Why Looking Poor is Important

 

The Job Creation Hoax

 

Swami Vivekananda should be the spiritual leader of Indian secularism

 

Half Marks for Indian Education

 From The Economist

When Narendra modi, India’s prime minister, visited the White House last week, he did so as the leader of one of the world’s fastest-growing big economies. India is expanding at an annual rate of 6% and its gdp ranks fifth in the global pecking order. Its tech industry is flourishing and green firms are laying solar panels like carpets. Many multinationals are drawn there: this week Goldman Sachs held a board meeting in India. 

As the rich world and China grow older, India’s huge youth bulge—some 500m of its people are under 20—should be an additional propellant. Yet as we report, although India’s brainy elite hoovers up qualifications, education for most Indians is still a bust. Unskilled, jobless youngsters risk bringing India’s economic development to a premature stop.

India has made some strides in improving the provision of services to poor people. Government digital schemes have simplified access to banking and the distribution of welfare payments. Regarding education, there has been a splurge on infrastructure. A decade ago only a third of government schools had handwashing facilities and only about half had electricity; now around 90% have both. Since 2014 India has opened nearly 400 universities. Enrolment in higher education has risen by a fifth.

Yet improving school buildings and expanding places only gets you so far. India is still doing a terrible job of making sure that the youngsters who throng its classrooms pick up essential skills. Before the pandemic less than half of India’s ten-year-olds could read a simple story, even though most of them had spent years sitting obediently behind school desks (the share in America was 96%). School closures that lasted more than two years have since made this worse.

There are lots of explanations. Jam-packed curriculums afford too little time for basic lessons in maths and literacy. Children who fail to grasp these never learn much else. Teachers are poorly trained and badly supervised: one big survey of rural schools found a quarter of staff were absent. Officials sometimes hand teachers unrelated duties, from administering elections to policing social-distancing rules during the pandemic.

Such problems have led many families to send their children to private schools instead. These educate about 50% of all India’s children. They are impressively frugal, but do not often produce better results. Recently, there have been hopes that the country’s technology industry might revolutionise education. Yet relying on it alone is risky. In recent weeks India’s biggest ed-tech firm, Byju’s, which says it educates over 150m people worldwide and was once worth $22bn, has seen its valuation slashed because of financial troubles.

All this makes fixing government schools even more urgent. India should spend more on education. Last year the outlays were just 2.9% of gdp, low by international standards. But it also needs to reform how the system works by taking inspiration from models elsewhere in developing Asia.

As we report, in international tests pupils in Vietnam have been trouncing youngsters from much richer countries for a decade. Vietnam’s children spend less time in lessons than Indian ones, even when you count homework and other cramming. They also put up with larger classes. The difference is that Vietnam’s teachers are better prepared, more experienced and more likely to be held accountable if their pupils flunk.

With the right leadership, India could follow. It should start by collecting better information about how much pupils are actually learning. That would require politicians to stop disputing data that do not show their policies in a good light. And the ruling Bharatiya Janata Party should also stop trying to strip textbooks of ideas such as evolution, or of history that irks Hindu nativists. That is a poisonous distraction from the real problems. India is busy constructing roads, tech campuses, airports and factories. It needs to build up its human capital, too.

One group of people can’t substitute their way out of inflation

Tim Harford in The FT

In a laboratory in College Station, Texas, in 1990, six lab rats pressed levers and lapped at tubes as root beer and tonic water were released. They were participating in the quest for an elusive quarry: the Giffen good. 

Robert Giffen was born in Lanarkshire in 1837, the year of Queen Victoria’s accession. He would become by turns assistant editor at The Economist, chief statistician at the Board of Trade, President of the Royal Statistical Society and co‑founder of the Royal Economic Society. An eminent Victorian indeed, even if one biographer sniffed, “He was one of those figures . . . whose not inconsiderable power and prestige appears to be disproportionate to their actual contribution to economic science.” Ouch. 

Yet Giffen’s name is known to every economics student. This is not because of the research he published, but because of a thought experiment which reached his contemporary Alfred Marshall, who put it in his inescapable textbook Principles of Economics. The idea is that certain goods might be consumed more when their prices rise, because the increased cost backs consumers into a corner. 

Here’s how I imagined it, as an impoverished student. My staple diet was jacket potatoes with cheese or tuna mayo, bought from a nearby kebab van. Imagine that the price of potatoes rose. Ordinarily, I’d be expected to buy fewer potatoes and more of something else. 

The problem is everything else was still more expensive than potatoes. With my budget squeezed, I couldn’t afford the luxury of the cheese and tuna topping. The missing calories would come from . . . more potatoes. 

In this example, potatoes are a “Giffen good”. Potatoes were a major part of my diet; when their price rose, I effectively became poorer and switched towards the cheapest foodstuff. The cheapest foodstuff was potatoes. 

Of course, this did not actually happen. I was never that destitute and never such a potatophage. For about a century, economists looked for real examples of Giffen goods and did not find them until 1990, when economists Raymond Battalio, John Kagel and Carl Kogut demonstrated Giffen behaviour in lab rats. (The lab rats, I am assured, were well looked after by Battalio’s neighbour, a vet.) 

The researchers offered the rats quinine-flavoured water, which the rats disliked, and root beer, which they loved. The effective prices of these drinks were changed by adjusting the volume of drink released each time the rat pressed a lever. Root beer was “expensive” because it was dispensed in smaller portions. And sure enough, it proved possible to provoke Giffen behaviour: when the cheaper quinine water became less cheap, rats still needed a drink and they cut back on the luxury of root beer, drinking more quinine water. 

