Friday, 30 January 2009

Want to wow friends and colleagues by pretending you've been hobnobbing with global business and political leaders in Davos over the past 24 hours?

  • Robert Peston
  • 29 Jan 09, 10:21 AM
Want to wow friends and colleagues by pretending you've been hobnobbing with global business and political leaders in Davos over the past 24 hours? Here's what you need to know:
1) Prime Minister Putin was conciliatory towards the West in a speech devoid of specific commitments on anything of substance. There was an audible "phew" from the global uber-elite.
Wen Jiabao
2) The Chinese Premier, Wen Jiabao, both reassured and humiliated the western bankers. He reassured them with his account of how the supply of credit is rising again in China, which gives him confidence that the Chinese economy will grow by a more-than-respectable 8% in 2009. He embarrassed them with this manifestation of the strength of Chinese banks compared with their US, UK and eurozone peers (a strength that is the direct consequence of Chinese government policy).
It's very irksome for the Americans in particular that the Chinese version of what they see as their business model is holding up so well. And as if to rub their noses in it, the Chinese premier confided that he re-read Adam Smith over the summer (note "re-read") to reassure himself that the founder of modern economics wasn't the dogmatic opponent of government intervention that liberal market ideologues contend.
3) As I write, the chief executives of many of the world's big banks are meeting in top-secret, private session - to discuss what to say in their also top-secret meeting with finance ministers on Saturday morning. Here's the scoop on what the bankers will say: "Help!!!!!" (roughly translated as "only the further generosity of taxpayers can prevent us falling over as a consequence of the big losses we're incurring on our imprudent lending").
4) The Mayor of London, Boris Johnson, had the depressed plutocrats in stitches at Barclays' swanky dinner last night. They loved Boris's refusal to acknowledge that the City is in something of a pickle. Meanwhile, at Standard Chartered's restrained celebration of the Chinese new year, hardened bankers were moist-eyed as the legendary Welsh bass-baritone, Bryn Terfel, led a sing-a-long of "You take the high road, and I'll take the low road". I guess for the first time in their careers the star bankers can empathise with the soon-to-be-executed tragic hero of Loch Lomond.

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Why People Defied Election Boycott Call In Jammu And Kashmir

By Ghulam Nabi

28 January, 2009

Elections were held, voter turnout was exceptional, and the government is now formed. But the big question remained unanswered why did people vote this time. The large scale turnout surprised the pro-freedom leadership and pro-Indian parties as well as the state of Pakistan, and India. While the Indian state project the voter turnout in favor of Indian state, and the Kashmir based political parties including the ruling party believes this vote is for development, not for the resolution of Kashmir. New Delhi based news channels and news papers forgot their journalistic ethics which they often do, when it comes to the matter of projecting India as a biggest democracy, and Kashmir as an integral part of India. While some news papers and news channels projected the voter turn out as the defeat of separatist sentiment in Kashmir, while the others wrote Pakistan should stop now taking about Kashmir, as the kashmiris have shown faith on Indian democracy. Indian president in her address to the Nation on the eve of 60th Republic day of India also projected elections in Kashmir as the Kashmiri people’s faith on Indian polity. One wonders how she could forget the protests of hundreds of thousands of people in recent Amarnath controversy when people marched to the streets of Kashmir to demand for Aazadi (independence). On the other hand this was again the time when separatist like Mirvaiz Umar Farooq, first time confessed that the governance and resolution are two separate issues ,alas had separatist leadership realized it earlier we would not have lost hundreds of lives which were killed because they either contested election or casted their vote .

Unlike this election, Elections in Kashmir were either rigged like 1987, or people were forced to vote like 1996, 2002. But amidst this rigging and coercion we could not see a large voter turn out, than this election, why? I believe the resilience of militants not to use gun against the contestants and voters is the biggest reason for large scale voter turn out , as National conference president Farooq Abdullah said in a public debate on NDTV , that if Pakistan and militants had not restrained from attacking we would not have seen this large scale turn out . But at the same time we have seen people from Srinagar, and some other small towns observing complete boycott of elections. So does this mean only people from Srinagar and other small town which observed boycott want aazadi and rest don’t? I would argue with a big No, those who voted do not want to be part of India, as the ones who did not vote; their ends are same, but the means to reach that destination can be different. If we look at the press briefings and speeches of all mainstream parties during their election campaign, either they disassociate themselves with the resolution of Kashmir conflict, and fought the election on the name of governance or they projected themselves as the facilitators for the resolution of Kashmir dispute. In both ways mainstream parties tried their best to disassociate themselves from projecting the so called glory of Indian democracy which has been very much understood by Kashmiri people from last sixty years. However at the same time, regional/religious centric parties like BJP in Jammu and PDP in Kashmir managed to win more seats on the name of religion and region, thus lays the foundation of communal politics in Kashmir, which had failed so far to take its organized form. BJP managed to win 10 seats in Jammu and none in Kashmir, and PDP managed to win 22 seats in Kashmir and none in Jammu is some how leading the state towards communal politics .

History is witness to the fact that Kashmiris have fought against those who went against their wishes .be it towering leader of Kashmir; sheikh Mohammad Abdullah, who was highly praised and respected by the people of Jammu and Kashmir, unlike any of the separatist or mainstream leader of present time, but when people understood he has compromised on Kashmir cause, they went to the extent of dig his corpse out of his grave in 1990’s. The 1990 arms movement created a new leadership who started ruling people, and some times went to the extent of giving judgments on family /community disputes. A section of this community later become part of Hurriyat conference, which virtually started ruling Kashmir. Hurriyat become biggest force after 1990. But the state elections in 1996 when National conference rule was enthroned on Kashmiri people, NC workers started reaching out to people, but Hurriyat’s power did not vanish with it, it played its role and become a parallel force till august 2008, when it again got a control on the mass movement. Thanks to the then Governor of Jammu and Kashmir sate S .K Sinha who forced Aazad lead Congress and PDP coalition government to transfer land to the Amarnath shrine Board, which provoked kashmiris to fight back and get land allotment order revoked. Hurriyat tried to exploit this sentiment, and convert it into mass movement for independence, but the internal politics in both the sections of Hurriyat conference disappointed people and we lost the opportunity to negotiate with India. This was the second chance when India was ready to discuss any solution after 1990, and this time we had gained support from some sections of Indian civil society. Then came the election period, not only two factions of Hurriyat but Yaseen malik , and Sajad Lone who was earlier delinking elections in J&K with the resolution of Kashmir , lost his sanity and was swayed by August protests decided to launch anti election campaign. But they got in response what they had sown. This time they could not lure people for there false claims of bringing independence overnight. So the question arises, why people voted, if they were protesting against India and for aazadi just three months back? The answer is failure of institutionalization of movement.

Almost everybody in Kashmir knows, millions were being donated by people for the Kashmir cause, but the money went to the pockets of our separatist leader’s .For twenty years of resistance they failed to create even a single school, college, library, or hospital. Families of militants and other poor people always remained at the mercy of pro India parties. Even the deceased of august 2008 protests did not receive any monitory support from Hurriyat, except some meager amount of money and award from JKLF to some of the martyrs who were killed in Police firing. With the absence of alternative support, failure of Hurriyat and pro-freedom leadership to support needy ones, people chose what they felt is better for them. They voted, but not compromised their mission to fight for aazadi, thus they proved to be masters of negotiation, unlike our Hurriyat leaders who failed to understand the ground situation. History is testimony to the fact, that those people, who vote, are the same people who were part of 1990 and august 2008 mass movements. They are the people who face the brunt of army, police, and some times the harassments by militants. They fought for independence at every point, but they have been betrayed and disappointed at every time by our separatist leadership, yet they say they vote for development, not for India. At the same time mainstream parties succeeded in delinking elections with the resolution of Kashmir, and thus projected elections for the development and solution for local problems. Thus they succeeded in bringing people out to vote. This is the lesson for Hurriyat and pro-freedom leadership, they need to do introspection and chalk out a proper strategy to lead this movement to the logical conclusion. If they are not able to do it, it is better for them to get out of the way.

Girl Child Marriage In Madhya Pradesh - Impedes Child Rights

By Seema Jain

29 January, 2009

“Choti Si Umar Parnai Re Babo Sa, Kario Tharoo Kain Main Kusoor.” These lines from a song sung during marriages put forth the agony of a child’s heart undergoing a marriage ceremony that as to why was she being married off at such a tender age. Child marriage is one of the worst forms of denials of child rights.

Child marriage, involves either one or both spouses being children. The problem of child marriage in Madhya Pradesh is a complex one because it is related with traditional and religious practices. Compared to boys, girls are severely affected due to this practice of child marriage, due to social & physiological factor.

