The Humbug of Finance

Prabhat Patnaik in The Economic and Political Weekly


The renowned economist Joan Robinson (1962) had referred to the view that the government’s budget should always be balanced, as the “humbug of finance,” namely, as a false proposition with no theoretical merit which was nonetheless promoted by finance capital. These days, of course, the insistence is not exactly on balancing the budget as was the case during the pre-second world war years. A certain amount of fiscal deficit relative to gross domestic product (GDP), usually 3%, is considered “permissible,” though it is not clear what is so sacrosanct about the figure 3 and why 3 is better than zero. But this shift from zero to 3% does not signify any change in theoretical position: it still invokes the same logic that underlay the insistence on balancing the budget. In Robinson’s words, it still constitutes “the humbug of finance,” though with a slightly, and inexplicably, different number for the percentage of fiscal deficit to the GDP.

The argument which the insistence on balancing the budget advances is that a fiscal deficit “crowds out” private investment. Now, for this to happen there must be a fixity of supply of some economic variable, so that the government taking more of it (via a fiscal deficit) leaves less for the private sector. What exactly is this variable? Pre-Keynesian theory believed that this given variable (assuming for simplicity, a closed economy) was the magnitude of “savings”: a fiscal deficit, by drawing more “savings” towards the government would leave less “savings” for the private sector, and hence reduce private investment via a rise in the interest rate. (Even if the rise in the interest rate itself contributed towards an increase in “savings” so that their magnitude was not exactly fixed, this would still mean a partial crowding out of private investment because of the rise in the interest rate.)

This argument, however, was obviously false, since “savings” depended not just on the interest rate but also upon the level of income (and on the distribution of income too, though we shall not go into the question of distribution of income here). Since a fiscal deficit in an economy that was demand-constrained—namely, had unemployed labour and unutilised capacity—raised the level of income, it also increased “savings.” In fact at any given interest rate (as Richard Kahn’s famous proposition on the multiplier showed), a fiscal deficit (in a closed economy) generated an amount of private “savings” in excess of private investment that was exactly equal to itself. Hence private investment did not get “crowded out;” additional private savings got generated. And to believe otherwise was to subscribe to Say’s Law—that there could never be a deficiency of aggregate demand—which was absurd.

The other economic variable whose fixity is invoked these days to argue the “crowding out” proposition (since none can seriously profess a belief in Say’s Law today) is money supply. A rise in the fiscal deficit raises income; but, if money supply is fixed, then the interest rate rises which “crowds out” private investment. But, even leaving aside the fact of the endogeneity of money supply—namely, the fact that in a modern economy money supply simply adjusts to the demand for it at a given interest rate—and accepting this assertion for argument’s sake, such a situation can only arise if a government that is pursuing an expansionary fiscal policy is simultaneously pursuing a tight monetary policy. This is a mistake in policy and not any inherent flaw of the fiscal deficit itself.
There is therefore no logical reason why in a situation of deficiency of aggregate demand the government should not resort to a fiscal deficit to boost demand and hence output and employment.1 To be sure, a fiscal deficit is not the best way to finance larger government expenditure for stimulating demand in such a situation. Larger government expenditure financed by a tax on profits even within a balanced budget is better than a fiscal deficit for overcoming a deficiency of aggregate demand, for one obvious reason, namely, that it keeps down wealth inequality. Since a fiscal deficit generates an amount of private savings in excess of private investment exactly equal to itself, taxing away this excess rather than leaving it in the hands of capitalists, who are primarily the savers, keeps down wealth inequality (as savings constitute addition to wealth). But increasing government expenditure financed by a fiscal deficit is better than keeping down government expenditure and balancing the budget, as the “humbug of finance” would advocate.

A new consideration however intrudes here. Even though there may be nothing wrong with a fiscal deficit, and the view that the budget must be balanced (or nearly balanced with at most a 3% fiscal deficit) is no more than the “humbug of finance,” since finance capital does not like fiscal deficits, whatever the reason, in an economy open to cross-border financial flows, running such a deficit would lead to an outflow of finance that is obviously harmful to the economy. Hence the fiscal deficit has to be controlled, even though the arguments advanced for doing so are wrong, simply in deference to the caprices of globalised finance. Let us explore the implications of this argument a little further.

Opposition to State Intervention

The basic proposition established by the Keynesian Revolution was that in a capitalist economy, where all economic agents acted “rationally” in the sense of maximising some objective function subject to certain constraints that are given, the overall outcome could be socially “irrational” in an obvious sense, namely, that it could be characterised by both unemployment and unutilised capacity. In such a case, the outcome, quite apart from the fact that it did not satisfy Pareto-optimality, would not even satisfy private “rationality.”

What Keynes suggested, therefore, was that the state should intervene in the economy in order to realise social rationality, in the sense of an avoidance of what he called a state of “involuntary unemployment.” Implicit in this suggestion was the assumption that the state itself was free to act according to its own wisdom, unconstrained by the demands or pressures from any agency acting in accordance with its private rationality. The state, in other words, could fulfil its role of being an agency for realising social rationality only if it was external to the world of private rationality and was unconstrained by, and non-imitative of, the agents belonging to this world. (The Marxist critique of Keynesianism argued that this was not possible, but let us leave this aside for the present.)

