Wednesday, 21 August 2019

Pakistan’s Crocodile Tears for Muslims – Global, Indian or Kashmiri

By Girish Menon

It is two weeks since the Indian Parliament de-operationalised Art. 370 and used the armed forces to crush any dissent in the few Muslim majority districts of the erstwhile Jammu and Kashmir. It is well known that when any army administers an area there will be human rights violations; and I don’t expect anything different in the Kashmir valley. But does Pakistan’s rhetoric in this matter inspire confidence among embittered Kashmiri Muslims on the Indian side?

Image result for crocodile tears

Pakistan (the land of the Pure Muslim) was founded on the principle of the Two Nation Theory for Muslims from the Indian subcontinent who were afraid of being persecuted in a post-British, Hindu majority India. From its inception, Pakistan persecuted its own Hindu, Sikh, Ahmadiya, Shia and Christian populations. It also persecuted Sindhis, Balochs, Pashtuns etc. and ended up as the land only for the Punjabi Sunni. It acquired the epithet Bakistan (leftover land) after its Bengali Muslims left to form Bangla Desh.

Pakistan initiated four formal wars against India viz. 1948, 1965, 1971 and1999. It launched proxy wars in the Punjab in the early 1980s and in Kashmir from 1989 onwards which resulted in the displacement of a large number of Hindus who were resident in the Kashmir valley. It did not adhere to the UN resolution of 1948, the Simla agreement of 1972 and its miltablishment jeopardised peace initiatives between civilian governments including Modi’s by attacking the Indian Parliament, Mumbai, Pathankot and Pulwama.

Internationally, the pious Pakistan general Zia ul Haq earned his spurs by firing on Muslim Palestinians even before he came to power illegally. The Pakistan state persecuted its Mohajirs who fled India after the 1947 partition. Recently too, it did not step in to help Syrian refugees, the Rohingyas or the Uighurs (all Muslims) who suffered in large numbers.

Now the Pakistan media alleges that India is using genocidal policies to subjugate Kashmir. However, I don’t see any counter relief policy by Pakistan welcoming aggrieved Indian Muslims in general and Kashmiri Muslims in particular to cross the border and to settle in the Sunni Islamic paradise called Pakistan. After all, the other famous land of the faithful, Israel, is an open haven to Jews from all over the world.

Pakistan’s support for Indian Muslims is part of the Ghazwa-e-Hind rhetoric. They hope that Indian Muslims will take up arms (which they have supplied) to create a fifth column so that the armies of the faithful can wander in and establish Imran Khan’s Riyasat-e-Medina.

Unsurprisingly, Pakistan’s friends and members of the Islamic ummah viz. the UAE and Saudi Arabia have not supported it’s rhetoric. Also, most Indian Muslims have decided to follow their self interest and ignored the calls from across the border. Now, it is up to the Indian government to ensure they win the hearts and minds of the doubters in the Kashmir Valley.

More importantly, the Indian government should focus on the dire economic situation in the country which affects people from all denominations. Success in this area will ensure that Kashmiri Muslims will wish to stay with India and not raise the call for Azaadi (freedom from both India and Pakistan).

---Prognosis for the Future (in Urdu)


Monday, 19 August 2019

Ten Best Jokes from Edinburgh

"I keep randomly shouting out 'Broccoli' and 'Cauliflower' - I think I might have Florets" - Olaf Falafel

"Someone stole my antidepressants. Whoever they are, I hope they're happy" - Richard Stott

"What's driving Brexit? From here it looks like it's probably the Duke of Edinburgh" - Milton Jones

"A cowboy asked me if I could help him round up 18 cows. I said, 'Yes, of course. - That's 20 cows'" - Jake Lambert

"A thesaurus is great. There's no other word for it" - Ross Smith

"Sleep is my favourite thing in the world. It's the reason I get up in the morning" - Ross Smith

"I accidentally booked myself onto an escapology course; I'm really struggling to get out of it" - Adele Cliff

"After learning six hours of basic semaphore, I was flagging - Richard Pulsford

"To be or not to be a horse rider, that is Equestrian" - Mark Simmons

"I've got an Eton-themed advent calendar, where all the doors are opened for me by my dad's contacts" - Ivo Graham

Saturday, 17 August 2019

You’ll Find an Unicorn Before You Find a Free Market

Syed Bakhtiyar Kazmi in The Dawn

THE realisation that conventional economic wisdom, seeped in the myth of the free market, will be extremely antagonistic towards any solution based on protectionism and planned industrialisation, stipulates a bit of digression.

