Pakistan, Abdullah, Mufti...should apologise to Kashmiris

Adv Hamid Bashani

Are Indian businessmen being unfairly targeted?

By Girish Menon

Following revelations in the suicide note of V G Siddhartha - the founder of Cafe Coffee Day, the corporate world has started a whispering campaign that Indian businessmen are being unfairly targeted by government bureaucracies. This piece will try to examine the elephant in the room.

Indian businessmen are not one cohesive group. There are many sub groups varying in size and population; from the one man tea vendor to Ambani who aspires to be the biggest tycoon in the world. Not all business-persons receive the same treatment from the governments they have to encounter in their daily endeavour.

As far as the Ambanis are concerned, it was rumoured that his office would receive a copy of any government initiative even before it was announced in parliament. Some even suggest that policies are often drafted in their offices. Clearly, such businessmen are like the Goldman Sachs of the USA i.e. too big to fail. Rivals of Ambani envy the unfair distribution of advantages to this group. However, they don’t want it to be stopped but wish they could replace him instead. This group is large and growing.

If the free market mantra is to be applied then governments should not be indulging in such behaviour. This logic states that governments should recognise property rights, make necessary rules and let citizens pursue their self interest. They should not favour any businessperson.

Economist Ha Joon Chang attributes the growth of Toyota, Samsung and many other global MNCs due to the nexus between governments and businesses. He suggests that developing countries follow this strategy else their domestic firms will lose out to already existing western MNCs. Others term this government corporate nexus as crony capitalism.

The Indian corporate world has enjoyed the benefits of crony capitalism since 1947. Under the socialist policies till 1990s the Tatas, Birlas and Bajajs were among the few recipients of licences to do business. In the 40 years of their protected status they did not produce any world beaters. They even formed ‘The Bombay Club’ to lobby against the opening up of the Indian economy.

Even after the Indian economy opened up corporates lobbied the government to make arbitrary rules that gave them an advantage over their rivals. These corporates received loans from government banks and even more loans to avoid loan defaults. It is almost thirty years since the opening up of the economy and yet there are no world class products that have emerged from these corporates. Often, such corporates have only aspired to the takeover of monopoly public sector firms so that social profit can be converted to private profit.

However, the above group do not represent Indian business-persons. The largest group of Indian business-persons run small and medium enterprises. They definitely have a rightful claim to harassment by the government. They are victimised by the government’s bureaucracy in so many ways that I am surprised they still continue to do business. S Gurumurthy, the RSS ideologue on the board of the Reserve Bank of India, is right when he advocates that the Indian government should ease the conditions of doing business for this large group. Demonetisation was a recent  tsunami that further overwhelmed this group of drowning businesspersons. Often, their only plea is that their outfits should be outside the scope of government bureaucrats. And there is some merit in their argument.

It is an irony that the pleas of persecution by large Indian corporates are being aired when the real victims of government harassment, i.e. the small and medium enterprises, die a silent death. It used to be said of the Christian church,’The church complains of persecution whenever it is not allowed to persecute’. The cries of India’s large business houses seem to echo the Christian church.

Afghanistan may hold the key to Kashmir

By Girish Menon

When Pakistan annexed regions like Gilgit-Baltistan, hitherto part of Raja Hari Singh’s kingdom, there wasn’t the kind of shrill shouting in India as witnessed now in Pakistan after India abrogated the temporary Art 370 from its constitution yesterday. What does this act mean for some of the constituents involved in the dispute?

The UN resolution which Pakistan quotes as the basis of dispute resolution states that Pakistan should pull back its troops to the position prior to its invasion of Raja Hari Singh’s territory and then India would conduct a plebiscite in the whole of Jammu and Kashmir. Pakistan never adhered to the first part of the UN resolution and therefore the plebiscite part of the resolution never came into question despite Pakistan continuously harping on it.

For the Modi government the timing of this move appears helpful because it distracts the public from raising serious questions about the poorly performing economy. The narrative (fickle at most times) had begun to portray the Modi government as socialist, a label which the corporate/electoral bond funded party wishes to avoid by a mile.

For the military regime in Pakistan this Indian action poses a dilemma and an opportunity. The military has been shouting from rooftops that it has shut down the funding of its jihadi outfits in Kashmir. It was this statement that enabled Pakistan to receive the IMF bailout. Will the military now once again release the Hafiz Saeeds to act with impunity while risking a stoppage of the IMF bailout? 