The state’s being non-imitative of private agents, which is an obvious condition for its intervening successfully to achieve social rationality (for otherwise it will simply replicate the same result that is achieved through the mere agglomeration of private decisions), implies a fundamental break from a certain analogy that is often drawn. This analogy states that just as an individual cannot go on accumulating debt, likewise, the state too cannot simply go on piling up debt; that the state too has to tighten its belt in order to ensure that it does not fall irredeemably into debt. This analogy is doubly wrong: it is wrong in the sense that the state, because it has sovereign powers of taxation, is on a different footing from individuals; and it is also wrong in the sense that if the state acted like any individual does, then it would be incapable of achieving social rationality by overcoming the deficiency of aggregate demand.

Forcing the state to bow to the caprices of globalised finance, by making it “fiscally responsible” (namely, by keeping it within a fiscal deficit ceiling), makes it constrained by private rationality, and hence prevents it from being an instrument for the achievement of social rationality. Fiscal responsibility legislation enacted by the state, to which the state adheres, amounts therefore, to robbing capitalism of any means of achieving social rationality, particularly in the sense of overcoming “involuntary unemployment.”

The question immediately arises: since overcoming “involuntary unemployment” represents a Pareto-improvement in the sense that everybody stands to gain from it—the capitalists through obtaining higher profits and the workers through obtaining higher employment (and hence incomes)—why should finance capital be opposed to state intervention by fiscal means which serves this end? This opposition incidentally is not something that arises only in the age of globalised finance, it existed even before finance capital became globalised. The globalisation of finance only means that the demands of finance necessarily get accepted by the nation state, for fear that otherwise there would be a capital flight; but the demand for “sound finance” itself is characteristic of finance capital per se. This is the reason why Keynes’ proposal in 1929, put forward by Lloyd George, the leader of the Liberal Party to which Keynes belonged, for a scheme of public works financed by a fiscal deficit to alleviate unemployment in Britain, was turned down by the British Treasury under pressure from the City of London, the seat of British finance capital. The question therefore is, why is finance capital so opposed to fiscal deficits even when there are no palpable ill-effects of such deficits, other than those that might be caused by its own opposition to them?

The answer, I believe, lies in the fact that accepting the need for intervention by an agency entrusted with upholding “social rationality” undermines the social legitimacy of the economic system presided over by finance capital. Any demonstration that the universal pursuit of private rationality, which is what capitalism entails, leads to a socially irrational outcome, subverts the power of financial interests, which is why they vehemently deny the need for such direct state intervention. They would rather have the state intervening by creating a better situation for the play of private rationality. In short, indirect instead of direct intervention, or jogging private rationality instead of acting independently of it, is what they prefer.

Monetary policy is the pre-eminent means for such indirect intervention, apart of course from other means like guaranteed rates of return, tax concessions to the capitalists (which also enlarge the fiscal deficit but which are not frowned upon by them). Monetary policy acts through inducing the capitalists to invest more (or generally through making the affluent who constitute the “creditworthy” segment of the population to spend more). Changes in monetary policy as the means of overcoming “involuntary unemployment” do not give the impression of there being something intrinsically wrong with the system; they rather give the impression of creating the right atmosphere for its smooth functioning.

Indeed a focus on monetary policy goes much further; it even suggests that if there is “involuntary unemployment” then the reason for it lies not with the system itself but with the central bank whose monetary policy happens to be out of sync with the needs of the situation. The culpability for involuntary unemployment is thus neatly shifted from the system itself whose functioning is flawed, to the shoulders of the central bank.

The absurdity of such inverted thinking becomes particularly clear in times like the present, when in the United States (US), for instance, the long-term rate of interest has been pushed down close to zero, and yet there is no sign of a recovery from a state of substantial involuntary unemployment. In Europe, the central bank is even charging negative interest rates on loans to banks, provided these are given out as credit for certain purposes by the banks; and yet there is no sign of a recovery from the crisis that afflicts Europe. So inadequate has monetary policy become for stimulating the economy that some authors are now saying that pervasive negative interest rates even on deposits (and not just on central bank lending to banks) are the need of the hour, and, for achieving this, there must be an abolition of cash altogether, since the possibility of holding cash in lieu of bank deposits puts a floor to the interest rate at zero (Rogoff 2016).

This amounts to carrying the inversion of thought to an extreme degree: the flaws of the system are according to this argument blamed on the very existence of cash; and rather than having direct state intervention through fiscal means, including a fiscal deficit, as a way of achieving “social rationality,” what is advocated is “sound finance” combined with the very abolition of cash. The lengths to which reified thinking can be carried can be imagined from this.

What globalisation of finance has achieved, in short, is that the opposition of finance to fiscal deficits, or more generally to direct state intervention for increasing the level of activity, has become effective once again. This had been overcome, albeit temporarily, in the context of the changed correlation of class forces in the post-war period with the emergence of a militant (pre-Blairite) social democracy. The fact that finance is globalised while the state remains a nation state, ensures that the writ of finance runs; and this strips contemporary capitalism of any potential instrument for achieving even a semblance of social rationality.

There are only two possible ways that, even potentially, a semblance of social rationality can be achieved in contemporary capitalism. One is through a global state, or through a set of nation states globally coordinating their actions, providing a fiscal stimulus to the world economy by overcoming the opposition of globalised finance. The other is through individual states providing such a fiscal stimulus within their own particular economies by delinking themselves from the vortex of financial flows and thus withdrawing from the entanglements that contemporary globalisation entails. In either case, however, the opposition of globalised finance has to be overcome, and this requires a broad class alliance of working people which has to be organised in a manner appropriate to each case.

