Gurcharan Das's Blog, page 17
March 6, 2011
It is immoral for us to slow growth
Chinese Premier Wen Jiabao said last Sunday that his country's annual growth target has been lowered to seven percent for the next five years. He made this remark in an on-line chat with the nation. "We must no longer sacrifice the environment for the sake of rapid growth as that is unsustainable," he said. He urged the government to shift its focus from GDP growth to the quality and benefits of growth.
Premier Wen's statement comes in the wake of huge concerns in the West over the impact of China's (and India's) economic growth on the global environment. China's GDP growth reached 10.3 percent last year and is expected to be nine percent this year. Although he was talking to his netizens, Wen's message was aimed at his critics in the West. His remarks appear to be eminently sensible--who could be against protecting nature? But is Premier Wen right to slow down the growth rate of a poor nation? I do not think so.
There is a saying that a woman can either be beautiful or faithful but not both. The proverb illustrates the human tendency to create mental boxes and fit people into them. Wen appears to have fallen into the ecological trap in believing that you can either have high growth or a clean environment. We too will soon be asked that if China is taking steps to lower its growth rate, why is India still obsessed with high growth? Indeed, the day after Wen's online chat, India's finance minister Pranab Mukherjee presented a road map in the Budget to achieve a 9% GDP growth rate, hoping that it might go higher.
The dichotomy between high growth and protecting the environment is false. A nation can grow rapidly and save its environment just as a woman can be both beautiful and faithful. The only sensible way to grow, in fact, is to make peace with nature and save the green-blue film on which life itself depends. But to ask a poor country to slow down its economic growth is immoral—it is to condemn its poor to penury. The past two hundred years teach us that the poor will only rise into the middle class unless there is growth. Growth creates jobs and wealth, which the government taxes and spends on roads, education and healthcare, and this enables the poor to rise. Indeed, 350 million Chinese and 225 million Indians have risen out of poverty in the past 25 years because of high growth.
Once upon a time I used to be a huge fan of the ecology movement, but I feel gloomy today. I am upset that so many fine projects have suffered from endless delay at the hands of activists. No one calculates the real cost of delay--the lost future of a starving child who does not realise a dream when a factory or power plant does not come up. The movement has evolved into an anti-science, anti-growth, secular religion. I shudder to think that if activists had been as zealous in the 1960s, they would have killed India's 'green revolution', which multiplied our wheat and rice crop many times and succeeded in feeding 500 million additional mouths.
Meanwhile, bureaucrats and politicians have captured ecology and made it a lucrative business in India. Indeed, the prime minister complained in 2009, "Environmental clearances have become a new form of Licence Raj and corruption." Hence, I was glad when a clean, modern minister came in 2009. But my optimism soured quickly when he turned activist and began to re-open major projects, such as Niyamgiri, Lavasa and POSCO, and proceeded to "make an example" of them. His arbitrariness resounded around the world and turned investors against India. The Reserve Bank reported recently that India's foreign direct investment declined by 36% in the first half of 2010-11 primarily because of "environment policies in mining, integrated township projects and ports." Of course, the environment ministry must ensure that projects meet standards, but it must do so by creating transparent institutions and not through arbitrary acts.
All of us must become sensitive to nature, especially with the rapid degradation of forest cover and global warming. But we must also be aware of the fundamentalist and irrational nature of the ecology movement, which is willing to sacrifice human opportunities to preserving nature. Environmentalists have nostalgia for vanishing, old lifestyles and refuse to admit that their earlier Malthusian predictions were wrong. Despite massive population growth, people around the world are better off today, and as prosperity and education spreads, population growth has begun to slow down in most countries. Obviously, we have to protect nature, but if it does come to a choice, human beings, I think, must precede nature. To believe the contrary is not only elitist but also immoral.
Premier Wen's statement comes in the wake of huge concerns in the West over the impact of China's (and India's) economic growth on the global environment. China's GDP growth reached 10.3 percent last year and is expected to be nine percent this year. Although he was talking to his netizens, Wen's message was aimed at his critics in the West. His remarks appear to be eminently sensible--who could be against protecting nature? But is Premier Wen right to slow down the growth rate of a poor nation? I do not think so.