The Pakistan military has promised Donald Trump an ‘honourable’ exit from Afghanistan well before the US presidential elections. The military would facilitate a peace agreement with the Taliban which will enable Trump to deliver on his manifesto promise. In return for this the Pakistan military will receive US funding equivalent to its current spending levels in Afghanistan. This will enable the Pakistan military to avoid the conditionalities of the IMF deal and start funding the jihadi outfits in Kashmir. The risk is the failure of the Pakistan military to deliver an exit strategy congenial to Trump.

So it is up to all those countries opposed to Trump (not the USA) to ensure that the regressive Taliban militants do not come to power in Kabul and enable the Americans to run away just like they did from Vietnam. India may have to take a lead in this matter with Iran, if it does not want hostilities to rise in Kashmir.

In the short term, India may have to deploy more security forces in Kashmir. This will mean larger unplanned expenditure. This will be a big injection of government money into the demand deprived Indian economy and could give a fillip to growth. While the lot of the Indian consumer may not change radically, at least the government can claim that the economy is on the path to reaching the $5 trillion mark.

As for the people of Kashmir they may have to face some more difficult times unless they join the Pandits in an exodus from the valley. The Indian government can ensure that the property rights of all displaced personnel is respected when such people decide to return back to the valley. The government could also open safe havens to these new refugees.

Of course, most conflicts develop a life of their own and these new refugees may find themselves in government camps for a much longer time.

In the rest of India, there is no mood for any settlement with a military dispensation in Pakistan. Moreover, the BJP agenda is to recover the Gilgit-Baltistan regions which was illegally grabbed by the Pakistan militia. 

Currently, a war-like situation suits the rulers in both countries. What the people of Kashmir want is not on the agenda.

Why Marry?

by Girish Menon

In response to my piece Modern Marriages - For Better or For Worse, an erudite reader asked ‘Why Marry?’ This person also asked whether one could lead a better productive life without marrying? In this piece, this writer will give some views on the matter.

In India, despite all the modernity, sex before marriage and outside marriage is still frowned upon. Until consensual sex becomes as common place as meeting a friend for coffee, there will always be some supporters of marriage.

This also begs the question whether both individuals in a marriage are content with the quantity and quality of sex available?

Another question that arises is whether the absence of sex reduces the productive potential of an individual. I will plead ignorance on this matter too.

The economic rationale for marriage used to be property inheritance. Much has been written about it which I will not revisit. However, in these days of ‘reliable’ paternity tests, the need for marriage to ensure that property goes to the sperm donor’s offspring is obsolete.

Of course, I am of the view that no child should inherit their parents’ property. But there needs a lot of change in societal arrangements for this to happen; something which I don’t think will happen in my lifetime.

What of the children born of a sexual union, whether consensual or accidental? If it is consensual, then the couple should have a plan for raising their child. As for ‘accidental’ children - there shouldn’t be too many due to the availability of many pregnancy termination choices available for women in the market place.

What impact will this have on the population of a society? If trends are to be believed, all over the world where women have shown an upward trajectory in economic independence the rate of population growth has declined significantly. This augurs well even from a climate change perspective as the demand for resources could dwindle with a rapidly declining population.

Could there ever be a time when one would have to exhort women to produce more children? I don’t think that will be ever be necessary in the future, because by the time we reach this Utopia medical technology may enable production of full grown adults. This will also take away the burden of child care from either cohabiting partner leaving them free to pursue their potential.

Modern Marriages - For Better or For Worse

By Girish Menon

Recently, I heard the story of somebody who was married for over 30 years and had a hostile spouse for an equivalent time period. This person it was revealed had no moments of intimacy from the outset but they performed the sexual act in a spirit of mutual need. The couple still retain their marital status and one of the partners told the other, ‘I will destroy you but not give you a divorce”.

On the other hand the courts in Mumbai receive over 3000 cases each month. The traditional Indian idea of a family is metamorphosing quickly and even rapidly catching up with the western world. My cousin has this quip,‘ While the Indian woman has changed the Indian male has failed to adapt to this change’.

