Ideological Positions and Economic History

 

My response to Shekhar Gupta's video

Dear Mr. Gupta

I believe your thesis on economic history is flawed when you argue that Japan, Korea, Taiwan and Singapore have grown because of economic freedoms i.e. I presume you mean free market practices. I have often heard you say that India too should follow free market practices to achieve similar heights. In the above process the elephant in the room i.e. how China rose with state intervention, has also been ignored.

Kindly permit me to state a few historical facts extracted from 'Bad Samaritans The Guilty Secrets of Rich Nations...' by Ha Joon Chang

1.  When Robert Walpole became the British Prime Minister in 1721 he launched a Swadeshi* policy aimed to protect British manufacturing industries from foreign competition, subsidise them and encourage them to export. Tariffs on imported foreign manufactured goods were significantly raised while tariffs on raw materials were lowered. Regulation was introduced to control the quality of manufactured goods so that unscrupulous manufacturers could not damage the reputation of British products in foreign markets. Walpole’s protectionist policies remained in place for the next century, helping British manufacturing industries catch up with and then finally forge ahead of the counterparts on the Continent.By the end of the Napoleonic wars in 1815 British manufacturers were firmly established as the most efficient in the world and it was then that they started campaigning for free trade.

2. The US too followed similar protectionist policies, espoused by Alexander Hamilton, which included protective tariffs, import bans, subsidies, export ban on key raw materials, financial aid...until the end of the Second World War (WWII). It was only after WWII, with its industrial supremacy unchallenged, that the US started championing the cause of free trade. Even when it shifted to freer trade, the US government promoted key industries by another means; namely public funding of Research and Development (R&D). Without government funding for R&D the US  would not have been able to maintain its technological lead over the rest of the world on key industries like computers, semiconductors, life sciences, the internet and aerospace.

3. In Japan the famous MITI (Ministry of International Trade and Industry) orchestrated an industrial development programme that has now become a legend. After WWII, imports were tightly controlled through government control of foreign exchange. Exports were promoted in order to maximize the supply of foreign currency needed to buy up better technology. This involved direct and indirect export subsidies as well as information and marketing help from JETRO the state’s trading agency.

4. Even Korea has not been an exception to this pattern. The Korean miracle was the result of a clever and pragmatic mixture of market incentives and state direction. The Korean government did not have blind faith in the free market either. While it took markets seriously, the Korean strategy recognized that they often need to be corrected through policy intervention.

5. Singapore has had free trade and relied heavily on foreign investment, but even so, it does not conform in other respects to the neo-liberal ideal. It used considerable subsidies to MNCs in industries it considered strategic. It also has one of the largest state owned enterprises which supplies housing and almost all land is owned by the government.

To conclude, I feel that Mr. Gupta’s advocacy of free markets is based on a fundamentally defective understanding of the forces driving globalisation and a distortion of history to fit the theory. Free markets and trade was often imposed on rather than chosen by weaker countries. Virtually all successful economies, developed and developing, got where they are through selective strategic integration with the world economy rather than unconditional  global integration.

Regards

Girish Menon

* Swadeshi  is a conjunction of two Sanskrit words: swa ("self" or "own") and desh ("country"). Swadeshi is an adjective which means "of one's own country".

Looking at Brexit - Beyond the Headlines

 

Milton Friedman was wrong on the corporation

The doctrine that has guided economists and businesses for 50 years needs re-evaluation writes MARTIN WOLF in The FT

 

What should be the goal of the business corporation? For a long time, the prevailing view in English-speaking countries and, increasingly, elsewhere was that advanced by the economist Milton Friedman in a New York Times article, “The Social Responsibility of Business is to Increase Its Profits”, published in September 1970. I used to believe this, too. I was wrong. 

The article deserves to be read in full. But its kernel is in its conclusion: “there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” The implications of this position are simple and clear. That is its principal virtue. But, as H L Mencken is supposed to have said (though may not have done), “for every complex problem there is an answer that is clear, simple, and wrong”. This is a powerful example of that truth. 

