Moral hazard is back

 By Chan Akya

"Spare the rod, and spoil the child." - Anon

In a controversial case a good 16 years ago this month, Singapore's much-vaunted legal system ruled on administering a punishment of caning for a 18-year old American student by the name Michael Fay. After much protests from United States president Bill Clinton and 24 assorted Senators among a series of legal and government nominees, Singapore agreed to reduce the sentence from six lashes to four. Fay's Asian compatriots in the crimes of vandalism were less lucky, each getting a few months in prison and more lashes of the cane.

Four years later, in 1998, Michael Fay shot back to prominence, accused of possessing drugs in Florida; he was set free on a technicality involving arrest procedures. No further crime reports  were ever received for the Asian compatriots of Michael Fay who didn't receive the leniency that he did.

The above isn't to suggest that this author supports corporal punishment; rather that the idea of people receiving the full penalty of applicable laws is the functioning basis for any society. Whenever that aspect of implementing laws breaks down; or where special favors are granted for any number of reasons, it is likely that results prove counter-productive.

In the above example, the US government intervened in the laws of a democracy that had a history of applying its stern disciplinarian measures on all of its citizens; in an attempt to protect the narrow interests of one individual. It is possible that the individual felt "good" enough about his government's intervention to feel special; which then translated into behavioral problems later on. In contrast, the boys who got the full punishment under Singapore law never did return to the world of crime, petty or otherwise.

We can see the same examples everywhere. In both of the world's largest countries, China and India, there is clearly a class of people who do not face the full force of the law because of who they happen to be. In other words, political or economic superiority protects some people from laws designed to be applied across society. The net result is stunning levels of corruption (see my article "The wages of corruption, Asia Times Online, August 19, 2006) as well as, perhaps more importantly, rising criminality. China's ruling classes are the very epitome of corruption and petty theft from government coffers; while in India the selective application of laws has resulted in politics becoming the archetypal dirty profession.

When looking at the political classes of both China and India today, I am reminded of Mark Twain's eternal quote, "There is no native criminal class in America, except Congress". Interestingly, almost 100 years after he made the statement, events of the last year have contrived to create a new criminal class across Western society, and that is the world's bankers.

It wouldn't be an idle speculation in my mind at least to compare the politicians of India and China today to the bankers of America and Europe tomorrow.

How did we get to this point? What can be done about it?

The Lehman boondoggle
Over the past few days, newspapers around the world have dredged up their one-year calendar observance special - ie on the aftermath of Lehman Brothers and what it meant for the global financial system. Comments have veered around the following poles:

Groups of inevitably "liberal" commentators whose refrain has been a steady "Lehman should have never been allowed to fail" which then explains their follow-up assessment of how the right-wing views on financial system integrity were reversed and therefore benefited the world. This group has an altogether rosy view of the world economy, certifying that bailouts have worked and so on.

The conservative, right-wing view is of course the opposite, namely that the failure of Lehman Brothers was a good thing for the world economy and the wider financial system; this group also holds that bailouts of the financial system that followed would create resource misallocation, inflationary panic and the like.

No prizes for guessing which group I belong to.

This article isn't about the merits and otherwise of the Lehman rescue; but rather about the moral hazard construct that is integral to these situations. In particular, I will seek to examine the behavioral aspects of the past year's government efforts on a new generation of bankers and financiers, broadly continuing the themes first suggested in past articles such as The New Brahmins [Asia Times Online, March 29, 2008] and Easy bets with other people's money [Asia Times Online, May 23, 2009].

In previous articles, I have pointed out time and again that creative destruction is an integral part of capitalism much as bureaucratic sloth is integral to communism; disallowing failures of private companies while also preventing necessary reforms will essentially create the worst of both worlds.

This is broadly where we are today:

1. Governments have spent hundreds of billions of dollars and euros on the rescue of banks around the world, guaranteeing all manner of senior and junior debt obligations in addition to deposits at the banks (actually, according to the International Monetary Fund the total bill thus far is a staggering US$12 trillion; as in $12,000 billion or $12 million million).
   
   
2. Governments' slivers of equity, instead of giving them management control, have provided adverse incentives to pushing through real (structural) reforms. Politicians have spent inordinate amounts of time discussing what to do with their shares in the banking system, rather than what to do with the banking system itself.
   
   
3. All manners of public securities have been purchased directly under the programs initiated by the European Central Bank (ECB), the Federal Reserve (Fed) and US Treasury. Further in this article, I will specifically discuss the game theory aspects of the US mortgage market securities (RMBS); resulting from the fact that governments are the largest owners of privately issued securities.
   
   
4. Bank balance sheets have actually expanded because of the adverse incentives pushed through by the largest shareholder (governments) and easy refinancing available at the "discount" window.

 
I am no mastermind like Federal Reserve Chairman Ben Bernanke, but it does appear to me that the simple implications for each of the above can be or more importantly, should be the following:

1. The wide use of monetary stimulus in dealing with the current crisis is roughly equivalent to 40% of the combined GDP of the United States and Europe, this means that today's asset values are vastly inflated. In addition, the apparent illusion of wealth so created by seemingly higher stock and property values also engenders inflationary trends on key commodities (why oil prices have risen), over-optimism on the part of suppliers (emerging market countries have seen stunning rebounds) and a failure to reduce leverage (while savings rates are up in the US and Europe, these are more than dwarfed by rising government debt). None of this though is nearly as important as the increase in volatility implied for the future: at some point, all this money has to be removed from the system one way or another (ie, either through withdrawal of quantitative easing or through inflation of asset and retail prices). Oh and did I mention - in conjunction with all that, governments around the world but particularly in the US and Europe will need to raise taxes or cut public services?
   
   
2. Controlling the banks hasn't made governments in the US and Europe any smarter. If anything, incentives to restrain the financial system and put institutions on a self-sustaining course have actually gone in the opposite direction, with a new generation of "value maximize initiatives" in each government being tasked with making sure that banks produce more profits. That has immediately led banks to increase their balance sheets, which given poor economic data, also means that the quality of balance sheets has become worse not better under government tutelage. You don't hear much about banks being forced to become smaller, because they aren't being told to become smaller. So let's see now: we have financial institutions with significant exposure to high-risk assets. Gee, what a refreshing change from 2007.
   
   
3. The US government, through the Treasury and the Fed holds hundreds of billions of securities in basically, itself. Let me explain: the Treasury bought some $700 billion of "troubled assets" from US and European banks. In addition, the Fed is authorized to purchase $1.25 Trillion (that's $1.25 million million) of conforming mortgages that are backed by Federal agencies (Fannie Mae, Ginnie Mae, and Freddie Mac), $300 billion of long-term US Treasury bonds and $200 billion of the debt issued by (the now nationalized) Federal agencies.
   
   
4. This self-ownership of debt raises important questions on the market reaction: Chinese government sources have released details of the country's concerns at the Fed essentially printing money to purchase US debt, but it doesn't appear that a wider acceptance of this position has been found with other Asian central banks or indeed, global bond investors. As with the stunning rise of the stock market, I am left dumbfounded by the complete avoidance of risk discussions in the middle of this mess by the investors most exposed to downside risks of the strategy: namely Asian investors.
   