Madhya Pradesh has large number of teen aged mothers who is suffering with unnameable miseries entailed by the customs of early marriage. This wicked practice of child marriage has destroyed the happiness of children's life. Child marriages continue to be a fairly widespread social evil in Madhya Pradesh, despite a law banning it. The DLHS-3 recorded that 40.5% of boys are married below the age of 21 years and 29.2% of girls aged below 18 were married. The scenario of rural parts in the state is nastiest where about 58.5% women aged 20-24 years got married by the time they are 18 years old.

Among the important reasons cited for the continuance of the practice were: tradition, family and societal pressure, feudal set-up, and poverty. Based on the view that `virginity' is essential in a bride, girls are married off at a very young age, beginning five years. Due to these societal pressure & misconception relating to virginity 34.1% of women in Madhya Pradesh got married in the aged 15-19 years.

Among the districts in Madhya Pradesh, the child marriages is far more rampant in Barwani,Rajgarh, Shajapur & Sheopur districts where about 60% girl child gets married before 18. In these districts more than 50% population is illiterate resulting in sickening poverty. Poor families may regard a young girl as economic burden dew to prevailing custom of dowry marriages. Also they find it so difficult to feed everyone in the family that they prefer to "send off" the daughter as early as possible to some other family. This includes tribal inhabited district of Jhabua & Barwani districts.

Many parents say they are scared to keep their daughters unmarried after puberty as they have a big responsibility of protecting them. As a result, these girls are traumatized by sex and are forced to bear children much before their bodies are fully mature. Child Marriage is one of the most persistent forms of sanctioned sexual abuse of girls and young women. Child marriage not only affects the physical health of the bride, but also her mental and emotional well-being. The DLHS-3 findings further revealed that more than 10% of women aged 15-19 were already mothers or pregnant in about 40 districts of Madhya Pradesh at the time of the survey.

Consequences of Girl Child Marriage

 Child’s education is sacrificed.
 Girls become more vulnerable to domestic violence.
 Early pregnancies weaken the mother.
 Babies born to girls under 17 are 60 percent more likely to die in their first year of life.
 More prone to sexually transmitted disease including HIV/AIDS.

High risk/complication is associated with the teen age pregnancy. Out of the total deliveries in the state, 6.9% of deliveries are having high risk/complication. These complications related to pregnancy & child births often leads to maternal & neo-natal mortalities as the state is having significant shortfall of health institution & manpower to ensure safe motherhood. This is visible by the prevailing high MMR of 397 per lakh live birth as per NFHS-3.

These young mothers simply lack parenting skills. Infants of mothers aged younger than 18 years have a 60 per cent greater chance of dying in the first year of life than those of mothers aged 19 years or older. The infant mortality in the state is dreadfully soaring with IMR of 72/1000 live birth.

Child marriage is often associated with multiple health risks. Premature birth is a common syndrome amongst most young mothers. The premature baby thus born are very often suffers from anemia of different grade. In Madhya Pradesh 74.1% children under 5 experience anemia against the national average of 69.5%.

Secondly, young girls face the risk of infection with sexually transmitted diseases including HIV. An analysis of the HIV epidemic shows that “the prevalence of HIV infection is highest in women aged 15–24.

Early marriage is often linked to low levels of schooling for girls. Due to gender discrimination in the society, girls are not allowed to go to school and remain illiterate; they are compelled to stay at home to do household work and take care of their siblings. DLHS-3 reveals that child marriage has direct bearing on literacy & vice versa. The districts with more than 40% child marriage has less 50% female literacy. Barwani with highest percentage of child marriage (57.5%) has only 31.8% of female literacy.

It is well established fact that educated women are more likely to have a say in decision-making regarding the size of their families and the spacing of their children. They are also likely to be more informed and knowledgeable about contraception and the health care needs of their children.DLHS-3 data for all the districts of Madhya Pradesh show that more than 30 percent of women age 20-24 reported birth of order 2 & above. And these amounts to more then 80% percent for Barwani district. This indicates the high fertility rate in Madhya Pradesh.

The devastating impact of child marriage continues to be ignored in the state depicted by high infant & maternal mortality. Child marriage prolonged violation of the health and development rights of girls and young women.

H. Jackson Brown -Remember that children, marriages, and flower gardens reflect the kind of care they get.”

Ambitions dimmed but not abandoned

By James Lamont in New Delhi

Published: January 30 2009 00:10 | Last updated: January 30 2009 00:10

The small farmers of Bansur village in eastern Rajasthan overwhelmingly agree that life has changed for the better over the past 10 years. The reason is India’s greater engagement with the world economy.

Many still plough their tidy fields with camels. Between about 100 of them, they share only three tractors. They are troubled by the rising price of food, particularly of wheat, pulses and edible oils. They have also noticed that weather patterns are changing. The summers are hotter, and the monsoon rains a little less heavy.

On the upside, the men feel more connected among themselves and a world outside their village. What has revolutionised their lives is the mobile telephone – almost all of them possess one. They receive weather reports, discuss market prices for their crops and coordinate better among themselves. They even find spouses for their children this way.

“Before we would have to travel, but now we just talk. It saves time,” says Genda Lal Baisla, owner of one of the larger farms.

These same farmers are suppliers to a company listed in London that has its origins in Johannesburg and has global operations that stretch from Milwaukee to Moscow. Although few of the farmers openly admit to drinking beer themselves, they are part of SABMiller's global drinks supply chain. Their barley finds its way into beer distributed across northern India to cheer the country’s claim to be the fastest-growing beer market in Asia.

One of the most often quoted figures to illustrate the promise of the Indian economy is the number of new mobile telephone users who sign up each month. This raised eyebrows when it was 5m a month. But now the figure has reached a staggering 10m a month as mobile operators drive growth by offering call rates for less than Rs1 a minute.

The rampant growth in this sector has become the talisman that many turn to as reassurance that India’s domestic consumption is alive and well.

But as global companies increasingly change the lives of India’s 1.2bn people, the past six months have been testing for India and its engagement with the forces of globalisation. The country is at a critical juncture as it faces the prospect of global recession and a tightly-fought general election in April that pitches the ruling Congress party against the Hindu nationalist opposition Bharatiya Janata party. The battleground will be the economy.

The international financial crisis has had a worse impact on India than policymakers and businesspeople had initially recognised. The expectation was that, with exports representing only 17 per cent of gross domestic product, India would be insulated from troubles elsewhere, most particularly the US. The Sensex, the benchmark index on the Bombay Stock Exchange, lost more than half its value in the second half of last year, the liquidity crunch was felt widely and foreign portfolio investment drained swiftly from the emerging market.

Many top business leaders were soon appealing for deep interest rate cuts and emergency support from the government. Exports fell rapidly, iron ore and rice contracts were defaulted on and mass job losses loomed. Shares of some of India’s leading companies in sectors such as property, pharmaceuticals and IT outsourcing fell sharply. Even the heady days of the country’s domestic airline boom appeared numbered.

The shine speedily came off India's ambitions as corporate valuations seemed terribly overblown. Growth projections were revised down to about 7 per cent, when only in July government officials and business organisations felt double-digit growth to rival China was within reach.

As nerves jangled in New Delhi and Mumbai, a closed economy suddenly looked appealing again. Sonia Gandhi, president of the Congress party, invoked the prudence of her mother-in-law Indira in closing the Indian economy. But her praise for the nationalisation of banks in the late 1960s sounded a hollow note with a cadre of increasingly foreign-orientated business leaders eager to expand beyond India's shores.

Amid the financial turbulence, there was worse to come for investors. In the closing days of last year, India suffered one of its worst corporate scandals in one of the sectors leading its globalisation drive. Satyam, the country’s fourth largest IT outsourcing company, was dealt a devastating blow when B. Ramalinga Raju, its chairman, handed in a letter to regulators confessing to a $1bn fraud. The company’s share price collapsed, Mr Raju was taken into custody and his board dismissed.

The shockwaves were felt by investors across the world who view the IT outsourcing industry as a powerful driver of services-led economic growth. Satyam had been one of the first Indian companies to list on the New York Stock Exchange.

The fraud dimmed the Indian dream. Mr Raju’s personal journey as the son of a grape farmer in rural Andhra Pradesh, growing up without electricity, to study at Ohio University in the US and then become the chairman of an IT company was a textbook case of the opportunity globalisation could bring.

India’s openness has also attracted other enemies. The Mumbai terror attacks in November were a strike against global capital and India’s prosperity. Quite different from earlier bombs in marketplaces, the Pakistan-trained gunmen targeted hotels frequented by Indian and international business people and a Jewish centre.

