force of such a union may well have been political, but there were always explicit recognition of clear economic benefits. These were argued to emerge mostly from the reduced transaction costs of all cross-border economic activities, including trade in goods and services. In addition, the stability provided by a single currency served to reduce risk in a world of very volatile currency movements driven by mobile capital flows. This was seen to be an additional inducement to invest in productive activities, especially in "peripheral" European countries that would not otherwise have access to international capital on such favourable terms. This is why, despite the recent difficulties of several economies in the eurozone, the list of countries lining up to join it is still long and shows no sign of dwindling.
But there are also significant costs of such union, which are becoming especially evident now. The most obvious is the loss of two major macroeconomic policy instruments: the exchange rate and monetary policy, which can otherwise be used to prevent an economy from falling into a slump. In addition, the "Stability and Growth Pact" that emerged as part of the Maastricht Treaty that laid down the conditions for common currency also specified strict fiscal limits that effectively also tied up fiscal policy. Of course these have been observed more in the breach, especially by the larger European economies, but they did operate to constrain fiscal policy to a significant extent as well.
These in turn affect the ability to respond to imbalances. For example, Greece could have tried to use a combination of exchange rate devaluation and lower interest rates to stimulate demand, increase income and reduce unemployment, as well as prevent the external deficit from deteriorating. Of course this is not foolproof, as many countries know, but trying to adjust without such instruments is that much harder. Instead, Greece, Ireland, Spain and other similar economies are being forced into an even more painful "internal devaluation" by forcing prices to come down through a terrible mixture of fiscal austerity, unemployment and deflation, which in fact makes the debt burden worse.
All these have been widely commented upon in the context of the current crisis, and the inherent rigidities of an economic regime that does not allow currency devaluation as a response to widely varying prices and external imbalances have generally been seen as the basic factors behind the current crisis. But strangely, hardly any commentaries on the matter get into the more basic question: how could such imbalances be created and persist in the first place?
This is probably the more important question, because it points to a disturbing conclusion: that the entire process of European economic integration actually created much less actual integration than was expected. In fact, the Single Market that was launched in 1994 was intended to do away with all trade barriers as well as all restrictions on capital and labour flows. The purpose was to create a single unified market, in which prices would be equalised across member countries.
These prices that were to be equalised were of both goods and services, and of labour, since workers could also freely move between countries. But even till date labour does not really move freely across European borders despite the removal of official restrictions. Of course it is well known that labour mobility is not that simple, especially where there are different languages and cultures. In fact it is rare to find wage equalisation across regions even within national boundaries, as we know well in India. Similarly, because many services like personal services are still not so easily traded, their prices need not get equalised either.
But there is no such constraint when it comes to a single market for goods. The typical expectation whenever trade barriers are reduced or removed is that trade arbitrage will ensure uniform prices, or in other words, countries will keep exporting or importing goods until their prices are equalised. This also forms the basis of all trade theory, with all the policy conclusions that are then drawn from it. In Europe, with relatively low transport costs across many countries, there was no a priori reason for this not to happen.
Bu remarkably, this did not happen. This is the real surprise of the European economic project, and is the mother of all the other problems. There is much talk of faster productivity changes in Germany resulting in lower export prices that effectively outcompeted the production of workers in Greece and Spain, and so on. But if the Single Market were actually functioning properly, prices would have been equalised across the region.
In fact, price differences of a large basket of goods are large across different European countries (and even within them) and have not only persisted but in some cases even increased. This continues despite cases of individual trade arbitrage: it is common to find householders in Geneva, Switzerland cross the border into France to pick up their household supplies in the cheaper supermarkets of France, just as migrant hawkers peddle goods like watches whose prices vary dramatically across different European cities.
How can this happen? Why did the Single Market in Europe not force price equalisation? This is not an easy question to answer, especially as surprisingly little research has concentrated on this issue. But the growing concentration of both production and retail activities, with the associated proclivity to price to particular markets and charge "what the market will bear" in each location, may have played a role.
In any case, this gives us an important insight into the process of economic integration: that even in the most favourable conditions, it is not necessary that reduction/removal of trade barriers will lead to price equalisation. This in turn forces us to rethink many of our other conclusions about the effects of open trade.
Obviously, we still understand relatively little about the effects of removing trade restrictions, since many of the actual outcomes are quite different from what is predicted by standard theory or even by what seems like common sense. In this way, as in so many others, the current experience of the eurozone is instructive for the rest of the world.