   
5. Then again perhaps I have been blindsided in the past, too: the part of the program detailing the purchases from US Federal agencies was clearly an attempt to mollify the Chinese government which had the biggest exposure to such MBS and Federal agency debt. In other words, the US government may have bailed out the Chinese government directly, in return for the latter to continue buying other US government debt. Indeed, there have been a number of articles on the Internet suggesting that Fed purchases have been directly linked to asset disposals by Chinese government entities. This raises a very interesting game theory argument, which I explore later in the article.
   
   
6. Amid all this liquidity sloshing around, the world's bankers have been quietly having a nice party in the back. Banks still making markets in securities - a fancy way of saying that they can both buy and sell these securities - have reaped the benefits of extremely wide spreads between the buying and selling prices ('bid-ask spreads' in the jargon). Additionally, they have managed to refinance the most illiquid stuff on their balance sheets with the respective central banks, and used the borrowed money to buy very toxic assets (As I wrote in previous articles including Easy bets with other people's money, Asia Times Online, May 23).
   
   
7. Then there is the whole mark-to-myth malarkey that has been egged on by central bankers and regulators - thanks to their ownership of the banks as highlighted two points above - which means there is no longer any reason to take accounting losses on problem assets. Let me be clear - banks haven't stopped having loan losses; they have simply stopped accounting for them. Lastly, with low deposit rates and high lending rates, their basic businesses have made substantial profits this year. Out of all this, readers should expect that banks will set aside bumper bonuses for their executives, and do these out of stock grants to mollify critics; but don't for a moment forget where the money for those equity gains comes from.

 

Game theory: Why Americans should default on mortgages

There is also an interesting point about the circularity of US mortgages that bears close monitoring. At a very simplistic level, Americans borrow money from their banks, which sell (conforming) mortgages to Federal agencies, which then issue securities that are bought by Chinese banks that are then repurchased by the US Fed. What happens when some people start repaying their mortgages? The ultimate losers would be the US Fed in the above scheme. This is handled either through money made available by the US Congress (new taxes) or interest rates being raised (more expensive mortgages). Either way, the average US homeowner will find his costs of living going up.

If you were an American taxpayer and homeowner, what would be the most optimal course of action? Think of it this way - if the government owns all the housing debt effectively, and there are a number of defaults every year, everyone who defaults will be better off (financially) than those that continue to pay. If you were one of a 1,000 people getting a mortgage and say 100 people defaulted, then you would in effect (one way or another) be paying for those 100 people who default. As the number rises, you would be pushed towards greater financial pressure as both taxes and mortgage servicing costs rise. Meanwhile, for the people who default, the scheme of arrangement for their debts will mean lower fixed mortgaging costs and other benefits such as tax holidays. For self-employed people who tend to receive cash for their work, defaulting on mortgages could easily become the route to prosperity with low taxes and little debt repayment.

So the logical course of action for a hardworking taxpayer holding a mortgage would be to default right away. This becomes more compelling when you consider the general tightening of credit across the US and Europe, where other forms of credit that used to be easily available previously (credit cards, personal loans) are more difficult to come by now. In typical game theory perspective that means the "penalty" of defaulting on mortgages in the form of reduced credit availability isn't really applicable because that is the case for everyone now.

Add the bit about all that money basically enabling the Chinese to sell their risky assets to the US government in return for US government liabilities, then something far worse looms. At best, this means China executed a perfect portfolio switch, going to better quality assets with lower durations; at worst it means that their direct leverage over the US government has increased substantially. This means that a "buyers' strike" from China will inevitably lead to higher interest rates; which could further increase the pain for US mortgage borrowers. The persistence of that risk on the horizon simply makes the need for Americans to default on their mortgages that much more likely.

Learning from hedge funds

The performance and risks of the banking system wouldn't be so bad if we didn't have anything to compare them with. Unfortunately for the banks, that isn't the case really. Look at hedge funds, those much derided vehicles of capitalists that had been billed as the most destructive forces in the world barely a year ago:

1. A vast number of hedge funds have closed down since the middle of 2008, a trend that continues till today. This bout of creative destruction has meant that strategies that were wrong have been shut down; only hedge fund strategies (and managers) that worked well through the volatile period of 2008 and the more benign conditions of 2009 have survived. Contrast this to the banks, where good and the bad bankers not only co-exist, but bad bankers actually appear to be thriving.
   
   
2. While some smaller hedge funds have opened shop, by and large capital hasn't been made available; and certainly nowhere to the degree of stating 'business as usual'. Contrast this with the hundreds of billions in largely public funds that have been pumped into the banking system, as previously highlighted.
   
   
3. Consolidation has increased, with the largest hedge funds attracting a greater amount of new capital than smaller entities. This effectively means that the average risk of hedge funds as a financial asset group has declined in the past year; again to be contrasted with the rising risks of the banking system.
   
   
4. Overall leverage in the sector has declined, as hedge funds trimmed their overall asset size relative to their capital bases. For example, credit hedge funds have on average cut their leverage by over 25% with the median around 50%; these are interesting statistics because credit hedge funds approximate the basic qualities of banks (that have certainly not cut leverage and indeed may have increased the same).
   
   
5. So far, there has been one major scandal involving a hedge fund (Bernie Madoff's $50 billion caper). Compare that to the multiple number of scandals plaguing banks across the world, that are virtually too numerous to highlight.

In effect, hedge funds prove that capitalism does work. By imposing significant penalties on failures combined with rewards for success, it has been relatively easy to align the interests of all parties concerned. Risks have declined for investors, and returns have increased.

Over the horizon
The inevitable conclusion from all this is that capitalism provides a readymade whipping tool, ie bankruptcy, that keeps errant capitalists in check. Confuse that picture, be it for a delinquent teenager or an overextended banker, and the results are fairly predictable: ie a repeat of previous behavior. This then is the true legacy of Lehman Brothers: the aftermath that virtually ensures that eventually there will have to be more such bankruptcies

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Trafigura's attempts to gag the media prove that libel laws should be repealed

 

Defamation laws which Trafigura tried to use must no longer be allowed to hide corporate malpractice or stifle criticism 

 

 

Members of the team specialised in treating toxic waste take samples of the toxic waste dumped in Akouedo, Ivory Coast. Photograph: Issouf Sanogo/AFP

 
 
If you are not convinced that Britain's libel laws operate against the public interest, check out the Trafigura case. Thousands of west Africans fell ill and an unknown number died in 2006 after hundreds of tonnes of the oil company's toxic oil waste were dumped in densely populated parts of Ivory Coast.

 
Now that the Guardian has found the smoking gun — the cynical and disgraceful emails from Trafigura traders discussing the creation and disposal of dangerous wastes – the company's attempts to stifle its critics have collapsed. But until now the coverage of the case in Britain, with a few honourable exceptions such as Newsnight and the Guardian's investigations team, has been curiously muted. This could be one of the worst cases of corporate killing and injury since the Bhopal disaster, but much of the media wouldn't touch it with a bargepole.