There is a saying that a woman can either be beautiful or faithful but not both. The proverb illustrates the human tendency to create mental boxes and fit people into them. Wen appears to have fallen into the ecological trap in believing that you can either have high growth or a clean environment. We too will soon be asked that if China is taking steps to lower its growth rate, why is India still obsessed with high growth? Indeed, the day after Wen's online chat, India's finance minister Pranab Mukherjee presented a road map in the Budget to achieve a 9% GDP growth rate, hoping that it might go higher.
The dichotomy between high growth and protecting the environment is false. A nation can grow rapidly and save its environment just as a woman can be both beautiful and faithful. The only sensible way to grow, in fact, is to make peace with nature and save the green-blue film on which life itself depends. But to ask a poor country to slow down its economic growth is immoral—it is to condemn its poor to penury. The past two hundred years teach us that the poor will only rise into the middle class unless there is growth. Growth creates jobs and wealth, which the government taxes and spends on roads, education and healthcare, and this enables the poor to rise. Indeed, 350 million Chinese and 225 million Indians have risen out of poverty in the past 25 years because of high growth.
Once upon a time I used to be a huge fan of the ecology movement, but I feel gloomy today. I am upset that so many fine projects have suffered from endless delay at the hands of activists. No one calculates the real cost of delay--the lost future of a starving child who does not realise a dream when a factory or power plant does not come up. The movement has evolved into an anti-science, anti-growth, secular religion. I shudder to think that if activists had been as zealous in the 1960s, they would have killed India's 'green revolution', which multiplied our wheat and rice crop many times and succeeded in feeding 500 million additional mouths.
Meanwhile, bureaucrats and politicians have captured ecology and made it a lucrative business in India. Indeed, the prime minister complained in 2009, "Environmental clearances have become a new form of Licence Raj and corruption." Hence, I was glad when a clean, modern minister came in 2009. But my optimism soured quickly when he turned activist and began to re-open major projects, such as Niyamgiri, Lavasa and POSCO, and proceeded to "make an example" of them. His arbitrariness resounded around the world and turned investors against India. The Reserve Bank reported recently that India's foreign direct investment declined by 36% in the first half of 2010-11 primarily because of "environment policies in mining, integrated township projects and ports." Of course, the environment ministry must ensure that projects meet standards, but it must do so by creating transparent institutions and not through arbitrary acts.
All of us must become sensitive to nature, especially with the rapid degradation of forest cover and global warming. But we must also be aware of the fundamentalist and irrational nature of the ecology movement, which is willing to sacrifice human opportunities to preserving nature. Environmentalists have nostalgia for vanishing, old lifestyles and refuse to admit that their earlier Malthusian predictions were wrong. Despite massive population growth, people around the world are better off today, and as prosperity and education spreads, population growth has begun to slow down in most countries. Obviously, we have to protect nature, but if it does come to a choice, human beings, I think, must precede nature. To believe the contrary is not only elitist but also immoral.
March 4, 2011
Politics of freebies promises a bleak future
The stench of corruption spreads quickly from Delhi. With the news that Tamilnadu chief minister's daughter, Kanimozhi, is soon to be charged by the CBI, the money trail in Raja's 2G scam seems to be established. The noose is tightening and DMK's PR machine is working overtime to spread 'sincere lies' before the state election on April 13. Each of the major parties--the DMK and the AIDMK--commands the loyalty of about a third of the voters. The Congress, DMK's junior partner, controls 12% to 15% of the vote and Vijaykanth, AIDMK's partner, holds around 9%. The AIDMK has the anti-incumbency advantage but it will be a close contest. What should concern us, however, is another form of corruption raging under the bright Tamil sun that challenges our political morality.