After 50 years, the doctrine needs re-evaluation. Suitably, given Friedman’s connection with the University of Chicago, the Stigler Center at its Booth School of Business has just published an ebook, Milton Friedman 50 Years Later, containing diverse views. In an excellent concluding article, Luigi Zingales, who promoted the debate, tries to give a balanced assessment. Yet, in my view, his analysis is devastating. He asks a simple question: “Under what conditions is it socially efficient for managers to focus only on maximising shareholder value?” 

His answer is threefold: “First, companies should operate in a competitive environment, which I will define as firms being both price- and rule-takers. Second, there should not be externalities (or the government should be able to address perfectly these externalities through regulation and taxation). Third, contracts are complete, in the sense that we can specify in a contract all relevant contingencies at no cost.” 

Needless to say, none of these conditions holds. Indeed, the existence of the corporation shows that they do not hold. The invention of the corporation allowed the creation of huge entities, in order to exploit economies of scale. Given their scale, the notion of businesses as price-takers is absurd. Externalities, some of them global, are evidently pervasive. Corporations also exist because contracts are incomplete. If it were possible to write contracts that specified every eventuality, the ability of management to respond to the unexpected would be redundant. Above all, corporations are not rule-takers but rather rulemakers. They play games whose rules they have a big role in creating, via politics. 

My contribution to the ebook emphasises this last point by asking what a good “game” would look like. “It is one”, I argue, “in which companies would not promote junk science on climate and the environment; it is one in which companies would not kill hundreds of thousands of people, by promoting addiction to opiates; it is one in which companies would not lobby for tax systems that let them park vast proportions of their profits in tax havens; it is one in which the financial sector would not lobby for the inadequate capitalisation that causes huge crises; it is one in which copyright would not be extended and extended and extended; it is one in which companies would not seek to neuter an effective competition policy; it is one in which companies would not lobby hard against efforts to limit the adverse social consequences of precarious work; and so on and so forth.” 

It is true, as many authors in this compendium argue, that the limited liability business corporation was (and is) a brilliant institutional innovation. It is true, too, that making corporate objectives more complex is likely to be problematic. So when Steve Kaplan of the Booth School asks how corporations should trade off many different goals, I have sympathy. Similarly, when business leaders tell us they are now going to serve the wider needs of society, I ask: first, do I believe they will do so; second, do I believe they know how to do so; and, last, who elected them to do so? 

Yet the problems with the grossly unbalanced economic, social and political power inherent in the current situation are vast. On this, the contribution of Anat Admati of Stanford University is compelling. She notes that corporations have obtained a host of political and civil rights but lack corresponding obligations. Among other things, people are rarely held criminally liable for corporate crimes. Purdue Pharma, now in bankruptcy, pleaded guilty to criminal charges for its handling of the painkiller OxyContin, which addicted vast numbers of people. Individuals are routinely imprisoned for dealing illegal drugs, but as she points out “no individual within Purdue want to jail”. 

Not least, unbridled corporate power has been a factor behind the rise of populism, especially rightwing populism. Consider how one goes about persuading people to accept Friedman’s libertarian economic ideas. In a universal-suffrage democracy, it is really difficult. To win, libertarians have had to ally themselves with ancillary causes — culture wars, racism, misogyny, nativism, xenophobia and nationalism. Much of this has of course been sotto voce and so plausibly deniable. 

The 2008 financial crisis, and the subsequent bailout of those whose behaviour caused it, made selling a deregulated free-market even harder. So, it became politically essential for libertarians to double down on those ancillary causes. Mr Trump was not the person they wanted: he was erratic and unprincipled, but he was the political entrepreneur best suited to winning the presidency. He has given them what they most wanted: tax cuts and deregulation. 

There are many arguments to be had over how corporations should change. But the biggest issue by far is how to create good rules of the game on competition, labour, the environment, taxation and so forth. Friedman assumed either that none of this mattered or that a working democracy would survive prolonged attack by people who thought as he did. Neither assumption proved correct. The challenge is to create good rules of the game, via politics. Today, we cannot.