 
The reason isn't hard to divine: Trafigura has been throwing legal threats (pdf) around like confetti. It's true that the company has also threatened journalists in the Netherlands and Norway, but the law is less kind to such plaintiffs in those countries, and its threats were taken less seriously.

 
In Britain, libel (or defamation) is used as the rich man's sedition law, stifling criticism and exposure of all kinds of malpractice. Dating back to the 13th century, it was reframed during the past 200 years specifically to protect wealthy people from criticism, based on the presumption that any derogatory remark made about a gentleman must be false. The law of defamation is the only British instrument which places the burden of proof on the defendant. Given the inordinate costs involved, it's not surprising that it discourages people from investigating abuses of power.

 
How many Trafiguras have got away with it by frightening critics away with Britain's libel laws? How many Robert Maxwells have successfully fended off attempts to show that they have robbed, cheated and lied? These iniquitous, outdated laws are a threat to democracy, a threat to society, a threat to the environment and public health. They must be repealed.

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Never Retract, Never Apologise, Never Explain

Just raise the volume, keep moving and hope that people won’t notice the trail of broken claims. That's what Creationists and climate change deniers have in common: they don’t answer their critics.


George Monbiot


Creationists and climate change deniers have this in common: they don’t answer their critics. They make what they say are definitive refutations of the science. When these refutations are shown to be nonsense, they do not seek to defend them. They simply switch to another line of attack. They never retract, never apologise, never explain, just raise the volume, keep moving and hope that people won’t notice the trail of broken claims in their wake.

This means that trying to debate with them is a frustrating and often futile exercise. It takes 30 seconds to make a misleading scientific statement and 30 minutes to refute it. By machine-gunning their opponents with falsehoods, the deniers put scientists in an impossible position: either you seek to answer their claims, which can’t be done in the time available, or you let them pass, in which case the points appear to stand. Many an eminent scientist has come unstuck in these situations. This is why science is conducted in writing, where claims can be tested and sources checked.

So when the Australian geologist Professor Ian Plimer challenged me to a face-to-face debate in July, I didn’t exactly leap at the chance. His book Heaven and Earth, which purports to destroy the science of climate change, contains page after page of schoolboy errors and pseudoscientific gobbledegook. As the professor of astrophysics Michael Ashley wrote, “It is not ‘merely’ atmospheric scientists that would have to be wrong for Plimer to be right. It would require a rewriting of biology, geology, physics, oceanography, astronomy and statistics.” But never, as far as I can determine, has Plimer responded to the devastating points made by his critics. He just keeps shifting his ground.

None of this stopped the Spectator from publishing a cover story promoting his claims. Plimer, the magazine suggested, has demonstrated that global warming theory is “the biggest, most dangerous and ruinously expensive con trick in history.

I wrote an article summarising what scientists have said about Plimer’s claims and listing some of his obvious errors. In response, Plimer requested a debate. The outgoing editor of the Spectator, Matthew D’Ancona, took up this cause, with a series of emails pressing me to accept (all the correspondence is on my website). At first, having seen something of Plimer’s debating tactics, I refused. But then I realised that there might be a means of pinning him down.

I told Plimer that I would accept his challenge if he accepted mine: to write precise and specific responses to the questions I would send him, for publication on the Guardian’s website. If he answered them, the debate would go ahead; if he didn’t, it wouldn’t happen. The two exchanges would complement each other: having checked his specifics, people at the public event could better assess his generalisations.

Plimer refused. After I wrote a blog post accusing him of cowardice, he accepted. I sent him 11 questions. They were simple and straightforward: I asked him only to provide sources and explanations for some of the claims in his book. Any reputable scientist would have offered them without hesitation.

But instead of answers, Plimer sent me a series of dog-ate-my-homework excuses and a list of questions of his own (you can read both sets on my Guardian blog). While mine address only what Plimer purports to know, his appear designed to be impossible to answer: they are less questions than riddles. Were you to take them seriously, every answer would require several years of original research. Gavin Schmidt, a senior climate scientist at NASA, examined them and found that most are 24-carat bafflegab, while the rest have already been answered by other means. But that wasn’t the point. Plimer’s purpose appears to have been to distract attention from the fact that he can’t answer my questions. Last Tuesday I offered Ian Plimer a £10 bet that he cannot answer his own questions. He has not yet accepted.

Having put up with this nonsense for almost a month, I gave him a 10-day deadline, after which I would assume that he had chickened out of our exchange and forfeited the debate. The deadline expired on Friday. Answers came there none.

There is nothing unusual about Ian Plimer. Most of the prominent climate change deniers who are not employed solely by the fossil fuel industry have a similar profile: men whose professional careers are about to end or have ended already. Attacking climate science looks like a guaranteed formula for achieving the public recognition they have either lost or never possessed. Such people will keep emerging for as long as the media is credulous enough to take them seriously.

What’s odd is the readiness of publications like the Spectator to champion them. During my correspondence with Matthew D’Ancona, I asked what it is about climate change that makes intelligent people like him abandon all editorial standards. Why is he prepared to endorse Ian Plimer’s claims, but not those of people who claim that the entire canon of lunar science is wrong and the moon is in fact made of green cheese?

He replied as follows: “All you say may well be true, which fortifies my belief that a debate would be fantastic!” I pressed him again. “I think the answer,” he replied “may be that what I call mischievous – and it is part of the Spectator Editor’s job description to be mischievous – you would call deeply immoral and grotesquely irresponsible. The response to Plimer’s piece – for and against – was passionate and cacophonous: exactly what I had hoped. Again, that may not strike you as an excuse. But perhaps it suffices as an explanation.”

I told him that while the Spectator publishes noisy and provocative articles all the time, in most cases they are grounded in fact. This article was grounded in gibberish. So why climate change? Why is this issue uniquely viewed as fair game by editors who tread carefully around other scientific issues for fear of making idiots of themselves? And where is the mischief in doing what hundreds of publications and broadcasters have already done - claiming that manmade climate change is a myth? Surely to be mischievous you have to be original?

D’Ancona replied “I can only speak for myself and say that, as an editor, I don’t single it out for loony treatment.” So I asked him for examples of loony articles he had published on other scientific matters. He replied “Well, MMR for a start where I supported Wakefield initially!”. But when Andrew Wakefield first suggested that the MMR vaccine is linked to autism, it was an original claim which, while unsupported, had yet to be debunked. Today we have 20 years of evidence, across tens of thousands of peer-reviewed papers, to show that people like Ian Plimer are talking out of their hats.

So Plimer won’t provide his sources and D’Ancona won’t explain why he singled out climate change. But at least, after this frustrating episode, I have an answer to my questions: neither of them has a leg to stand on.

Sehwag Interview

It has been 10 years since your first international game. How has experience changed your batting?
To be fair, I count it only as eight years. I became a regular only in 2001. Till then I had only played few games after my debut, against Pakistan in 1999. As for my batting the best part about it is I have never changed it. I have never changed my thinking, I have never changed my batting style. I have batted the way I batted in local tournaments and then first-class cricket, and I have applied the same approach in international cricket. Because I knew I had got success at Ranji level, I was confident I would get some success in international cricket too. But I was never expecting to become the first Indian to hit two triple-centuries, and become only the third player to do that after [Don] Bradman and [Brian] Lara. But that's destiny.

