The $4bn killing

By Stephen Foley in New York

Published: 15 December 2007

House prices are crumbling on both sides of the Atlantic, growing numbers of homeowners face repossession, financial markets are yo-yoing and the UK saw its first run on a bank in living memory. But for three audacious New York traders it all added up to a $4bn (£2bn) profit opportunity and the biggest jackpot in the history of Wall Street.
The young guns at the investment bank Goldman Sachs – none of them over 40 years old – were unmasked yesterday, prompting a wave of adulation and envy among their colleagues, and another bout of handwringing about Wall Street's ability to make multibillion-dollar profits even as millions of ordinary people face losing their homes.
Dan Sparks and two underlings, Josh Birnbaum and Michael "Swenny" Swenson, placed what were in effect giant bets against the US mortgage market at the start of the year and watched their winnings tick higher and higher as the rising numbers of mortgage defaults spiralled into a worldwide financial crisis. Throughout the year, they battled with more cautious bosses who feared the bets were too big and too dangerous, but in part because of their success Goldman Sachs will post record profits next week. In doing so, the firm will stand alone on Wall Street, where rivals have suffered huge losses from the credit market meltdown.
The trio themselves are in line for bonuses of about $10m apiece from a record bonus pool at Goldman of about $19bn. "They are very embarrassed that their names have come out," said a company source. "Until now, nobody had heard of them, including most of the people on the floor where they work."
The Wall Street Journal, the bible of the New York finance industry, revealed yesterday how the three men would forgo lunch breaks, weekend trips with their families and even sleep to keep on top of positions – but would always find time to pump themselves up at the gym before heading to the testosterone-fuelled trading desk.
Haunted by the spectre of Nick Leeson, whose unapproved trading racked up the £827m losses that sank Barings Bank in 1995, investment banks have tried to keep a tight leash on their traders, but Goldman Sachs has led a trend to put more and more of the bank's own money on the line in the search for bigger profits. Nonetheless, the trio had to engage in a running battle to keep their bets from being whittled away by more conservative risk managers, and at one point in February when an angry Mr Birnbaum shouted that it was "the wrong time" to be cutting the bets, he was overruled. The decision was reversed and the bets ratcheted back up later in the year.
Their $4bn success more than mitigated other losses on mortgages, and could put the three men into an elite group of legendary traders. Their profit eclipses the $1.1bn made by George Soros when his bets against the currency pushed sterling out of the exchange rate mechanism in 1992 and the estimated $1.5bn made by the hedge fund manager John Arnold last year from the collapse of a rival fund, Amaranth.
Goldman is one of the oldest and certainly the most illustrious firms on Wall Street, with a reputation for hiring athletes and military veterans – people who do not necessarily seek the limelight, and are able to be "team players". Wall Street bloggers were yesterday sniping that the revelations about the three traders at the heart of the bank's mortgage market bets had much to do with jockeying for favour as the bonus pool is divvied up.
Goldman itself is trying to play down the scale of the risks taken by the mortgage trading desk, saying that most of the trades were designed to reduce the risk of opposite holdings elsewhere in the business. The plans were being carefully directed from above, a company spokesman said. "These guys were the pilots flying the planes." The bank has also been trying to limit the political fallout from revelations that it made giant profits from a financial crisis that could see millions of Americans forced out of their homes and plunge the rest of the economy into a recession. Chris Dodd, a candidate for the Democratic party presidential nomination and head of the Senate's banking committee, has threatened to investigate Goldman's behaviour.
Wall Street banks have been fingered as a major cause of the credit crisis because of their insatiable demand for mortgages, which they buy and repackage into a dizzying array of complex financial instruments.
Goldman's traders positioned themselves for a crash by betting against some of those instruments – even while other parts of the mortgage business spent the first half of the year creating and selling new ones to hungry investors. Meanwhile, independent mortgage brokers were pushing unsuitable loans on to low-income Americans who may not now be able to pay them back.
Mr Dodd said he was concerned because it appeared that Goldman Sachs was "aggressively pushing sub-prime mortgages that they knew to be of concern while simultaneously shorting "mortgage derivatives".
And he has turned his fire on Hank Paulson, President George Bush's Treasury Secretary, who was head of Goldman Sachs until being persuaded to join the administration last year. Mr Paulson is in the awkward position of seeing his Goldman Sachs shares rise in value while having to organise a bail-out for American homeowners who cannot afford their mortgages.
Critics argue that Goldman's aggressive bets against the mortgage market have exacerbated problems in the financial markets, which in turn has made it impossible for many struggling borrowers to refinance.
What at the start of the year had appeared to be a serious but isolated problem for over-extended American homeowners has spiralled into a global financial crisis. The world's central banks this week unveiled a $100bn package of emergency measures to try to get the markets moving again.
The mortgage derivatives created by Goldman and others have been dubbed "toxic waste" by investors, who no longer want to buy them. Wall Street banks have suffered more than $50bn in losses as a result and have dramatically scaled back their activities, causing financial markets to freeze up. Smaller banks such as Northern Rock in the UK, which relied on the markets for funding, have got into trouble and many other sorts of business are threatening to scale back investment plans, which economists fear could lead to rising unemployment.