In manufacturing the going was tough too. A year ago, the Nano car project to build the world’s cheapest car – to be sold for Rs100,000 ($2,061) pre tax – was held up as the spirit of the era. However, its main production plant in Singur, West Bengal, became mired in a land dispute that highlighted the tensions surrounding industrialisation.

As Ratan Tata, Tata’s chairman and one of the country’s most respected businesspeople, struggled to keep momentum behind the project, further afield, his group’s acquisition of Jaguar and Land Rover, the British car marques, from Ford was attracting strong criticism as a vainglorious enterprise.

“We analysts in the west are all looking at financial quarters and halves. But you have to give Ratan Tata credit for looking 20 years ahead with this acquisition,” says Xavier Gunner, head of research at London-based Arbuthnot Securities and an expert on the auto sector.

India’s believers are doing the same. Higher growth, the ambitions of its corporate leaders, trade’s rising share of GDP, and a high-quality, low-cost workforce are all spurring India to interact with the world as never before.

The trials of the past year have been met by the government with equanimity. Prime Minister Manmohan Singh's sober assessment is encouraging. “Our problems will not be over in the current year. The difficult period will continue into 2009-10,” he said. “The important point is that, although growth is lower, it is still much higher than most other countries.”

So long as that is the case, investment bankers in London and New York, alongside barley farmers in Rajasthan, will be happy to hurry India’s globalisation along.

Foreign policy: Craving greater influence

By James Lamont in New Delhi

Published: January 30 2009 00:10 | Last updated: January 30 2009 00:10

Most aspiring world powers are reaching into the policy drawer for a checklist to navigate the global politics of a downturn. None more so than India.

The global financial crisis has hit the country at an inconvenient time, as it reaches out politically and economically to the western world. The sliding markets and liquidity squeeze have shown India and China far from “decoupled” from US and European economies. “The Indian century”, as some like to imagine it, has hit an early global obstacle.

“The credit crisis has delivered the first major external economic shock of India’s meteoric 21st century rise,” says Peter Mandelson, the UK’s minister for business. “India is less dependent on export demand than China or other parts of Asia, but the pressures on developed world investment can, and are, having the same impact on growth in India, China and the other emerging economies.”

Mr Mandelson, on a visit to New Delhi this month, outlined back-of-the-envelope steps for India, urging it to stay on its globalising path. He proposed:

● keeping trade flowing and the economy open;
● signing the European Union-India free trade agreement;
● using the optimism surrounding Barack Obama’s presidency in the US to strike a Doha trade talks deal later this year;
● using the downturn to shift into low-carbon technology;
● and helping the Group of 20 nations, which meets in London in April, achieve a shift in international politics to a new agenda.

Mr Mandelson's checklist resonates with many Indian leaders, but they acknowledge that if they achieved only one or two of the more modest goals over the coming year they would be doing well.

India’s leadership craves a greater role in the world’s multilateral organisations whether as a permanent member of the United Nations Security Council or guiding the global financial system at the G20. They are also aware that India plays a pivotal role in the success of the World Trade Organisation’s global trade talks and initiatives to combat climate change.

Growing influence, however, is not confined to the negotiating table. India is fast modernising its armed forces, already among the largest in the world. The deployment of Indian naval vessels in the Gulf of Aden to protect shipping from pirates at the end of last year was a sign that New Delhi was prepared to expand the reach of its operations outside of UN peacekeeping missions.

In Manmohan Singh, the economist turned prime minister, India’s allies have had a partner hitting all the right notes.

“Our century will be shaped by how we respond to the global economic crisis today. If nations look only inwards and imagine they can solve all their problems on their own, they will fail,” he says emphatically.

Mr Singh has presided over one of the biggest shifts in India’s international alignment since the end of British rule in 1947.

The world’s largest democracy has traditionally behaved as a leading non-aligned country, and always been regarded as a good partner to have on single issues but difficult to engage across a range. Increasingly, as it projects itself more forcefully on the world stage, it is having to develop a broader, more consistent stance befitting one of the world’s fastest growing large economies.

In this regard, India’s single greatest recent foreign policy transformation, of which Mr Singh is the architect, is its fast warming relationship with the US. This had already begun in spheres such as education and IT outsourcing. But it took a civil nuclear agreement, signed with the outgoing Bush administration, to lift sanctions imposed in 1970s and unlock the potential of India’s relationship with the US, thought unimaginable a decade ago.

“The new relationship rests on a convergence of US and Indian national interests, and never in our history have they been so closely aligned,” reports an Asia Society taskforce led by Frank Wisner, a former US ambassador to New Delhi.

Since the nuclear deal’s passage through the US Congress, India’s foreign outlook has changed dramatically, not only because of the global financial crisis, but also because of a devastating terrorist strike on its financial capital.

Since the Mumbai terror attacks last November, India and its neighbour Pakistan have been engaged in a frustrating diplomatic exchange over who was responsible and whether they will be brought to justice. India’s foreign policy has quickly, though temporarily, narrowed to focus on the instability of South Asia and a familiar stand-off with Islamabad, with whom India has fought three wars in the past six decades.

Some commentators, such as Gurcharan Das, the former chairman of Procter & Gamble in India, are critical of what they call a return to the hostilities of the past. Rising Chinese and Indian economic development are higher priorities than a public row with Pakistan, he says.

Vishnu Prakash, one of the government’s chief foreign policy spokesmen, insists that one advantage of his country’s large civil service is that India will never be a “one issue” country. With so much hanging on India’s participation in global debates over financial infrastructure, climate, trade and terror, the international community will want to believe him.

Corporate governance: Scandal raises questions about disclosure regime

By Joe Leahy in Mumbai

Published: January 30 2009 00:10 | Last updated: January 30 2009 00:10

Early in the New Year, a small, moustachioed and otherwise unremarkable software industry executive shocked India and the world.

B. Ramalinga Raju, the chairman of Satyam Computer Services, India’s fourth largest information technology group by revenue, sent a letter to his board confessing to a crime so spectacular in its scale and brazenness that many could hardly believe it.

“Dear Board Members, It is with deep regret and tremendous burden that I am carrying on my conscience that I would like to bring the following facts to your notice …” Mr Raju began the letter, sent on January 7.

Apparently, Satyam’s balance sheet as of September was the numerical equivalent of a novel – an elaborate work of fiction in which everything from revenue and profits to most of its cash balance of Rs53.61bn ($1.1bn) was an invention. The fraud was carried out over a number of years, Mr Raju’s letter said, raising questions over how the company’s auditor, PWC, and stock market regulators failed to spot the scam.

Mr Raju may have unburdened his conscience with his confession. But in one step he undermined the confidence of India’s once unerringly self-assured business community, which had so far avoided the worst effects of the global slowdown.

“There has rarely been a case of a bull market not having left a few fraudulent residues, but the suo motu disclosure … by Ramalinga Raju, the chairman of Satyam, … must be categorised as the mother of all, at least in the Indian context,” said IIFL, the institutional research division of the Mumbai-based securities house, India Infoline.

“Symbolically, it is akin to the high profile frauds perpetrated by Enron, Worldcom or Parmalat, all of which had overstated profits and the value of assets on books.”

India’s beleaguered stock market has borne the brunt of the revelations. Since December 17, when the first signs emerged that all was not right at Satyam, the Bombay Stock Exchange’s benchmark Sensex Index, has fallen 13 per cent to 8.674.35 points as of January 23. On the day of the confession letter alone it fell 7.24 per cent.

Part of the reason the Satyam fraud was such a shock was that it occurred in in India’s multi-billion dollar information technology outsourcing business, regarded as one of the most progressive industries in the country’s corporate sector.

The episode began when Mr Raju on December 16 suddenly proposed that Satyam acquire the Maytas property and infrastructure companies belonging to his family in a deal worth $1.6bn.

The deal was approved by Satyam’s independent directors. But within hours Mr Raju was forced to abandon the plan after institutional investors launched an unprecedented rebellion against the transaction.

Unbeknown to these investors, Mr Raju was sitting on a time bomb. He had pledged his family’s 8 per cent stake in the company to lenders, which had started selling off the shares as Satyam’s stock fell in line with the broader market.

The Maytas deal was an attempt to cover up the fraud at Satyam. By January 7, the game was up. The lenders had sold almost all of the Raju family’s shares. The company’s share price had fallen to a fraction of its former value. Mr Raju confessed.

The question for analysts now is whether Satyam is an exception or whether, after a five-year stock market bull-run in India’s market that ended only last year, there are other long-running corporate frauds waiting to be discovered.

The scam has prompted calls for the government to tidy up loose corporate disclosure requirements. The most prominent need is to force controlling shareholders to reveal if they have pledged their shares in their companies to lenders.