Would you suggest the same approach to a youngster who comes to international cricket: just play the way you have been playing?
A youngster should know his game first. If he knows his game he can modify it at the top level, if required. But if he doesn't know his game then it is difficult to get success at international level. You will get success occasionally but not regularly. If you know your game you can handle pressure, you can handle any kind of situation, back yourself and play your own game and get success.

But with so many coaches who pass through a player's career, is it not difficult for the youngster to maintain his own game?
The most important thing for any athlete is to know his ability. If you know your ability and have even a little bit of a strong mindset, you can get success, because your ability takes you to success. Then things like technique, hard work and practice come automatically, because when you get success you want more. Then you will work hard on your fitness, on your batting, on your technique, and you will want to learn how to tackle various situations, and start talking to a lot of experienced players.

Were there instances where coaches or senior players tried to change something in your batting?
There were a lot of players who gave me suggestions when I was young. At times they were very good suggestions and I took them seriously, applied them to my batting and got success after that. I will give you a very good example. Mr [Sunil] Gavaskar asked me why I stood on the leg stump. Instead, why didn't I stand on the middle stump because if I did that I would cover more area. He said, in any case I did not move my feet, so if I'm on leg stump then I'm too far from deliveries outside the off stump, and risk nicking them. But if I stand on the middle, I'm in a better position to play the delivery. This was around 2006, when England came to play India.



"If you know your ability and have even a little bit of a strong mindset, you can get success, because your ability takes you to success. Then things like technique, hard work and practice come automatically, because when you get success you want more"




The same thing was pointed out by Mr [Kris] Srikkanth, who even suggested I stand on the off stump because I'm very good on the on side and I can pick the ball easily off the pads. According to him, if I'm standing on middle and off and my front leg goes across, the impact will be outside off and I will negate the lbw factor. Also, I have lots of time to play the shot.

So now, depending on the wicket I change the guard: if the wicket is flat then I can manage to stand on the off stump, because nobody wants to bowl into my body as I will easily hit them for fours. So they will pitch it outside off. And if the wicket is doing a little bit, I stand on the middle stump. And I have tried these things straight in a game and never in the nets.

Many former cricketers, especially, tend to believe your game is based solely on attack. Do you agree?
I don't think so. Yes, my game is very aggressive and very positive. I love to play my shots and love to hit fours and sixes. I love to score runs rather than defending or leaving the ball. That is an important aspect of my batting: I don't want to waste balls in any form of the game. When I was growing up we would play a 10-over or 15-over game, and the asking-rate would always be high and I would end up scoring 30 or 40 runs in 15 balls, so I built that mindset right from the beginning and still continue to bat in the same manner.

There is this story about you declining a nightwatchman, where you said you were not an able batsman if you couldn't last 25 balls at the end of the day. Is that true?
It is true. What is the difference between batting at the end of the day or at the start? If you make a mistake you'll get out. So I don't think a batsman really needs a nightwatchman, but it is totally an individual decision. Whenever a captain or coach asked me for a nightwatchman I would say, "No, why? If I can't survive 10 or 20 balls now, then I don't think I'll survive tomorrow morning." I believe that's the best time when you have the opportunity to score runs, when everybody on the field is tired and you can score 20 runs off those 20 balls.


"If somebody is constantly bowling outswingers or outside off, even if he is bowling on length, for me it is boring cricket" © Getty Images




When you take guard, what goes through your mind?
When I take guard I like to clear all the negative thoughts out of the mind first. That I do by singing a song or a bhajan [hymn]. Then, if there is a ball to be hit I will hit it. It doesn't matter if it is the first, fourth, 12th ball. But if it is a good ball I have to respect it, because you cannot hit every ball.

What are the thoughts you look to drive away?
When I take guard, thoughts like "hit the first ball for a four or six" or "try to defend" enter my mind time sometimes. That is a time when my mind is preoccupied with various thoughts. But if my mind is blank, then I will play according to the merit of the ball. So if I'm singing a song, I concentrate hard on getting the right lines and finding a rhythm. And when I'm concentrating on something I'm automatically concentrating on the ball.

So that's your way of switching on. How do you switch off?
Once again by singing a song or talking to the umpires or the batting partner and sharing jokes or something else. But I avoiding speaking about cricket. Yes, you can check about what your partner felt about a particular ball, but not too often. And when I'm in the dressing room and I'm going back to the middle to bat, I just like to chat. If I stay quiet I'm in trouble.

Do you like the bowlers bowling at you?
I'm very happy if the bowler makes me play because then I get opportunities to hit boundaries. If somebody is constantly bowling outswingers or outside off, even if he is bowling on length, for me it is boring cricket. But if somebody is bowling to me, it is a very, very good opportunity for me to play a lot of options.

[Glenn] McGrath, [Muttiah] Muralitharan, [Chaminda] Vaas and [Jacques] Kallis are bowlers who always knew how to frustrate me and play on my patience. But it all depends on how I'm batting: if I'm in the groove then I can stay happy without playing a ball.

Let me give an example. In Multan, where I hit my first triple-century, in 2004, the last half hour the Pakistanis were bowling to an 8-1 field and they were bowling wide outside off stump and I was just leaving every single ball. I played nearly two to three maiden overs. I was batting on 220-odd, so it didn't matter.

Another instance was in Melbourne, when I made 195. In that first session we were just 50 without loss. I had to leave alone balls, defend at times and pay respect to good bowling. But after lunch I opened up. So it is not that Virender Sehwag only tries to score runs, but sometimes I play according to the situation or conditions.

How much in advance do you plan for a Test?
The night before the game I do watch videos to make my plans. Then, if both teams are practising I like to watch the opposition bowlers. A good example I can provide is when I came back during the 2007-08 Australia series. During the first two Tests I was watching all their bowlers closely, how they used their fingers, and I would share my insights with Robin Singh [India's fielding coach] while I was sitting on the bench. The moment I got the opportunity to play in Perth Test, I was ready. So it helps a lot to study the opposition.



"In Adelaide I told Tendulkar that I was absolutely tired. The reason was I was concentrating from both ends: not only when I was taking strike, but I was also thinking how I would face the ball when I was the non-striker. That was the first time something like that happened. Even during my two triple-centuries I was physically tired but not mentally"




There would have been pressure to perform in that series, considering you were not even in the original pool from which the squad was picked?
No, because I was confident despite having flopped for the whole of 2007. Then I even had a bad domestic season, scoring hardly 30-40 runs in the six Ranji innings I played. But I knew if they picked me a big one would come soon. You cannot flop the whole time. I went to Australia with a lot of self-belief and confidence, and I scored 30 and 40 in Perth, then 60-odd in the first innings in Adelaide, and got a big century in the second innings.

There was a first that happened in the first innings in Adelaide. I told [Sachin] Tendulkar that I was absolutely tired. He was curious. The reason was, I was concentrating from both ends: not only when I was taking strike, but I was also thinking how I would face the ball when I was the non-striker. I was putting pressure on myself because I wanted to score runs. I knew the wicket was good, the attack was not great, so I could, if I worked hard, get a hundred. That was the first time something like that happened. Even during my two triple-centuries I was physically tired but not mentally. But in Adelaide I was totally exhausted during those 60 runs. I hope that was the last time, and now I enjoy myself when I'm at the other end.