Agony on Main Street, ecstasy on Wall Street
Dan Sparks, 40
Those who get on at Goldman Sachs are those who can leap on a fleeting opportunity – a talent that Sparks exudes in his personal life, too. He bumped into a childhood schoolfriend in the street on a shopping trip to New York, invited her for dinner that evening and is now married with two children.
The long-time bond trader was promoted to head of Goldman Sachs' mortgage business a year ago, since when he has had a little less time for weekend trips to his alma mater, the University of Texas A&M, where he and his family are obsessive supporters of the American football team and donors to the athletics department.
Michael "Swenny" Swenson, 40
With no time to break for lunch, Swenson would order the same chicken and vegetable salad from a nearby deli and eat it at the trading desk every day. Nicknamed Swenny – everyone has a nickname on a matey Wall Street trading desk – the seven-year Goldman Sachs veteran entertains colleagues with a fast, biting wit.
At Williams College, Swenson was an ace hockey player and continues to visit the gym every morning,despite having to commute from the suburbs of northern New Jersey to downtown Manhattan in time to be at the desk by 7.30am. He has four children.
Josh Birnbaum, 35
In the Hamptons, Wall Streeters' exclusive summer getaway, Birnbaum has been something of a hot property. A local magazine last summer named him as one of the area's most eligible bachelors, a "power player" and a "well-mannered Mr Right". The profile also had him down as a "brainiac", and it true that he was the technical brains behind the trio's ability to place efficient bets against what are still obscure and difficult-to-trade mortgage derivatives. Swenson and Sparks wanted him to create a computer model for trading against a new mortgage index, and he netted $1m on his first day.
The big bets that came off...
George Soros made £550m on black wednesday, 1992
Soros studied at the London School of Economics in the 1950s, forming the view that economic growth was reliant on a tolerant and market-oriented society. He put that theory into devastating practice when Britain was forced to leave the exchange rate mechanism (ERM) on 16 September 1992.
Soros realised that the pound had been overvalued against the deutschmark when it joined the ERM and borrowed vast sums of sterling to convert into deutschmarks and French francs. When the inevitable devaluation came along, he sold his position, paid back his borrowings of about £10bn and pocketed a £550m profit – earning the sobriquet "The Man Who Broke the Bank of England".
Warren Buffett made £1bn on currencies since 2002
The famously frugal investor, who still lives in the house he bought in 1958 for $31,500, has a history of successful financial gambles. In 2002 he began buying contracts to deliver US dollars against other currencies – in effect betting on the fall in value of the dollar. The move surprised fellow investors, not least because Buffett had never before made an investment based on the movements of a currency. It has paid off handsomely, netting his company an estimated $2bn in profits. Buffett also trades on his reputation. In 1998 he started buying huge quantities of silver. Investors followed his lead, raising the price and earning Buffett a handsome profit.
Paul Tudor Jones made £50m from crash of 1987
Early in 1987, a young New York trader made a documentary predicting that the world's financial markets were grossly overvalued and a dramatic crash was inevitable. When Black Monday arrived on 19 October, causing the biggest single drop in stock markets ever seen in a single day, Paul Tudor Jones was feted as a soothsayer. His advice to his clients to sell their shares earned him a $100m pay cheque. Those feeling bullish about the current economic circumstances may do well to listen to the latest predictions by Robert Prechter, who influenced Jones's 1987 forecast. Prechter said recently that stocks are overvalued beyond the level that led to the Great Depression.
...and the ones that came a cropper
John Meriwether lost £2.3bn in 1998 financial crisis
Regarded as a genius in complex trades involving government bonds, Meriwether's hedge fund, LTCM, was a star performer in the first years of its existence, regularly making returns of more than 40 per cent. But as LTCM ran out of bonds to use for its impressive returns, it began to make investments in areas outside its expertise. When stock markets fell in south-east Asia in 1997 and Russia in 1998, investors started selling the government bonds that were the bedrock of LTCM's wealth. In a single month its equity fell from $2.3bn to $600m. By 1998, the Federal Reserve organised a $3.6bn bail-out to avoid a wider collapse in the markets. Total losses eventually reached $4.6bn.
Yasuo Hamanaka lost £1.5bn on copper trades in 1996
Copper trader Hamanaka was known as "Mr Five Per cent" in reference to the proportion of the world's annual supply of the metal that he controlled. For years he was allowed to dictate his company's copper-buying strategy, but he was running two accounts – one showing healthy profits and another huge losses. The deficit came to light in 1996 when the authorities in London and New York asked his employer, Sumitomo, to cooperate with an investigation into suspected price-fixing. Panic ensued and Sumitomo was forced to admit that Hamanaka had lost $1.8bn in unauthorised trading. Eventually the losses reached $2.6bn. Hamanaka was jailed for eight years.
Nick Leeson lost £827m at Barings Bank in 1995
In 1992, Leeson's employers had good reason to value his services. After a series of speculative trades on the Singapore currency exchange, he made the company £10m – a tenth of its total profits.
Soon, Leeson's luck changed. By the end of 1994, the deficit had reached £208m and on 16 January 1995, Leeson decided to place a huge bet on the Tokyo stock exchange going up. Overnight the Kobe earthquake struck and the exchange sank.
He tried to recoup his losses by betting again but this, too, failed. Leeson fled, leaving a note saying "I'm sorry". Barings collapsed as a result of his losses, and Leeson was eventually sentenced to six and a half years in prison in Singapore.