In a market in which more than half of the key constituents of the Sensex are controlled by families, this is a sensitive issue. But the secretive pledging by controlling shareholders of shares to lenders is a key risk for unsuspecting minority investors. Once a stock that has been pledged hits a certain point, it will trigger a margin call, forcing the lender in question to begin selling those shares. This can collapse the stock price.

“All other disclosure requirements that apply to insider purchase and sell activities should be extended to pledging and loaning of shares,” said Credit Suisse in a report.

Two weeks after the confession letter was released, the Securities and Exchange Board of India, the stock market regulator, made it mandatory for controlling shareholders to reveal their share pledges.

The move was welcomed by the market but experts described it as “too little, too late”.

Professor Sandeep P. Parekh, visiting associate faculty at the Indian Institute of Management, Ahmedabad and former executive director of Sebi, said during his time at the regulator he spent three years developing new disclosure standards that have yet to be fully implemented.

Common complaints about India’s disclosure regime include the absence of a requirement on companies to file full balance sheets along with their quarterly results.

The other problem is enforcement. In the long queue of government investigative agencies waiting to interrogate Mr Raju, who at time of writing was in judicial custody in his home city in Hyderabad, Sebi seemed to be the last in line in spite of its role as the market regulator.

And few believe Mr Raju will see the inside of a prison again once he gets out on bail. Almost no serious white collar criminal in India has ever served time after sentencing because of the country’s laborious court system that can take years to reach a decision.

To be sure, India’s corporate governance system is still regarded as among the best in emerging markets. And investors are willing to vote with their legs. There has been a mass exodus from companies considered less transparent in recent weeks to those judged as following best practice. But the Satyam episode shows there is plenty of work that needs to be done by regulators and policymakers.

“Corporate crime in India can’t be addressed by more laws or indeed more governance,” said Krishnamurthy Vijayan, executive chairman of JP Morgan Asset Management in Mumbai, who says the country has “excellent” governance standards. “I suspect that rapid and forceful action against the perpetrators is the main answer.”

Citizenship: Diaspora suffers ambivalence

By Amy Kazmin in New Delhi

Published: January 30 2009 00:10 | Last updated: January 30 2009 00:10

Despite India’s rapid growth and his undergraduate degree in bio-technology, Deepak Jakhar, a 23-year-old aspiring cancer researcher, sees few career prospects in today’s India.

The job offers he received to sell pharmaceutical products had little appeal. An internship in a government laboratory taught him that dilapidated state research facilities offer little scope for professional growth.

That’s why Mr Jakhar, who has never travelled abroad, is now spending Rs2m ($41,000) on a two-year graduate programme – the second year of which will take place at the UK’s Cranfield University. After he finishes his degree in clinical research, his aim is to work in the UK for several years and then come home.

With a “UK-returned” label, he feels he will easily land a good job in what by then will be a large Indian drug trial business. “Conditions in India are improving day by day, but we can’t wait,” he says.

In seeking out better opportunities, Mr Jakhar, the son of a small businessman from the northern town of Rotak, is following a path trodden by tens of millions of Indians.

Since the British colonial period – accelerating since independence – Indians have streamed abroad in search of education, jobs and opportunities unavailable at home, creating one of the world’s largest diasporas.

Yet New Delhi retains an ambivalent attitude towards its massive diaspora. It prohibits dual citizenship and bars non-citizens from holding jobs in public sector institutions, such as universities, research laboratories and state enterprises – the areas most desperately in need of training and experience gleaned from abroad.

“India has severely under-leveraged its diaspora,” says Devesh Kapur, director of the University of Pennsylvania’s Center for the Advanced Study of India. “You would think that we would be tremendously welcoming of talent. In fact, we are not.”

In the early years after independence, many Indians went abroad on government scholarships to acquire skills such as engineering and science on condition that they returned to help to build the nation. Today, in a perverse inversion, western companies plunder graduates of India’s most elite institutions – who have been educated at taxpayer expense.

Even during the recent years of economic growth, the number of Indians going abroad as unskilled or semi-killed labourers has surged from 199,000 a year in 1999, to 549,000 a year in 2005, according to government statistics. The result of decades of brain drain are evident.

According to the US census, people of Indian origin are the best-educated, most affluent ethnic group in the country, with higher median family incomes and more advanced degrees than any other community. “The Indian diaspora is the most exceptional migrant group ever in American history besides the German Jews of the 1930s,” says Mr Kapur. India also has large, affluent communities in the UK, Canada, Australia and the Middle East.

Private companies have long recognised the benefits of tapping this vast overseas Indian talent pool. Since India’s economic liberalisation began in 1991, many foreign companies have sent overseas Indians, or their foreign-born children, to start operations, investment funds, banks and other enterprises in India. Many Indian professionals living overseas have also returned to start companies, or work in private firms, especially in the IT industry.

But Indian officialdom still looks warily at the overseas community. New Delhi has in recent years started issuing “Overseas Citizens of India” cards to people of Indian origin. Cardholders say it is more like a life-time multiple entry visa than genuine citizenship, as it does not permit holders to vote or take public sector jobs.

Part of the problem appears to be protectionism against the threat of competition for jobs from overseas. Yet non-resident Indians suggest that policymaking towards the diaspora is also clouded by questions over definitions of who actually is “Indian”, given the partition of the Indian subcontinent at independence in 1947.

“The breakup of India is a thorn in the side of the country’s ability to think strategically about what to do with its people because it doesn’t know how to define it’s people,’” says Anand Shah, founder of Indicorps, which brings people of Indian origin, mostly from the US, to internships in India.

India does seek to lure capital from its diaspora, granting them a variety of special investment privileges. Non-resident Indians, for example, are permitted to hold foreign currency accounts in India, which are earn higher interest rates than they could earn at bank accounts at home.

But Mr Shah says many people of Indian origin would like to do more to help India tackle its challenges.

“If the government made a serious effort to recognise that there are people that have some sort of affinity to India who would love the opportunity to share their expertise, or if they created structured ways for people to contribute, you’d see a lot of people jump at the opportunity,” he says.

Thursday, 29 January 2009

Satyam - In a lighter vein

By all accounts, Satyam ex-chairman Ramalinga Raju is having a rollicking time in Chanchalguda jail. His popularity among the inmates, all of whom are in awe of a man who can make Rs 7,000 crore disappear, knows no bounds. "Some of us affectionately call him by his nickname Scamalinga," said a petty thief, "But most just call him Gurudev."

Reports have come in that Raju had 20 idlis for breakfast, five plates of rice and a bucket of rasam for lunch and 25 chapatis with two chickens for dinner. But the jail superintendent says these numbers are inflated. "You see, the habit is so deeply ingrained in Raju that he automatically inflates all figures," he added. Incidentally, his cellmate Srinivas Vadlamani, Satyam's ex-chief financial officer who has denied all knowledge of wrongdoing, said he didn't know whether he had any meals. "I am not aware whether I had breakfast, lunch or dinner," he
said. "Am I in jail?" he asked.

Meanwhile, insiders say that Raju has decided to teach accountancy in order to impart his skills to a receptive audience. "I'm really excited at the prospect of being taught by such a master," said a murderer serving a life sentence. "My problem has been that I don't know where to hide the bodies," he explained, "I'm sure that a guy who can hide Rs 7,000 crore for so many years can easily hide a score of bodies."

A stream of visitors has also been arriving at the jail, all wanting to meet Srinivas Vadlamani. Inquiries revealed they were promoters of companies,
NRIs from the GCC countries, eager to have him on their boards. "Where will I get such an ideal chief financial officer?" asked a person who said he was CEO of a company called Black Hole Ltd.

Even the jail superintendent says he is extremely happy with Raju. "He is a financial genius," he exclaimed. He said Raju had outlined a scheme that could save the jail a huge amount of money. "Raju explained that all I needed to do was to allow the inmates to choose their own guards. He said these guards would cost a fraction of the current salary being paid to jail warders. I was a little hesitant about prisoners choosing their own jailers at first, but relented when Raju said that it was exactly the same thing with companies — they all appoint their own auditors and nobody complains."

Incidentally, even the Naxalite prisoners lodged in the jail are very happy with Raju. "We have been working for decades to overthrow capitalism, with no effect," said their ringleader. "And then Comrade Raju comes along and wrecks the system from within, giving Indian capitalism a resounding blow." "We're electing him to the party's central committee," he added.

But Raju is unlikely to take up the offer. He has a job offer from Nigeria to run the huge network that sends scam emails to people promising to transfer billions of dollars lying in unclaimed money to them once they give their bank account numbers and a small advance payment. Unconfirmed reports say that to make the schemes look authentic they're thinking of asking accounting firm Pricewaterhouse to certify them.

Others say Raju is exploring a lucrative option in a related field. "He's thinking of becoming a godman," said a source, "Which is why he is reading religious books." Some also say that Raju is being paid a fat advance for a novel based on his Satyam swindle. "It's clear he has plenty of experience of writing fiction," pointed out a publisher.