Mandated ‘respect’ for others’ opinions hurts free speech

A polite but deadly serious Cambridge university row over the issue shows the need for ‘tolerance’ instead writes CAMILLA CAVENDISH in The FT


If you wander down Trumpington Street in Cambridge, you will find yourself at one of the birthplaces of the English Reformation. It was here, at The White Horse Inn, that scholars secretly met to debate the smuggled works of Martin Luther. By preaching Luther’s heretical belief that ordinary people should read the Bible for themselves, and not just accept the word of priests, Cambridge was one of the places that helped to transform European thought. So it is especially sad that the University of Cambridge is now pushing proposals which could undermine free speech. 

The university’s governing body, the Regent House, is voting until Tuesday on a new code of conduct which demands that staff, students and visitors be “respectful” of different opinions. This harmless-sounding clause is meant to support free speech. It was drawn up partly in response to faculty who were alarmed after a student backlash led to the rescinding of a fellowship to the psychologist Jordan Peterson, a self-styled “professor against political correctness”. But the row also demonstrates how dangerous it can be when well-meaning people try to please everyone. “Respect” is a soft-edged word that means different things to different people. It can easily morph into a prohibition against giving offence. 

 “There’s no limit to how far this could go,” I was told by Arif Ahmed, the young philosopher at Gonville and Caius college who is leading a rebellion of academics against the code. “Did the Charlie Hebdo cartoons respect Islam? Was [18th-century Scottish philosopher] David Hume a respecter of religion? Who decides? A word like ‘respect’ is worse than useless. You can slide all the way from civility to a kind of deference which would refrain from attacking Islam, Christianity or Judaism.” 

The new code defends “robust and challenging” debate, and “free speech within the law”. However, it seems to undermine those clauses with the demand that staff, students and visitors be “free to express themselves without fear of disrespect or discrimination”. 

The problem is that there is no limit to what any individual might define as disrespect. Furthermore, while all beliefs should get a hearing they cannot, as Stephen Fry has said, command the heart. That is why Oxford university’s concise policy on free speech says that not all theories deserve equal respect. Cambridge’s proposal threatens the lifeblood of academic progress: the right to argue, challenge and, potentially, change minds. 

Strangely, Cambridge’s authorities seem unable to see the problem. Over the summer, concerned academics asked its executive body, the Council, if it would replace the word “respect” with “tolerance”. This would promote courtesy but ensure that people could openly disagree. The Council refused. At that point, a polite but deadly serious war broke out. A growing number of academics now support amendments to the proposed policy, including philosopher Simon Blackburn, economist Diane Coyle and statistician Sir David Spiegelhalter. 

Mystified why the Council rejected the seemingly helpful “tolerance” proposal, I asked the university’s vice-chancellor, Stephen Toope. He doesn’t remember the rebels’ proposal being “so clearly articulated at the time”. He told me, robustly, that “free speech is utterly central, and if we don’t uphold it we’re not doing our job”. He also warned against “overinterpreting what is meant to be a very high level statement”. Professor Toope has chaired meetings with the neutrality expected of his role. “I am not taking a position on ‘respect’ or ‘tolerance’,” he said, “though I have heard some people say they don’t like the word ‘tolerance’ as it makes it seem as if other views are to be discredited.” 

This, surely, goes to the heart of the issue. Tolerance is an ancient concept, and the best protector of free speech when people strongly disagree with each other: it allows issues to be aired and weaknesses exposed. I happen to deplore the pro-life movement. I have marched against it in the US and donated to pro-choice campaigns. But I defend pro-lifers’ right to make their case. I also note that pro-life charities have become vociferous in favour of free speech, along with some Jewish and feminist groups. Proponents of unfashionable causes often discover the importance of freedom of expression, which underlines its value. 