From an economic point of view this increasing divorce rate is a good development. In this era when GDP growth is the altar that we are duty bound to worship, then more divorces mean an increased contribution to GDP growth. Every splitting couple will employ a minimum of two lawyers, they will need separate houses and their children will need some childcare. All of this creates economic opportunities and contributes to the GDP counter. Second marriages and divorces also further contribute to economic growth.

Among Malayalees the absence of ‘yogam’ is the catchall phrase used to explain away any failed marriage. In simple terms, it means the couple were not meant to be successful in marriage. This is a post hoc rationalisation akin to the use of the term destiny.

But is there a good predictive method for choosing a partner of longevity?

In economics, the process of mate selection could be looked at as an imperfect information problem. Horoscope matching, family compatibility, cultural similarity and many other factors have been used to establish the suitability of a partner. Unfortunately, none of them have proved sufficiently reliable. In true rational spirit modern couples have experimented with living together for long periods of time to overcome the imperfect information problem. However, anecdotal evidence seems to reveal marriage dissolution even among such couples. The reason could be the inability to predict and cope with unforeseen future events that hit every marital boat.

Fortunately, I have no advice to give in this matter. All that I have noted is the failure to observe Christian marriage vows ‘for better or for worse’ by many separating couples. However, even such vows are put to the test among long surviving couples; as an aunt remarked when my uncle retired, ‘I married him for better or for worse but not for lunch’.

Is Migration Inevitable?

By Girish Menon

In Mumbai, it appears that the taxis and autorickshaws are predominantly driven by migrants from Uttar Pradesh. In Kerala, as captured in the film Njan Prakashan, most of the physical labour is provided by migrants from the Bengal region. In the UK the nursing profession is dominated by migrants from Kerala and I don’t have to mention the Gulf where it is rumoured that one can get by with speaking Malayalam. These anecdotes do not adequately capture the migration of people all over the world.

This has led to resentment among the sons of the soil living in their ancestral lands. One of them speaking about Polish migrants felt ‘The Pole should get up every morning in Krakow, take a flight to the UK, pick fruit from the farms, collect the high wage and take a late flight back to Krakow’.

This shows that some sons of the soil admit that migrants fill a void in their labour markets and are a necessary evil to be tolerated.

On the other hand: the Brexit vote, the clampdown on the Mexican border, the identification of aliens in Assam show that political authorities are responding to their protests against uncontrolled migration.

So, why does this problem arise? Why do migrants leave their familiar surroundings to go to unfamiliar places and insist on working in increasingly hostile circumstances?

For starters, it could be that despite all the hardships faced in an alien land the migrant feels that his lot is still better than by continuing in his homeland. The film Peepli Live captures the distress in Indian agriculture, where despite all the government initiatives the protagonist finds himself leaving the village to work on a dangerous construction site in a big city. It is natural to assume that such a migrant would end up living in an illegal slum in that city.

Along with this group of desperate migrants there is also a group of economic migrants, this writer included, who seem to arbitrage the global shortage of skilled labour.

In the film Thackeray, Bal Thackeray the founder of the Shiv Sena alleged that South Indians, especially Malayalees, monopolised jobs in Mumbai and with their ‘clannish mentality’ would block opportunities for the sons of the soil. This sentiment has been echoed by similar politicians all over the world.

There is definitely some merit in their arguments too. 

In the UK around 2004 Tony Blair allowed free labour market access to newly joined  East European citizens. At the time there were no protests; the ruling Labour Party had ‘abolished boom and bust’ and the labour market was booming with wage hikes. The migrants were doing jobs that Britons did not want to do.

The feeling of anger only began following the 2008 financial crisis. The EU imposed strict austerity on the Euro member countries creating high levels of unemployment in their member states. The UK’s high minimum wage then acted as a magnet for migrants from the EU.

At the same time, in 2010 David Cameron’s UK government was ideologically committed to austerity and ‘balancing the budget’. They introduced severe funding cuts for schools, healthcare and welfare benefits. Thus, if you were an unemployed Briton living in Stevenage you suddenly discovered that the unemployment benefits were cut forcing you to look for a job while UK employers preferred foreigners for their higher productivity. This Stevenager’s family members also had to compete with Spaniards for reduced school places and Poles for access to the highly restricted health service. 