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This just isn't cricket

The Australian proposal for day-night Tests has revealed a reactionary in this former radical

Mark Lawson
Friday December 14, 2007
The Guardian

English traditionalists, already appalled by the signing of the EU treaty in Portugal, yesterday faced another assault on their ancient way of life. The Australian cricket authorities confirmed that they are considering the possibility of introducing day-night Test matches.
Readers who would be happy if the sport of cricket were burned and the ashes transported to Australia should not turn over now, because the point of this story is - to borrow an ancient phrase - not cricket, or at least not just cricket. In the reaction to the Australian proposal, we see the classic shape of any standoff between conservatives and reformers: whether the practice facing change is the gender of clerics, the appropriate clothes to be worn in restaurants or the way in which foxes should die.
And what's strange for me is the side I'm on. So naturally drawn to modernism that my teachers had to force me to read books written before 1922, I would have voted for change in most controversies over alteration. But on this one my immediate instinct - as strong as Richard Littlejohn's on Europe - was that Test matches should commence just before elevenses and finish just before dinner.
Briefly to explain the debate to the uninitiated: Tests - known to the over-30s as "proper cricket" - are played across five eight-hour stretches of daylight, with the game suspended when dusk descends. One-day games have recently become "day-night", starting in the afternoon and concluding under floodlights, and the Aussies propose extending this to proper cricket. The horror of those opposed is increased by the fear that the meddling won't stop with the clock. Once artificial lighting is introduced, two other long traditions of Test matches - white clothing and red balls - will likely be replaced by lurid colour and white respectively.
The problem is that, for many who watch cricket, there is a visceral pleasure in the dew on the grass at the start and the sun falling behind the stands at the end. This arrangement has a natural rhythm to it. Many cricket-loving writers - Samuel Beckett, Harold Pinter, Simon Gray, John Arlott - have employed the late afternoon of a cricket match as some kind of metaphor for life: the fading of the light at close of play becoming an image of lost time. The only available equivalent in day-night games - switching the generator off - lacks the same poignancy, expect perhaps for poems about euthanasia.
Another source of grumpiness is that, as often in modern sport, the motivation to change is driven by the needs of television. Already, in British football, fans have been forced to endure long journeys home on a Sunday night because tea time on what used to be the Lord's day is the slot in which telly executives wanted matches to happen.
In cricket, Tests which started in the Australian afternoon would not only move half of their days into evening peak-time, when audiences and advertising rates are larger, but, when the opponents were England or South Africa, live overseas coverage would no longer be screened during the night but could attract perkier and more plentiful breakfast-time viewers.
But opposition to later beginnings for cricket matches goes beyond the football fan's complaint of inconvenience, because light and air are fundamental to the way in which the ball moves, and is seen in a way that does not apply in the winter game.
Another argument against the Australian proposal which is not just reflex traditionalism is that cricket, more than perhaps any other sport apart from baseball, depends on the comparison of present and past performances, so that modern players are measured against Bradman or Sobers. Even now, parallels cannot be exact - for instance, the rules on preparation and protection of pitches have changed - but there is still the baseline that players separated by generations batted and bowled across the same slice of the clockface.
Once a century, or a five-wicket haul, start being given the qualification "made under lights", then the game's great tradition of statistical pedantry, which is one of the things sustaining cricket-lovers as they age, begins to collapse.
And so I am now a reactionary. I keep telling myself, of course, that not all defences of the status quo are the same. Many of those who argued against female priests were misogynists, some foxhunters are psychotic snobs, and the opponents to European Union include racists. Those other debates between conservatives and liberals also touch on issues of economics and cruelty which have no equivalent in an argument over when games of cricket should start.
Even so, suffering this small experience of seeing something that has been an important part of my life exposed to meddling for reasons which seem dubious and ill thought-through has created the new experience of being on the side of the ancients against the moderns, and has given me a new tolerance for the misery and impotence of that position. I'm sorry, but it just isn't cricket.

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Rs 1,000 Crore? A River Is Yours

 

Maharashtra's water resources minister finds an ingenious way to raise the Rs 1,000 crore he doesn't have: put a river under the hammer

SAIKAT DATTA The River Of Profit... And Loss

Maharashtra government's justification:

• It doesn't have funds to complete construction of the Deogarh dam on the Nira.
  
• The government has no option but to invite bids to sell the river and dam for Rs 1,000 crore.
  
• The state will ensure that the private player provides water at reasonable prices.

Opposition to the government's move:

• Private company will levy high water rates to recover Rs 1,000 crore, will cut off local communities from the river
  
• Activists fear that it will divert water from irrigation to industry.
  
• Only rich farmers will be able to afford water.
  
• Tourism and water sports offered as an incentive could lead to less availability of water.

***

Maharashtra's minister for water resources, Ramraje Naik-Nimbalkar,is a busy man. After all, it requires considerable ingenuity and a lot of paperwork to try and sell a 208-km stretch of a major river—the Nira—and the Deogarh dam on it to the highest private bidder. The river up for sale runs through the districts of Pune and Satara and is likely to have a command area that could also feed Solapur and Sangli. This is Naik-Nimbalkar's novel plan to generate the Rs 1,000 crore—the minimum price for the river—the state does not have to complete the Nira-Deogarh project, envisaged in 1984 to irrigate farmland. It will be the first major privatisation of a river and a dam in the country where the private player can manage the river and supply water for irrigation and domestic use for profit on a bot (build, operate, transfer) basis.

***

The private player will invest 
Rs 1,000 crore,  finish the dam, 
build canals. In return, he'll 
control the river.

***

To set the process rolling, the Maharashtra Krishna Valley Development Corporation (MKVDC), which currently controls the river and is under Naik-Nimbalkar, issued an Expression of Interest (EoI). Cleverly worded, the EoI kept the "experience" of the companies which could bid open to generous interpretation—companies just needed to have worked on projects of a "similar magnitude". That means any player who has handled a Rs 1,000-crore project in any area eligible to bid for Nira.

On November 17, five companies—Ashoka Buildcon, IVRCL Infrastructure Projects, IL&FS, Shinde Developers, Indian Hume Pipes Company—responded to the EoI. All have either little or no experience in managing a river or building and operating an irrigation project as envisaged in the Nira-Deogarh EoI. Worse, some have never been even remotely involved in any water projects!

***

"Water is a people's basic right," 
says a water activist. "How can 
the state let anyone profit from it?"