Whether such a class alliance can achieve a semblance of social rationality within the confines of capitalism itself, that is, whether capitalism will adapt itself to the new situation by making appropriate concessions, as it had done over large stretches of the capitalist world in the post-war years, or whether it will transcend capitalism in the process of introducing a semblance of social rationality, is a matter for the future. But the point is that until such an effort is made, world aggregate demand will remain constricted, and the world economic crisis will persist, apart from possible occasional “bubbles” that may cause temporary revivals, to be followed by collapses into crisis once more.

Legitimacy Crisis

Donald Trump’s economic strategy has to be understood in this context where he remains as tied to fiscal conservatism as other governments in advanced capitalist countries. Committed to increasing employment in the US, but unwilling to do so by expanding government expenditure, he is taking recourse to protectionism, which, in a situation where world aggregate demand is not increasing, amounts to a “beggar-my-neighbour” policy, that is, a policy of exporting unemployment to other countries.

True, Trump has said that he is not averse to increasing the fiscal deficit; but he is willing to do so only as a means of effecting a tax cut on the corporate sector (from 35% to 15%). This amounts to increasing the fiscal deficit for the sake of putting more purchasing power in the hands of capitalists. But putting more purchasing power in the hands of capitalists hardly increases aggregate demand: their marginal propensity to consume out of income is small, and they do not invest more, even if they have larger post-tax profits, as long as the market is not expanding. Hence, the Trump strategy really amounts not to an increase in aggregate demand in the US, but to a beggar-my-neighbour strategy imposed upon the rest of the world.

This strategy presupposes that the rest of the world would simply sit tight and tolerate an import of unemployment from the US: its success, in other words, depends upon the US action not facing any retaliation, that is, upon the US being able to impose “one-way free trade” upon the rest of the world, as Britain had done in the colonial period. But if other countries do retaliate, then competitive “beggar-my-neighbour” policies would ensue, which would increase uncertainties associated with investment, and hence aggravate the crisis.

But if the US individually or several (or all) countries on their own increased the fiscal deficit to expand government expenditure, and imposed protection only to the extent of preventing a leakage outwards of the additional demand so generated within their economies, without actually curtailing their imports in absolute terms, namely, without exporting any unemployment to other countries, then all countries would be Pareto-wise better off. No one country’s employment increase in such a case would be at the expense of some other country.

What comes in the way of such a move which would improve the employment situations in all countries without their adversely affecting one another, is the opposition of finance to fiscal deficits and to taxes on capitalists (taxes on workers would not raise aggregate demand as they already have a high propensity to consume). Unless finance capital’s hostility to fiscal deficits is overcome, which in turn requires that unless the hegemony of finance capital on the world economy is overcome, the world would remain mired in crisis.

Either way, therefore, world capitalism will be facing a legitimacy crisis in the coming days: on the one hand, if it remains committed to the “humbug of finance” then its legitimacy is threatened because of the persistence of the economic crisis, and with it of high unemployment; on the other hand, if it “permits” direct state intervention through fiscal means for overcoming the crisis, then its legitimacy is threatened because the flawed nature of the system gets exposed, thereby, opening the prospects of growing state intervention.

Brexit is about to get real. Yet we are nowhere near ready for it

Jonathan Freedland in The Guardian


In the coming days, perhaps as soon as Wednesday, Brexit will turn from abstract to concrete. A near-theological argument that raged in one form or another for nearly three decades will become hard and material, with a fixed deadline. Theresa May is about to trigger article 50, starting the clock on a two-year journey towards the exit from the European Union. And yet those in charge of this fateful, epochal process – and especially those who most loudly demanded it happen – seem utterly unprepared for it.


In four words, the European strategy for the Brexit talks has to be: pour décourager les autres (Discouraging the others)

Philip Hammond’s budget on Wednesday illustrated the point neatly. The country is about to leave its largest export market, a decision with enormous economic implications. The chancellor had the floor for nearly an hour, his obligation to provide an assessment of the present and future prospects of the British economy. Did he so much as mention the imminent exit from the single market? No. Incredibly, he made just two fleeting references to the EU in the entire address.

Instead the stand-out measure, the one that has dominated political discussion since, was Hammond’s decision to take more tax from a core Tory constituency: the self-employed. Important for those individuals, most certainly; a political unforced error, no doubt. But for this to be the focus following a major economic statement on the eve of Brexit is displacement activity of the most heroic kind.

It’s as if the crew of the Titanic eyed the iceberg ahead and promptly decided to have a big squabble over whether to serve white or red.

This failure to wrestle with what’s coming goes wider. The public conversation since 23 June 2016 has barely differed from the debate before that date, each side – leave and remain – still refighting the EU referendum campaign, uncertain how to get out of the old groove.

That failing is most obvious among the Brexiteers, characterised by a refusal to own their victory and take responsibility for it. So when a voice of experience or authority dares point out the possible dangers ahead, they are either sacked, as was the fate of Michael Heseltine, attacked personally, like John Major, or else branded an “enemy of the people” who refuses to bow to the “popular will”.

Those with concerns are accused of “talking down the country” or lacking sufficient faith – as if, should Brexit make us poorer, the fault will belong to those who didn’t screw their eyes tight enough and believe. Credit to Jonn Elledge for calling this what it is: the Tinkerbell delusion.

This surely has to end with the triggering of article 50. From this moment on, the focus must be intensely practical. No more baggy rhetoric about sovereignty and “taking back control”. From now on, those who got us into this situation have to show they can get us out intact by March 2019.

That will require a major shift among the Brexiteer ministers and in Downing Street. Those close to the pre-negotiations between Britain and the remaining 27 EU states report an unwarranted hubris on the UK side that augurs ill. Too many Brexiteers cling to the campaign’s wishful thinking that we go into these talks as the stronger party, that “they need us more than we need them”, and that so long as we hang tough, the Europeans will buckle and hand us a dream deal.