Thus the revulsion to the foreigner may not have arisen without the deliberate and untimely austerity imposed by the Conservative-Liberal Democrat government.

So, is migration inevitable? Yes and no.

From a theoretical perspective, only having free movement of capital but not permitting free movement of labour goes against free market logic and globalisation. This is also a violation of Ricardo, because labour rich countries are being prevented from benefiting from their comparative advantage. So, if there is free movement of capital, goods and services then, unlike Boris Johnson’s argument, it is incumbent on labour rich countries to demand free movement of labour.

Nonetheless, there will always be some economic migrants who will arbitrage the wage differentials in the world. Also, there will be others who are fleeing political persecution in their respective countries.

However, some of the migration can be controlled. There could be a universal basic income available to all the inhabitants of a common market. This basic income could be determined on the basis of the minimum income required to live in the most prosperous province in a common market. Such an income will enable the prospective migrant to live a luxurious life in his depressed province and act as a deterrent to migration.

In the UK, some Conservative party members who colluded in imposing austerity and who lauded the growth of food banks have convinced Stevenagers that their economic woes are solely due to foreigners. This fear was fortified enough to win the Brexit referendum. Now the question remains if the EU elite will accept their demands for a free movement of goods and services and end the free movement of labour.

Since the interest of the EU elite are not the same as its peripheral members I will not be surprised if they collude with Johnson’s cohorts. Will this lead to peripheral members of the EU asking for an exit as well? I will not be surprised.

On Shekar Gupta - An Indian supporter of Arthur Laffer

By Girish Menon

Arthur Laffer found his two minutes of fame first under Ronald Reagan and now under Donald Trump. He is famous for his statement that government revenues will be zero if the tax rate is either 0 or 100 %. He further prescribed that for government revenues to maximise it should be low enough to provide incentives for citizens to want to pay tax.

Sounds right doesn’t it?

I have some difficulties with Laffer’s proposition especially with the part that the tax regime should ‘provide incentives for citizens to want to pay tax’. Isn’t it the job of every citizen to pay the taxes levied by their elected government? And in the case of the rich isn’t this your preferred government? So why not pay your share of taxes to keep your side a winner?

Laffer, however, is pragmatic to realise that tax evaders (no matter their patriotic image) usually carry out a cost benefit analysis on the costs involved in avoiding taxes and the benefits that follow from it. If the benefits are higher than the costs then they make a rational choice to evade taxes either legally or even illegally.

And there is a big global economy involving tax havens, accountants and lawyers who have successfully convinced the rich that the benefits of tax evasion far exceed the costs.

Economists who support Laffer argue that money in the pockets of the wealthy is better off for the economy because they will re-invest in new businesses thus boosting the economy and will reduce unemployment and put the economy on the virtuous cycle of growth and prosperity for all.

However, historical data does not bother such economists and their followers. The period following World War II saw the highest rate of taxation.  In the bastion of free markets viz. the USA it was as high as 80% or more. Tax rates in welfare state European economies was similarly high too. This coincided with the best economic growth and employment rates in these economies till it was shattered by the oil price shock.

After Reagan followed Laffer’s advice in the 1980s European economies also followed suit but at no time has economic growth nor investment rates exceeded the 1950-60s. Despite the evidence to the contrary, these economies continued to cut tax rates even further; yet growth and investment rates have failed to match post World War II levels.

Shekar Gupta is one Indian journalist who appears to be a fan of Laffer’s tax cuts. On the one hand he argues that the rich will not be affected by the tax rate hike in the latest Indian government budget. In the same breath he also argues that the tax hike will affect investment in the Indian economy.

The Indian economy’s growth rate has been stalling for some time even before the current budget. Unemployment has been high and rising. Investment levels were low pre-budget, with many firms filing for bankruptcy. So does India need more investment or more consumption to utilise the already existing production capacity? 

Also, won’t the tax cuts if proffered by the Indian government find its way into tax havens and join the tranches of hot money circulating the global economy?

India in my opinion, needs a rise in consumption by the poorer and lower middle classes to boost demand within the economy. Now may be the time for PM Modi to redeem his promise made before the 2014 elections and give each countrymen the promised sum of Rs. 15 lacs in vouchers which they have to spend within a certain time period. This could help revive the economy.

What effect it will have on the environment is unimportant since climate change deniers seem to rule the world.