***

Nira may not be the first river to be put on sale. Chhattisgarh's privatisation of the Sheonath river raised hackles in 2002. The proposed privatisation of the Nira-Deogarh project, however, beats it in sheer magnitude. At stake is nearly 208 km of the Right Bank Canal and 21 km of the Left Bank Canal of the project that will irrigate nearly 43,000 hectares of land. The Chhattisgarh government in contrast offered only 23 km of the Sheonath river.

The private player's role too was restricted to supplying water to the Borai industrial area. The sale of the Nira-Deogarh project, on the other hand, is all about supplying water for irrigation. Simply put, the private player will invest money and complete the construction of the remaining 5 per cent of the Deogarh dam, build 164 km of canals and put in place the entire water distribution network.In return, he will have complete control over the river, the dam and its water.

While there are crucial ethical issues involved when privatising something as basic as a water resource, the mismanagement of the Nira-Deogarh project by the Maharashtra government is shocking every which way. To cite a few instances:

• Originally envisaged as a Rs 62-crore project, so far, nearly Rs 450 crore has been spent on it: Rs 196 crore in building 95 per cent of the dam, Rs 93.63 crore on canals, Rs 87 crore on acquiring land, Rs 21 crore on rehabilitation, and Rs 50 crore went on what's lumped as "other" expenses.
  
• In 2000-01, the MKVDC estimated it required another Rs 910 crore to complete the project. Last week, Naik-Nimbalkar told Outlook that another Rs 1,000 crore has to be pumped in to complete the project. That is the least amount that the private company which wins the tender for the project will have to shell out.
  
• Anyone who invests Rs 1,000 crore will have to recover the money as well as generate profits. Interest rates paid for loans taken to raise funds for the project will also have to be factored in.
  
• By all accounts, it will take the private player several decades to recover the investment.

Which brings into focus the larger issue: how will the private company recover its investment and post profits when the Nira-Deogarh project's primary aim is to irrigate farmland? Will it mean that farmers, already reeling from several years of drought in the area, will have to pay exorbitant water charges fixed by the company? The government's EoI notes that "the investment made by the developer/consortium is supposed to be recovered through various means, viz, levy of water charges for irrigation and domestic use, fisheries development, tourism activities etc".

Naik-Nimbalkar is clear that MKVDC is in no position to raise the Rs 1,000 crore, and hence the move to privatise the river. Ask him what the farmers will have to pay for their water and he says the Maharashtra water regulatory authority will ensure the prices are "reasonable". But water charges, though critical, are not the only issue here.

The EoI also promises the private company a "reasonable rate of return" via contract farming through land owners. Obviously farmers, who were kept in the dark while the EoI was issued, are up in arms. Says Dilip Ghadge, an onion and sugarcane farmer in the Lonand taluka in Satara district: "What all this means is that the large companies will come and sit on our land while we are driven out. It will be the last nail in our coffin."

Satara-based advocate and water rights activist since 1980, Balasaheb Bangwan, is shocked at the proposed privatisation. "This is a drought-prone area where we have already had a major drought from 2003-2005. The privatisation of the river will break the farmer's back. How can a private company own the whole distribution network of the dam?" he asks.


Besides the economic devastation that this privatisation is likely to cause, there are the social and ethical dimensions that the government has chosen to ignore. "Water is a basic and fundamental right and it is the state's social obligation that everyone has access to it. How can you allow anyone to profit from it," asks Shripad Dharamadhikary of Manthan Adhyayan Kendra, and a water activist for nearly 20 years. "It also speaks volumes about the government's priorities since it doesn't want to spend money on irrigation," he says.

Dr Bharat Patankar, who built up the equitable water distribution movement Saman Pani Watap Chalwal over several decades in southwestern Maharashtra, is shocked at the government's move. He has already written to the prime minister.Ramaswamy Iyer, a former Union water secretary and an acknowledged water expert and author, has stated in unequivocal terms that water cannot be treated as a marketable commodity.

In his book Towards Water Wisdom, Iyer states that "it is doubtful if a life-right or even a use-right can be converted into a tradeable property right". According to him, "the economic rights of some must not be allowed to endanger the fundamental rights of others". As for making profits from water, he points out that "the principle of full cost recovery is applicable to economic uses but not to water as a basic life-support".

So, why is Naik-Nimbalkar pushing for the privatisation of the Nira-Deohar project? "I am from the area (Phaltan), so I know the needs of the people," he claims. "They need water," he told Outlook over the phone. Point taken, but water at what cost? He also says that he is simply implementing the government's policy of privatising water, issued vide a government ordinance dated July 15, 2003 (GR No. BOT/702 (425/2002)/MP-1).

Many water activists, however, say the real culprit is the World Bank. They allege it is the $325 million loan to Maharashtra for "improvements" in the water sector which is behind the proposed privatisation of the Nira. Strangely enough, a project appraisal report (No. 31997-IN) for sanctioning the loan is a "restricted document" which can only be accessed by those in the government in the course of "official duties". As a result no one knows the other plans drawn up by the World Bank for Maharashtra. So much for transparency.

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Social Mobility - Bright poor children 'slip back'

BBC NEWS
Bright poor children 'slip back'
Clever children from poor families face being overtaken by less bright children from affluent homes, research suggests.

The findings are part of a study for the Sutton Trust which says UK social mobility has not improved since 1970.

It says rich children are catching up with poorer peers in developmental tests between ages three and five and will overtake them by the age of seven.

The government says it is too early to say what will happen to the young people the charity's report focuses on.

Researchers from the London School of Economics and the University of Surrey examined the development of children born in 2000 and 2001 to see if that was influenced by income.

They looked at test studies of children from various income groups at the ages of three and five.