Such arrogance is likely to be exposed soon. For one thing, it ignores the key structural fact that makes Britain’s negotiating prospects bleak from the start: namely, it is imperative for the EU’s own survival that the UK be left in a visibly, materially worse situation after leaving the EU than it enjoyed before. The logic is not vindictive. If the EU is to hold together it must prevent a Brexit contagion. Any divorce settlement must be ugly enough to ensure the remaining 27 stay with their spouse, no matter how loveless that marriage might feel. In four words, the European strategy for the Brexit talks has to be: pour décourager les autres.

But if British politicians are insufficiently mindful of that built-in obstacle, they are far too blithe about the sheer complexity of the undertaking that is about to begin. They are aiming to unpick 40 years of arrangements, seeking to annul them in a pact that will require the blessing of 27 other sovereign states.

To call it 27-dimensional chess understates the geometry: the final divorce settlement will have to be ratified by 38 different national and regional parliaments. To say nothing of the European parliament, commission and council. Each of these bodies has its own interests, pressures and red lines.

May will have to craft a document that satisfies every one of those competing forces, as well as both chambers of the UK parliament. She will have to do it without pushing Scotland towards a second, more winnable independence referendum or recreating a hard border between Northern Ireland and the Irish republic. And she has to get it done in roughly 18 months. Not for nothing did Dominic Cummings, the mastermind of the Vote Leave campaign, tweet with a candour rare among Brexiteers that leaving the EU was the “hardest job since beating Nazis”.

Or reflect on the supposed aces Britain is confidently looking forward to playing in the upcoming game of Brexit poker. Charles Grant, the sage director of the Centre for European Reform who predicted the leave vote, patiently explains how each one of these assets – which Brexiteers believe will make the Europeans putty in our hands – could create as much angst as advantage.

It’s true, says Grant, that the City of London is valued for the financial services it provides to the EU. But it’s also true that Paris, Madrid, Milan, Frankfurt, Dublin and others are circling, ready to feast on the City’s carcass: they want some of that business for themselves.

No 10 refuses to budge on Brexit bill, despite heavy defeat in Lords



The Brexiteers reckon the Europeans won’t want to give up London’s special relationship with Washington. But, says Grant, British “fawning” over Donald Trump alienates many Europeans, making them doubt we share their basic values. As for Britain’s contribution to European security – via its UN seat, Nato and its fabled military – that’s much admired. But not if it’s used as a threat: give us a free trade deal or we’ll pull out the 1,000 British troops recently deployed in the Polish-Baltic area. Talk like that will backfire.

Leavers should be approaching this gargantuan task with a special humility, because it was they who needlessly inflicted it upon us.

Remainers need to adjust to the new reality too. Many may be hoping that, as the price and consequences of exit become ever clearer through these talks, some among the 52% will gradually switch sides. But remainers should contemplate the less cheery prospect that the most ardent Brexiteers, and especially the anti-EU newspapers, will double down in their loathing of Brussels. When the EU 27 demand, say, serious cash for single market access, the Mail and Sun will dip their pen into an even deeper well of venom.

So remainers will need to handle these next two years carefully, readying themselves for the day when the deal is done, and ensuring they have already placed two key questions in the front of the public mind: is this deal better than the set-up we had on 22 June 2016? And if it isn’t, why are we doing it?

The Tinkerbell theory: I wish politicians would stop blaming their failures on my lack of belief

Who knew Peter Pan would become one of the key political texts of the twenty-first century?

Jonn Elledge in The New Statesman

The moment you doubt whether you can fly,” J M Barrie once wrote, "You cease for ever to be able to do it.” Elsewhere in the same book he was blunter, still: “Whenever a child says, ‘I don’t believe in fairies’, there’s a little fairy somewhere that falls right down dead.”
I would never have expected that Peter Pan would become one of the key political texts of the twenty-first century, if I’m honest. But predictions are not my strongpoint, and over the last few years, what one might term the Tinkerbell Theory of Politics has played an increasingly prominent role in national debate. The doubters’ lack of faith, we are told, is one of the biggest barriers to flight for everything from Jeremy Corbyn’s poll ratings to Brexit. Because we don’t believe, they can’t achieve.

It was in run up to the Scottish referendum that I first spotted Tinkerbell in the wild. Reports suggesting that RBS would consider relocating from Edinburgh, should independence lead to a significant rise in business costs – a statement of the bloody obvious, I’d have thought – were dismissed by then-First Minister Alex Salmond as merely “talking down Scotland”. Over the next few months, the same phrase was deployed by the SNP and its outriders whenever anyone questioned the Yes campaign’s optimistic estimates of future North Sea oil revenues.

The implications of all this were pretty clear: any practical problems apparently arising from independence were mere phantasms. The real threat to Scotland was the erosion of animal spirits caused by the faithlessness of unpatriotic unionists, who’d happily slaughter every fairy in the land before they risked an independent Scotland.

All this seemed pretty obnoxious to me, but at the time of the referendum it also all seemed to be a reassuringly long way away. Little did I realise that Salmond and co were just ahead of their time, because today, Tinkerbell-ism is bloody inescapable.

On Monday, Sir John Major made a wonkish speech laying out his concerns about Brexit. He talked about the threat to the Northern Ireland peace process, the way it would isolate Britain diplomatically, the difficulty of negotiating highly complicated trade deals on the timetable imposed by Article 50. He wanted, he said, to “warn against an over-optimism that – if unachieved – will sow further distrust between politics and the public, at a time when trust needs to be re-built”.