The Cambridge row shows how hard it is for institutions to keep their footing in this new world of outrage. Twenty years ago, English universities felt little responsibility towards students beyond the lecture hall. Today, they are beset by activism, and demands for censorship from the political left and right. 

The way to navigate these choppy waters is surely with the rigour and precision that characterise the best academic work. The vagueness of language in Cambridge’s new code lacks both. Some academics worry that it will have a chilling effect on who they invite and what they say, and that this may extend to their own contracts. “If the respect agenda becomes entrenched in disciplinary and grievance procedures, and arguments which used to be sorted out by people saying ‘grow up and stop being silly’ fall to intervention by HR busybodies, that will mean the end of academic tenure as we know it,” Ross Anderson, Cambridge Professor of Security Engineering, told me. 

Such fears may be exaggerated. But the code’s fudge is dangerous. Do we really want to risk returning to a world where enquiring minds huddle together in secret, debating banned works and wondering if they dare say what they believe? If universities don’t do everything in their power to prevent such a reversal, they are not worthy of the title.

Thatcher or Anna moment? Why Modi’s choice on farmers’ protest will shape future politics

Modi can retreat like Manmohan Singh did under pressure from the Anna Hazare movement, or push farm reforms in Margaret Thatcher's style. writes SHEKHAR GUPTA in The Print



Has the farmers’ blockade of Delhi brought Narendra Modi to his Thatcher moment or Anna moment? It is up to Modi to answer that question as India waits. It will write the course of India’s political economy, even electoral politics, in years to come.

For clarity, a Thatcher moment would mean when a big, audacious and risky push for reform, that threatens established structures and entrenched vested interests, brings an avalanche of opposition. That is what Margaret Thatcher faced with her radical shift to the economic Right. She locked horns with it, won, and became the Iron Lady. If she had given in under pressure, she’d just be a forgettable footnote in world history.

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Anna moment is easier to understand. It is more recent. It was also located in Delhi. Unlike Thatcher who fought and crushed the unions and the British Left, Manmohan Singh and his UPA gave in to Anna Hazare, holding a special Parliament session, going down to him on their knees, implicitly owning up to all big corruption charges. Singh ceded all moral authority and political capital.

By the time Anna returned victorious for the usual rest & recreation at the Jindal fat farm in Bangalore, the Manmohan Singh government’s goose had been cooked. Anna was victorious not because he got the Lokpal Bill. Because that isn’t what he and his ‘managers’ were after. Their mission was to destroy UPA-2. They succeeded. Of course, helped along by the spinelessness as well as guilelessness of the UPA.

Modi and his counsels would do well to look at both instances with contrasting outcomes as they confront the biggest challenge in their six-and-a-half years. Don’t compare it with the anti-CAA movement. That suited the BJP politically by deepening polarisation; this one does the opposite. It’s a cruel thing to say, but you can’t politically make “Muslims” out of the Sikhs.

That “Khalistani hand” nonsense was tried, and it bombed. It was as much of a misstep as leaders of the Congress calling Anna Hazare “steeped in corruption, head to toe”. Remember that principle in marketing — nothing fails more spectacularly than an obvious lie. As this Khalistan slur was.

The anti-CAA movement involved Muslims and some Leftist intellectual groups. You could easily isolate and even physically crush them. We are merely stating a political reality. The Modi government did not even see the need to invite them for talks. With the farmers, the response has been different.

Besides, this crisis has come on top of multiple others that are defying resolution. The Chinese are not about to end their dharna in Ladakh, the virus is raging and the economy, downhill for six quarters, has been in a free fall lately. Because politically, economically, strategically and morally the space is now so limited, this becomes the Modi government’s biggest challenge.

Also read: Shambles over farmers’ protest shows Modi-Shah BJP needs a Punjab tutorial

Modi has a complaint that he is given too little credit as an economic reformer. That he has brought in the bankruptcy law, GST, PSU bank consolidation, FDI relaxations and so on, but still too many people, especially the most respected economists, do not see him as a reformer.