Tendulkar has said that when a player goes through a bad patch his technique remains the same, but every time you enter the ground it is your mind that keeps changing. Can you relate to that?
It is true. Referring to my batting in 2007, I don't think there was anything wrong with my batting or that I was making any mistakes. But in such a scenario the mind likes to deal with the situation in two ways: score quickly, or play with extra caution. But what remains the same is the technique; what does change is the mindset. You are asking too many questions and you are not concentrating on the ball and that's what was happening to me in 2007, which was the worst phase of my life.

I worked hard to come back and did some breathing exercises, used the [Rudi] Webster [psychologist who worked on and off with the team] method of backing myself and it worked out well. I didn't change anything in my batting. The only thing that changed was the mindset, the biggest change.

Did anyone, a selector, former player call up and lend a helping hand?
Srikkanth was the first to call me and tell me not to get disheartened. He motivated me, saying I'm a bloody talented player, and that when I came out of the bad patch I would score a double- or triple-hundred. He just asked me to spend quality time with my family, and when my time came I would score big runs.


"Ganguly was a good reader of the mind, and that's why he was such a great captain" © Cricinfo Ltd




His words came true on my comeback, after I scored a double-century in Sri Lanka, triple-ton against South Africa and more than 1000 runs in Test cricket. So if a youngster is not scoring runs and is out of the team, even an SMS to him will give him a lot of confidence. He might think, "At least Viru bhai has belief in me". Apart from Srikkanth, Anil bhai [Kumble], [Rahul] Dravid, Tendulkar, [Sourav] Ganguly, [VVS] Laxman said the same to me. I felt good.

Do you think that since you enjoy your batting it helps you build those big innings?
You can say that. I love to hit fours and sixes. When you are doing that you are enjoying yourself and people will enjoy your batting and you are not tired mentally. You are not concentrating very hard - you just see the ball, hit the ball, and if you see the gap hit it there. If you hit those fours and sixes, you have the comfort to relax every few balls.

Sourav Ganguly once said this about you: "The best way to know how Virender Sehwag's mind works is to sit next to him in the players' balcony when India are batting. Every few minutes he will clutch his head and yell, "Chauka gaya" or "Chhakka gaya". That's his way of expressing disappointment at somebody's failure to take advantage of a ball that he thought deserved to be hit for four or six. That's how he thinks, in fours and sixes."
He was a good reader of the mind, and that's why he was such a great captain. He knew what the player was thinking and he would back him and give him the confidence by saying, "You can play the way you want to play, nobody will touch you, nobody will drop you."

It is absolutely true. Even now, if you ask anyone in the dressing room, I still say the same things. But that is for me, not for the player in the middle because if I was there I could easily hit the ball for a four or six, but I'm not blaming anyone else.



What do you focus on in the nets?
I try to hit the ball along the ground, especially against fast bowlers. I also like the bat to come down in the right position and check if my body position is correct. If I'm really watching the ball carefully then automatically I'm in a good position to hit it down the ground. The last two to three minutes I like to hit fours and sixes, but if I'm batting for, say, 15 minutes, the first 10 I concentrate and in the last five I experiment with the shots.

John Wright had a simple way with you. In his book he writes, "All I say is, 'How's your mom, hope she is well? And what are you going to do today?'" He [Sehwag] would say, 'Watch the ball, play straight.'
Because we never discussed cricket it was good. He would come to me and ask how I was feeling. I would say "good". Then he would ask how my mom's back was. I would say, "Little bit of a problem, but she is managing really well." He would then ask, "So what are we going to do tomorrow?" I would say, "Watch the ball and play the ball." I would tell him, if there is a ball to be hit, I will hit it, and as a coach I know you will back me, and you have to back me. We had a lot of laughs. That helped me a lot as there was no pressure on me from either Wright or [Sourav] Ganguly. That is their job, to give confidence to the player and let him do what he wants because everybody wants to perform at international level. That is the key.

Did Greg Chappell give you any sort of valuable tips?
No.

What about Gary Kirsten?
Kirsten was himself an experienced player with more than 100 Tests and 150-plus ODIs. He knows what players want to do at international level, and the best way is to give the player his space and talk to him and give him confidence. The best thing after Kirsten has come in as a coach is optional practice. He says, "If you think you want to practise, you come, but if you think you are happy staying back in the hotel, that's fine, but do your fitness." That's his way of coaching. He is not like some captains and coaches who force the player to come to practice. And if he thinks something is wrong in your batting he comes and tells you that he has noticed over a couple of months that you've changed something in your batting. And he makes the player aware of what his thoughts are on the changes and leaves it to the player to implement his suggestions.

Can you cite an example?
There were a couple of occasions when my front foot was not going across. He pointed that out, and said my front foot was going in front of the wicket and if it went across towards the off stump, I would cover more area. So if the ball is pitched outside off and comes in and my front foot is straight, there is a lot of gap between bat and pad. These are small adjustments that are vital.

I checked with him once about how whenever I played towards midwicket or square leg the ball usually went in the air. He said, "It doesn't matter if your feet move or not, but your head needs to be in front of your body. When that happens the ball will go along the ground." I practised and noticed it worked. The same thing was told to me by [Sachin] Tendulkar and [Rahul] Dravid. I knew it myself, but you still need people to point it out from time to time.



"I have asked Tendulkar many times what the zone is. He tells me that's when 'I see nothing except the ball'. I have asked Rahul Dravid the same thing. He says sometimes when he is in really good form, he sees the ball and not even the sightscreen, the non-striker, the umpire or who is bowling. I ask how that is possible. I have never entered that zone"




Would you agree batting is not always about technique, it is about adjustments?
In my view, if you have good or bad technique it doesn't matter. But you will survive if you can adjust your game at international level, you are mentally strong, you know your strengths and how to score runs. When you start the game coaches will tell you to do stuff in a particular way and kids do that. But the moment you start first-class cricket the coach needs to tell you "try this, try that" instead of "do this, do that". If you feel comfortable you can take it, otherwise leave it.

Sunil Gavaskar and Ian Chappell have always stressed that you are not just about hand-eye coordination. That you can play all those shots because of one important factor: balance.
They are right. It doesn't matter whether you move your feet or not, if your head is still and body is in balance, you can score lots of runs. This I learned from Tendulkar. He pointed out that if your head is still you can see the ball clearly and pick the length quickly. If the head is not still, you will make mistakes. That's why I don't have trigger movements and my body is still and I'm balanced and I have lots of time to play the ball. Why do you want to go towards the ball? Let it come to you, then you can play it. Tendulkar, in one of my first conversations with him about handling quick bowlers, said, "If you're confident about playing a shot, just go ahead and play. Don't hesitate, because then you will make a mistake."