*****
Jayati Ghosh
(Jayati Ghosh is Professor, Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, New Delhi, and Executive Secretary of International Development Economics Associates (IDEAs). This article was first published by International Development Economics Associates on 22 December 2010; it is reproduced here for non-profit educational purposes. )
കടപ്പാട് : monthlyreview
And of course the story of the economic union is itself a compelling one, unique in the history of the past two centuries: how countries that had been quite recently torn apart by war and strong economic nationalism came together in progressively more intense ways, culminating in the common currency of the eurozone. There is no question that this was always a remarkable project, and the extent to which economic union proceeded apace without political merger always seemed unbelievable to some observers.
Whether one sees the creation of the eurozone as a tribute to idealism with respect to regional co-operation, or a reflection of the triumph of political will over economic barriers, or simply as a desperate response of a group of countries to the currency volatility created by mobile capital flows, really does not matter. The point is that it has been a fascinating experiment. For at least a decade, its apparent stability called into question a belief that was axiomatically held by many economists: that monetary union is difficult if not impossible without fiscal federalism underpinned by more comprehensive political union.
In fact the European Union, and within it the eurozone, was the culmination of the century-long drive in Europe towards greater integration, punctuated by wars, other conflicts and instabilities, but proceeding regardless of those hurdles. The initial driving force of such a union may well have been political, but there were always explicit recognition of clear economic benefits. These were argued to emerge mostly from the reduced transaction costs of all cross-border economic activities, including trade in goods and services. In addition, the stability provided by a single currency served to reduce risk in a world of very volatile currency movements driven by mobile capital flows. This was seen to be an additional inducement to invest in productive activities, especially in "peripheral" European countries that would not otherwise have access to international capital on such favourable terms. This is why, despite the recent difficulties of several economies in the eurozone, the list of countries lining up to join it is still long and shows no sign of dwindling.
But there are also significant costs of such union, which are becoming especially evident now. The most obvious is the loss of two major macroeconomic policy instruments: the exchange rate and monetary policy, which can otherwise be used to prevent an economy from falling into a slump. In addition, the "Stability and Growth Pact" that emerged as part of the Maastricht Treaty that laid down the conditions for common currency also specified strict fiscal limits that effectively also tied up fiscal policy. Of course these have been observed more in the breach, especially by the larger European economies, but they did operate to constrain fiscal policy to a significant extent as well.
These in turn affect the ability to respond to imbalances. For example, Greece could have tried to use a combination of exchange rate devaluation and lower interest rates to stimulate demand, increase income and reduce unemployment, as well as prevent the external deficit from deteriorating. Of course this is not foolproof, as many countries know, but trying to adjust without such instruments is that much harder. Instead, Greece, Ireland, Spain and other similar economies are being forced into an even more painful "internal devaluation" by forcing prices to come down through a terrible mixture of fiscal austerity, unemployment and deflation, which in fact makes the debt burden worse.
All these have been widely commented upon in the context of the current crisis, and the inherent rigidities of an economic regime that does not allow currency devaluation as a response to widely varying prices and external imbalances have generally been seen as the basic factors behind the current crisis. But strangely, hardly any commentaries on the matter get into the more basic question: how could such imbalances be created and persist in the first place?
This is probably the more important question, because it points to a disturbing conclusion: that the entire process of European economic integration actually created much less actual integration than was expected. In fact, the Single Market that was launched in 1994 was intended to do away with all trade barriers as well as all restrictions on capital and labour flows. The purpose was to create a single unified market, in which prices would be equalised across member countries.
These prices that were to be equalised were of both goods and services, and of labour, since workers could also freely move between countries. But even till date labour does not really move freely across European borders despite the removal of official restrictions. Of course it is well known that labour mobility is not that simple, especially where there are different languages and cultures. In fact it is rare to find wage equalisation across regions even within national boundaries, as we know well in India. Similarly, because many services like personal services are still not so easily traded, their prices need not get equalised either.
But there is no such constraint when it comes to a single market for goods. The typical expectation whenever trade barriers are reduced or removed is that trade arbitrage will ensure uniform prices, or in other words, countries will keep exporting or importing goods until their prices are equalised. This also forms the basis of all trade theory, with all the policy conclusions that are then drawn from it. In Europe, with relatively low transport costs across many countries, there was no a priori reason for this not to happen.