And how did Britain’s foreign secretary respond? “I think it’s very important that as we set out in this journey we are positive about the outcome for the very good reason the outcome will be fantastic for this country,” Boris said, probably imagining himself to be a bit like Cicero.

The problem, in other words, is not the government’s lack of a plan; the problem is its critics’ lack of faith. In a familiar phrase, the Telegraph headlined its report: “Boris Johnson criticises John Major for talking down UK’s post-Brexit prospects”.

The left is no better. In any discussion of the failings of Corbyn’s leadership of the Labour party, it won’t be long before someone blames the polls, or the by-election results, on either the lack of support from the parliamentary Labour party, or the hostility of a media that never liked him in the first place. “Of course he’s struggling,” the implication runs. “Your lack of belief is a self-fulfilling prophecy.” Dead fairies, everywhere you turn.

It’s easy to see why the Tinkerbell strategy would be such an attractive line of argument for those who deploy it - one that places responsibility for their own f*ck-ups squarely on their critics, thus rendering them impervious to attack. Corbyn’s failure becomes the fault of the Blairites. A bad Brexit becomes the fault of Remoaners, and not those who were dim enough to believe it would easy to begin with. Best of all, the more right your critics turn out to be, the more you have to blame them for.

But being impervious to criticism is not the same as being right, and to think this strategy is a recipe for good government is to mistake a closed loop of true believers for objective reality. Jeremy Corbyn is unlikely to start winning elections, no matter how hard the faithful believe. However much you talk up Scotland, that oil is still going to run out

And whatever the right-wing press do to convince themselves that Boris Johnson is right, and John Major is wrong, it is unlikely to affect the negotiating position of the 27 other states in the slightest. At the end of the day, our faith matters a lot less than the facts on the ground. There is no such things as fairies.

Lessons from Amma

Shubhankar Dam in The Friday Times

From 1991 to 1996, four residents of 36 Poes Garden, Chennai—J Jayalalithaa, the chief minister of Tamil Nadu and her foster family—amassed a 3,200% increase in wealth. This staggering surge, a rate of superhuman returns, beggars belief. What begot this? Prodigious business acumen? Or a colossal abuse of public office?

In June 1996, one Subramanian Swamy filed a complaint against Jayalalithaa alleging assets in titanic disproportion to her accredited sources of income. Investigations laid bare an incestuous web of businesses and vicariously held properties. The three other residents of Poes Garden, VK Sasikala, J Elavarasi, and VN Sudhakaran, appeared deep in cahoots with the matriarch. In Jan. 1997, they, too, were arraigned alongside the alleged mastermind.

The matter gingerly inched through India’s legal complex, wobbling from one court to another. Calendars turned, as parties wrangled over legal process. Two decades went by.

On February 14, 2017, at last, the final word. The Indian Supreme Court delivered a decisive verdict. What it enounced should put public officials, politicians and corporates, too, on alert.

Presented with fawning tributes on birthdays or other times, politicians holding public offices must turn them down: that is the only legal option now. No longer can they summon the alibi of customary practice-insistent adulation of their devotees-to fatten their bank balances

The conspiracy, the crime, the charge

Jayalalithaa was charged with criminal misconduct under the Prevention of Corruption Act, 1988: possessing, directly or through a person, while in public office, resources or property disproportionate to one’s known sources of income—something the public servant cannot satisfactorily account for. Her familial acolytes were indicted for criminal conspiracy and abetment.

Persons conspire, the Indian Penal Code, 1860, says, if two or more agree to do an unlawful act or a lawful act by unlawful means. Persons abet an offence, the code adds, if they intentionally aid others in an unlawful act.

The trial court, and later, the high court, distilled the facts, weighed the evidence, and applied the law. The first court convicted; the latter acquitted. Why? They disagreed on all counts: facts, evidence and the law. The Supreme Court stepped in, and broke new ground. Measuring disproportionate assets will never be the same again.

Tamil Nadu CM Jayalalithaa was charged with criminal misconduct under the Prevention of Corruption Act, 1988: possessing, directly or through a person, while in public office, resources or property disproportionate to one’s known sources of income-something the public servant cannot satisfactorily account for

Accounting for criminal income

Jayalalithaa and her aides asserted large incomes from assorted sources: business, agriculture, loans, interests, gifts, rentals, and sale of party literature. They produced income tax returns as proof. Income tax officials had accepted these documents. So, they sufficed as proof, all four optimistically pleaded. The Supreme Court rubbished this approach. Tax laws are distinct from anti-corruption rules. Income tax officers only assess incomes; they don’t bother with sources, the court insisted.

In Sept 1958, Indian police detained one Piara Singh as he ventured to cross into Pakistan. Searches revealed a sum of Rs65,500 on his person; interrogations revealed a gold-smuggling racket. Officials quickly seized his cash. Of the impounded sum, Rs60,500 was Singh’s income from undisclosed sources, income tax officers assessed. It was liable to tax.

Singh protested. Smuggling was his “business,” he told the Supreme Court. The impounded cash amounted to a “business loss”. It should be tax-exempt. The court agreed. Tax laws are catholic—they apply to all profits and losses, licit and illicit. The sources don’t matter. So, Singh’s business loss was indeed tax-exempt.

Anti-corruption law is different: It obsesses over sources. The 1988 Act says: If charged, a public servant must satisfactorily explain the disproportionate assets through his or her known sources of income, that is, “income received from any lawful source”.