I am passionate about my son - and parents' status should not influence their chances in life
Sarah, parent

The report said: "Children in the poorest fifth of households but in the brightest group drop from the 88th percentile on cognitive tests at age three to the 65th percentile at age five."

Meanwhile those from the richest households who were among the least able at three moved up from the 15th percentile to the 45th percentile by the age of five.

Report authors Dr Jo Blanden and Professor Stephen Machin conclude: "If this trend were to continue, the children from affluent backgrounds would be likely to overtake the poorer children in test scores by age seven".

They also said while 44% of young people from the richest 20% of households were awarded degrees in 2002, only 10% from the poorest 20% did so.

The report concludes: "Parental background continues to exert a significant influence on the academic progress of recent generations of children.

"Stark inequalities are emerging for today's children in early cognitive test scores - mirroring the gaps that existed and widened with age for children born 30 years previously."

Lee Elliott-Major, from the Sutton Trust, says the environment a child grows up in is all-important.

"Parental background is so dominant in terms of predicting and influencing people's future prospects," he said.

"It's about general aspirations, being in an environment that is conducive to talking about lots of different things, it's those sorts of very broad things."

Poverty gaps

The study also concludes that a narrowing of social mobility seen in the 1970s and 80s has now stabilised.

However, the report says the UK remains one of the worst among developed countries for social mobility, alongside the United States.

Minister for Children Beverley Hughes said: "As we look to the future we hope to see more evidence of our reforms making a real difference to people's lives," she said.

"This new research is based on the Millennium Cohort born in 2000-01. It's far too early to say what will happen to those young people over their lifetime.

"Those children have yet to enter Key Stages 2, 3 and 4, where overall standards are continuing to rise and poverty gaps have narrowed since 2003."

Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/1/hi/education/7141169.stm

Published: 2007/12/13 12:06:38 GMT

© BBC MMVII

The Indian Left: Rethink or Perish

The Left: Rethink or Perish

by Praful Bidwai; Tehelka.com; December 09, 2007


The Indian Left survived, even extended its influence, in the aftermath of Soviet-style socialism collapse. Yet in one year it has undone this and seriously damaged its credibility as a force which speaks for the underprivileged, the excluded, and which upholds the values and practices of inclusive democracy.
The Indian Left has in a single year managed to do through its own actions what all its opponents could not accomplish over eight long decades: namely, damage its credibility as a force which speaks for the underprivileged, the excluded and the wretched of the Indian earth, and which upholds the values and practices of inclusive democracy. This is starkly evident in the two major states where it rules: West Bengal, and to a lesser extent, Kerala.

In West Bengal, 2007 witnessed forcible land acquisition for a car factory in Singur, two planned episodes of armed violence in Nandigram, starvation deaths among long-unemployed tea-garden workers in Jalpaiguri and dirt-poor Adivasis in Purulia and Bankura.

Besides, there were food riots in nine districts against corrupt ration shop-owners linked to the Communist Party of India (Marxist), Rizvanur Rehman’s mysterious death amidst a party-police-business nexus, and the expulsion of writer Taslima Nasreen in place of a principled defence of her fundamental rights to the freedom of belief and expression.

2007 was no ordinary year. It marked 30 continuous years of the Left Front’s rule in West Bengal—a tenure unmatched in India and probably in the world. Nowhere else have Communist parties been mandated in free and fair elections to rule a country or province the size of West Bengal (pop 80 million) for three decades. This is a tribute to the relevance of Left-wing politics.

In Kerala, the Left Democratic Front came to power with an impressive majority, but now faces a bleak prospect primarily because of serious in-fighting within the CPM, and pressure from party state secretary Pinarayi Vijayan to follow pro-rich neoliberal policies, which are alienating the vast majority of the people.

The stench of scandal hangs heavy in Kerala, with lottery scams, sweetheart deals with shady businessmen, and expropriation of Adivasis. In the next Lok Sabha elections, the LDF may well lose the bulk of the seats it holds.

Nationally, the Left parties, comprised of the CPM, Communist Party of India, Forward Bloc and Revolutionary Socialist Party, are set to shrink in their parliamentary representation, and more crucially, their moral and political influence. The CPM is likely to be worst affected.

This could reverse the one-and-a-half decades-long trend under which the Left survived the international collapse of Soviet-style socialism, retained much of its moral and intellectual capital, and in many cases, extended its influence—defying the tendency towards a decline of Left-wing politics and a of the Right in most parts of the world, barring Latin America.

Neither the Left, nor the CPM in particular, has a strategy to resolve the ideological, political, and organisational crisis it faces. The plain truth is the Indian Left is less and less able to articulate a vision of social emancipation and present alternatives to corporate-led globalisation with all its enormous economic imbalances and social distortions. The Left must rethink—or perish.

The Left’s achievements must not be underrated. The greatest include land reform, an unblemished record of communal harmony and peace, stable, relatively clean governance, panchayati raj institutions, and above all, politicisation and empowerment of the masses. No other political current can claim to be such a principled upholder of democratic traditions and values. If the Left didn't exist in India, we would have to invent it!

In West Bengal, Operation Barga gave 2.3 million cultivators tenancy rights, and accounts for more than one-half of the total acreage transferred under Indian land reform. The state also witnessed a 210 percent increase in literacy and a halving of infant mortality. Urban poverty ratio declined to 14.8 percent, well below the national average (25.7 percent).

However, the Front’s record in some other respects is poor, as the official “Human Development Report” (2004) admits. Public spending and access to health services have stagnated. Some indicators—immunisation, antenatal care, nutrition among women, and number of doctors and hospital beds per lakh people—are below the national average. West Bengal has not opened a single new primary health centre in a decade.