So are Giffen goods little more than a theoretical curiosity? Not quite. Eventually, the economists Robert Jensen, Nolan Miller and Sangui Wang used both public health data and a field experiment to demonstrate that in the poorest parts of Hunan, China, rice was a Giffen good. As Jensen wrote in 2008, “It’s funny that people have looked in crazy places for Giffen behaviour . . . and it turns out that it could be found in the most widely consumed food in the most populous nation in the history of humanity.” 

Giffen goods also teach us something important about the impact of price rises on the poorest people. One of the most basic lessons of economics is that people respond to price hikes by finding cheaper options. If apples are expensive this week, buy oranges; when the price of oranges rises and the price of apples falls, switch back to apples again. Or just look for the bargain-basement option. If a West End show is too expensive, go to the cinema. If the cinema costs too much, watch television. You don’t have to pay higher prices; you can make do with a cheaper alternative. 

Inflation is always a little lower than it seems once you allow for such substitutions. But one group of people can’t play that game: those who are already relying on the cheapest staples have nowhere to run from price rises. 

So it wasn’t quinine water in a Texas laboratory, or rice in Hunan, that made me think recently of Giffen goods. It was the alarming rise in the price of a cheese salad sandwich. The latest data from the UK show that sliced white bread has risen in price by 29 per cent over the past 12 months, with tomatoes up 16 per cent, butter up 30 per cent, cheddar cheese up 42 per cent and cucumber 55 per cent more expensive. (Headline inflation, meanwhile, is just over 10 per cent.) 

I am not claiming that cheddar cheese is essential to life; it just seems that way. Nor is it a Giffen good. But basic foodstuffs are Giffen-adjacent. They are the last resort of people who cannot afford fancier stuff. 

Food poverty campaigners — most prominently Jack Monroe — have argued that the price of these basics has risen much faster than the general rate of inflation. As I’ve written before, it’s hard to be sure if that’s true. The Office for National Statistics tends to focus on the most popular products, not the cheapest bargains, and so the relevant data is patchy and experimental. 

Whether or not inflation really is higher for the poorest households, what is not in doubt is that inflation hits them hardest. That is both because they are more vulnerable, and because they have less room for manoeuvre as they ponder their options in the supermarket aisle. The Bank of England’s chief economist, Huw Pill, recently said that, “We’re all worse off.” Maybe so. But some of us are worse off than others.

Re-imagining Pakistan : Miftah Ismail

 

Privilege doesn't start with The Rich

 Janan Ganesh in The FT 

There is a standard-issue Russian tycoon called Dimitry on board the yacht. There is a social klutz who is something in tech. There is, in a gallant stab at originality, an arms-trading couple in the November of their lives.  

When a storm sinks this ship of fools, beaching them on an island, the dominion of passengers over crew starts to flip. You see, the rich are all thumbs when it comes to survival skills. The toilet attendant can harpoon fish and make fires. (Poor people famously attend Navy Seals camp when young.) Watch her become queen of the island. Watch a male model give her some loving for extra rations.  

Triangle of Sadness, while an unworthy Palme d’Or winner, whacks the super-rich entertainingly enough. But here’s a thing. I too have a cleaner. And that puts me in a minority of the public. I dine out most nights, and with some fussiness, which further narrows the economic company that I keep. Last month, I incurred a £25 surcharge rather than keep an appointment with a Sky crew who were coming to install a dish. I couldn’t be bothered to race home from coffee with a friend and it was losable cash. 

I am just 'upper middle class'. But my life is one of late-Roman decadence next to that of the median earner. If you are a corporate lawyer (not even a partner) so is yours. If you send your children to a private school, or live in the catchment area of an acclaimed state one, so, most likely, is yours. 

Much too much is made of the super-rich. And it is made by an upper middle class that is hardly more in touch with the national average. Take it from a social climber of some aptitude. Take it from a veteran of (I reckon) each household income decile since the age of five. The inflection point on the economic scale comes much earlier than you think. Something dramatic happens between, say, £30,000 a year and £130,000: a sharper change in the texture of life than occurs between the second number and a million. The first jump affects what you can do. The second tends to affect merely how.  

The upper middle class can rent in nice districts of world-class cities. The rich can buy there. The average can do neither. The upper middle class can fly to another continent. The rich can fly business. The average must plan and economise to do either. Having passed through the same universities, the upper middle class and the rich are often of a cultural feather. Diplomat can speak unto hedgie. How often does either befriend a nongraduate Band 5 NHS nurse? Or marry one? 

The obsession with a small overclass distorts public life in all sorts of ways. One is a sort of innumerate confusion in politics. No, you won’t fund the welfare state of your dreams by squeezing plutocrats alone. (Nordic taxes ask a lot of the merely well-off.) And no, inheriting £800,000 of property isn’t normal. 

Another is bad art, the kind that fancies itself subversive but spares most of its audience. There is always a painting or video installation nowadays about the cupidity of those able to buy it. That the curator, the agent and even the front-of-house team live lives of pure exotica next to the national average gets lost in the righteous gaze up at the one per cent of the one per cent. 

This is where Triangle goes wrong. In having to reach so far up the income scale to find bad behaviour, the film achieves the opposite effect of its intended anti-elitism. It absolves everyone south of the Coutts current account income threshold.

If Ruben Östlund, the director, thinks the mistreatment of service staff is peculiar to the super-rich, I have a film proposal for him about the cafés of London. Opening scene: the press-ganging of a waitress as auxiliary childcare by yuppie parents. When the upper middle class are rude, it is precisely because they have to try to put distance between themselves and the service class. With the richest, the gap is too obvious to need underlining. At times, it seems, good manners do cost something. 

Raising interest rates to tame inflation will only cause more pain

Central banks are set on a path to cause recession – and marginalised people will pay the price writes Joseph Stiglitz in The Guardian

Higher interest rates will not do what people need, such as lower the price of food. 