What about being in the zone? Tendulkar said that what people call the zone, he calls the subconscious mind. "… All you need to do is look at the ball and play and the body is going to react. The concentration is such that you don't think of anything else." What's your definition of being in the zone?
I have asked him many times what the zone is. He tells me that's when "I see nothing except the ball". I ask how that is possible. I have never felt something like that. I have asked Rahul Dravid the same thing. He says sometimes when he is in really good form, he sees only the ball - and not the sightscreen, the non-striker, the umpire or who is bowling, he just sees only the ball. But I have never entered that zone even if I've scored triple-centuries twice. Maybe I will enter that zone they talk about in future.

Perhaps you are always in the zone?
You can say that, maybe. Perhaps the definition of zone is different for me. They have both experienced what I have never experienced. Right from the time I was growing up there would be people moving along the sightscreen, but I would never get distracted. But if somebody shouts and says there is someone near the sightscreen then I will stop and move the guy.

When does the bowler get the upper hand against you?
I can handle swing movement, but when there is seam movement I cannot handle it properly. In New Zealand in 2002 the wickets were really not good for batting and I struggled and scored something like 40 runs in four innings. Nobody did well except for Tendulkar and Dravid. So later I started to spend a lot of time at the wicket. I would cut if it was outside off and flick if it was on my legs. I found out that works on a bad wicket: to stay at the wicket.


"If Kirsten thinks something is wrong in your batting he comes and tells you that he has noticed over a couple of months you've changed something in your batting" © AFP




Are you hampered by doubts or insecurities?
When I faced the likes of Shoaib Akhtar and Brett Lee for the first time I had a little bit of fear in my mind. My thoughts were, "Would I be able to face them? Would I be able to play them? Would I be able to hit boundaries?" There were so many questions, and fear also that if the ball didn't hit my bat it might hit me on the body. Those doubts come when you are sitting in the dressing room or walking towards the wicket, and that is when I sing a song and drive away those thoughts. Once you play that first ball then you relax and say, "They are good bowlers, but I can hit them for fours and sixes also."

Tendulkar recently told me that he still gets butterflies in the stomach when he goes in to bat. I was surprised, since he has played for 20 years. He said, "True, but the game is like that. If you think you are on top of the game then you will start going down."

You possess one of the most uncomplicated games, free of clutter, yet you have been influenced by mind specialists like Rudi Webster and Paddy Upton. How come?
Basically there are a lot of frustrations inside and you are telling the person who is listening to you all the rubbish. I'm just trying to clear my mind and heart. Once I've taken all that out of me I'm relaxed and happy. Nowadays I do that with my wife and she is a good listener. Webster and Upton have been good, and they have pointed out examples of good and great players and how their minds would work. Webster told me how Viv Richards, regardless of his form, would always walk like a tiger. Richards knew that everybody was scared of him so he would never change that. So the message to me was, "No matter what the situation is, you need to behave like a champion. And at some point you will deliver." So I think, I've scored two triple-centuries, I have scored [one of the] fastest hundreds, and such thoughts give me confidence and I walk out with belief.

Tendulkar has been an integral part of your career. What's you favourite Tendulkar innings?
When he was there in Multan during my first triple-century. Because I batted the full day with him. He always likes to chat and can get serious and caution you not to hit unnecessary shots. During that innings he told me, "If you try to hit a six I will hit you on the bum." He gave me a simple example - about my Melbourne innings in 2003, when I tried to hit a six on 195 and got out. Till then India were in a good position, but after that we couldn't make a big score and we lost the Test. So he made me realise my mistake. That is why I didn't hit sixes in Multan, but when I was near 300 I told him that I was going to hit Saqlain [Mushtaq] and he could hit me on my bum!

Is there one shot of Tendulkar you would like to have?
His cover-drive, but I don't think I can do that probably because of the lack of feet movement.



"In my view if you have good or bad technique it doesn't matter. But you will survive if you can adjust your game at international level, you are mentally strong, you know your strengths and how to score runs"




What's the best compliment you have got from a bowler?
I don't think any bowler has given me good feedback. Shoaib Akhtar was telling me in Multan that I was only hitting him to third man, so the next ball I hit a straight-drive. "Now you have to accept it was a better shot," I told him. He accepted it.

What is it about spinners? You seem to just get turned on by them?
I was a middle-order batsman who was too good against spin and hit sixes consistently in Under-19 and Ranji cricket, and I still have the same confidence. Once Gary Kirsten asked me, "What would you do if there is a long-off, long-on and deep midwicket?" I asked, "Gary sir, do fielders matter to me?" He burst out laughing.

Any big hitter, like Yuvraj Singh, Mahendra Singh Dhoni, Tendulkar, all can hit a six but they don't want to get out. There is a 1% risk.

Let me give an example: I was batting on 291 at Chepauk, against South Africa. I told Paul Harris, "Come round the wicket and first ball I'll hit you for a six." He accepted my challenge and the very first ball I hit him for a straight six, and there was a long-off, long-on, deep midwicket and a deep point. I was so tired and he was bowling on the pads and I was getting bored. So rather than spending 10-15 minutes to get to the triple-century I gave him good advice.

Obviously that confidence comes with experience. On the topic of clearing the field, Andrew Strauss made an interesting comment after your match-turning two-hour mayhem in the Chennai Test. "He plays a game most people are unfamiliar with. He almost manipulates the field. You change it, and it's like he says: 'Right, I'm going to hit it somewhere else now'." Do you really do that?
I don't think so. Because I just said fielders don't matter to me wherever they are standing. If there are two slips and two gullies I will still hit them there. But yes, if they change the field and then bowl according to the field and they are getting success then I'll try and change my shots. I did that against Australia a couple of times when they were bowling into my body and had placed two midwickets, a square leg, a deep square-leg - there were five to six fielders on the leg side. So I went outside leg stump and tried to hit to point or cover and get fours but they didn't change their line or the field. But that happens once in a while.

Company Secretary To Replace Inspector

 

 

By Subhash Gatade

14 September, 2009
 

New Delhi: While the Manmohan Singh government's Left-free second innings is expected to usher in changes to India's archaic labour laws, the labour ministry is working on a quick-fix solution to help drop the country's notorious 'inspector raj' tag.

If all goes to plan, India Inc would no longer have to deal with labour inspectors turning up at their premises to check compliance with 43 central and myriad state labour legislations. Instead, firms can submit a certificate from a company secretary that validates their compliance with the numerous employment laws.

( The Indian Express, Vikas Dhoot, Posted: Wednesday, Aug 05, 2009 at 0137 hrs IST, Updated: Wednesday, Aug 05, 2009 at 0137 hrs IST)

 

Prime Minister Manmohan Singh led government's 'left free second innings' seems to be taking the battle against 'archaic labour laws' full steam ahead. The outgoing Union Labour Secretary, Ms Sudha Pillai, some time back shared with the media about the draft which is being prepared in the labour ministry to this effect.

 

The proposal, which would be shortly submitted in the form of a cabinet note, seeks to 'permit company secretaries to file compliance reports for labour laws, just like they give compliance reports for other laws.' As of now the role of the company secretary is limited to certifying the said firm's compliance with various statues, which includes the companies act, 1956 and also the listing agreement with stock exchanges and the issue of compliance with labour laws is handled by the labour inspectors.