The DMK believes it won the last election because it promised free television sets. To promise is one thing but the DMK government actually gave away millions of TVs! The sets were paid for from the state treasury--not party funds. In the coming election, voters are being promised fans, mixies, laptop computers, and 4 gm of gold for a poor bride's mangalsutra. Tax payers in Tamilnadu are outraged but Kanimozhi asks, 'what is wrong in giving people what they need?' People wonder, however, if free TVs have a link to DMK owning a Tamil TV channel. Some greedily ask, will the next politician offer Rs one lakh cash?
It is not that Tamils don't value integrity. They just don't expect it from their politicians. They cynically believe that politics is the art of the sincere lie and cite the example of Dhritarashtra in the Mahabharata, who flourished through hypocrisy and nepotism. Chennai is not so different from Hastinapur and Tamil voters would prefer to be bribed openly. Populist give-aways have always been a great temptation. Roman politicians devised a plan in 140 B.C. to win votes of the poor by giving away cheap food and entertainment—they called it 'bread and circuses'. Punjab's politicians gave away free power and water to farmers, which destroyed the state's finances and also the soil (as farmers over-pumped water). Hence, Haryana has supplanted Punjab as the nation's leader in per capita income.
The idea of free TVs and mixies is morally troubling. The election commissioner has pleaded helplessness, saying that freebies only contravene the law when they are distributed before an election. Most of us do accept state spending on public goods. Roads, parks, and schools are examples of public goods as they are open to everyone. However, spending public money on private goods (such as TVs) seems offensive. It is legitimate for the state to equip schools and public libraries with computers but not to give free laptops to a section of the people. It is just as wrong to erect statues to oneself with public funds. But the Supreme Court has ruled otherwise. It has recently absolved Mayawati, arguing that the people of U.P. had elected her and can remove her at the next election if they object to her statues. There is a fine but important line between public and private goods.
Nothing quite explains Indian politics as the fact that we embraced democracy before capitalism. The rest of the world did it the other way around. India became a full fledged democracy in 1950 with universal suffrage and extensive human rights, but it was not until 1991 that it opened up to the accountability of market forces. This curious historic inversion means that we learned about rights before we learned about duties. In the market place, one has to produce before one consumes and earn a salary before one can buy a TV. In the same way, an election is supposed to enforce accountability in competitive politics. A voter should vote on the basis of performance. Instead, the Tamil voter is going to vote for a free mixie. Because democracy came before capitalism, Indian politicians have a tendency to distribute the pie before it is baked.
It is ironic that Tamilnad should be the setting for this corrupt practice. The state has high literacy and a reputation for being one of India's best governed and most prosperous. It has had a succession of good administrations no matter which party was in power. Food rations actually reach PDS shops and NREGA wages are actually paid to the deserving! With prosperity, Tamils have outsourced menial work and are now learning Hindi in order to speak to their Bihari servants. But political morality evolves through experience.
Free TVs mean less money for investing in the future--in roads, ports, and schools. Eventually Tamilnad will pay a price—for without investment, growth will slow down. Ask the voters of Punjab. One day, the Tamil voter will also understand the trade-off—free TVs mean that their children will have a poorer future.
February 6, 2011
Is it Criminal to think small in India?
There are two spaces in the politics of India. And one of them is empty. The two spaces reflect the classic division between those who look ahead and aspire versus those who look back and complain. Our political parties cater to the second--to the victim in us through their politics of grievance. The present gridlock in the parliament is also symptom of the same dispirited politics—no party is sufficiently hungry for reform to break the logjam. No one reflects the spirit of a rapidly growing India. Nor is anyone thinking big--and it's criminal to think small in India. Until the second space is filled, our politics will not be whole.
Congress appeals to the victim in the 'aam admi' with an ever expanding menu of job guarantees, food, gas and kerosene subsidies, and more. The BJP panders to the sufferer of historical Muslim misrule and to Congress' minority vote-bank politics. Mayavati and caste parties focus on the historical injustice to Dalits and OBCs. The Shiv Sena gratifies the injured pride of the 'Marathi manoos'. All of this is about the politics of grievance and injustice.