There is no denying that he has done some political heavy lifting with these reformist steps. But some, especially GST, have lost their way because of poor groundwork and execution. And certainly, all that the sudden demonetisation did was to break the economy’s momentum. His legacy, so far, is of slowing down and then reversing India’s growth.

Having inherited an economy where 8 per cent growth was the new normal, now RBI says it will be 8 per cent, but in the negative. It isn’t the record anybody wanted in his seventh year, with India’s per capita GDP set to fall below Bangladesh’s, according to an October IMF estimate.

The pandemic brought Modi the “don’t waste a crisis” opportunity. If Narasimha Rao and Manmohan Singh with a minority government could use the economic crisis of 1991 to carve out a good place for themselves in India’s economic history, why couldn’t he now? That is how a bunch of audacious moves were announced in a kind of pandemic package. The farm reform laws are among the most spectacular of these. Followed by labour laws.

This is comparable now to the change Margaret Thatcher had dared to bring. She wasn’t dealing with multiple other crises like Modi now, but then she also did not have the kind of almost total sway that Modi has over national politics. Any big change causes fear and protests. But this is at a scale that concerns 60 per cent of our population, connected with farming in different ways. That he and his government could have done a better job of selling it to the farmers is a fact, but that is in the past.

The Anna movement has greater parallels, physically and visually, with the current situation. Like India Against Corruption, the farmers’ protest also positions itself in the non-political space, denying its platform to any politician. Leading lights of popular culture are speaking and singing for it. Again, there is widespread popular sympathy as farmers are seen as virtuous, and victims. Just like the activists. Its supporters are using social media just as brilliantly as Anna’s.

Also read: How protesting farmers have kept politicians out of their agitation for over 2 months

There are some differences too. Unlike UPA-2, this prime minister is his own master. He doesn’t need to defer to someone in another Lutyens’ bungalow. He has personal popularity enormously higher than Manmohan Singh’s, great facility with words and a record of consistently winning elections for his party.

But this farmers’ stir looks ugly for him. His politics is built so centrally on the pillar of “messaging” that pictures of salt-of-the-earth farmers with weather-beaten faces, cooking and sharing ‘langars’, offering these to all comers, then refusing government hospitality at the talks and eating their own food brought from the gurdwara while sitting on the floor, and the widespread derision of the “Khalistani” charge is just the kind of messaging he doesn’t want. In his and his party’s scheme of things, the message is the politics.

Thatcher had no such issues, and Manmohan Singh had no chips to play with. How does Modi deal with this now? The temptation to retreat will be great. You can defer, withdraw the bills, send them to the select committee, embrace the farmers and buy time. It isn’t as if the Modi-Shah BJP doesn’t know how to retreat. It did so on the equally bold land acquisition bill, reeling under the ‘suit-boot ki sarkar’ punch. So, what about another ‘tactical retreat’?

It will be a disaster, and worse than Manmohan Singh’s to the Anna movement. At the heart of Modi’s political brand proposition is a ‘strong’ government. It was early days when he retreated on the land acquisition bill. The lack of a Rajya Sabha majority was an alibi. Another retreat now will shatter that ‘strongman’ image. The opposition will finally see him as fallible.

At the same time, farmers blockading the capital makes for really bad pictures. These aren’t nutcases of ‘Occupy Wall Street’. Farmers are at the heart of India. Plus, they have the time. Anybody with elementary familiarity with farming knows that once wheat and mustard, which is most of the rabi crop in the north, is planted, there isn’t that much to do until early April.

You can’t evict them as in the many Shaheen Baghs, and you can’t let them hang on. Even a part surrender will finish your authority. Because then protesters against labour reform will block the capital. That’s why how Modi answers this Thatcher or Anna moment question will determine national politics going ahead. Our wish, of course, is that he will choose Thatcher over Anna. It will be a tragedy if even Modi were to lose his nerve over his boldest reforms.

Mixopathy - Unscientific Society

 

Whataboutery or Whataboutism explained!