According to the government this new regime would boost India's global perception also. Ms Sudha Pillai, who has since demitted the post of Union Labour Secretary and has joined Planning Commission, explained the 'rationale' behind this move "At most international fora, the pathetic compliance levels of Indian labour laws, especially in small and medium enterprises and the services sector. Our labour laws were made purely for industry, but services now contribute over 55% of GDP and operate under a vague Shops & Establishments Act. Many countries are using labour issues... "

 

As can be expected the proposed change is a win-win for industry, employers and regulators which had been clamoring hard to do away with 'labour market rigidities'. A key point which usually finds mention and supposedly provides a legitimacy to these changes veers around a simple argument. It is said that with such institutional rigidities which result in high levels of labour costs it becomes difficult for the developing economies to compete at the world market which includes new production sites having weak labour institutions and hence, lower labour costs. Ranging from the IMF to the World Bank to the OECD, everybody seems to be pushing this what is known as labour market flexibility. It is a different matter that employers in countries like India "..[e]njoy the freedom to employ and exploit more that ninety percent of the workforce without taking account of any norm of civil society or rule of law. And, contrary to the European case, productivity of labour and profitability of capital increased manifold over the last two decades." (Employment and Labour Market : The Myth of "Rigidity" - Satyaki Roy, Alternative Economic Survey, India 2007-2008, Daanish Books, Delhi)

 

Interestingly, despite more than a month that (mainly) business dailies covered this press conference, there seems to be no reaction from the unions, organisations engaged in uniting labour at various levels. Should it be seen as a reaction to the way normally the 'inspector raj' unfolds itself before the labour - which seems to cover rather than expose the violations of different labour friendly laws at the shop floor level - or it is just a matter of underreporting that all those concerned people/formations have not noted it.

 

For close watchers of the labour scene in India, there is nothing surprising or disturbing about this 'radical' sounding proposal. In fact, the issue of deinstitutionalising and dismantling labour has been high on the agenda of the proponents of neoliberal changes in the Indian economy for a long time. And the proposal to do away with 'inspector raj' - which is constituted to verify compliance with labour laws - is part of this agenda only.

 

Of late, one has been witness to the determined assault on the labour laws in India through judicial caveats or legislative measures. A decade ago the then NDA government led by Mr Vajpayee had formed the 'Second National Labour Commission' (Oct 1999) to suggest rationalisation of existing laws relating to labour in the organised sector and also suggest 'umbrella' legislation for ensuring a minimum level of protection to workers in the unorganised sector. And without waiting for this commission to submit its report important changes were announced in the Industrial Disputes Act and Contract Labour System (Abolition and Regulation) act.

The growing clamor to end the 'Inspector Raj' raises few disturbing questions. Why it is that the 'Inspector Raj' becomes a dirty word in case of labour laws only and why the rulers seem to gloss over the fact that the phenomenon of 'Inspector Raj' of a different kind continues playing havoc with the lives of the ordinary wo/men. On the other hand there are attempts to strengthen it and make it powerful. e.g. There has been no curtailment of the powers of the Inspector Raj of the Indian police which was castigated as the 'biggest organised goonda force' in the country in a famous judgment by Justice A.N. Mullah decades ago.

 

As already explained corruption is rampant in the labour department and it is always a difficult task to locate genuine personnel in the department who are above it. Labour inspectors or their seniors who act at the interface of the department and the public seem to be afflicted with this 'disease' more. Definitely that does not seem to be the reason to end this 'regime'. If that would have the case then the powers that be would have been forced to take the unusual step of 'shutting down' all the government departments as none seems to be free from this malaise. Transparency International the global corruption tracking watch dog. recently downgraded India's ranking from 72 to 85 in the list of world's corruption-plagued countries.

 

Why is it that the government wants to substitute the labour inspector by the company secretary?

 

A point worth noting is that despite presence of corruption at various levels in the labour department, the whole arrangement where the labour inspectors are authorised to verify compliance with labour laws in different units, does help the workers (albeit in a very limited way) to get some relief or forces the employers not to do away with labour laws completely. Apart from this at times judicial intervention also helps workers get some relief or compels the labour personnel to deal with a case properly. Perhaps one can get an idea of the limited impact this 'notorious inspector raj' has on the industrial units/owners/contractors from the no of cases filed by these personnel in different courts of the country and the amount of fine they have been able to recover from them as penalty. This amount runs into crores which can definitely be enhanced if we have stringent application of the laws and are able to overcome many of its loopholes. Another significant aspect of the intervention by the labour inspectors can be noted if we are able to look at judgements by different courts in all those matters where the labour inspectors have filed criminal cases against employers. A cursory glance at such judgments tells us that in more than 95 per cent of such cases the judgments are in favour of the government ie. in favour of the labour inspectors and the employers are forced to admit mistakes.

 

It is clear that for the owners of factories / industrial units /contractor / other employers the 'notoriety' of the 'inspector raj' arises from the 'nuisance' they seem to create at various levels. One can easily notice the glee with which they welcomed the proposed move to substitute the labour inspector by company secretary.

 

Who is a company secretary ? First and foremost thing is that s/he is an employee of the industrial unit/ service centre. Can we expect an employee of a concern to go against the interests of the owner and take steps which can hamper its immediate / long term interests. Definitely not.

 

To be fair to them they are not even trained for that work. A cursory glance at the syllabus formulated by the Indian Company Secretraries Institute (ICSI) for teaching company secretaries brings out the correct picture. During the three year degree course students have to cover subjects worth 1,800 marks. Out of this 1,800 only 40 marks are meant for labour laws. In fact, they are taught only limited no of labour laws.

 

The move to substitute the labour inspector by the company secretary has many other loopholes. The system of company secretary is present only in organised sector where merely 7 per cent of the working population finds employment , rest of the 93 per cent working people are engaged in unorganised sector. It is clear that the government wants to leave the broad masses of the working people at the mercy of the owners/employers/contractors by dismantling all such structures/arrangements which can provide relief to them in this unequal battle against capital.

 

Proponents of wide ranging changes in labour laws - supposedly to serve the interests of the capital better - also package their move in the binary of 'old' versus 'new'. In fact, they talk of doing away with 'archaic labour laws'. If one were to stick to this argument then by the same rationale we will have to get rid of many other laws which are not only more old but also better known. e.g. Indian Penal Code - 1860, Transfer of Property Act - 1882, Trust Act - 1882, Telegraph Act - 1885, Registration Act - 1908, Negotiable Instrument Act - 1881, Land acquisition act - 1894. One can go on enlisting similar laws which are still in operation and more old than the so called 'archaic labour laws'. In fact all these labour laws are quite 'young' as compared to most of these laws/acts/ codes etc.

 

A close look at their genesis makes it clear that they have come up in the post second world war period which witnessed the emergence of a socialist bloc and militant working class movements in many other countries. The rulers of the newly independent India were also fired with the utopian sounding imagination of building an inclusive, equitable society. The state thus willingly entered into a historic pact with labour which was reflected in the different labour laws in India which are meant to regulate labour market, protect employment and ensure social security of workers. It was also seen then as a state's entering into a historic pact with labour. One can also see the impact of the International Labour Organisation (ILO) in their formulation, which had come into existence then as part of the building and strengthening of United Nations Organisation (UNO).