And lastly, in a curious but related incident, teachers at a prestigious school in Hyderabad were shocked when young Bunty Reddy of class 5B told his class-teacher that his father was a male bar dancer. Investigations revealed, however, that his dad was actually an independent director on the boards of several companies. "In the circumstances, it's natural for the child to be ashamed of his parent," said the principal, "And that's why he tried to pass his dad off as a male stripper."

NOW STOP LAUGHING..................................SATYAM SHIVAM SUNDARAM

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Wednesday, 28 January 2009

Why I fear the west’s luck has run out

By Luke Johnson
Published: January 28 2009 00:23 | Last updated: January 28 2009 00:23
Over the months I have told my colleagues at Channel 4 and the Royal Society of Arts that this is not just a financial hiccup, or something happening to the City and Wall Street.
We need to make programmes, do research and deliver lectures about this moment – because this downturn is very bad indeed. It will sear itself into a generation's memory and scar lives. It may well be the worst slump most of us have ever experienced. It surely needs to be recorded and discussed, while solutions are sought – and in the meantime we have to struggle through it.
For at least a year I have been as restrained and positive as I felt I could be. I am past all that now. It is time for some blunt talk, I fear.
It is clear that as a society we must learn something painful and radical – how to live within our means – because the credit just is not there any more. The easy money is all gone, and there will be no more for a long time.
Previous assumptions simply do not apply. Homeowners should forget about houses going up in value – all that is history. They are places to live in. So cut back on your outgoings. Pay rises are off the agenda. Wholesale pay cuts may yet become common. Put some cash aside if you possibly can; you might lose your job. I fear most citizens' plans for the future must be put on hold. This is not something happening to other people – we are all in trouble.
'Prepare for a wrenching, unstoppable redistribution of wealth – and I am not talking about domestic taxes'
Business must adjust to the idea that this stagnation could last for many years. The age of free money from mad lenders is finished. The growth game is over. Whole swathes of industry are on life support. The banks are in desperate straits. If their management cannot see that, then they are even more incompetent than they are portrayed.
Indeed, too many of us still fail to see just how severe conditions are, and how horrible things are likely to get. This is not a correction, a brief hiatus until the upward march once more resumes. At some point, the Japanese, Chinese and Saudi buyers of US and European government bonds will see just what miserable value they offer. Then governments may have to stop all the runaway state spending and bail-outs, and even put up interest rates.
Plenty of observers, including me, have criticised the media for being too gloomy. I am now beginning to believe that they have not been gloomy enough, if they want to reflect the true consequences of our profligacy and past conceit.
After all, who wants to face up to the bleak reality that confronts us? The experts say we will not suffer a repeat of the 1930s slump. Indeed, we have to contend with fresh issues. Like the fact that there are 1.5bn recent additions to the capitalist workforce in China and India – hard-working, increasingly well-educated people, all keen to better themselves. Meanwhile, modern logistics and communications mean trade and production can take place almost anywhere if it makes economic sense.
So why should industrious Asians earn a tiny fraction of what citizens in the west earn? Especially when they have so much of the cash and productive resources, while we have deficits, high costs and poor demographics.
Prepare for a wrenching, unstoppable redistribution of wealth – and I am not talking about domestic taxes. For too long it has been more profitable in the west to finance consumption rather than production. That cannot continue. I am afraid that the west's credibility – and luck – has run out.
This vast reordering of our economic system has only just begun. We shall have to cancel all the self-indulgence of endless welfare spending and cultivate rather more of a work ethic and a sense of self-sufficiency. Expectations must be modified and attitudes altered profoundly. Expect years of negligible growth, permanent high unemployment, declining property prices, higher taxes, crumbling currencies and falling living standards.
We shall look back on the last decade and think: we never realised what we had until it was gone.
The writer is chairman of Channel 4 and runs Risk Capital Partners, a private equity firm

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Tuesday, 27 January 2009

Spring, Pink Panthers


Great wealth, often built on grievous inequity, needs media scrutiny

So now, Satyam has turned out to be Jhutham. Many who, till recently, rested their heads on feather pillows in the noble pursuit of adding magic zeroes to their balance-sheets suddenly find the rougher material of jail floors scraping their ears.

What has been most touching has been the incredulity of the media at the confessions of the chairman of Satyam Computer Services. Can a karorepati actually manipulate and falsify accounts? Aren't these the good guys, propelling India to a horizon of perpetual sunshine?

The January 8 editorial in The Hindu said it all. "It passes one's understanding," it lamented, "how malfeasance of such a magnitude could escape the eyes of the auditors...that such a huge hole in the finances did not show up somewhere and could not be spotted by the numerous investment analysts. The Satyam fiasco casts a shadow over the nature of corporate governance in India."

Well, it passes my understanding how not the financial analysts but the media sat on its haunches and lapped up the story of fairy tales of success in the corporate world without any investigation into corporate practice in India. In particular, the pink press, which is supposed to be reporting from the financial ringside, seemed to have little clue that even as it was salivating at and being complicit in the successes of the wealth-makers, it was but a sniffing distance away from a tsunami-size fraud. If security agencies were caught with their pants down during the Mumbai attacks, here it was the financial papers that had their fundamentals exposed. The sight is not pretty.

There is nothing from the pink paparrazzi in recent memory that so much as hints at the impending storm. Perhaps a Rs 7,000-crore scam is just small change for financial journalists who have consistently refused to see any connection between the little zeppelins of affluence floating above the large continents of privation and misery. Our media can certainly be accused of having betrayed the trust of ordinary people and colluded in this project of marketing a flawed dream.

The intrepid P. Sainath has consistently done the job of tracking the new community of India's dollar billionaires and reporting to us on the latest inflation in their wealth. Their number has grown steadily, even as figures on poverty and starvation too refuse to decline. At last count, the combined wealth of the two Ambani brothers, for example, had crossed the hundred-billion-dollar mark. How come no financial journalist here investigates the source of such wealth? How come we take it for granted and docket the generation of such wealth with enterprise and the virtue of capitalist individualism? How come in these matters we fight shy of ideas of transparency and accountability?

Take the Ambani wealth. We all wish them well. However, should not at least a minuscule section of the media be giving us some basic details? Like how could they achieve this in all of about 35 years? Wherein lay their financial genius? They made their wealth over the carcass of the dying handloom and powerloom industry, which bowed out under assault from polyester fiber. Aided, no doubt, by official changes in textile policy; but abetted, no doubt, by some push from the Ambani enterprise. How did this affect the cotton mills? How many workers and cotton capitalists did it wipe out? How it converted cities like Mumbai, Ahmedabad, Baroda, Surat, Chennai, Nasik and Salem into ghost towns with smoke-rimmed chimney stacks and new social tensions brought about by a defeated industrial working class? And how the land occupied by those dead mills house the new entertainment districts of those cities?

Does one have to be a Marxist to ask these questions? Is a governmental bailout plan for the rich and the greedy a "socialist" idea? Is socialism or Communism merely about state intervention? This is bizarre.There is some homework due here for the pink press.

I am reminded of Hirose Takashi, a social scientist and anti-nuclear activist, who around 1990 read in a Japanese paper that Britain had the largest number of the world's wealthy. He was curious as to how a group of islands tinier than Japan could achieve this. He got a grant, sat in the British Library and checked on the wealth of 200 of the richest Britons. He told me later that in the case of 182 of these families, he discovered they used to be poorer than church mice until a father, uncle or brother sailed to serve in India some hundred years before and how that became the source of their wealth.

There are several such stories of contemporary cash-surges waiting to be told in the Indian media, which needs to inform us not just about the wealth of the nations but also about the stealth of the nations. The financial press needs to do a little more than blowing pink-tinted soap suds.

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Shane Warne - A wizard, a star


A wizard, a star

An undisputed legend who mastered cricket's most difficult discipline - not least its mental aspects

Kumar Sangakkara

January 27, 2009

Everything about Warne's bowling was thought-through, appealing included © Getty Images

I was in Melbourne recently when I spied an interesting advertising banner. It said: "Coming soon, Shane Warne the musical." I stopped. A musical about a cricketer. Really? But then it was Warne, a larger-than-life cricketer, who had the most colourful of journeys and a career of triumph on the field and controversy off it, inciting awe, wonder and criticism along the way. A musical? why not? And if I were asked to pick a soundtrack, Frank Sinatra's "My Way" would be the automatic choice.

Love him or hate him, we were definitely very lucky to have him. Warne may have self-destructed at times off the field, ruining his chances of being one of Australia's greatest captains, but on the field he was an undisputed legend, a legspinner of the highest class with a wizard's cricket brain. I still find it amazing that we had Warne, Murali and Kumble all at the same time, cricket's equivalent of the Three Tenors.