Rural poverty decreased between 1983 and 1993-94 at an annual rate of 2.24 percentage-points. But the decline has slowed down to 1.15 points annually. To compound matters, W. Bengal has the lowest rate of generating work under the National Rural Employment Guarantee Act—a mere 14 person-days per poor family, against the national average of 43, in place of the promised 100 days a year.

Worse still, according to National Sample Survey (61st Round), “the percentage of rural households not getting enough food every day in some months of the year” is highest in West Bengal (10.6 percent), worse than in Orissa (4.8).

An alarming indicator is the number of school dropouts in the 6-14 age group. At 9.61 lakhs in West Bengal, this figures is even higher than in Bihar (6.96 lakhs). Of India’s 24 districts which have more than 50,000 out-of-school children, 9 are in West Bengal.

Yet another dark spot is the Front’s failure of inclusion in respect of the religious minorities. Muslims form 25.2 percent of the state’s population. But their proportion in government employment is an abysmal 2.1 percent, even lower than Gujarat’s 5.4. This represents, sadly, the downside of the LF’s record of protecting the minorities against communal violence.

Clearly, West Bengal has a long way to go before it can become a model. Regrettably, its leadership’s priorities have shifted towards elitism. It now obsessively promotes industrialisation at any cost, at the expense of peasants and workers. It has set its mind upon neoliberal projects like the Singur car factory and Special Economic Zones.

The results of the neoliberal orientation were evident in Nandigram in March and again in the first half of November, when the CPM forcibly "captured" two blocks, over which it had lost control.

The bulk of Nandigram’s people—including many CPM supporters—got disenchanted with the party because it tried to impose an SEZ on them, earmarked for Indonesia’s Salim group—a front for Gen Suharto’s super-corrupt family.

The SEZ plan was tentatively abandoned under popular resistance, led (but not exclusively) by the Bhumi Ucched Pratirodh Committee. But the CPM started a campaign of intimidation of ordinary people, turning thousands into refugees, and resulting on March 14 in a murderous attack on villages, accompanied by arson, loot and rape.

The attempt failed. CPM-BUPC clashes continued in recent months, and pressure grew to call in the Central Reserve Police Force. To pre-empt the CRPF’s intervention, CPM cadres launched their second bid to “capture” Nandigram, turning it into a “war zone”. The rest is history.

Chief Minister Buddhadeb Bhattacharjee presents the violence as a spontaneous clash between two organisations, in which the BUPC was “paid back in the same coin”. In reality, this was a clear case of abuse of the state police, and its subordination to the CPM. The CPM treated its political adversaries as another country’s enemy population.

This does not argue that the BUPC does not have goons in its ranksIt certainly does. But their power could not have matched the clout of armed CPM cadres backed by the state.

Nandigram-II was a grievous blunder, which betrayed the Front’s own core-constituency. No argument about “provocation” by the opposition, or a “conspiracy” between the Right and the Extreme Left, can justify the gunning down of innocent peasants.

Unfortunately, the CPM’s leadership has learnt few lessons from Nandigram. It remains obsessed with GDP-ism and boasts that W Bengal has the highest growth (8.55 percent) of all states. It has ruled out any rethinking on neoliberal policies. Even CPM general secretary Prakash Karat says: “we have to adopt industrialisation….we have to compromise. Industrialisation cannot be achieved without the help of capitalists like the Tatas.”

This approach is creating a rift, for the first time ever, within the LF and threatens to weaken its greatest collective strength: unity. The approach could eventually turn the Left into an elitist, Social Democratic entity favoured by the rich and middle classes. That cannot be the future of the Left as a viable and relevant plebeian force.

The CPM must decide whether it should fight for radical social change, or merely manage capitalism Chinese-style, however honestly. If it chooses the second option, it will go into historic decline. It must also make a decisive break with the undemocratic organisational culture it has inherited, which punishes dissidence and encourages a “my-party-right-or-wrong” attitude. Unless the Left undertakes ruthless self-criticism, it can’t effect course correction.

India: where the credit crisis is but distant thunder

Indian business is in supremely self-confident mood. But is its optimism justified? Corruption remains a key restraint on progress. By Jeremy Warner in Delhi
Published: 12 December 2007

Now what credit crisis is that? There could scarcely be a better antidote to the gloom which grips Western markets than a visit to India, where the mood among business leaders in sharp contrast to the downbeat pessimism of the developed world is one of rampant self-confidence and can-do determination to succeed. If the world economy has indeed "decoupled", with the fast growing developing economies of Asia able to remain largely immune to the slowdown in the US, then India perhaps more so even than China is the living embodiment of the breakdown of these linkages.

To bankers and business people here, the credit crunch is but a scarcely noticed rumble of distant thunder of little, if any, significance to an economy whose annualised rate of growth is now kissing 10 per cent.

At last week's India Economic Summit, organised by the World Economic Forum in association with the Confederation of Indian Industry, the mood was one of unbridled optimism, despite the country's many economic and social challenges.

In a mark of this new found self-confidence, India's finance minister, Palaniappan Chidambaram, predicted that next year outward bound investment by Indian companies would for the first time exceed fast-growing inward investment by foreigners keen to tap into India's explosive growth story.

The two front-runners for Jaguar and Land Rover, which have been put up for sale by Ford with an expected price tag of $1.5bn to $2bn (£980m), are both Indian – Tata Motors and Mahindra & Mahindra. One of these is likely to be named preferred bidder at some stage in the next month or two, with the effect that together with the steel maker Corus, bought earlier this year by Tata, a very substantial part of Britain's remaining manufacturing base will have passed into Indian ownership.