India, however, is changing dramatically. It is nothing short of a miracle that it has become the world's second fastest growing economy in the midst of the most appalling governance. With high growth, mobility, and a demographic revolution of the young, Indians who aspire will soon overtake those who see themselves as victims. Pew surveys show that a majority of Indians believe that they are better off than their parents and that their children will do even better. The person who got the 750 millionth phone number last month was a village migrant whose dream keeps slipping as his calls keep dropping partly because A. Raja corruptly handed out the 2G spectrum. India's 100 millionth internet user in 2013 will have information which only the most privileged could access twenty years ago. No one in India's political life captures their hopes.
China's politicians do a far better job. While we debate if growth is pro-poor, China talks about growing rich. It understands that performance is a function of expectations. Those with higher expectations get higher performance. China no longer thinks itself a Third World country—it is challenging America today. In India, only a few politicians-- Nitish Kumar, Sheila Dixit, and Narendra Modi--appeal to the aspirers. They speak the language of governance, roads and schools. But we need many more of them.
When I put this to a powerful Congress politician, he said that 'India shining' had died in the 2004 election. I gently reminded him that India's high growth economy had delivered 300 million into the middle class; another 250 million had been lifted out of poverty since the 1980s. So, a total of 550 million aspirers are surely worth fighting over. 'Ah, but there are still another 550 million whiners, and their votes are more reliable than the shiners!' he said. If poverty were to magically disappear in India, the Congress party might lose its reason to exist.
Could the BJP become a party of aspiration? Vajpayee tried this when he unleashed the telecom and IT revolutions. His 'India shining' slogan did not lose the 2004 election—in fact, it was the defeat of key NDA allies in Andhra and Tamilnadu. But even he could not shed Hindutva. There is no one today in the BJP who has the courage and vision to discard the old baggage and convert it into a classical right of centre, secular party that stands single-mindedly for reforms and good governance.
Aspirational politics would tackle our problems differently. Take, for instance, food inflation. The politics of grievance applies short term bandages--it tries to catch hoarders, stops forward trading, forbids export of grains when the country has had a bumper rice harvest and expects a record wheat crop (while ignoring Rs 17,000 crores of grains rotting under the tarpaulins of FCI). The politics of aspiration would recapitalize and reform agriculture and raise long term supply—it would allow competition against FCI in the warehousing of food, permit foreign investment in retail to establish cold chains, and allow farmers to lease their lands in order to raise productivity.
Who will fill the empty space in Indian politics? None of our parties understands that we live in a time of revolutionary change. Could it be Rahul Gandhi? But so far he hasn't given any hint that he thinks big. India has doubled its cotton crop in the past five years; yet there have also been suicides of farmers in the cotton growing areas. Both facts are correct. Rahul Gandhi has chosen to focus on suicides. The future, however, will be built by those who focus on the first, who think big and give young Indians a sense of limitless possibilities.
Congress appeals to the victim in the 'aam admi' with an ever expanding menu of job guarantees, food, gas and kerosene subsidies, and more. The BJP panders to the sufferer of historical Muslim misrule and to Congress' minority vote-bank politics. Mayavati and caste parties focus on the historical injustice to Dalits and OBCs. The Shiv Sena gratifies the injured pride of the 'Marathi manoos'. All of this is about the politics of grievance and injustice.
India, however, is changing dramatically. It is nothing short of a miracle that it has become the world's second fastest growing economy in the midst of the most appalling governance. With high growth, mobility, and a demographic revolution of the young, Indians who aspire will soon overtake those who see themselves as victims. Pew surveys show that a majority of Indians believe that they are better off than their parents and that their children will do even better. The person who got the 750 millionth phone number last month was a village migrant whose dream keeps slipping as his calls keep dropping partly because A. Raja corruptly handed out the 2G spectrum. India's 100 millionth internet user in 2013 will have information which only the most privileged could access twenty years ago. No one in India's political life captures their hopes.
China's politicians do a far better job. While we debate if growth is pro-poor, China talks about growing rich. It understands that performance is a function of expectations. Those with higher expectations get higher performance. China no longer thinks itself a Third World country—it is challenging America today. In India, only a few politicians-- Nitish Kumar, Sheila Dixit, and Narendra Modi--appeal to the aspirers. They speak the language of governance, roads and schools. But we need many more of them.
