Afghanistan may hold the key to Kashmir

By Girish Menon

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

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

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

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

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

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

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

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

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

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

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

Why Marry?

by Girish Menon

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

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

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

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

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

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

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

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

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

Modern Marriages - For Better or For Worse

By Girish Menon

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

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

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

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

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

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

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

Is Migration Inevitable?

By Girish Menon

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

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

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

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

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

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

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

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

There is definitely some merit in their arguments too. 

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

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

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

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

So, is migration inevitable? Yes and no.

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

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

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

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

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

On Shekar Gupta - An Indian supporter of Arthur Laffer

By Girish Menon

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

Sounds right doesn’t it?

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

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

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

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

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

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

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

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

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

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

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

What if NaMo was India’s PM in 1947?

By Girish Menon

Pervez Hoodbhoy, one of few famed Pakistan scientists, asked whether India could have launched Chandrayaan2 if Modi was India’s Prime Minister in 1947? I thought this was an extremely important question in an era when all things Nehruvian and Indirayian are being rubbished without any concern for facts.

Meghnad Desai, an economist of renown, in his latest piece in the Indian Express provides a stark example. Desai tries to create the impression that it was the private sector that was responsible for India’s lead in the space programme. Desai states that despite Nehru’s inclinations towards the public sector he listened to Sarabhai, who came from an industrialist family and had a market orientation, and this resulted in the successful space programme.

What Desai ignores is that ISRO has always been a public sector organisation. It was not started by the Sarabhai family and subsequently nationalised by a socialist Nehru or Indira.

A recent edition of the Guardian (How the state runs business in China) talked about how members of China’s Communist Party are involved in the management of all large companies operating in China. This includes western multinationals as well. And China is poised to be the world’s largest economy with its firms ready to compete with global corporates. Free market ideologues deliberately ignore such facts.

In India’s case, the spokespersons of the ruling corporatocracy fail to admit that the industrialists post independence viz. Tatas and Birlas did not have the capital nor the knowhow to launch the industrial revolution and it was left to Nehru to use tax payer money to launch the education and scientific revolution whose benefits India is now reaping.

The case I am making is that there are good public sector organisations as well as bad ones. The bad ones could be shut down due to their continuous reliance on government subsidies. But as the so far botched privatisation of Air-India has shown, India’s private sector enthusiasts have not shown any enthusiasm to take over and turn around such firms. Instead, they would like instant money spinners or public sector firms which can be cannibalised for instant profit.

Even in the case of bad public sector firms, if a systematic analysis of their sickness is carried out many will reveal that their problems often are not within the firm but lie outside with their political masters. In Air-India’s case the decisions by Praful Patel to favour Jet Airways and to destroy the public sector firm have led to its current state.

On the other hand, it is worthwhile to study the case of Jet Airways the private sector darling of free market India. It is now bankrupt despite all the favours given to it including flying rights and free aviation fuel.

There are so many instances of India’s preferred industrialists being given favourable loans, government lands and other subsidies and yet not contributing to reducing the burgeoning unemployment question. All of this is swept under the carpet as the current administration prepares to make a distress sale of the public sector.

India’s private sector has not provided global leadership in any area. While we await to see what Anil Ambani’s defence company will do, Indians must rejoice Chandrayaan2 while not forgetting that it is a public sector firm that is a world leader in rockets and satellite technology.

Why a leader’s past record is no guide to future success

Successful leadership depends on context, collaboration and character writes Andrew Hill in The FT

“There goes that queer-looking fish with the ginger beard again. Do you know who he is? I keep seeing him creep about this place like a lost soul with nothing better to do.”

That was the verdict of the then Bank of England governor on Montagu Norman, who, five years later, was to take over the top job. “Nothing in his background suggested that he would be well suited to the work of a central banker,” Liaquat Ahamed wrote in his prizewinning book Lords of Finance.

Plenty in Christine Lagarde’s background suggests she will be much better suited to run the European Central Bank: her political nous, her communication skills, her leadership of the International Monetary Fund through turbulent financial times.

Critics, though, have focused on the former corporate lawyer and finance minister’s lack of deep academic economic training, and her dearth of experience with the technicalities of monetary policy.

But how much should the past record of a candidate be a guide for how they will handle their next job? Not as much as we might think.

The truth is that successful leadership depends on context, collaboration and character as much as qualifications. For all the efforts to codify and computerise the specifications of important jobs, the optimal chemistry of experience, aptitude, potential, and mindset remains hard to define. Throw in the imponderable future in which such leaders are bound to operate and it is no wonder that sometimes the seemingly best-qualified stumble, while the qualification-free thrive.

For one thing, even if the challenge confronting a leader looks the same as one they handled in the past, it is very rarely identical — and nor is the leader. That is one reason big companies offer their most promising executives experience across countries, cultures and operations, from finance to the front line, and why some recruiters emphasise potential as much as the formal résumé of their candidates.

Curiosity is a big predictor of potential — and of success — according to Egon Zehnder, the executive search company. It asks referees what the candidate they have backed is really curious about. “It is a question that takes people aback, so they have to think anew about that person,” Jill Ader, chairwoman, told me recently.

I think there are strong reasons to back master generalists for senior roles. Polymathic leaders offer alternative perspectives and may even be better at fostering innovation, according to one study. In his new book Range, David Epstein offers this warning against over-specialisation: “Everyone is digging deeper into their own trench and rarely standing up to look in the next trench over.”

Take this to the other extreme of ignoring specialist qualifications, however, and you are suddenly in the world of blaggers, blowhards and blackguards, who bluff their way up the leadership ladder until the Peter Principle applies, and a further rise is prohibited by their own incompetence.

The financial crisis exposed the weaknesses of large banks, such as HBOS and Royal Bank of Scotland in the UK, chaired by non-bankers. Some of the same concerns about a dearth of deep financial qualifications now nag at the leaders of fintech companies, whose promise is based in part on their boast that they will be “different” from longer established incumbents.

In a flailing search for the reasons for its current political mess, the UK has blamed the self-confident dilettantism of some Oxford university graduates, while the US bemoans the superficial attractions of stars of television reality shows. These parallel weaknesses for pure bluster over proven expertise have brought us Boris Johnson and Donald Trump, respectively.

A plausible defence of both Mr Johnson and Mr Trump is that they should be able to play to their specific strengths, while surrounding themselves with experts who can handle the technical work.

Ms Lagarde, too, will want to draw on the team of experts around her. She is wise enough to know she cannot rely on silky political skills and neglect the plumbing of monetary policy.

At the same time, history suggests she should not assume her paper credentials or wide experience will be enough to guarantee success in Frankfurt. The Bank of England’s Norman was eccentric and neurotic, and his counterpart at the Banque de France, Émile Moreau, had a “quite rudimentary and at times confused” understanding of monetary economics, whereas Benjamin Strong at the New York Federal Reserve, was a born leader, and Hjalmar Schacht of Germany’s Reichsbank “came to the job with an array of qualifications”.

Yet together this quartet of the under- and overqualified made a series of mistakes that pitched the world into the Great Depression.