Nor could anyone have failed to notice the takeover by the flamboyant Vijay Mallya of the scotch whisky company Whyte & Mackay. Mobbed in the manner of a Bollywood film star as he struts the conference rooms of the India Economic Summit, he has become the living embodiment of the self-belief, verging on arrogance, of India's new business élite.

Less well-reported examples of Indian acquisitiveness overseas are the pharmaceuticals company Ranbaxy Laboratories, whose chief executive Malvinder Singh, points out that he has done 18 overseas acquisitions in the last two years, and India's world-class IT services industry, which has been similarly active overseas. Indians are these days more likely to be found rubbing shoulders with the élite of global business than their counterparts in China.

Yet the emergence of India as a serious player in global M&A, though undoubtedly indicative of the country's new-found influence on the world economy, is no substitute for economic development at home. With some 80 per cent of a population of 1.1bn living on 25 rupees a day or less (30p), there is plainly still a way to go before the geo-economic power shift from west to east that so many now talk of becomes a reality.

In most respects, the idea is still little more than fanciful. The "inclusive" growth that India aspires to is also at this stage just a pipe dream.

The development challenge for India is not the 250 million people officially defined as middle class – those with sufficient income for discretionary spending – but the much greater numbers which are still dependent on subsistence farming or eeking out a living in the slum dwellings of India's major cities.

The economic anomaly that India has to confront is that the more than half the population which is still rural accounts for just 20 per cent of the country's output, with the infrastructure of the cities already so stretched and broken by migration from the land that they cannot without risk of extreme social dislocation absorb any more.

Perhaps oddly, the effect so far of the Western credit crunch on India has been mildly positive. Some of the excess liquidity which otherwise would have flowed into complex western debt instruments has instead been diverted into emerging market equities, helping to feed the boom in the Indian stock market.

It's a funny old world that sees Indian equities as lower risk than previously triple-A-rated Western debt markets, but for the time being that's the way of it.

Yet whatever the protestations of its business leaders, it seems unlikely that India can altogether escape the adverse consequences of the Western credit crisis. India is more "coupled" to what's going on in Western economies than it would like to think. The credit crunch will for starters quite severelylimit India's new-found penchant for foreign acquisition making. India is just as affected by the closure of debt markets to leveraged finance as privateequity.

Ranbaxy has already had to pull one major transaction because of prohibitive financing costs. Speculation in the Indian press that Tata might counter BHP Billiton in the bidding for Rio Tinto, thus shoring up the country's need for iron ore supplies to feed its fast-growing steel mills, are frankly just delusional in today's markets.

Tata would have struggled to finance the acquisition of Corus had it been trying to do so today. The infinitely larger amounts necessary to acquire Rio are a non starter.

Meanwhile, Indian exports are likely to be hard hit by any generalised economic slowdown in the West. The booming IT sector will also find its growth crimped by more difficult trading conditions in the US.

Ambitious government plans to increase infrastructure spending by some $500bn over the next five years, much of it slated to be privately financed, is likely to be quite significantly affected by the freezing up of global credit markets.

The bigger constraints on Indian development are nonetheless of the more home-grown variety. India's notoriously poor infrastructure of power, water, sanitation, roads, rail and airports – together with the apparent inability of government to do anything about it – is just the half of it. Nor are the extreme challenges around education, training, health and nutrition the biggest bug-bear.

Rather, it is corrosive, debilitating corruption, which runs through all levels of society from the lowest to the highest, and creates a massive barrier to the deployment of foreign capital and the development of efficient markets. Yet it is an issue few Indian business and political leaders are prepared to even talk about let alone confront.

There was, for instance, no session amid all the self-congratulation of the India Economic Summit on corruption, though in fairness it was referred to in a breakout debate on the difficulties of introducing Western standards of supply chain management into India.

Low levels of public sector pay have helped make bribery a part of everyday life. Only very slowly has private sector development, which brings with it Western standards of pay and best practice, begun to make inroads into a pattern of behaviour still widely thought of as perfectly normal.

A common observation among Western business people with experience of working in both India and China is, yes, India with its fast-growing, youthful population and relatively high levels of consumption, is a terrific market opportunity, but – and here the aside is whispered behind the hand – "it is so much better in China" .

There is of course plenty of corruption in China, too, but the difference is that in China a real effort is made, from the top down, to engage with business and address its problems. If a road needs to be built to facilitate an investment, it gets built to order and on time.

Against China's forced march, India has more chaotic, private sector-driven approach to development. This may have the merit of being more consensual, but it also makes the system more open to abuse.

India is said to have more than 250,000 separate democratic institutions. Against China's rule of the gun, India is ruled by the ballot box. In such a paradise of representation, national priorities become eclipsed by regional concerns, interests and sovereignties. In any system where there is debate and room to object, progress is bound to be slower and more cumbersome. What should be a democratic dividend, making India a more obviously attractive destination for Western investment and know-how than the one-party state of China, instead frequently becomes a positive liability.

Yet it requires only the briefest of visits to India to understand that it is not democracy as such which is at the root of the problem. Rather it is powerful vested interest and corruption which through high levels of loyalty and deference down through the matrix of society that have become entrenched in the democratic process.

Says one leader of a multi-national company with extensive interests in India: "You know, India is a wonderful country, but it is a bugger of a place to do business in, a real bugger, worse than anywhere else I've had experience of, worse than the Middle East.

"The market is huge and fast growing, but every step of the way it is a struggle. It shouldn't be so difficult. It could be made so much better. But nothing is going to change in a hurry".

This may be an unduly pessimistic prognosis, but it contains large elements of truth. Corruption of the commercial and political process is present at all levels of society, from the free services and goods that street traders are obliged to give local police and officials to prevent crippling bureaucratic interference to the protections and barriers to entry that are enjoyed by some of India's leading business dynasties.