When I put this to a powerful Congress politician, he said that 'India shining' had died in the 2004 election. I gently reminded him that India's high growth economy had delivered 300 million into the middle class; another 250 million had been lifted out of poverty since the 1980s. So, a total of 550 million aspirers are surely worth fighting over. 'Ah, but there are still another 550 million whiners, and their votes are more reliable than the shiners!' he said. If poverty were to magically disappear in India, the Congress party might lose its reason to exist.
Could the BJP become a party of aspiration? Vajpayee tried this when he unleashed the telecom and IT revolutions. His 'India shining' slogan did not lose the 2004 election—in fact, it was the defeat of key NDA allies in Andhra and Tamilnadu. But even he could not shed Hindutva. There is no one today in the BJP who has the courage and vision to discard the old baggage and convert it into a classical right of centre, secular party that stands single-mindedly for reforms and good governance.
Aspirational politics would tackle our problems differently. Take, for instance, food inflation. The politics of grievance applies short term bandages--it tries to catch hoarders, stops forward trading, forbids export of grains when the country has had a bumper rice harvest and expects a record wheat crop (while ignoring Rs 17,000 crores of grains rotting under the tarpaulins of FCI). The politics of aspiration would recapitalize and reform agriculture and raise long term supply—it would allow competition against FCI in the warehousing of food, permit foreign investment in retail to establish cold chains, and allow farmers to lease their lands in order to raise productivity.
Who will fill the empty space in Indian politics? None of our parties understands that we live in a time of revolutionary change. Could it be Rahul Gandhi? But so far he hasn't given any hint that he thinks big. India has doubled its cotton crop in the past five years; yet there have also been suicides of farmers in the cotton growing areas. Both facts are correct. Rahul Gandhi has chosen to focus on suicides. The future, however, will be built by those who focus on the first, who think big and give young Indians a sense of limitless possibilities.
January 2, 2011
Don't be silent, prime minister!
"The things we admire in men, kindness and generosity, openness, honesty, understanding and feeling, are the concomitants of failure in our system. And those traits we detest, sharpness, greed, acquisitiveness, meanness, egotism and self-interest, are the traits of success. And while men admire the quality of the first they love the produce of the second." In these famous lines, John Steinbeck, goes to the root of our present crisis in public morality.
He has also expressed the dilemma of every Indian mother who has to give a name to her son. Unlike the West, where everyone is called Tom, Dick or Harry, parents in India spend months trying to decide their child's name--they are, after all, forecasting its future. Torn between names that suggest goodness and success, they prudently choose success, which explains why every fifth Indian boy is called Arjun, and no one Yudhishthir.
Mahabharata's heroes come to mind because there are parallels between the epic's lament and the things we might say about our leaders today. Our republic has been in a state of continuing crises for months; the epic is a continuing repository of crises in public morality. Just as we have a problem with our governance institutions, so did the epic. What is at stake, both then and now, is our conception of success. Andimuthu Raja, former Minister of Communications, causes us discomfort because he has undermined this conception. Until recently, Raja was a huge success in the world's eyes—he had power, money and status. Then he fell. We turn to Yudhishthira, the epic's un-hero, to find out if there another way of engaging with the world. He (and Steinbeck) raise thorny questions: What price are we are willing to pay for worldly success? Is it possible to be both successful and good? Why high status cannot be conferred on a person who is honest and kind?
The problem of silence is at the heart of today's political crisis. The rage of the Indian public is over an honest Prime Minister who seems to be presiding over one of the most corrupt governments in recent Indian history. In these dark days, people have desperately wanted to clutch on to an honest man. They found one in selfless, ethical Manmohan Singh. So was Bhishma, yet he remained silent when Draupadi was being disrobed. When Draupadi insistently questioned the 'dharma of the ruler', everyone remained silent. Then Vidura scornfully spat out at the immorality of silence: when a crime occurs, he said, half the punishment goes to the guilty; a quarter to his ally; and another quarter falls on the silent.