Central banks’ unwavering determination to increase interest rates is truly remarkable. In the name of taming inflation, they have deliberately set themselves on a path to cause a recession – or to worsen it if it comes anyway. Moreover, they openly acknowledge the pain their policies will cause, even if they don’t emphasise that it is the poor and marginalised, not their friends on Wall Street, who will bear the brunt of it. And in the US, this pain will disproportionately befall people of colour.

As a new Roosevelt Institute report that I co-authored shows, any benefits from the extra interest rate-driven reduction in inflation will be minimal, compared with what would have happened anyway. Inflation already appears to be easing. It may be moderating more slowly than optimists hoped a year ago – before Russia’s war in Ukraine – but it is moderating nonetheless, and for the same reasons that optimists had outlined. For example, high auto prices, caused by a shortage of computer chips, would come down as the bottlenecks were resolved. That has been happening, and car inventories have indeed been rising.

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Optimists also expected oil prices to decrease, rather than continuing to increase; that, too, is precisely what has happened. In fact, the declining cost of renewables implies that the long-run price of oil will fall even lower than today’s price. It is a shame that we didn’t move to renewables earlier. We would have been much better insulated from the vagaries of fossil fuel prices, and far less vulnerable to the whims of petrostate dictators such as the Russian president, Vladimir Putin, and Saudi Arabia’s own leader, Crown Prince Mohammed bin Salman (widely known as MBS). We should be thankful that both men failed in their apparent attempt to influence the US 2022 midterm election by sharply cutting oil production in early October.  

Yet another reason for optimism has to do with markups – the amount by which prices exceed costs. While markups have risen slowly with the increased monopolisation of the US economy, they have soared since the onset of the Covid-19 crisis. As the economy emerges more fully from the pandemic (and, one hopes, from the war) they should decrease, thereby moderating inflation. Yes, wages have been temporarily rising faster than in the pre-pandemic period but that is a good thing. There has been a huge secular increase in inequality, which the recent decrease in workers’ real (inflation-adjusted) wages has only made worse.

The Roosevelt report also dispenses with the argument that today’s inflation is down to excessive pandemic spending, and that bringing it back down requires a long period of high unemployment. Demand-driven inflation occurs when aggregate demand exceeds potential aggregate supply. But that, for the most part, has not been happening. Instead, the pandemic gave rise to numerous sectoral supply constraints and demand shifts that – with adjustment asymmetries – became the primary drivers of price growth.

Consider, for example, that there are fewer Americans today than there were expected to be before the pandemic. Not only did Trump-era Covid-19 policies contribute to the loss of more than a million people in the US (and that is just the official figure) but immigration also declined, owing to new restrictions and a generally less welcoming, more xenophobic environment. The driver of the increase in rents was thus not a large increase in the need for housing but rather the widespread shift to remote work, which changed where people (particularly knowledge workers) wanted to live. As many professionals moved, rents and housing costs increased in some areas and fell in others. But rents where demand increased rose more than those where demand fell decreased; thus, the demand shift contributed to overall inflation. 

Let us return to the big policy question at hand. Will higher interest rates increase the supply of chips for cars, or the supply of oil (somehow persuading MBS to supply more)? Will they lower the price of food, other than by reducing global incomes so much that people pare their diets? Of course not. On the contrary, higher interest rates make it even more difficult to mobilise investments that could alleviate supply shortages. And as the Roosevelt report and my earlier Brookings Institution report with Anton Korinek show, there are many other ways that higher interest rates may exacerbate inflationary pressures.

Well-directed fiscal policies and other, more finely tuned measures have a better chance of taming today’s inflation than do blunt, potentially counterproductive monetary policies. The appropriate response to high food prices, for example, is to reverse a decades-old agricultural price-support policy that pays farmers not to produce, when they should be encouraged to produce more.

Likewise, the appropriate response to increased prices resulting from undue market power is better antitrust enforcement, and the way to respond to poor households’ higher rents is to encourage investment in new housing, whereas higher interest rates do the opposite. If there was a labour shortage (the standard sign of which is increased real wages – the opposite of what we are currently seeing), the response should involve increased provision of childcare, pro-immigration policies, and measures to boost wages and improve working conditions.

After more than a decade of ultra-low interest rates, it makes sense to “normalise” them. But raising interest rates beyond that, in a quixotic attempt to tame inflation rapidly, will not only be painful now; it will leave long-lasting scars, especially on those who are least able to bear the brunt of these ill-conceived policies. By contrast, most of the fiscal and other responses described here would yield long-term social benefits, even if inflation turned out to be more muted than anticipated.

The psychologist Abraham Maslow famously said: “To a man with a hammer, everything looks like a nail.” Just because the US Federal Reserve has a hammer, it shouldn’t go around smashing the economy.

There is a global debt crisis coming – and it won’t stop at Sri Lanka

Foreign capital flees poorer countries at the first sign of instability. The pandemic and Ukraine war ensure there is plenty of that around writes Jayati Ghosh in The Guardian





This January, even before Sanjana Mudalige’s salary as a sales worker in a shopping mall in Colombo, Sri Lanka, was slashed in half, she had pawned her gold jewellery to try to make ends meet. Ultimately, she quit her job, because the travel costs alone exceeded the pay. Since then, she has shifted from using gas for cooking to chopping firewood, and eats just a quarter of what she did before. Her story, reported in the Washington Post, is one of many in Sri Lanka, where people are watching their children go hungry and their elderly relations suffer for lack of medicines.