Rules and regulations are routinely changed or tampered with to favour one commercial interest over another, depriving the market of the level playing field it needs to develop internationally competitive industries. This may not be corruption as such, and all political systems however sophisticated, are to some extent prone to such manipulation. Yet it is more overt and wide-ranging in India than perhaps anywhere else.

One current example is the row over new mobile phone spectrums, which had been promised to existing GSM operators but which two of India's most powerful business dynasties, Anil Ambani's Reliance and the still family controlled Tata, are trying to muscle in on.

Mobile telephony has been one of the great Indian success stories of recent years, hugely innovative and adaptive as penetration spreads beyond India's urban middle class down into the lower income groups, where the cost of both handsets and call charges have to be kept to a bare minimum to gain traction.

Handsets can be bought for as little as $20 and pre-paid top ups are sold in 10 rupee chunks, enabling 5-7 minutes of airtime. The mass provision of connectivity is an essential element of the social and economic empowerment that India so desperately needs to lift its population out of poverty. The mobile phone companies are making extraordinary progress in helping bring this about, yet at every turn their progress is hampered by bureaucratic interference.

Unlike other forms of infrastructure, there is no problem of lack of investment in mobile telephony. Vodafone Essar, the second-biggest operator, is spending at the rate of $2bn a year, while the largest, Sunil Mittal's Airtel, will be spending even more.

Existing capacity is already stretched to breaking point. To keep growing as planned, the GSM operators need more. Yet here comes Messrs Ambani and Tata, both of whom have mobile companies licensed to use the alternative, and as it has turned out more expensive, CDMA operating standard, to argue that in order to create more competition in the market, the promised extra GSM spectrum should go to them instead.

Having essentially chosen a technological cul-de- sac as their way into mobile, their natural sense of entitlement makes them think the rules should be changed to give them access to the faster-growing GSM market, too. Never mind the billions of investment by the likes of Mr Mittal predicated on understandings that were meant to be set in concrete, or the fact that if scarce capacity is shared between multiple operators, it is much more likely to create an unsatisfactory oligopoly than more competition.

Mr Mittal has expressed outrage at what government-controlled regulators seem minded to do. Their decision will be a test case of public policy as it relates to business in India. Without certainty as to the public policy framework, business can't and won't invest.

In China, it is often said, business succeeds because of government; in India, it is in spite of government. The challenge of dealing with often corrupt bureaucracy in itself helps create a hugely entrepreneurial and inventive society. Yet it is also a profound barrier to change, which left unaddressed, will continue to cost India dear.

As one of the co-chairs of the India Economic Summit, Ben Verwaayen, chief executive of BT, says he feels more inspired about the need for corporate change by coming to India than ever he does sitting in his office back in London.

This is the future, he says, gesturing to the world outside – a fast-growing middle-class consumer market that will soon be bigger in terms of numbers than the European Union.

But to achieve its proper potential it must rise to the challenge of lifting hundreds of millions out of poverty so that they too can join the burgeoning ranks of Indians already bought into the global economy.

Connectivity, in his view, provides many of the answers to India's economic and social challenges, including perhaps, ultimately, corruption, too. There is nothing like communication to make people realise they are being disadvantaged.

India is at least 10 years behind China in terms of its development profile. The free market reforms that led directly to the explosive growth we are seeing today throughout much of the developing world came later in India than China. Yet India's market opportunity is potentially much bigger, with a faster-growing and more youthful population.

These characteristics have the potential to be as much of a curse as a blessing. Yet whatever the outcome, no business which still expects to be around in 20 years time can afford to ignore the challenges they represent.

Cost-Benefit Analysis - Olympics

Leading article: A winning performance
Published: 11 December 2007
Tessa Jowell, the Olympics minister, is clearly trying for a gold medal. The 2012 London Olympics are on budget and on schedule, she told Parliament yesterday. Unfortunately the only sport for which she would qualify is that of goal-post moving.

Those with long memories may recall that "being on budget" back in 2003, when the consultants Arup first costed the games, involved laying out a mere £1.8bn. Within a few months Ms Jowell had revised that to £2.4bn, including an apparently generous 50 per cent contingency fund. The UK record remained at that level for a full two years until 2006, when a new one of £3.3bn was set, again by that Olympic financing veteran Ms Jowell. Now it is going to cost us, including contingency, security and tax, some £9.3bn.

Clearly Ms Jowell is going for a world record here. The Olympics are on budget only in the sense that they seem not to have gone up again since March when, after a "thorough assessment of all potential risks", she first announced the £9.3bn total.

The Olympics will be good for London and for the entire nation. But what is not good is this unedifying inability to control the costs. It is a household truism that whenever you get the builders in it costs twice as much and takes twice as long as the estimate sets out. Yet even by that yardstick, this is an overspend on the overspend.

Things are unlikely to get better. This will be Europe's largest public construction development initiative, which includes rebuilding large sections of run-down east London in disused industrial sites surrounded by some of Britain's poorest neighbourhoods. The House of Commons public accounts committee has suggested that ministers have "over-planned" and "grossly underestimated" foreseeable costs. What was good about Ms Jowell's announcement yesterday was that it sets out the most detailed breakdown of expected costs to date, with the promise of updates every six months. Yet that is not enough. If we are to keep on top of costs, ministers must disclose more budget information, including a breakdown of contingency spending and monthly cash flows.

Ms Jowell was asked yesterday whether it was likely any of the £2bn Olympic contingency fund would remain unspent. She had "grounds for optimism"" on that she said, even as the BBC was reporting the existence of a confidential report to ministers which suggests there is a 20 per cent chance the budget will rise yet again. The sad likelihood is that this is one Olympic sport in which the record will be broken again and again – and all before the games have ever begun.