 

In its hurry to placate India Inc and help boost India's 'Global Perception' government seems to have selectively forgotten its commitments towards labour and labour laws on international fora. It would be opportune to have a look at the Convention -81 which is related to labour inspection. It needs to be underlined that Indian government has not only accepted this convention but has been a signatory to it also. The task of labour inspection facilitates implementation of recommendations of International Labour Organisation. In the ILO Conference held in 2006 where there were discussions on a report on labour inspection it was duly emphasised that labour inspectorates should be fully independent of local authorities and labour inspectors should be such public servants who have permanent tenures and are free from any external pressures.

 

It was also underlined that to ensure proper implementation of labour laws it is incumbent that inspections take place at regular intervals and labour inspectors are allowed free access to different establishments and production units. Para 17 also seeks to ensure immediate legal action in case of violations of labour laws.

The report also mentions that in its 60 plus year history ILO has always recognised the importance of labour inspection. And looking at the recent changes in world economy - namely segmentation of labour markets, quantum jump in the no of migrant labourers, privatisation, growing sense of job insecurity and increasing pressure on workplace - it says that it is all the more necessary that labour receives extra protection.

 

It further adds that the manner in which more and more countries are implementing Convention 81 is a marker of the fact that labour inspection has played an important role in security of workers and implementation of labour laws. It concludes with the observation that a strong and effective labour inspectorate not only provides better protection to labour it also guarantees productivity of labour which is good for all.

 

Whether anybody sitting in the labour department and burning midnight oil to prepare the cabinet note is listening ?

 

email : subhash.gatade@gmail.com

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Protectionism... the truth is on a $10 bill

 

by Ha-Joon Chang:

 

 I have a six-year-old son. His name is Jin-Gyu. He lives off me, yet he is quite capable of making a living. After all, millions of children of his age already have jobs in poor countries.

 

Jin-Gyu needs to be exposed to competition if he is to become a more productive person. Thinking about it, the more competition he is exposed to and the sooner this is done, the better it is for his future development. I should make him quit school and get a job.

 

I can hear you say I must be mad. Myopic. Cruel. If I drive Jin-Gyu into the labour market now, you point out, he may become a savvy shoeshine boy or a prosperous street hawker, but he will never become a brain surgeon or a nuclear physicist. You argue that, even from a purely materialistic viewpoint, I would be wiser to invest in his education and share the returns later than gloat over the money I save by not sending him to school.

 

Yet this absurd line of argument is in essence how free-trade economists justify rapid, large-scale trade liberalisation in developing countries. They claim that developing country producers need to be exposed to maximum competition, so that they have maximum incentive to raise productivity. The earlier the exposure, the argument goes, the better it is for economic development.

 

However, just as children need to be nurtured before they can compete in high-productivity jobs, industries in developing countries should be sheltered from superior foreign producers before they "grow up". They need to be given protection, subsidies, and other help while they master advanced technologies and build effective organisations.

 

This argument is known as the infant industry argument. What is little known is that it was first theorised by none other than the first finance minister (treasury secretary) of the United States - Alexander Hamilton, whose portrait adorns the $10 bill.

 

Initially few Americans were convinced by Hamilton's argument. After all, Adam Smith, the father of economics, had already advised Americans against artificially developing manufacturing industries. However, over time people saw sense in Hamilton's argument, and the US shifted to protectionism after the Anglo-American War of 1812. By the 1830s, its industrial tariff rate, at 40-50 per cent, was the highest in the world, and remained so until the Second World War.

 

The US may have invented the theory of infant industry protection, but the practice had existed long before. The first big success story was, surprisingly, Britain - the supposed birthplace of free trade. In fact, Hamilton's programme was in many ways a copy of Robert Walpole's enormously successful 1721 industrial development programme, based on high (among world's highest) tariffs and subsidies, which had propelled Britain into its economic supremacy.

 

Britain and the US may have been the most ardent - and most successful - users of tariffs, but most of today's rich countries deployed tariff protection for extended periods in order to promote their infant industries. Many of them also actively used government subsidies and public enterprises to promote new industries. Japan and many European countries have given numerous subsidies to strategic industries. The US has publicly financed the highest share of research and development in the world. Singapore, despite its free-market image, has one of the largest public enterprise sectors in the world, producing around 30 per cent of the national income. Public enterprises were also crucial in France, Finland, Austria, Norway, and Taiwan.

 

When they needed to protect their nascent producers, most of today's rich countries restricted foreign investment. In the 19th century, the US strictly regulated foreign investment in banking, shipping, mining, and logging. Japan and Korea severely restricted foreign investment in manufacturing. Between the 1930s and the 1980s, Finland officially classified all firms with more than 20 per cent foreign ownership as "dangerous enterprises".

 

While (exceptionally) practising free trade, the Netherlands and Switzerland refused to protect patents until the early 20th century. In the 19th century, most countries, including Britain, France, and the US, explicitly allowed patenting of imported inventions. The US refused to protect foreigners' copyrights until 1891. Germany mass-produced counterfeit "made in England" goods in the 19th century.

 

Despite this history, since the 1980s the "Bad Samaritan" rich countries have imposed upon developing countries policies that are almost the exact opposite of what they used in the past. But these countries condemning tariffs, subsidies, public enterprises, regulation of foreign investment, and permissive intellectual property rights is like them "kicking away the ladder" with which they climbed to the top - often against the advice of the then richer countries.

 

But, the reader may wonder, didn't the developing countries already try protectionism and miserably fail? That is a common myth, but the truth of the matter is that these countries have grown significantly more slowly in the "brave new world" of neo-liberal policies, compared with the "bad old days" of protectionism and regulation in the 1960s and the 1970s (see table). And that's despite the dramatic growth acceleration in the two giants, China and India, which have partially liberalised their economies but refuse to fully embrace neo-liberalism.

 

Growth has failed particularly badly in Latin America and sub-Saharan Africa, where neo-liberal reforms have been implemented most thoroughly. In the "bad old days", per capita income in Latin America grew at an impressive 3.1 per cent per year. In the "brave new world", it has been growing at a paltry 0.5 per cent. In sub-Saharan Africa, per capita income grew at 1.6 per cent a year during 1960-80, but since then the region has seen a fall in living standards (by 0.3 per cent a year).

 

Both the history of rich countries and the recent records of developing countries point to the same conclusion. Economic development requires tariffs, regulation of foreign investment, permissive intellectual property laws, and other policies that help their producers accumulate productive capabilities. Given this, the international economic playing field should be tilted in favour of the poorer countries by giving them greater freedom to use these policies.

 

Tilting the playing field is not just a matter of fairness. It is about helping the developing countries to grow faster. Because faster growth in developing countries means more trade and investment opportunities, it is also in the self-interest of the rich countries.

 

The author teaches economics at the University of Cambridge. The article is based on his book Bad Samaritans - Rich Nations, Poor Policies, and the Threat to the Developing World (Random House).

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