As a schoolboy, I first watched Warne play at the Sinhalese Sports Club back in August 1992. During the first innings he was mashed to all corners, conceding 107 from 22 wicketless overs. But when Sri Lanka came out to chase just 181 for victory, he showed his now famous instinct for grabbing the limelight at the right time, claiming 3 for 11 from 5.1 overs. We collapsed from 127 for 2 to 164 all out, one of our most painful defeats to this day. Yet, still, at that stage, there was no obvious indication that within less than a year Warne would be well on the way to becoming the greatest legspinner to play the game.

I may be no bowler, but I know one thing: the art of legspin is very, very hard to perfect. It offers the greatest opportunity for variety to bamboozle and deceive, but problems with control, accuracy and injuries are common. Warne surmounted nearly all these challenges with astounding success. His greatest strength was his control. He could bowl legbreaks of varying turn, a straight one, top spinner, the flipper and an occasional googly. This variety is amazing but it was the control of these variations that made him so potent. It allowed him to adapt every aspect of his bowling to suit the pitches he played on. He was a master of his own turn, line and length.

I remember well how he would tease you. In one over he could make you play stump to stump, from leg to off and back again. Right-handed batsmen would be greeted by big-turning legbreaks, which would result in them covering the line of the ball with their pads. Slowly, delivery by delivery, Warne would coax the batsmen to put their front pads across their stumps, setting them up for an lbw to his straight one.

He had many other ploys up his sleeve too. He would change the angle of delivery by going round the wicket. He would vary pace and flight, even drift, at will. He developed the flipper, a delivery that that had everyone guessing for a couple of seasons while his shoulder was at its strongest.

When a pitch did not offer him much, and if a right-hander got on top of him, he would resort to bowling round the wicket into the rough - a traditionally negative tactic that he enterprisingly turned into an attacking option, embarrassing many of us along the way, as apparently harmless deliveries sneaked through the back door.

He had no one tactic against me but he usually tried to cut out my lofted drive over mid-on. He then tried to put me under pressure, drying up the runs and then trying to tempt me to play an expansive drive outside off stump.

Playing him was never easy and always highly intense. He expertly scanned and analysed your technique and game plans, probing for chinks and weaknesses to exploit. He was a master of the mental game and loved playing mindgames. In between overs and deliveries he'd let you overhear snippets of conversations with his wicketkeeper and captain during which he explained your coming demise, openly announcing his tactics with a gleeful spark in his eye. He would cleverly manoeuvre his field, opening up spaces and trying to distract you. You knew it was all an act, but it still got you thinking.

The thing was, he was so often four to five steps ahead of us. Like a brilliant chess player who looks into the future, planning several moves ahead, Warne hunted down his prey over a series of overs, setting them up.

He backed his craft up with confident, intimidating and effective appealing - which bagged him a huge number of lbws. Every aspect of his bowling was thought through.

His talent and cunning aside, another reason for his success was undoubtedly the quality of the Australian pace attack, and Australia's powerful top-order batting. The quicks routinely made early inroads, creating pressure for Warne to exploit, and the batsmen added to this with mountains of runs, giving him the luxury of dictating terms.

Right-handed batsmen would be greeted by big-turning legbreaks, which would result in them covering the line of the ball with their pads. Slowly, delivery by delivery, Warne would coax the batsmen to put their front pads across their stumps, setting them up for an lbw to his straight one

The most fascinating duels he has had were with Brian Lara and Sachin Tendulkar. Both great batsmen have always carried the attack to Warne. They would use their feet and were unafraid to drive, sweep and loft the ball. This kind of attacking method was always more successful against Warne; a defensive game focused only on survival just played into his hand, allowing him to slowly work you over.

Injury dogged him in the latter stages of his career, and the strain on his shoulder forced him to undergo surgery. It also gave rise to doubts as to whether he would be the same bowler when he returned, doubts he put quickly to rest with his performances in the 2005 and 2006 Ashes. It showed the amount of enthusiasm he had for the game, as well as the mental toughness that has carried him through many controversies without affecting his focus on the game.

The great tragedy, though, was that he did not get to bring his cricketing intelligence to bear on the job of captaining Australia. He showed with both Hampshire and the Rajasthan Royals just how good a leader he could have been in international cricket. During the IPL, he clearly inspired those around him, and his man-management skills were brilliant. He planned the tournament and clearly mapped out roles for his side, and on the field he led with creative flair and a sense of adventure.

Warne would have made a great Australia captain, but he has no one to blame but himself for not being given a proper chance. His cricketing intelligence was counterbalanced by his off-field volatility. He created too many problems for himself over the years - the drugs scandal at the 2003 World Cup was surely his darkest hour. He learnt the hard way and will surely have regrets as he looks back on a glittering career.

Personally, I enjoyed our battles and I grew to respect him as a person after the 2004 tsunami. I think we all saw a different side to him then with the way he helped. The gesture of coming to Sri Lanka was a fine one. It was touching to see that human commitment.

It is impossible to do justice to this blond-haired spin magician in a simple column. He lived life large on and off the field with no apology. A cricketer with an old-world flamboyance and panache, who rejuvenated and modernised the art of legspin. Not your stereotypical gentleman cricketer, he was a genius of rare brilliance which we will remember in all its glory, though I doubt we will see its like again.

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Sunday, 25 January 2009

The Collapse of Make-believe World


It is an old tendency of human beings to delude themselves and think that impending dangers could be warded off. Thus they live undisturbed in a make-believe world. Jawaharlal Nehru, in one of his books, has written that when a foreign invader came to raid the famous Somnath temple in Gujarat and loot its treasures, the priests told the devotees to have faith in God and pray, not fight, so that the deity would himself appear and destroy the enemy and his army. Despite prayers for days, no deity appeared and the raider achieved his goal. This phenomenon has been once again underlined by the ongoing global financial crisis and the efforts of economists till the other day to deny its possible recurrence with ferocity in the future and lull them to sleep.


History testifies that we have been having frequent financial crises ever since the rise of modern capitalism and they have been gripping increasing number of people and larger and larger geographical areas. Niall Ferguson thus rightly says: "As long as there have been banks, bond markets, and stock markets, there have been financial crises. Banks went bust in the days of Medici. There were bond-market panics in the Venice of Shylock's day. And the world's first stock-market crash happened in 1720, when the Mississippi Company ... blew up. According to ... Carmen Reinhart and Kenneth Rogoff, the financial history of the past 800 years is a litany of debt defaults, banking crises, currency crises, and inflationary spikes. crises seldom happen without inflicting pain on the wider economy ... 148 crises since 1870 in which a country experienced a cumulative decline in GDP of at least 10%, implying a probability of financial disaster of around 3.6% per year." ("Wall Street Lays Another Egg", Vanity Fair, December 2008)


Ever since the Amsterdam Stock Exchange came into being and sale and purchase of shares began some 400 years ago, the same pattern of ups and downs has been visible and fortunes have been changing hands. Robert Shiller points out that it is "irrational exuberance" that leads people behave like a herd of sheep. Yet every time it has been asserted by someone or the other that a way out has been found that will make the economy immune from any such crisis in future. For example, when a decade ago, Asian crisis devastated the economies of Indonesia, Thailand, South Korea, Taiwan, Singapore, Malaysia, etc., it was asserted that now onwards financial crises would wreak havoc only on the countries on the periphery while the mainland of developed capitalism would remain immune. Thus crises were to afflict only the countries of Asia, Latin America and Africa. The Business Week (September 27, 1999) predicted that Dow Jones index was to reach 36,000 in the coming 3 to 5 years. The earning per share might be as high as 100 per cent!


In addition, it was asserted that revolutionary changes in the spheres of information and telecommunication had given birth to a "New Economy" whose dominance was fast increasing. This New Economy had inherent immunity from financial crisis, and its increasing dominance would keep the entire economy sturdy. By August 2000, the rising prices of the hares of the companies in the New Economy came to a halt and then began sliding down. A number of such companies collapsed and ceased their existence. This came to be known as Dot-Com Bubble. The Wall Street witnessed a 50 per cent decline. As many as five hundred companies listed by the Standard and Poor could make up their losses only by May 2007. As ill luck would have it, another financial crisis, the biggest since the Great Depression, came to afflict the economy. This time it was not born in stock market but in credit market.


Its impact is being felt all over the world while during the Great Depression the Soviet Union had remained unaffected. The most affected are the economies situated on the main land of capitalism. The economies in the periphery are less affected because they are, to a large extent, dependent on their domestic savings supplemented by foreign direct investment. Their dependence on foreign institutional investments is, by and large, much less. In addition, the proportion of exports in their GDP is not very substantial in many cases.