The human costs of the crisis only really captured international attention when the massive popular upsurge earlier this month, known as Aragalaya (Sinhalese for “struggle”), led to the peaceful overthrow of President Gotabaya Rajapaksa. His family had ruled Sri Lanka with an iron fist, albeit with electoral legitimacy, for more than 15 years, and is now being blamed by both national and international media for the desperate economic mess the country is in.

But blaming the Rajapaksas alone is too simple. Certainly, the aggressive majoritarianism that they unleashed, along with the alleged corruption and major economic policy disasters of recent years (such as drastic tax cuts and bans on fertiliser imports), were crucial elements of the economic debacle. But this is only part of the story. The deeper and underlying causes of the crisis in Sri Lanka are barely mentioned by most mainstream commentators, perhaps because they reveal uncomfortable truths about the way the global economy works.

This is not a crisis created by a few recent external and internal factors, it has been decades in the making. Ever since its “open economic policy” was adopted in the late 1970s, Sri Lanka has been Asia’s poster boy for neoliberal reform, much like Chile in Latin America. The strategy was the now-familiar one of making exports the basis for economic growth, supported by foreign capital inflows. This led to a significant increase in foreign currency debt, something the IMF and the Davos crowd actively encouraged. 

In the period after the 2008 global financial crisis, as low interest rates in advanced economies led to the availability of cheap credit, the Sri Lankan government relied on international sovereign bonds to finance its own spending. Between 2012 and 2020, the debt to GDP ratio doubled to around 80%, with a growing share of this in bonds. The payments due on these debts kept rising in relation to what Sri Lanka could earn from exports and the money sent back home by Sri Lankans working abroad. The disruptions caused by the pandemic and the war in Ukraine made matters much worse, by causing export earnings to fall and sharply increasing the price of essential imports including food and fuel. Foreign exchange reserves plummeted – but the government had to keep paying interest even when it could not import essential fuel.

Looked at in this light, it is clear that Sri Lanka is not alone; if anything, it’s just a harbinger of a coming storm of debt distress in what economists call the “emerging markets”. The past period of incredibly low interest rates in the advanced economies meant that more funds flowed to “emerging” and “frontier” markets from the richer world. While this found cheerleaders in the international financial institutions (IFIs), it was always a problematic process. This is because, unlike in places such as the EU and US, capital leaves low- and middle-income countries (LMICs) at the first sign of any problem.

And these countries were much more battered economically by the pandemic. Advanced economies were able to provide massive countercyclical measures – think of the UK’s furlough programme – because financial markets effectively allowed and even encouraged them to do so. By contrast, LMICs were prevented from increasing fiscal spending by much – because of those same financial markets, which threatened the possibility of credit downgrades and capital flight as government deficits grew larger. Plus they faced significant declines in export and tourism revenues and tighter balance of payments constraints. As a result, their economic recovery has been much more muted and economic conditions remain mostly dire.

The half-hearted attempts at debt relief, such as the moratorium on debt servicing in the first part of the pandemic, only postponed the problem. There has been no meaningful debt restructuring at all. The IMF bewails the situation and does almost nothing, and both it and World Bank add to the problem through their own rigid insistence on repayments and the appalling system of surcharges imposed by the IMF. The G7 and “international community” have been missing in action, which is deeply irresponsible given the scale of the problem and their role in creating it.

The sad truth is that “investor sentiment” moves against poorer economies regardless of the real economic conditions in specific countries. Private credit rating agencies amplify the problem. This means that contagion is all too likely, and it will affect not just economies that are already experiencing difficulties, but a much wider range of LMICs that will face real difficulties in servicing their debts. Lebanon, Suriname and Zambia are already in formal default; Belarus is on the brink; and Egypt, Ghana and Tunisia are in severe debt distress.

Many countries with lower per-capita income and significant absolute poverty are facing stagflation. Billions of people are increasingly unable to afford a basic nutritious diet, and cannot meet basic health expenses. Material insecurity and social tensions are inevitable.

The situation can still be resolved, but it requires urgent action, especially on the part of the IFIs and G7. Speedy and systematic debt resolution actions to bring in private creditors and other creditors, such as China, are needed, as is IFIs doing their own bit to provide debt relief and ending punitive measures such as surcharges. In addition, policies to limit speculation in commodity markets and profiteering by big food and fuel companies must be put in place. Finally, the recycling of special drawing rights (SDRs) – essentially “IMF coupons” – by countries that will not use them to countries that desperately need them is vital, as is another release of SDRs equating to about $650bn to provide immediate relief.

Without these minimal measures, the post-Covid, post-Ukraine global economy is likely to be engulfed in a dystopia of debt defaults, increasing poverty and sociopolitical instability.

Rich Indians turn secessionist, giving up citizenship. ‘Nationalism’ poor man’s burden

There are some obvious explanations for the rich and endowed Indians, who benefit the most from Indian democracy, leaving their own country writes  Dilip Mondal in The Print


 


Successful Indians are giving up their Indian passport. What started as a trickle, now involves a much bigger volume. In 2020-21, 1.63 lakh Indians renounced their citizenship to take up foreign citizenship. This number is double compared to where it stood five years ago. The US was the preferred destination in 2021. Over 78,000 Indians acquired the American citizenship. Other preferred destinations are also mostly western countries — Australia (23,533), Canada (21,597), UK (14,637), Italy (5,986) and so on.

The question is why are these people giving up the Indian passport at a time when we are entering the ‘Amrit Kaal’, the nomenclature Narendra Modi government is using to define the period between India’s 75th Independence Day and the 100th in 2047? Don’t they love India and the Indian flag? Why are they opting to be adopted sons and daughters? 

The obvious reasons

One thing is for sure: this is not a push migration. Barring exceptions, the people who decided to move are highly educated, rich and privileged. They are not making this choice because they are persecuted, or there is famine or civil war in India.