Jayalalithaa had massive incomes but no evidence of their legality—no credible records, witnesses, explanations or inferences. The court affirmed the charge against her. A clean bill of financial health from the tax department, in other words, won’t ease matters in an anti-corruption court. Independent verification is the key.

But that’s not all. The court went further—much further. It proscribed a commonly asserted source of income, and that should alarm politicians in India even more.

Tax laws are catholic-they apply to all profits and losses, licit and illicit. The sources don’t matter. Anti-corruption law is different: It obsesses over sources

New law of public affection

Jayalalithaa’s birthdays were an annual orgy of love and presents. Cash, foreign remittances, jewelry, sarees, and silver items—her democratic devotees inundated her with them, she claimed.

Are such gifts lawful sources of income in an anti-corruption context? No, the court emphatically said. They are “visibly illegal and forbidden by law”. Gifts are bribes by another name. Legalising them would erase the bar on bribes, it reasoned.

Presents to public servants come in many forms. Some are designed to induce or reward abuse of office. Others come with no manifest motive. They are “simply” gifts. But these, too, are unlawful, the court pronounced. Why?

Gifts are “likely to influence [a] public servant to show official favour to [the] person” offering them, if opportunities arise. Opportunities, though, may arise in umpteen, unpredictable ways. Many citizens are likely to have business to transact with, say, a minister (get a policy altered), bureaucrat (get a permit issued) or police officer (get a matter investigated).

Are gifts from all citizens unlawful? Relatives, friends, acquaintances, too? The court didn’t say. But if so, a generous embargo on presents is a revolutionary piece of reasoning.

Presented with fawning tributes on birthdays or other times, politicians holding public offices must turn them down: that is the only legal option now. No longer can they summon the alibi of customary practice—insistent adulation of their devotees—to fatten their bank balances.

The bar applies to all public servants and corporates, not just politicians. Under scrutiny for purportedly spinning a web around public officials to promote business interests, the Essar Group defended its practices in an affidavit to the Supreme Court in Nov. 2015. Small gifts and favors to government servants are “common courtesies”, it claimed. They aren’t improper, much less illegal. They are illegal: The verdict makes it emphatically clear.

Declaring illegality is the easy part; proving criminal collusion is much harder. But corrupt politicians, corporates and their handlers, be warned. A new judicial zeal is doing the rounds. 

Poes Garden: house of crimes

Jayalalithaa invited her friend Sasikala to the residency at Poes Garden in 1987. Together, they ran two business partnerships. Later, Elavarasi and Sudhakaran, Sasikala’s relatives, were inducted into the home in 1991 and 1992, respectively.

The new residents had no business experience or sources of income. Yet, they acquired six companies, and held directorships. (More firms were incorporated later.) Accounts linked to Jayalalithaa and Sasikala funded the acquisitions.

The companies, originally, had nothing of worth: funds, assets, loans or anything else. Not even bank accounts in some cases. But, suddenly, they stirred into brisk action. They surveyed and negotiated deals, bought land, and executed sale deeds. They also operated some 50 bank accounts. Cash promiscuously flowed in and out. No walls separated them. Intriguingly, that is all the companies did: hoard properties and move cash around.

These were shells, not companies. It strained credulity to believe that they transacted ordinary business. The Supreme Court did not believe, either. Business registrations, deals, transfers, appointments, resignations had remarkable synchronies. These weren’t coincidences, the court inferred. The collaborators were part of an elaborate commercial incest. The firms, their holdings, and deals were shams, contrived to lend an ounce of entrepreneurial legitimacy.

Poes Garden was a conspiratorial den, and Jayalalithaa masterminded it, the court found. She funded the partnerships. These, in turn, funded the companies. Those, then, bought properties. The 50 bank accounts were effectively one: Jayalalithaa’s. Guilty, all of them, the court decided.

The verdict will resonate far beyond the immediate facts. It has an air of urgency. There’s a readiness to peel away legal facades, probe nooks and crannies, unite the dots and draw aggressive inferences. Gone are the days when judges willingly suspended disbelief, demanded impossible standards from prosecutors, and granted careless benefit of doubt to the accused.

It augurs well for corruption trials now underway. The decision puts undertrials on notice, and those plotting their next rendezvous with public corruption, too.

Altogether, it feels rosy it shouldn’t. Ominous clouds still lurk on the legal horizon.

This ain’t a happy ending

The verdict, again, betrays the rot at the heart of India’s criminal justice complex. For one, it ground ahead slowly, far too slowly. Two decades to litigate a criminal charge is inordinately long. This point isn’t worth belabouring—it is well known.

But another point is the systemic lack of investigative and prosecutorial independence, and the inability to hold serving public officials, particularly, political offices, to account. Lest we forget, anti-corruption sleuths didn’t pursue Jayalalithaa. A private complainant did: Subramanian Swamy. The director of Vigilance and Anti-Corruption, Chennai, joined in after a court directive. That Jayalalithaa’s political rival in Tamil Nadu, the Dravida Munnetra Kazhagam (DMK), held power in the state during the investigations only helped matters along.

A credible investigation against a sitting chief minister in India, even now, is an absurd idea. Investigations are only the beginning. Prosecutions must follow in deserving cases. It followed in this case, and quite well. But only till the DMK was in power. By August 2000, nearly 250 witnesses had been examined; just over 10 remained. The marathon trial was in its last mile.