Scope limitation: the discussion here under is based on pure common sense sans any political bearing, with the simple objective of discussing alternative options for economic growth; those who know it all already need not read any further.

Whilst conspiracy theories may explain the ‘why’, it is indeed mind-boggling ‘how’ the world was sold an idea, ie free markets, which has nothing to do with reality. Essentially, you need the long arm of the government to even enforce the rules of the market, including breaking cartels for countering undesirable social outcomes.

My personal favourite from the net is, “You’ll find a unicorn before you find a free market”!

Perfect competition in free markets, even in theory, inevitably eventually results in an oligopoly or monopoly, as in the case of Coke and Pepsi.

More to the point, how many genuinely believe that any domestic cola manufacturer has any chance of ever taking market share from Coke and Pepsi in Pakistan; and this has nothing to do with quality or free markets!

Capturing the market for coloured aerated water has only to do with deep pockets!

This example is easily applicable to our case study, the imported can opener. To recap my observations in another article, because of free markets, Pakistan had started importing can openers which were cheaper and shinier than the domestically manufactured can opener. However, with the rupee depreciating, the Pakistani can opener might have become cheaper, but the domestic facilities have closed down and we probably have lost the skills to manufacture a can opener during this time.

At this point, foreign manufacturers will go to any lengths to scuttle any new initiative for the domestic manufacturing of can openers; dumping and price war are just the tip of the iceberg. The home country of our foreign manufacturer of can openers may probably even oppose Pakistan in the UN Security Council, just to apply pressure to protect their manufacturer’s interests!

Is that voluntary trade?

Here the free market proponents argue that voluntary trade is beneficial for both parties. They argue that purchasing, say, a Coke, demonstrates that the purchaser values a fizzy drink more than the money in his pocket, and hence should have the right, and the choice, to spend his money as he wants.

There is nothing wrong with that statement. However, no person, with even a tiny bit of common sense, is expected to borrow every day to drink a Coke, if he cannot afford to pay back that debt.

In the case of a nation, government is the repository of common sense of the populace; so how does borrowing in dollars to pay for Cokes every day for 207 million people make any sense? How is getting burdened with external debt mutually beneficial trade?

And here we come to comparative advantage theory which basically argues that nations should only produce and export items where they have a comparative advantage. Notwithstanding that most developing nations can only have a comparative advantage in raw materials or basic manufacture, let us for a minute be practical.

Under this fantastic ‘all else being held constant two-nation-two-products comparative advantage’ theory, Portuguese winemakers would be re­­quired to stop making wine, since London’s winemakers have some sort of advantage over them. But why would Portuguese winemakers, who can still make cheaper wine, and perhaps better tasting wine, stop producing wine, which they can easily sell in Portugal, and start making cloth when they are clueless about the cloth trade ab initio?

The Portuguese government could force them out of the wine business, but then we really are not talking about a free market, are we? And where is the guarantee that after a few years, when the last of the Portuguese winemaker has passed away, London winemakers will not suddenly start charging double? After all it is a free market. Portugal both now pays double and borrows to drink wine, or it does not drink wine since it cannot afford it. What in your opinion should Portugal do?

Here the free trade theory argues that free floating currency will increase the competitiveness of Portuguese wine; but the last winemaker is already dead!

As in our can opener example, we have forgotten how to make can openers; the problem is that if all our food is in cans, then we will be forced to borrow and buy more expensive can openers.

But the music will eventually stop! It always does. So where do we get the can openers from?