According to a report of by the London-based global citizenship and residence advisory Henley & Partners (H&P), around 8,000 High Networth Individuals or HNIs will leave India this year. And this is the exodus of the rich and educated.

There are some obvious explanations for the rich and endowed Indians, who benefited most from the Indian democracy, to be giving up citizenship. The most common explanation is that the grass is greener on the other side. Pursuit of economic gains can be a big reason for such decisions. Quality of life is also better in the West and pollution is less menacing.

Another possible reason is that, in countries like the UAE and Singapore, individual tax rates are lower than India.

When the Modi government decided to crack down on black money and tax evaders, many Indians had applied this trick — let family members remain abroad for 182 or more days. This, by rule, made them “non-residents” with foreign accounts and businesses, which could be used by family members to stash money.

Affirmative action policies in India are also blamed for the exodus of Indians and that gives a hint that which social group is mostly migrating. The Economist has written in one of its commentaries that the Brahmins are forced to leave the country because of affirmative-action policies in India. Though this argument doesn’t hold good because affirmative action is only for the government jobs, which constitutes a miniscule percentage of the entire job market. In high-paying jobs, that percentage is further reduced.

Many may also be converting their H1B visas because India doesn’t allow dual citizenship.

Having the ‘means’ to an ‘end’

My explanation for this exodus from the status of being an Indian citizen is twofold. One, successful Indians already have strong secessionist tendencies and two, they leave because only such people have means to leave.

If we check the urban elite spaces, we can easily see those secessionist tendencies of the rich. Their colonies or apartments have their own security systems, reverse osmosis water supply, private power generator sets, and even private recreational spaces. These colonies, in a way, function as separate micro nations. Their interaction with the State is manifested only when some crime or calamity happens. Most of these colonies are gated communities and RWAs are like a government there. In many metropolitan towns, RWAs in elite colonies erect gates at public roads and limit access to public parks and other government facilities.

In this case, there is a class in India that has actually become “independent” or “autonomous.” This class almost never uses government hospitals or educational facilities. It’s a big problem that they have to breathe the same air, but air purifiers have solved this problem also. Covid-19 proved to be a leveller when the elites were forced to share these spaces with the underclass, but that is one of exceptions. Under normal circumstances, there is a separate private infrastructure to cater to their requirements. This class goes abroad to spend holidays. This class sends their kids to the schools affiliated to international boards. Global citizenship and global village is not some distant idea or concept for them. There are people in India who live these concepts and migrate at the first opportunity.

Being part of this group is not at all bad. The fact is that the underclass aspires to enter these spaces not as trespassers but as legitimate members. Rich people are their role models. I am of the view that this aspiration is good and brings hope. ‘Satisfaction’ or ‘contentment’ is the word I hate. Only problem is that the Nehruvian Model of socialism never facilitated such transitions for the masses. Because of the extremely slow growth of the Indian economy in the formative decades of the nation, socialism became a model to distribute poverty. There was, in fact, not much to trickle down. The entrepreneurial potential of the nation was curbed.

I am not blaming any person for that economic catastrophe. Early years after Independence were tumultuous and the decision makers must be keeping many factors while making economic decisions. But we must admit that the State socialism model failed to produce a big middle class. Rather, large masses remained poor and lacked capacity to uplift their life. In rural India, by and large, the feudal structure continued. As contribution of agriculture in the GDP declined and population load on the agrarian economy did not reduce substantially, rural prosperity remained elusive for a large swath of masses. Despite change in course in economic policy in the 1990s, the size of Indian middle class continued to remain small. This should be a matter of utmost concern for the present policy makers. Increase in the size of the middle class is important as this will democratise the process of migration. This is an opportunity which should be available to one and all.

This brings us to the second question.

As granting citizenship in the western world, especially in the top-5 destinations for Indians, has been tightened over the years, one must have a certain financial and educational threshold to migrate to these countries. That threshold itself will put this group in the top one per cent of the Indian population. Especially, in the US, which accounts for almost 50 per cent of Indians migrating, H1B visa or other modes of long-term and permanent residency is mostly given to the highly skilled and highly paid individuals. This restriction acts as a barrier for most Indians to even think of migrating to that country.

In any case, as rich Indians are picking foreign passports and others are probably dreaming to renounce their Indian citizenship at the first opportunity, the sanctimoniousness of discourses like ‘national pride’ and ‘love for one’s own nation’ should be reframed.

With India integrating with the global economies, the national boundaries may blur more and more. Till then, the poor and underclass in India has to carry the burden of flag-waving nationalistic pride. Their role models are leaving.

 

Beware the rich persons’ savings glut

Since the 1990s, the private share of national wealth has soared while public wealth has shrunk writes Gillian Tett in The FT

This week, as western governments pondered sending aircraft to Ukraine, the Kyiv government embarked on a novel financing step: it launched a website #buymeafighterjet to crowdsource donations for jets from the world’s mega-rich. 

Once that might have seemed a laughably bizarre thing to do. But today it no longer appears quite so odd. Never mind the fact that events in Ukraine show we live in a world where networks, not institutions, wield power; today the ultra wealthy increasingly wield riches and power, with some billionaires controlling budgets comparable to those of small countries. 

And while it is unclear whether #buymeafighterjet will deliver planes, the symbolism is worth noting. It highlights a trend that deserves far more attention from economists and political scientists alike — and in spheres that have nothing to do with war. 

Consider one radically different context: this week’s World Economic Outlook report from the IMF. The message in this tome that grabbed most attention this week was that the world faces rising inflation, high debt and stalling growth — stagflation, in other words, although the IMF tactfully downplays that term. 