Our prime minister's silence in the 2G scandal has been deeply disturbing. Soon after Raja announced his fraudulent policy in September 2007, the PM sensed that a crime of huge proportions was afoot. He wrote to Raja objecting to his policy, asking him to be transparent. Raja replied immediately, defending himself. On 3 January 2008, the PM acknowledged this letter—yes, 'acknowledged', as though he had acquiesced. This gave Raja the go-ahead to issue the licenses. In May 2010, the PM admitted that Raja had indeed written to him. Why did the Prime Minister fall silent after having objected to the policy?
Raja has shamed us before the world. We, however, have always known the ugly truth: India's corruption begins when one is born--you have to bribe someone to get a birth certificate. It ends when one dies, when you are forced to 'buy' a death certificate. In between lies a dreary life of civic unvirtue, of continuous rishwat and sifarish. Founded on such high ideals, why is India so corrupt? There is nothing wrong with our genes. And the issue that Yudhishthira and Steinbeck have raised is a universal problem. You cannot blame parents for wanting children to grow up to be winners in life's rat race. But you can teach children to do the right thing--not to be silent when they see a crime. You can also reduce corruption by reform of the institutions of governance.
What makes Draupadi's question admirable is her insistence on dharma. Huge energies are spent on debates between the political Left and the Right when the real divide is between right and wrong conduct. Manmohan Singh understands this. This is why he promised to attack corruption through governance reforms in 2004 when he came to power. Reforming is never easy—it is like waging a war at Kurukshetra—but it must be done. The purpose of the Mahabharata's war, we discover at the epic's end, was to cleanse the earth which was groaning under the accumulated iniquity of its rulers. Our own rulers should prepare for the same fate as befell the sons of Bharata, unless they act now. The rulers of France also lost the faith of their people and suffered that fate in 1789.
He has also expressed the dilemma of every Indian mother who has to give a name to her son. Unlike the West, where everyone is called Tom, Dick or Harry, parents in India spend months trying to decide their child's name--they are, after all, forecasting its future. Torn between names that suggest goodness and success, they prudently choose success, which explains why every fifth Indian boy is called Arjun, and no one Yudhishthir.
Mahabharata's heroes come to mind because there are parallels between the epic's lament and the things we might say about our leaders today. Our republic has been in a state of continuing crises for months; the epic is a continuing repository of crises in public morality. Just as we have a problem with our governance institutions, so did the epic. What is at stake, both then and now, is our conception of success. Andimuthu Raja, former Minister of Communications, causes us discomfort because he has undermined this conception. Until recently, Raja was a huge success in the world's eyes—he had power, money and status. Then he fell. We turn to Yudhishthira, the epic's un-hero, to find out if there another way of engaging with the world. He (and Steinbeck) raise thorny questions: What price are we are willing to pay for worldly success? Is it possible to be both successful and good? Why high status cannot be conferred on a person who is honest and kind?
The problem of silence is at the heart of today's political crisis. The rage of the Indian public is over an honest Prime Minister who seems to be presiding over one of the most corrupt governments in recent Indian history. In these dark days, people have desperately wanted to clutch on to an honest man. They found one in selfless, ethical Manmohan Singh. So was Bhishma, yet he remained silent when Draupadi was being disrobed. When Draupadi insistently questioned the 'dharma of the ruler', everyone remained silent. Then Vidura scornfully spat out at the immorality of silence: when a crime occurs, he said, half the punishment goes to the guilty; a quarter to his ally; and another quarter falls on the silent.
Our prime minister's silence in the 2G scandal has been deeply disturbing. Soon after Raja announced his fraudulent policy in September 2007, the PM sensed that a crime of huge proportions was afoot. He wrote to Raja objecting to his policy, asking him to be transparent. Raja replied immediately, defending himself. On 3 January 2008, the PM acknowledged this letter—yes, 'acknowledged', as though he had acquiesced. This gave Raja the go-ahead to issue the licenses. In May 2010, the PM admitted that Raja had indeed written to him. Why did the Prime Minister fall silent after having objected to the policy?