Friday, 16 August 2019

Hawala explained

By Shahid Mehmood in The Friday Times
Hawala and Hundi are two of the most familiar terms in Pakistan’s economic landscape. Put simply, these are synonymous with informal channels through which money flows in or out of the country. It has been on the policymakers’ radar for a long time but there has not been any significant success in terms of curbing its workings. These days, there is a new urgency to tackle it as Pakistan finds itself on the Financial Action Task Force’s (FATF) Grey List.

It is a good time to peek into the nature, history and workings of this system in order to understand its continued sway and why it became popular in the first place. Hawala basically denotes a system made up of money lenders and businessmen around the globe. What distinguishes it from the formal exchange channels (like banking) is that it works largely on repute and trust rather than formal contracts. It comes with its advantages, anonymity being the primary one. The other primary advantage comes in the form of avoiding expensive formal channels of finance and exchange. Anonymity, however, comes with a heavy price tag for countries like Pakistan as this particular characteristic has been mercilessly exploited by smugglers, drug peddlers and terrorism financiers. No wonder Pakistan finds itself on the FATF radar.

Transfer of financial resources using a Hawala type system, based on trust, is a very old practice. Robert Sobel, in his magisterial The Pursuit of Wealth, has traced the system back to the dawn of commerce and trade (he does not explicitly mention Hawala, though). Babylonian and Sumerian merchants, for example, relied heavily on people of reputation (including priests) for acting as clearing houses and money transfer intermediaries/channels providing a valuable service to citizens. Instead of taking the substantial risk of carrying money and valuables themselves, they were deposited with these individuals who in return would give them an acknowledgment receipt (with their particular stamp or insignia). When merchants would reach their destination, they would redeem the amount by presenting the receipt to the Hawala dealers of that particular place. Thus, a transaction was settled with minimum of fee and administrative requirements. Moreover, the existence of such a valuable service oiled the wheels of commerce as it took away the many risks that merchants faced while carrying money themselves.

If looked at in modern parlance, Hawala is a decentralised system based on competition. There is little requirement for meeting statutory obligations and cumbersome procedures that exist under a modern, centralised banking system. Historically, money lenders under Hawala have charged just a fraction of what formal transfer channels charge from consumers. A question may arise as to the profitability of such a service when the charged fees are low. But that aspect has, historically, been taken care of by realising economies of scale: lower charges on transfers have attracted enough customers to ensure a healthy return.

Since the dawn of commerce and trade, this system has persisted despite challenges. It was quite common in the Middle Ages, as has been documented extensively by the economist Avner Grief’s research. For example, 8th century China under the Tang dynasty had a similar system called fei-ch’ien (flying money). The need for such a system arose due to the dangers encountered in physically transferring tax money and valuables to the empire’s capital. The operation of that particular system ameliorated that risk to a large extent. Formidable challenges to this informal, decentralised authority rose with the rise of nation states, powerful central governments and central banking authority. Yet, the system refuses to vanish.

What, then, are we to make of global efforts to clamp down and curb Hawala type transactions? Specifically, one has to look at the social and economic benefits of doing away with such a system. In hindsight, this may seem odd since the official version foisted upon our imaginations is one of a system that causes substantial damage to the economy. This version stands vindicated if we were to limit the system’s workings to facilitating money borne out of drug peddling, terrorism financing and other such harmful activities.

But one has to be careful in limiting their imagination to only these activities. The fact of the matter is that a Hawala like system offers many socially beneficial incentives that tend to get lost in the fog of official versions. It tends to discount the benefits accrued to consumers. I have already narrated its extremely beneficial role in facilitating trade and commerce in the earliest known civilizations. Aside from this facilitation, there are other advantages that such a system confers upon the society. Specifically, its presence ensures lower transaction costs to its subscribers.
Banks illustrate this point. They charge various types of fees from customers under the garb of different heads and make a healthy profit based on the deposits of customers. On net, the benefits accrued to customers are either cancelled or are inferior to what they are charged for the service. But when these kinds of institutions fail (largely based on their actions), they are usually bailed out using taxpayer money (the ‘too big to fail’ phenomenon). If you think about it, it is akin to a heist! And the only remedy available against such excesses are courts, which again exact a heavy cost from society due to the time, duration and financials involved. In a country like Pakistan, given the state of affairs of courts, it is advisable to stay away from them and save time plus money.