Bu remarkably, this did not happen. This is the real surprise of the European economic project, and is the mother of all the other problems. There is much talk of faster productivity changes in Germany resulting in lower export prices that effectively outcompeted the production of workers in Greece and Spain, and so on. But if the Single Market were actually functioning properly, prices would have been equalised across the region.
In fact, price differences of a large basket of goods are large across different European countries (and even within them) and have not only persisted but in some cases even increased. This continues despite cases of individual trade arbitrage: it is common to find householders in Geneva, Switzerland cross the border into France to pick up their household supplies in the cheaper supermarkets of France, just as migrant hawkers peddle goods like watches whose prices vary dramatically across different European cities.
How can this happen? Why did the Single Market in Europe not force price equalisation? This is not an easy question to answer, especially as surprisingly little research has concentrated on this issue. But the growing concentration of both production and retail activities, with the associated proclivity to price to particular markets and charge "what the market will bear" in each location, may have played a role.
In any case, this gives us an important insight into the process of economic integration: that even in the most favourable conditions, it is not necessary that reduction/removal of trade barriers will lead to price equalisation. This in turn forces us to rethink many of our other conclusions about the effects of open trade.
Obviously, we still understand relatively little about the effects of removing trade restrictions, since many of the actual outcomes are quite different from what is predicted by standard theory or even by what seems like common sense. In this way, as in so many others, the current experience of the eurozone is instructive for the rest of the world.
*****
Jayati Ghosh
(Jayati Ghosh is Professor, Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, New Delhi, and Executive Secretary of International Development Economics Associates (IDEAs). This article was first published by International Development Economics Associates on 22 December 2010; it is reproduced here for non-profit educational purposes. )
കടപ്പാട് : monthlyreview
Nobody Cares
While children are dying of malnutrition, our leaders are busy comforting the corporate sector
This week’s show of ‘Walk the Talk’ by Shekhar Gupta was the third in a series of episodes that seemed to be dedicated to bringing forth the corporate viewpoint to counter the current environment of mistrust, post Radiagate. While the first two were with Ratan Tata and Deepak Parekh, obvious corporate representatives, it is telling that as the third he chose Sharad Pawar – the Minister for Agriculture and also for Food, Consumer Affairs and Public Distribution.
In the midst of reports of high malnutrition deaths from the slums of Mumbai, an exclusive interview is conducted with the Minister for Agriculture and Food. He happens to be from the same state of Maharashtra where these deaths have happened and not a single question is asked to him about the state of food security, hunger or malnutrition. The entire interview is about how wrong signals are being sent out to the corporate world and if this continues investments will decline. It just reflects the extent to which this government and the media are sold out to corporate interests.
On the other hand the Food Minister until now has not found the time to say anything substantial on what his position on the proposed National Food Security Bill is. The NAC has set a framework for the Bill and the Prime Minister has set up another committee to examine this, but we don’t know where the concerned Minister is in all of this. After all, as the Food Minister, one would expect that he should have a view on this.
It is indeed shocking how the media (barring a few individuals) can be so consumed with the India growth story that there is hardly any space to report on the poverty and deprivation being faced by so many. The media has failed to play the role of critically looking at this situation and analysing it in the light of government failure.
Another related event recently which reflects this same trend is the statement of the Prime Minister in his inaugural speech at the India Corporate Week. This was where the Prime Minister made his first public statement in response to the leaks of the Radia tapes. All he said was that, how the tapes were leaked will be investigated and care will be taken to ensure that this does not happen again! Not a single statement on the content of the tapes. Nothing on the general feeling these conversations give to everyone who reads them, that cabinet positions are decided (or at least strongly influenced) by corporate interests. The Prime Minister did not feel it was necessary to assure the nation that important political decisions are taken in an unbiased manner, but did stick his neck out to assure the corporate bosses that they will not be put in a spot again!
The mainstream media too has given space to corporate fears that the ‘negativity’ generated by the Radia tapes leak “would hurt the image of brand India and turn away business”. How come images of starvation and malnutrition from the financial capital of the country do not generate any “negativity”?
As a country, we seem to have got so used to high levels of inequality and the existence of billionaires alongside the poorest that it does not make news anymore. This sorry state of affairs is reflected in every indicator of human development. India ranks 119 out of 169 in the Human Development Index and 73 out of 103 in the Multidimensional Poverty Index. We are home to the largest number of malnourished children, and to the highest number of women dying during childbirth across the world. Resistance to such injustice is obviously weak and needs to be strengthened.