Raja has shamed us before the world. We, however, have always known the ugly truth: India's corruption begins when one is born--you have to bribe someone to get a birth certificate. It ends when one dies, when you are forced to 'buy' a death certificate. In between lies a dreary life of civic unvirtue, of continuous rishwat and sifarish. Founded on such high ideals, why is India so corrupt? There is nothing wrong with our genes. And the issue that Yudhishthira and Steinbeck have raised is a universal problem. You cannot blame parents for wanting children to grow up to be winners in life's rat race. But you can teach children to do the right thing--not to be silent when they see a crime. You can also reduce corruption by reform of the institutions of governance.
What makes Draupadi's question admirable is her insistence on dharma. Huge energies are spent on debates between the political Left and the Right when the real divide is between right and wrong conduct. Manmohan Singh understands this. This is why he promised to attack corruption through governance reforms in 2004 when he came to power. Reforming is never easy—it is like waging a war at Kurukshetra—but it must be done. The purpose of the Mahabharata's war, we discover at the epic's end, was to cleanse the earth which was groaning under the accumulated iniquity of its rulers. Our own rulers should prepare for the same fate as befell the sons of Bharata, unless they act now. The rulers of France also lost the faith of their people and suffered that fate in 1789.
December 26, 2010
Chance to start afresh
There is a lesson in the morality play that we are witnessing today which has been triggered off by the 2G financial scandal. It comes from a scene in Malcolm Gladwell's recent collection of essays called What the Dog Saw, and I have condensed it below:
On the afternoon of October 23, 2006, Jeffrey Skilling sat at a table at the front of a federal courtroom in Houston, Texas, waiting to be sentenced by the judge. Mr. Skilling was no ordinary criminal. He was wearing a navy blue suit and a tie. Huddled around him were eight lawyers. Outside, television-satellite trucks were parked up and down the block. Skilling was head of the energy firm, Enron, that Fortune magazine had ranked among the "most admired" in the world and valued by the stock market as the seventh-largest corporation in the United States. It had collapsed five years ago, and in May, Skilling had been convicted by a jury for fraud, and almost everything he owned had been turned over to compensate former shareholders.
"We are here this afternoon," Judge Simeon Lake began, "for sentencing in United States of America versus Jeffrey K. Skilling, Criminal Case Number H-04-25." The judge asked Skilling to rise. He then sentenced him to 292 months in prison – twenty-four years, one of the heaviest sentences ever given for a white-collar crime. He would leave prison an old man, if he left prison at all.
"I only have one request, Your Honor," said Daniel Petrocelli, Skilling's lawyer. "If he received ten fewer months, which shouldn't make a difference in terms of the goals of sentencing, if you do the math and you subtract fifteen percent for good time, he then qualifies under Bureau of Prison policies to serve his time at a lower facility. Just a ten-month reduction in sentence…." It was a plea for leniency. Skilling wasn't a murderer or a rapist. He was a pillar of the Houston community, and a small adjustment in his sentence would keep him from spending the rest of his life among hardened criminals. Judge Lake thought for a while, then he said "No".
Indians are not unfamiliar with Enron. As a result of its involvement in the beleaguered power plant at Dabhol, the words 'crony capitalism' entered our vocabulary in the 1990s. Unlike India, persons in high places in the United States serve time in jail. American judges are in the habit of meting out exemplary punishment, as Judge Lake did to Jeffrey Skilling of Enron. Indians would dearly like to substitute in the narrative above any number of names, although Andimuthu Raja, former Minister of Communications is the one that comes to our mind today.
Wasted rage?
As things stand in today's India, we investigate, charges are filed; we even establish guilt; but then years go by, and nothing happens. People lose interest. It would be a real shame if all the valuable rage we have accumulated over weeks in the 2G affair were to go waste. One way to ensure it does not happen is to actually put a few people behind bars this time and do it reasonably quickly. It would go a long way to restore our faith in the system.