But on page 62 of the report there was also an intriguing little sidebar about the “Saving Glut of the Rich”. A decade ago, the concept of a “savings glut” was something usually discussed in relation to China. When market interest rates plunged in the early 21st century, economists argued that rates were being suppressed because emerging market countries were recycling their vast export earnings into the financial system. 

Or, as Ben Bernanke, former Federal Reserve chair, wrote in 2015: “A global excess of desired saving over desired investment, emanating in large part from China and other Asian emerging market economies and oil producers like Saudi Arabia,” had created a “global savings glut”. 

But, this week, the IMF highlighted another, little-noticed contributing issue: the ultra-rich. It pointed out that a “substantial rise in saving at the very top of the income distribution in the United States over the past four decades . . . has coincided with rising household indebtedness concentrated among lower-income households and rising income inequality”. 

And while economists used to look at this through an American lens, “the phenomenon may not be limited to the United States”, the Fund notes. It seems to be global. And since the rich cannot possibly spend all their wealth — unlike the poor, who usually do — this savings glut has almost certainly “contributed to the secular decline of the natural rate of interest”. 

Moreover, while the IMF downplays this, the actions of western central banks have made the pattern worse. Years of quantitative easing have raised the value of assets held by the rich, thus expanding inequality — and with it the rich persons’ savings glut. 

How much has this affected rates? In truth, no one knows, not least because information about this shadowy world of ultra wealth is sparse. Or, as the World Inequality Laboratory notes in its 2022 report: “We live in a data-abundant world and yet we lack basic information about inequality.” 

Furthermore, western central bankers have limited incentive to study these issues too publicly, since many feel privately embarrassed that quantitative easing has made inequality worse. 

But one sign of the trend can be found in the 2022 Wealth Inequality Index report: not only have the richest 1 per cent across the world apparently taken 38 per cent of all wealth gains since the mid 1990s, but also the private share of national wealth has soared, while public wealth has shrunk. 

Another striking clue emanates from reports collated by Campden consultants, experts on the family office ecosystem. In 2019, they calculated that there were 7,300-odd family offices in the world, controlling $6tn in funds, a 38 per cent increase from 2017. Between 2020 and 2021, during the latest wave of QE, funds under management increased on average by 61 per cent. 

It is possible that this trend in inequality will slow if QE — and with it asset inflation — comes to an end in 2022 and beyond. Or maybe not — as the IMF report also points out, a world of stagflation risks and rising rates is one that will hurt the indebted poor far more than it will the rich. 

Either way, the pattern deserves far more debate among economists and political scientists. We need to know, for example, whether ultra-wealthy funds will step in to buy assets like Treasuries as central banks wind down QE. 

The way family offices are contributing to a secular shift from public capital markets to private ones should get more attention — particularly since economists such as Mohamed El-Erian predict that this will accelerate in the wake of Russia’s invasion of Ukraine. 

We also need to pay more attention to governance issues. The expanding private pots are generating innovative forms of philanthropy (which is good). But they can also subvert democracy via dark money donations (which is bad). Either way, #buymeafighterjet is one tiny symbol of an increasingly networked but unequal world. We ignore this at our peril.

Follow The Hollow: Politics Of Consumption Among The Middle-Classes In India And Pakistan

 Nadeem F Paracha in The Friday Times

Consumerism, or the preoccupation of society with the acquisition of consumer goods, largely emerged from the 19th century onwards. It began to really take off from the early 20th century, when the idea of mass production of consumer goods fully materialised. Consumer goods are often those that are not exactly a necessity. They are acquired for ‘superficial’ purposes. It is, therefore, not a coincidence that the birth of modern-day advertising and/or marketing ploys, too, began to evolve more rapidly during this period. Their aim was to describe consumer goods as a necessity without which one could not become an identifiable member of society.

In 2018, I went through decades of ‘consumer demographic’ data of some of the world’s leading marketing and advertising firms (between the 1950s and early 2000s). These included advertising firms in Pakistan and India as well. The data shows that most makers of consumer goods and services have continued to ‘target’ the middle-classes, or the ‘aspirational classes.’ These have remained prominent buyers of consumer goods. They are also the most prominent classes in the social and economic spaces of major cities.

However, this is not the case when it comes to politics. The middle-classes may be a part of the electorate, but in most regions, their presence is minimal in the actual corridors of power. The middle-classes have often expressed frustration after feeling that their path towards holding the levers of political power is being blocked by members of the political elite who were born into their status instead of climbing their way up as the middle-classes want to.

1789: An emerging middle-class in France rebels against the King and Church

Modern mainstream politics is the result of certain revolutionary 17th-, 18th- and 19th-century upheavals in Europe which saw the emergence and expansion of the middle-classes. They gradually pushed out the old political elites (the monarchs, the Church, landed gentries, etc.), and replaced these with themselves at the top. The politics that evolved during this process was a product of modernity as defined by the so-called ‘Age of Enlightenment.’

Inch by inch, religion was demystified and relegated to the private sphere; newly formed polities began to be defined as nations that were linked to integrated economies; and the ‘pre-modern’ past was denounced as a realm ravaged by wars, plagues, brutal rulers, widespread poverty, religious persecution and exploitation, superstition, and short lifespans.

The political system which the expanding middle-classes adopted and evolved was democracy. Initially, they trod the ‘Aristotelian’ path which posited that a large, prosperous middle class may mediate between rich and poor, creating the structural foundation upon which democratic political processes may operate (J. Glassman, The Middle Class and Democracy in Socio-Historical Perspective, 1995).

Middle-class prosperity and growth were dependent on modern economic activity which functioned outside the old agrarian structures, and took place in the expanding urban spaces. These spaces attracted labour from rural areas who transformed in to becoming the working-class (the proletariat). During the upward-mobility of the middle-classes, they engineered a democracy that was to constitutionally protect their properties and newfound power and wealth. But as the size of the working-classes grew, it became necessary to create room for them in the political system, if social and political upheavals were to be avoided.