A number of eminent economists have been, from time to time, lending their might to strengthening the delusion that financial crisis has been banished for ever. But every time they have been proved wrong. It is deplorable that people forget it and again and again become mesmerized by so-called elegant theories and mathematical models. As early as autumn of 1929, Prof. Irving Fisher whose name is known to every student of economics, to quote Prof. J. K. Galbraith, gave "his immortal estimate" that "Stock prices have reached what looks like a permanently high plateau." When the Great Crash was standing on the door, the Harvard Economic Association asserted in November: "a severe depression like that of 1920-21 is outside the range of probability. We are not facing protracted liquidation."


In recent times, too, we find similar claims falsified by the realities. Let us cite just two instances. To begin with, let us refer to the statement by Robert Lucas Jr., a professor of economics at the University of Chicago, who was awarded Nobel Prize in 1995. As president of American Economic Association, he delivered a long address on January 10, 2003. It was entitled "Macroeconomic Priorities". Rubbishing the Keynesian foundations of macroeconomic theory, he pontificated: "Macroeconomics was born as a distinct field in the 1940s, as a part of the intellectual response to the Great Depression. The term then referred to the body of knowledge and expertise that we hoped would prevent the recurrence of that economic disaster. My thesis in this lecture is that Macroeconomic in this original sense has succeeded: Its central problem of depression - prevention has been solved, for all practical purposes, and has in fact been solved for many decades." One may like to ask this eminent economist: then why this ongoing depression?


Almost a decade before this pontification by Lucas, two Nobel Prize winning economists came out with elaborate mathematical analysis of the market variables and behavior and claimed that they could be correctly predicted and moves could be made accordingly. These mathematical "quants", as they came to be popularly known, set up a hedge fund—Long Term Capital Management—in 1994. Unfortunately, their quantitative analysis went haywire and their company collapsed in just four years. The main problem lay with the assumption that all the players involved were fully rational and all-knowing and they easily digested all the essential information.


The leader of the Chicago School, the Nobel laureate Milton Friedman had claimed, time and again, that the Great Depression would have been prevented if the Federal Reserve had liberally increased the supply of liquidity. His precepts were followed by the Fed Reserve chairman Alan Greenspan who was brought in by Reagan in 1987. While he increased the liquidity, he forgot that the Fed had a regulatory role too. During his dispensation, the Glass-Steagall Act of 1933 was repealed, thus ending the separation of commercial banking and investment banking. It is said that vested interests had spent $300 million on lobbying to achieve this objective.


Obviously, the realities have shattered the delusion and woken up the people at large. One does not whether this awakening will endure.


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Capitalism’s Self-Inflicted Apocalypse



By Michael Parenti

23 January , 2009

After the overthrow of communist governments in Eastern Europe, capitalism was paraded as the indomitable system that brings prosperity and democracy, the system that would prevail unto the end of history.


The present economic crisis, however, has convinced even some prominent free-marketeers that something is gravely amiss. Truth be told, capitalism has yet to come to terms with several historical forces that cause it endless trouble: democracy, prosperity, and capitalism itself, the very entities that capitalist rulers claim to be fostering.


Plutocracy vs. Democracy


Let us consider democracy first. In the United States we hear that capitalism is wedded to democracy, hence the phrase, "capitalist democracies." In fact, throughout our history there has been a largely antagonistic relationship between democracy and capital concentration. Some eighty years ago Supreme Court Justice Louis Brandeis commented, "We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both." Moneyed interests have been opponents not proponents of democracy.


The Constitution itself was fashioned by affluent gentlemen who gathered in Philadelphia in 1787 to repeatedly warn of the baneful and dangerous leveling effects of democracy. The document they cobbled together was far from democratic, being shackled with checks, vetoes, and requirements for artificial super majorities, a system designed to blunt the impact of popular demands.


In the early days of the Republic the rich and well-born imposed property qualifications for voting and officeholding. They opposed the direct election of candidates (note, their Electoral College is still with us). And for decades they resisted extending the franchise to less favored groups such as propertyless working men, immigrants, racial minorities, and women.


Today conservative forces continue to reject more equitable electoral features such as proportional representation, instant runoff, and publicly funded campaigns. They continue to create barriers to voting, be it through overly severe registration requirements, voter roll purges, inadequate polling accommodations, and electronic voting machines that consistently "malfunction" to the benefit of the more conservative candidates.


At times ruling interests have suppressed radical publications and public protests, resorting to police raids, arrests, and jailings—applied most recently with full force against demonstrators in St. Paul, Minnesota, during the 2008 Republican National Convention.


The conservative plutocracy also seeks to rollback democracy's social gains, such as public education, affordable housing, health care, collective bargaining, a living wage, safe work conditions, a non-toxic sustainable environment; the right to privacy, the separation of church and state, freedom from compulsory pregnancy, and the right to marry any consenting adult of one's own choosing.

About a century ago, US labor leader Eugene Victor Debs was thrown into jail during a strike. Sitting in his cell he could not escape the conclusion that in disputes between two private interests, capital and labor, the state was not a neutral arbiter. The force of the state--with its police, militia, courts, and laws—was unequivocally on the side of the company bosses. From this, Debs concluded that capitalism was not just an economic system but an entire social order, one that rigged the rules of democracy to favor the moneybags.

Capitalist rulers continue to pose as the progenitors of democracy even as they subvert it, not only at home but throughout Latin America, Africa, Asia, and the Middle East. Any nation that is not "investor friendly," that attempts to use its land, labor, capital, natural resources, and markets in a self-developing manner, outside the dominion of transnational corporate hegemony, runs the risk of being demonized and targeted as "a threat to U.S. national security."


Democracy becomes a problem for corporate America not when it fails to work but when it works too well, helping the populace move toward a more equitable and livable social order, narrowing the gap, however modestly, between the superrich and the rest of us. So democracy must be diluted and subverted, smothered with disinformation, media puffery, and mountains of campaign costs; with rigged electoral contests and partially disfranchised publics, bringing faux victories to more or less politically safe major-party candidates.


Capitalism vs. Prosperity


The corporate capitalists no more encourage prosperity than do they propagate democracy. Most of the world is capitalist, and most of the world is neither prosperous nor particularly democratic. One need only think of capitalist Nigeria, capitalist Indonesia, capitalist Thailand, capitalist Haiti, capitalist Colombia, capitalist Pakistan, capitalist South Africa, capitalist Latvia, and various other members of the Free World--more accurately, the Free Market World.


A prosperous, politically literate populace with high expectations about its standard of living and a keen sense of entitlement, pushing for continually better social conditions, is not the plutocracy's notion of an ideal workforce and a properly pliant polity. Corporate investors prefer poor populations. The poorer you are, the harder you will work—for less. The poorer you are, the less equipped you are to defend yourself against the abuses of wealth.


In the corporate world of "free-trade," the number of billionaires is increasing faster than ever while the number of people living in poverty is growing at a faster rate than the world's population. Poverty spreads as wealth accumulates.


Consider the United States. In the last eight years alone, while vast fortunes accrued at record rates, an additional six million Americans sank below the poverty level; median family income declined by over $2,000; consumer debt more than doubled; over seven million Americans lost their health insurance, and more than four million lost their pensions; meanwhile homelessness increased and housing foreclosures reached pandemic levels.


It is only in countries where capitalism has been reined in to some degree by social democracy that the populace has been able to secure a measure of prosperity; northern European nations such as Sweden, Norway, Finland, and Denmark come to mind. But even in these social democracies popular gains are always at risk of being rolled back.

It is ironic to credit capitalism with the genius of economic prosperity when most attempts at material betterment have been vehemently and sometimes violently resisted by the capitalist class. The history of labor struggle provides endless illustration of this.


To the extent that life is bearable under the present U.S. economic order, it is because millions of people have waged bitter class struggles to advance their living standards and their rights as citizens, bringing some measure of humanity to an otherwise heartless politico-economic order.


A Self-devouring Beast


The capitalist state has two roles long recognized by political thinkers. First, like any state it must provide services that cannot be reliably developed through private means, such as public safety and orderly traffic. Second, the capitalist state protects the haves from the have-nots, securing the process of capital accumulation to benefit the moneyed interests, while heavily circumscribing the demands of the working populace, as Debs observed from his jail cell.


There is a third function of the capitalist state seldom mentioned. It consists of preventing the capitalist system from devouring itself. Consider the core contradiction Karl Marx pointed to: the tendency toward overproduction and market crisis. An economy dedicated to speedups and wage cuts, to making workers produce more and more for less and less, is always in danger of a crash. To maximize profits, wages must be kept down. But someone has to buy the goods and services being produced. For that, wages must be kept up. There is a chronic tendency—as we are seeing today—toward overproduction of private sector goods and services and underconsumption of necessities by the working populace.