Suddenly, it fumbled

In May 2001, Jayalalithaa and her party returned to power. Witnesses turned hostile. Prosecutors lost their zeal. The trial went awry. In Nov. 2003, the Supreme Court, in response to a petition by a DMK leader, K. Anbazhagan, transferred the trial to Bangalore. A fair trial against a sitting chief minister was impossible within the state, the court implied. Such is the rancid reality of prosecutorial affairs in India.

The trail began anew. Even there in Bangalore, prosecutors struggled. Interference lurked at every turn. The Supreme Court routinely intervened to keep matters on track—often at the dogged insistence of Swamy and Anbazhagan. Only they seemed keen to try Jayalalithaa, not the state.

Successful anti-corruption drives marry tough rules, investigative and prosecutorial independence with judicial reasonableness. India has two of these—or at least a semblance of them. The middle one is missing; it has always been so.

Without it, the Jayalalithaa-Sasikala matter will remain a celebrated exception. Without it, prosecuting high corruption in India will remain a private pastime, always directed at opposition politicians against an obstinate state apparatus, and overly reliant on courts. Without it, only lesser mortals will endure the fury of anti-corruption rules: Those more equal than others will forever remain immune.

Muslims Want Tarek Fatah Dead

Has Big Data already captured the world?

George Monbiot in The Guardian


Has a digital coup begun? Is big data being used, in the US and the UK, to create personalised political advertising, to bypass our rational minds and alter the way we vote? The short answer is probably not. Or not yet.

A series of terrifying articles suggests that a company called Cambridge Analytica helped to swing both the US election and the EU referendum by mining data from Facebook and using it to predict people’s personalities, then tailoring advertising to their psychological profiles. These reports, originating with the Swiss publication Das Magazin (published in translation by Vice), were clearly written in good faith, but apparently with insufficient diligence. They relied heavily on claims made by Cambridge Analytica that now appear to have been exaggerated. I found the story convincing, until I read the deconstructions by Martin Robbins on Little Atoms, Kendall Taggart on Buzzfeed and Leonid Bershidsky on Bloomberg.

None of this is to suggest we should not be vigilant. The Cambridge Analytica story gives us a glimpse of a possible dystopian future, especially in the US, where data protection is weak. Online information already lends itself to manipulation and political abuse, and the age of big data has scarcely begun. In combination with advances in cognitive linguistics and neuroscience, this data could become a powerful tool for changing the electoral decisions we make.

Our capacity to resist manipulation is limited. Even the crudest forms of subliminal advertising swerve past our capacity for reason and make critical thinking impossible. The simplest language shifts can trip us up. For example, when Americans were asked whether the federal government was spending too little on “assistance to the poor”, 65% agreed. When they were asked whether it was spending too little on “welfare”, 25% agreed. What hope do we have of resisting carefully targeted digital messaging that uses trigger words to influence our judgment? Those who are charged with protecting the integrity of elections should be urgently developing a new generation of safeguards.

Already big money exercises illegitimate power over political systems, making a mockery of democracy: the battering ram of campaign finance, which gives billionaires and corporations a huge political advantage over ordinary citizens; the dark money network (a web of lobby groups, funded by billionaires, that disguise themselves as thinktanks); astroturf campaigning (employing people to masquerade as grassroots movements); and botswarming (creating fake online accounts to give the impression that large numbers of people support a political position). All these are current threats to political freedom. Election authorities such as the Electoral Commission in the UK have signally failed to control these abuses, or even, in most cases, to acknowledge them.

China shows how much worse this could become. There, according to a recent article in Scientific American, deep-learning algorithms enable the state to develop its “citizen score”. This uses people’s online activities to determine how loyal and compliant they are, and whether they should qualify for jobs, loans or entitlement to travel to other countries. Combine this level of monitoring with nudging technologies – tools designed subtly to change people’s opinions and responses – and you develop a system that tends towards complete control.


Already big money exercises illegitimate power over political systems, making a mockery of democracy

That’s the bad news. But digital technologies could also be a powerful force for positive change. Political systems, particularly in the Anglophone nations, have scarcely changed since the fastest means of delivering information was the horse. They remain remote, centralised and paternalist. The great potential for participation and deeper democratic engagement is almost untapped. Because the rest of us have not been invited to occupy them, it is easy for billionaires to seize and enclose the political cyber-commons.

A recent report by the innovation foundation Nesta argues that there are no quick or cheap digital fixes. But, when they receive sufficient support from governments or political parties, new technologies can improve the quality of democratic decisions. They can use the wisdom of crowds to make politics more transparent, to propose ideas that don’t occur to professional politicians, and to spot flaws and loopholes in government bills.

Among the best uses of online technologies it documents are the LabHacker and eDemocracia programmes in Brazil, which allow people to make proposals to their representatives and work with them to improve bills and policies; Parlement et Citoyens in France, which plays a similar role; vTaiwan, which crowdsources new parliamentary bills; the Better Reykjavík programme, which allows people to suggest and rank ideas for improving the city, and has now been used by more than half the population; and the Pirate party, also in Iceland, whose policies are chosen by its members, in both digital and offline forums. In all these cases, digital technologies are used to improve representative democracy rather than to replace it.  

Participation tends to be deep but narrow. Tech-savvy young men are often over-represented, while most of those who are alienated by offline politics remain, so far, alienated by online politics. But these results could be greatly improved, especially by using blockchain technology (a method of recording data), text-mining with the help of natural language processing (that enables very large numbers of comments and ideas to be synthesised and analysed), and other innovations that could make electronic democracy more meaningful, more feasible and more secure.