One of the ways of doing this is to demand the fair share of the government’s resources for the poor. Public programmes for employment, food, health and education should be seen as part of the redistribution efforts of the government. Currently, the amount of public spending on any of these sectors is way short of what is required. In spite of all the ‘hype’ about the emerging India, most children in our country go to schools that do not have toilets and women deliver in health centres that do not even have essential medicines. In many parts of the country the only programme we have for pre-school children (ICDS) runs without any space, with children sitting out in the open.
Whenever there is a demand for greater resources to be spent on social sector programmes, it is argued that the country cannot afford such huge amounts. Each scam and the response to it (‘IPL’, ‘Adarsh’, ‘2G’...), reminds us that it is not a problem of lack of resources but of priority.
കടപ്പാട് : pragoti.org
This week’s show of ‘Walk the Talk’ by Shekhar Gupta was the third in a series of episodes that seemed to be dedicated to bringing forth the corporate viewpoint to counter the current environment of mistrust, post Radiagate. While the first two were with Ratan Tata and Deepak Parekh, obvious corporate representatives, it is telling that as the third he chose Sharad Pawar – the Minister for Agriculture and also for Food, Consumer Affairs and Public Distribution.
In the midst of reports of high malnutrition deaths from the slums of Mumbai, an exclusive interview is conducted with the Minister for Agriculture and Food. He happens to be from the same state of Maharashtra where these deaths have happened and not a single question is asked to him about the state of food security, hunger or malnutrition. The entire interview is about how wrong signals are being sent out to the corporate world and if this continues investments will decline. It just reflects the extent to which this government and the media are sold out to corporate interests.
On the other hand the Food Minister until now has not found the time to say anything substantial on what his position on the proposed National Food Security Bill is. The NAC has set a framework for the Bill and the Prime Minister has set up another committee to examine this, but we don’t know where the concerned Minister is in all of this. After all, as the Food Minister, one would expect that he should have a view on this.
It is indeed shocking how the media (barring a few individuals) can be so consumed with the India growth story that there is hardly any space to report on the poverty and deprivation being faced by so many. The media has failed to play the role of critically looking at this situation and analysing it in the light of government failure.
Another related event recently which reflects this same trend is the statement of the Prime Minister in his inaugural speech at the India Corporate Week. This was where the Prime Minister made his first public statement in response to the leaks of the Radia tapes. All he said was that, how the tapes were leaked will be investigated and care will be taken to ensure that this does not happen again! Not a single statement on the content of the tapes. Nothing on the general feeling these conversations give to everyone who reads them, that cabinet positions are decided (or at least strongly influenced) by corporate interests. The Prime Minister did not feel it was necessary to assure the nation that important political decisions are taken in an unbiased manner, but did stick his neck out to assure the corporate bosses that they will not be put in a spot again!
The mainstream media too has given space to corporate fears that the ‘negativity’ generated by the Radia tapes leak “would hurt the image of brand India and turn away business”. How come images of starvation and malnutrition from the financial capital of the country do not generate any “negativity”?
As a country, we seem to have got so used to high levels of inequality and the existence of billionaires alongside the poorest that it does not make news anymore. This sorry state of affairs is reflected in every indicator of human development. India ranks 119 out of 169 in the Human Development Index and 73 out of 103 in the Multidimensional Poverty Index. We are home to the largest number of malnourished children, and to the highest number of women dying during childbirth across the world. Resistance to such injustice is obviously weak and needs to be strengthened.
One of the ways of doing this is to demand the fair share of the government’s resources for the poor. Public programmes for employment, food, health and education should be seen as part of the redistribution efforts of the government. Currently, the amount of public spending on any of these sectors is way short of what is required. In spite of all the ‘hype’ about the emerging India, most children in our country go to schools that do not have toilets and women deliver in health centres that do not even have essential medicines. In many parts of the country the only programme we have for pre-school children (ICDS) runs without any space, with children sitting out in the open.
Whenever there is a demand for greater resources to be spent on social sector programmes, it is argued that the country cannot afford such huge amounts. Each scam and the response to it (‘IPL’, ‘Adarsh’, ‘2G’...), reminds us that it is not a problem of lack of resources but of priority.
കടപ്പാട് : pragoti.org
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