Consumers are usually saved that predicament in an informal, decentralised system like Hawala. Once a reputation of operator is tarred, its curtains for that business and no amount of running around can recoup the lost repute. More importantly, there is little possibility of ‘too big to fail’ phenomenon, to be bailed out using taxpayer money. Thus society not only benefits in terms of saving money (very low transaction fees), but also in terms of a decentralised system that weeds out inefficient, unproductive and corrupt operators without the need for a central authority or courts.

The lesson from all of this discussion, at least for policymakers, is that efforts to curb hawala type system needs an understanding of the nature and forces that propel it. If informal systems of financial transactions have endured for centuries, there are good reasons for that, some of them outlined above. A society and its inhabitants have the capacity to compare transaction costs of having a formal system against an informal system. If the former confers a lower cost, the latter would disappear without the need for state intervention (and vice versa). If this point can be grasped, then it is clear that Pakistan’s policymakers should first review the predatory nature of its functioning (specifically its taxation) plus that of its financial system, and what cost it inflicts upon the society. It also does not help that the government strongly incentivised use of such channels when it was in its interest (to finance Afghan Jihadi groups, for example), helped entrench it, and now wants to get rid of it when faced with external pressure.

Historical evidence, though, suggests that such administrative exercises are usually futile in the end since an alternative tends to rise. The rise of crypto-currencies, like Bitcoin, is an apt reflection of this fact. At its core, crypto currencies reflect the working of a decentralised exchange with meagre transaction costs, just like Hawala. How would the world curb this system? Ban computers? I don’t think so.

A Factory or an Ashram?

By Girish Menon

In the Malayalam cult classic Chintavishtayaya Shyamala, Mukundan the protagonist wishes for a carefree life playing and hanging out with friends despite having a wife and two school going daughters. As the pressure grows, from his wife and other members of his extended family, to change his ways Mukundan runs away to an ashram where the sadhus are known to meditate for moksha (release from worldly cares). After 6-7 months at the ashram, the head sadhu (note the hierarchical corporate structure) invites Mukundan for an interview (6.17). The head sadhu mentions that Mukundan had not yet volunteered to either teach at an ashram school or offer to take care of the ashram cattle. In the following scene Mukundan mentions to a fellow sadhu, ‘I did not know this was a factory. If I had to work, I could have stayed in town and not come this far’.

Today, in an increasingly religious India, such ashrams seem to burgeon all over the land. Amazingly, these ashrams seem to be run by unpaid volunteers who work from 5 in the morning to 9 in the evening, seven days a week. Many of these volunteers are retired from corporate jobs and have chosen to spend the rest of their lives obeying the diktats of a saffron clad guru and his managers. More importantly, these volunteers claim that their minds are at peace doing seva (service) for the guru.

There might be some inner need which the ashram job seems to fulfil and which the modern corporations are unable to do so with their workforce. I have seen some of these ashram volunteers complain incessantly when they were working at their corporate jobs. Today, the same person uses all her waking hours advancing the cause of the ashram without any material gain. Some of them have been known to give up their personal homes and even pay rent to the ashram for an opportunity to provide seva.

Of course, there is a difference in the profile of the volunteer as compared to the corporate worker. The volunteers are usually retired, have an empty nest and are at a loss to spend their waking hours. The corporate workers are younger, aspirational, have demanding partners and kids and are perennially short of time.

David Cameron, the former British Prime Minister, made a good point that volunteers need to be encouraged to take over large sections of society. This has increased the number of volunteers running sports clubs, charities etc. in the UK.  Usually, some of the older volunteers bring a lot of worldly experience which could enable their voluntary organisations to perform better than with younger paid employees. In India, the saffron clad gurus have shown their smartness by recruiting such zero-cost volunteers to enhance their corporate goals. However, this begs the bigger question i.e. is India forcibly retiring its experienced workforce too soon?