Of course, there are hazards here. No political system, offline or online, is immune to hacking; all systems require safeguards that evolve to protect them from being captured by money and undemocratic power. The regulation of politics lags decades behind the tricks, scams and new technologies deployed by people seeking illegitimate power. This is part of the reason for the mass disillusionment with politics: the belief that outcomes are rigged, and the emergence of a virulent anti-politics that finds expression in extremism and demagoguery.

Either we own political technologies, or they will own us. The great potential of big data, big analysis and online forums will be used by us or against us. We must move fast to beat the billionaires.

Trump is right on Russia

Jawed Naqvi in The Dawn


IT is a strange anomaly. Whenever India or Pakistan, or both, go into the cobra pose, hissing invectives and threatening to decimate each other, including with nuclear weapons, the world cries foul.

When Nawaz Sharif visits Delhi or when Narendra Modi drops in uninvited at a Lahore wedding, Indian and Pakistani peaceniks applaud together with the worried world. Yet, when Donald Trump wants to improve his country’s troubled relations with Vladimir Putin he is pilloried for even making the suggestion.

Granted he is not gender sensitive, that he has wronged and abused women and his mindset is possibly racist, driven by acute Islamophobia. I would liken Russia in this equation to the baby in Trump’s dirty bathtub. The deep state that contrived lies to invade Iraq or exulted in the wrecking of Libya, in cahoots with the media, seems to be facing an existential crisis with Trump’s presidency over his plans to touch base with Putin.

One day Trump excelled himself in his collaring of the deep state, which includes all major parties and the media. He said something to the effect that his country’s image was not exactly squeaky clean when it came to shedding blood around the world. That was his response to a Fox TV question about Putin’s alleged bloodlust as seen in the military operations in Aleppo.

Is the current American president really worse than the marauders of Iraq and Libya?


Trump’s blunt criticism of his country’s savage moments has been at par with Reverend Jeremiah Wright, the priest who baptised Barack Obama’s children. When in a fit of rage over an Israeli assault on Palestinian camps he yelled ‘goddamn America’ Obama cut off ties with the African American priest.

Then suddenly it began to rain scams on Trump. So and so met the Russian ambassador. So and so made eye contact with him. Trump’s attorney general is said to have a racist background. That was forgiven or grudgingly gulped down. Instead his alleged dalliances with Russian diplomats and/or businessmen were picked up for censure.

A wider conspiracy was unleashed to torpedo the new president’s still unwavering plans to improve relations with Putin. BBC dug out dirt on the Russians, which they are good at. Russia was a British quarry, which became America’s bête noire.

Cut to the day when Prime Minister Theresa May sauntered into Washington and Ankara recently and the media said she was fixing business deals. They omitted the fact that both her destinations involved allies who seemed to have lost interest in the old British fear-mongering called Russophobia. Trump’s fascination with Putin was by now legendary and Turkey’s President Recep Tayyip Erdogan too had shown signs of becoming disenchanted with the British-assigned role of playing an anti-Moscow Sancho Panza.

If we think freely and without the Cold War blinkers, May couldn’t have signed a groundbreaking deal with anybody bilaterally until the fate of Brexit was decided, which could be some years away. Trump looks destined not to last that long.

For Erdogan to become a member of the Russian-Iranian backed peace talks on Syria was a huge somersault by a country that was regarded as a lynchpin to Nato’s Middle East policy. Turkey is no longer insisting on the Syrian president’s head as condition to discuss a future setup in Damascus. Erdogan’s unease with the Americans became more pronounced with the botched coup attempt, which he blamed on Turkish dissidents seated in the US.

It is nearly impossible to believe that May did not discuss her worry about Russia and Putin with Trump and Erdogan. Russia has been a British bugbear for centuries even if Napoleon preceded it and other Europeans in turning an obsession with Russia into an exhausting and costly military expedition.

Russophobia as we know it is a British innovation. It was left to Winston Churchill to give the Cold War a newer variant of an old pursuit. The new seeds were planted in Churchill’s Iron Curtain speech. Then James Bond took over while Alfred Hitchcock also embraced the diabolical imagery of the Russians. Until then, Hollywood had been in hot pursuit of Germans as America’s horns and canines ogres.

Much earlier, before Western democracies were swamped with the Churchillian exhortations against Russia, British governors general and viceroys in India took it upon themselves to deepen and sustain the fear mongering. Delhi’s imposing colonial monument — India Gate — is a testimony to this perpetually induced fear with the rulers of Moscow. All sides of the landmark sandstone monument are lined with thousands of names of Sikh and Muslim soldiers who were sacrificed in the suicidal Afghan wars. May must have seen how Britain’s self-defeating obsession with Russia had dissipated into the brick-batting in Washington D.C. between the Democrats and the Republicans.

Going by usually trustworthy accounts Donald Trump is an unpredictable person, which makes him a dangerous leader of an already error-prone military power. Nevertheless, Noam Chomsky must have shocked the Democrats by suggesting that in his view John Kennedy was the most dangerous of presidents. Trump is lampooned daily, which is as it should be, as an unqualified gatecrasher in the White House. The suggestion, however, implies that the world was somehow better off under George W. Bush and, more worryingly, under his Dr Strangelove-like colleagues — Donald Rumsfeld and Dick Cheney. Is Trump really worse than the marauders of Iraq and Libya?

Shorn of any media support in the heart of the land of free speech, Vladimir Putin wrote a piece for the American audiences in The New York Times of Sept 11 2013.

“Relations between us have passed through different stages. We stood against each other during the Cold War. But we were also allies once, and defeated the Nazis together.” Trump believes the two countries should jointly fight a new menace, the militant Islamic State group. His detractors within the deep state somehow seem not to like the idea.