Traditionally, working-class interests in democracies leaned left or towards socialist or welfare policies. As a reaction, the middle-classes moved to the right (F. Wunderlich in The Antioch Review, Spring 1945). The middle-classes therefore, became more invested in curbing, or at least lessening, the electoral influence of the working-classes by voting for conservative parties which treated social-democratic ideas as Trojan horses through which communism would invade and usurp all political and economic power of the ‘hard-working middle-classes.’ However, from within the post-19th-century political elites (in industrialised countries) also emerged parties that evolved into becoming the parties of the working-classes. The growing number of blue-collared voters in the cities necessitated this.

This created a fissure within the middle-classes. A large section of them was now willing to undermine democracy, or a system that it had crafted itself. This section began to view it as a threat to its economic interests. Here is where we see the growth of authoritarian and fascist ideas permeating middle-class political discourses in Europe, and the emergence of demagogues such as Hitler, Mussolini, Franco, etc. The aforementioned section’s radical move to the (anti-democracy) right can be understood as an emotional decision born from the fear of being swallowed by the classes below (the ‘masses’).

1900: The founding of the Labour Party in Britain

When the American president F.D. Roosevelt stated that “the only thing we need to fear was fear itself,” he was trying to address just that. He understood that fear was capable of pushing reasonable folk into authoritarian/totalitarian/populist camps.

After the defeat of German and Italian fascisms, social-democratic policies thrived in the democratic West.

They succeeded in largely pacifying middle-class fears. The middle-classes now stood on the left and the right, yet within the mainstream democratic system which continued to safeguard and police their economic interests, and, at the same time, facilitate the interests of the working-classes as well.

But from the mid-1970s, as the nature of capitalism began to change, and the industrialised countries entered the ‘post-industrial stage,’ things flipped. Between the two World Wars, sections of Western middle-classes had largely moved to the right and far-right, whereas the working-classes had moved to the left. But when the service sector began to produce more wealth than the industrial sector, positions switched.

The service sector has always been dominated by the middle-classes. A gradual decrease in industrial activity and/or with this activity shifting to developing countries (due to cheap labour, etc.), the working-classes were left stranded and feeling bitter. They began to break away from mainstream democratic paradigms and embrace a populism which preyed on the fears of this class as it struggled to cope with the drastic economic shift that was eroding blue-collar economic interests.

So, whereas, during the first half of the 20th century, a large number from the middle-class milieu, fearing that they were about to be overwhelmed by the working-classes, had exited the mainstream democratic paradigm, and had embraced authoritarian ideas and regimes, in the second half of the 21st century, it was the working-classes who did the same by supporting the rise of right-wing nationalism and populism.

Post-industrial decay: American manufacturers moved production to cheaper locations to cut costs, leaving unemployment in their wake

 

The South Asian flip: politics of consumption

In developing countries such as India and Pakistan, right-wing nationalism and populism are still very much the domain of the middle-classes. This is understandable because the process of industrialisation was slow and late in these regions, and so was the expansion of the middle-classes. The economies of both the countries during their first few decades were overwhelmingly agrarian. Industrialisation did not begin in earnest till over a decade after their formation.

This meant a large rural population and a steadily growing urban proletariat. Therefore, democracy in this case, though controlled by an elite, was (for electoral purposes) driven to address the interests of the peasants, small farmers and the working-classes. It was social-democratic in nature. This did not sit well with the middle-classes. They were squeezed between a ruling elite and the classes below. They constantly feared being relegated or overwhelmed by the ‘masses’ because the ruling elite in control of political parties were talking to the masses more than they did to the middle-classes. The elite were, of course, courting sections that had larger number of votes.

Till the early 2000s, middle-class economic and political interests in Pakistan were mostly stimulated by military dictators (S. Akbar Zaidi, Issues in Pakistan’s Economy: A Political Economy Perspective, 2nd Edition, 2005). This is why the middle-classes in Pakistan are more receptive to non-democratic forces and currents, even though they were only provided a semblance of political power by the dictatorships. But the size of this class is growing and so is its economic influence. It feels blocked by the electoral political elites from complimenting its economic influence with political power. 

Whereas in Pakistan the middle-classes have felt more secure during dictatorships, in India, they have managed to break into the realm of India’s political elites by riding on the wave of a right-wing political party. In 2018, large sections of Pakistan’s urban middle-classes believed that they too had done the same by voting to power Imran Khan’s populist bandwagon, the Pakistan Tehreek-e-Insaf (PTI). But their nascent experience of democracy imploded when Khan’s regime was ousted by a no-confidence vote. This class is now back to viewing democracy as a corrupt system – engineered to serve an elite that is geared to address the issues of the classes with the most votes.

But the fact is, as the middle-classes in Europe had done between the two World Wars, the middle-classes in India and Pakistan too, consciously or unconsciously, are destroying the very idea and system that was originally crafted to serve their interests the most. This brings us to consumerism.

Between the two World Wars when large sections of the urban middle-classes in various European countries began to fear that the classes below (the ‘masses’) would use democracy to undermine middle-class interests, the middle-classes became antagonistic towards democracy — an ideology and system of government that they had themselves created. They then went on to facilitate the rise of anti-democracy forces that barged in and overthrew the political elites who were engaging with the masses through electoral politics.