In addition, there is the frequently overlooked self-destruction created by the moneyed players themselves. If left completely unsupervised, the more active command component of the financial system begins to devour less organized sources of wealth.


Instead of trying to make money by the arduous task of producing and marketing goods and services, the marauders tap directly into the money streams of the economy itself. During the 1990s we witnessed the collapse of an entire economy in Argentina when unchecked free marketeers stripped enterprises, pocketed vast sums, and left the country's productive capacity in shambles. The Argentine state, gorged on a heavy diet of free-market ideology, faltered in its function of saving capitalism from the capitalists.


Some years later, in the United States, came the multi-billion-dollar plunder perpetrated by corporate conspirators at Enron, WorldCom, Harkin, Adelphia, and a dozen other major companies. Inside players like Ken Lay turned successful corporate enterprises into sheer wreckage, wiping out the jobs and life savings of thousands of employees in order to pocket billions.


These thieves were caught and convicted. Does that not show capitalism's self-correcting capacity? Not really. The prosecution of such malfeasance— in any case coming too late—was a product of democracy's accountability and transparency, not capitalism's. Of itself the free market is an amoral system, with no strictures save "caveat emptor."


In the meltdown of 2008-09 the mounting financial surplus created a problem for the moneyed class: there were not enough opportunities to invest. With more money than they knew what to do with, big investors poured immense sums into nonexistent housing markets and other dodgy ventures, a legerdemain of hedge funds, derivatives, high leveraging, credit default swaps, predatory lending, and whatever else.


Among the victims were other capitalists, small investors, and the many workers who lost billions of dollars in savings and pensions. Perhaps the premiere brigand was Bernard Madoff. Described as "a longstanding leader in the financial services industry," Madoff ran a fraudulent fund that raked in $50 billion from wealthy investors, paying them back "with money that wasn't there," as he himself put it. The plutocracy devours its own children.


In the midst of the meltdown, at an October 2008 congressional hearing, former chair of the Federal Reserve and orthodox free-market devotee Alan Greenspan confessed that he had been mistaken to expect moneyed interests--groaning under an immense accumulation of capital that needs to be invested somewhere--to suddenly exercise self-restraint.

The classic laissez-faire theory is even more preposterous than Greenspan made it. In fact, the theory claims that everyone should pursue their own selfish interests without restraint. This unbridled competition supposedly will produce maximum benefits for all because the free market is governed by a miraculously benign "invisible hand" that optimizes collective outputs. ("Greed is good.")


Is the crisis of 2008-09 caused by a chronic tendency toward overproduction and hyper-financial accumulation, as Marx would have it? Or is it the outcome of the personal avarice of people like Bernard Madoff? In other words, is the problem systemic or individual? In fact, the two are not mutually exclusive. Capitalism breeds the venal perpetrators, and rewards the most unscrupulous among them. The crimes and crises are not irrational departures from a rational system, but the converse: they are the rational outcomes of a basically irrational and amoral system.


Worse still, the ensuing multi-billion dollar government bailouts are themselves being turned into an opportunity for pillage. Not only does the state fail to regulate, it becomes itself a source of plunder, pulling vast sums from the federal money machine, leaving the taxpayers to bleed.


Those who scold us for "running to the government for a handout" are themselves running to the government for a handout. Corporate America has always enjoyed grants-in-aid, loan guarantees, and other state and federal subventions. But the 2008-09 "rescue operation" offered a record feed at the public trough. More than $350 billion was dished out by a right-wing lame-duck Secretary of the Treasury to the biggest banks and financial houses without oversight--not to mention the more than $4 trillion that has come from the Federal Reserve. Most of the banks, including JPMorgan Chase and Bank of New York Mellon, stated that they had no intention of letting anyone know where the money was going.


The big bankers used some of the bailout, we do know, to buy up smaller banks and prop up banks overseas. CEOs and other top banking executives are spending bailout funds on fabulous bonuses and lavish corporate spa retreats. Meanwhile, big bailout beneficiaries like Citigroup and Bank of America laid off tens of thousands of employees, inviting the question: why were they given all that money in the first place?


While hundreds of billions were being doled out to the very people who had caused the catastrophe, the housing market continued to wilt, credit remained paralyzed, unemployment worsened, and consumer spending sank to record lows.


In sum, free-market corporate capitalism is by its nature a disaster waiting to happen. Its essence is the transformation of living nature into mountains of commodities and commodities into heaps of dead capital. When left entirely to its own devices, capitalism foists its diseconomies and toxicity upon the general public and upon the natural environment--and eventually begins to devour itself.


The immense inequality in economic power that exists in our capitalist society translates into a formidable inequality of political power, which makes it all the more difficult to impose democratic regulations.


If the paladins of Corporate America want to know what really threatens "our way of life," it is their way of life, their boundless way of pilfering their own system, destroying the very foundation on which they stand, the very community on which they so lavishly feed.

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An averaging system to pile up the pounds


By John Kay
Published: January 23 2009 17:17 | Last updated: January 23 2009 17:17
Here is a scheme for beating the market that really works. Imagine a volatile share that sells for 50p in odd years and 100p in even years. If you invest £100 every year in this share, over a 10-year period you will have accumulated 1,500 shares at an average price of 66.7p, well below the average market price, which is 75p.
This system will, on average, outperform the market and, the more volatile the markets, the greater the gains. The method is known as pound cost averaging. It works through its built-in mechanism for buying more when prices are relatively low and less when prices are relatively high. No judgment is required by the investor that prices are relatively low or relatively high.
Many individuals do, and more should, make regular savings to build up an investment portfolio. Some investment managers use the benefits of pound-cost averaging and extol the benefits of a regular savings scheme in their marketing literature. On this occasion, believe them. The benefits are real. But keep an eye, as usual, on their charges.
The effectiveness of pound-cost averaging illustrates how low share prices are an opportunity rather than a problem for the intelligent investor. Conventional investors are usually excited when they hear that the market is going up, disappointed when they learn that it has fallen. We want high prices when we are sellers, but low prices when we are buyers. We are usually only buyers of clothes or durable goods. However, for shares – as perhaps for cars and houses – we may be both buyers and sellers at different times.
When should the intelligent investor sell? The simple answer is "Not very often". Frequent trading endangers returns.
Pound-cost averaging makes sense for both conventional and intelligent investors. Conventional investors can feel relieved that their approach yields profits without requiring judgment.
Intelligent investors know that market timing is unlikely to make money and can feel happy with an approach that is inherently contrarian. The reasoning that makes pound-cost averaging attractive applies to decisions about asset classes as well as to decisions about market timing.
Individual investors may choose to follow the market allocation; institutional investors feel obliged to follow it. Such benchmarking has led to a steady increase in the share of equities, the best performing asset class, in conventional portfolios. The consequences can be perverse. At the peak of the Japanese stock market bubble of the 1980s, Japanese shares accounted for almost half of the value of all in the world. American and European investors, who had thought they were brave if 10 per cent of their assets were in Japan, felt under pressure to acquire more securities in Japan. Fifteen years later, Japanese share prices had fallen, while those in other countries had risen. Today, Japan accounts for less than 10 per cent of the market value of world indices.
Many investors have been victims of milder versions of the error, buying technology shares, bonds, infrastructure and property at the wrong times. Looking at market weightings when deciding asset allocation leads institutions and fund managers to buy high and sell low. They purchase overpriced assets in order to achieve desired portfolio weightings.
Intelligent investors look behind the financial assets they buy to the value of the productive assets that underpin them. A benchmark for allocation to Japan might, therefore, be Japanese national income as a percentage of world national income, implying a range of 5 per cent-10 per cent that would remain unchanged by the vagaries of the Japanese stock markets.
From this perspective, an indexed portfolio contains a heavy concentration of oil companies, pharmaceutical businesses and financial companies, relative to the economic importance of these activities. Very large economic sectors, such as agriculture, education, health care, and legal and accounting services, are not represented at all in the model pension fund portfolio – or only in very limited ways.
You can change that. There are few quoted securities in agriculture, education or health, but there are some. Although there are (as yet) no stock market prices for law firms or accountancy practices there are other businesses, such as recruitment agencies and public relations firms, whose fortunes are closely related.
The illuminating insight is that investors should be wary of allowing fluctuations in market prices to influence their target allocations to different asset classes. If the price of property rises relative to the price of your other assets, consider reducing the proportion of your assets you hold in property, and vice versa. Many people find this paradoxical. Should we really sell securities just because they have done well? In a world characterised by momentum and mean reversion, you should. That way you can realise the benefits of pound-cost averaging in asset allocation as well as market timing.

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