In consumer societies, the language of politics becomes a caricature of advertising language. For example, a young man or woman is more likely to come across the word ‘Revolution’ in an advertisement than in politics. Advertisements and political rhetoric both exchange words which may end up meaning nothing

The middle-classes in South Asia have been in a dilemma of being squeezed between two forces (the electoral elite and the working-classes/peasants). So, these middle-classes have failed to fully carve out a place and identity for themselves as a political entity within a political system that is largely informed by the engagement between the aforementioned forces. According to the historian Markus Daechsel, this saw the South Asian middle-classes indulge in what Daechsel calls “politics of self-expression” (Daechsel, The Politics of Self-Expression: The Urdu Middleclass Milieu in Mid-Twentieth Century India and Pakistan, 2009).

This form of politics is a rebellion against the dynamics of mainstream politics, which the middle-class milieu dismisses as being ‘corrupt.’ This corruption is not only denounced in material terms, but is also censured for contaminating or enslaving a community’s or individual’s inner self that needs to be liberated. Instruments such as the constitution, and institutions such the parliament, are seen as restraints that were stopping people from seeking liberation. Liberation from what? This is never convincingly explained.

The aim of the politics of self-expression is not exactly a way to find a place in mainstream societal politics. Instead, it is a flight into an alternative ideological universe where all societal constraints that plague the middle-class self would cease to exist (Daechsel, ibid). In fact, Daechsel explains the politics of self-expression as a product of the consumer society. According to Colin Campbell, a new ethics of romanticism driven by emotional introspection, a hunger for stimulation and arousal and a penchant for daydreaming, helped to give birth to a consumer society that alone could sustain the onward march of capitalism (C. Campbell, The Romantic Ethic and the Spirit of Modern Consumerism, 1987).

Established political instruments and democratic norms are being attacked by the middle-classes through the creation of spectacles that are being beamed by the new media universe

To Daechsel, this drove people to develop an obsession with identities. The middle-classes remain to be at the core of consumerism. A consumer society has been defined as one in which there is no societal reality other than the relationship between consumers and branded commodity. People are entirely what they consume; no immediate relationships of political power, economic exchange or cultural capital matter anymore (J. Baudrillard, The Consumer Society: Myths and Structures, 1970).

According Daechsel, the middle-class milieu (in South Asia) was, by virtue of its material culture, persuaded to use consumption as an outlet for its frustrated socio-political ambitions. The fact that consumer identities have something ‘hollow’ about them, that they substitute a fetishistic relationship with consumer goods for ‘real’ societal relations, was precisely what made them so attractive. A constituency that could not otherwise exist as a class, due to the constraints imposed by a mainstream political economy that they became suspicious of, found in consumption a space where it could establish some form of a unified cultural consciousness.

Daechsel then adds that the trouble with consumer identities is that consumer goods are believed to reflect a person’s innermost being, but at the same time rely on the garish and the mundane to produce identities. Consumption is not about great deeds in world history, but about the choice of toothpaste and cigarettes. Yet, consumer goods through the manner in which they are marketed, provide the stuff to form identities. Marlboro smokers were rugged individualists, Coca Cola drinkers value the happiness of being part of a wholesome family, iPhone users are savvy folk who are ‘creative’ and ‘fun-loving,’ etc. 

The politics of self-expression is an attempt to make consumer identities secure and ‘serious’ by dressing up consumption activity as politics. The language of politics thus becomes a caricature of advertising language; it retains all the hyperbole. For example, the word ‘liberation’ in such nature of politics is as ‘serious’ as it is when used in ads of male or female undergarments! But in politics of expression, it replaces advertising’s playfulness and self-irony with the certainty of assumed prophetic airs (Daechsel, ibid).

In consumer societies the language of politics becomes a caricature of advertising language. For example, a young man or woman is more likely to come across the word Revolution in an advertisement than in politics. Advertisements and political rhetoric both exchange words which may end up meaning nothing.

The consumer middle-class could well turn out as the destroyer of the world that gave birth to it

The middle-classes in India and Pakistan have gone to war with conventional politics, which they still fear is pitched against them. But even in India, where these classes have succeeded to somewhat break into and disturb the once impenetrable fortress of the country’s ‘rational’ political elites, they have no convincing alternatives. Or the alternatives are creating unprecedented social and political turmoil because they are emerging from the politics of self-expression.

According to Daechsel, the methodology in this context is a direct reflection of the logic of a consumer society. Both in Pakistan and India, ‘rational’ political instruments and democratic norms are being attacked by the middle-classes through the creation of spectacles that are being beamed by the new media universe. They are like marketing stunts.

Events such as openly undermining the constitution, beating up and humiliating foes, burning passports and flags, etc., have turned the perpetrators into political brands that are immediately and often quite literally ‘consumed’. Daechsel views all this as a suicide mission (of the South Asian middle-classes). It is an ultimate extension of the self-expressionist longing for intoxication, a self-indulgent form of ‘political’ activity that is supposedly based on a supreme ideology, but in reality gives the person involved a taste of the ultimate power trip. Just like an expensive brand of car or watch would.

Established political instruments and democratic norms are being attacked by the middle-classes through the creation of spectacles that are being beamed by the new media universe.

Daechsel writes, “If there is a final conclusion to be drawn from this exposition of the politics of self-expressionism in India and Pakistan, it has to be the following: the development of a middle-class through an expansion of the social role of consumption offers no guarantee for a better political culture. Persistent contradictions between a consumer society and other forms of societal organisations will stimulate forms of self-expressionist radicalism that may be very hard to control. Far from being the historical carrier of the voice of reason and modernity, the consumer middle-class could well turn out as the destroyer of the world that gave birth to it.”

This is quite apparent in the ways many middle-class men and women in South Asia have willingly drowned the notion that their acts in this context could be undermining their own political and, especially, economic interests. They seem to have readily gone blind to this fact in their bid to devour politics like they would a consumer brand, but one which is marketed as a product to give them instant bursts of liberation, empowerment and greatness.