In a recent opinion poll, 83.4 per cent of the people in eight major Indian cities believed that corruption had gone up after liberalisation, which only confirms that people still do not understand that corruption persists in India because reforms are incomplete and scams occur in sectors like mining and real estate, which have not yet been reformed. That it occurred in telecom, an otherwise reformed sector, does come as a surprise. It has happened because the minister created artificial scarcity in the spectrum and gave it away in driblets to those who allegedly bribed him. The scam could have been avoided if the licenses were awarded via open, transparent bidding on the Internet, as in the case of the 3G spectrum.
The 2G scandal should also remind us about the real corruption of India which does not make the headlines. The ordinary, small and medium entrepreneur still faces on the average 27 inspectors who have the power to close his factory unless he pays a bribe. The most notorious are those in the excise, sales, and the income tax departments. Of course, for every bribe-taker there is a bribe-giver, who is also guilty of wrongdoing. But remember, it is an unequal relationship. The citizen is always vulnerable before a person in authority. The official holds the threat of closing a citizen's enterprise. A few states have tried to rein in petty officials but mostly they run amok, rapaciously. Hence, many young, honest men and women today shy away from becoming entrepreneurs. The 'inspector raj' is one of the reasons that India has failed to create an industrial revolution.
Beginning of accountability
Returning to the big picture, it is a matter of some cheer that in recent months ministers have been sacked, serious inquiries have begun, individuals have been arrested. We are also heartened by Nitish Kumar's huge victory in the Bihar elections, which he claims was the result of good governance. We would like to believe that this is a turning point in our history, the beginning of some sort of accountability in our public life. It is sobering to remember, however, that we said the same thing in 1989 when Rajiv Gandhi's Congress-led government was defeated after the Bofors gun scandal when the Prime Minister's family and friends were allegedly involved in bribes and kickbacks.
We ought to take inspiration from the United States not only because it punishes guilty persons in high places as Judge Lake did in the narrative above, but it enforces its Foreign Corrupt Practices Act (FCPA) vigorously. If any of the telecom licensees in the 2G scam had been American companies—for example, AT&T-- India would have quickly found its smoking gun. Ten years ago, America's Justice Department was investigating 5 to 10 companies involving foreign bribery at any given time; today, it is 150. Under American inspiration, Britain just passed a new Bribery Act, which is even tougher than the U.S. law. To ensure that companies don't simply consider FCPA fines as a "cost of doing business," the U.S. attempts to jail corporate officials, both American and foreign.
The rage of the Indian public would be redeemed not only by jailing a few people but also by instituting reforms in the system similar to the American FCPA. Only then will some of the taint go away from an honest Prime Minister who seems to be presiding over one of the most corrupt governments in recent Indian history.
On the afternoon of October 23, 2006, Jeffrey Skilling sat at a table at the front of a federal courtroom in Houston, Texas, waiting to be sentenced by the judge. Mr. Skilling was no ordinary criminal. He was wearing a navy blue suit and a tie. Huddled around him were eight lawyers. Outside, television-satellite trucks were parked up and down the block. Skilling was head of the energy firm, Enron, that Fortune magazine had ranked among the "most admired" in the world and valued by the stock market as the seventh-largest corporation in the United States. It had collapsed five years ago, and in May, Skilling had been convicted by a jury for fraud, and almost everything he owned had been turned over to compensate former shareholders.
"We are here this afternoon," Judge Simeon Lake began, "for sentencing in United States of America versus Jeffrey K. Skilling, Criminal Case Number H-04-25." The judge asked Skilling to rise. He then sentenced him to 292 months in prison – twenty-four years, one of the heaviest sentences ever given for a white-collar crime. He would leave prison an old man, if he left prison at all.
"I only have one request, Your Honor," said Daniel Petrocelli, Skilling's lawyer. "If he received ten fewer months, which shouldn't make a difference in terms of the goals of sentencing, if you do the math and you subtract fifteen percent for good time, he then qualifies under Bureau of Prison policies to serve his time at a lower facility. Just a ten-month reduction in sentence…." It was a plea for leniency. Skilling wasn't a murderer or a rapist. He was a pillar of the Houston community, and a small adjustment in his sentence would keep him from spending the rest of his life among hardened criminals. Judge Lake thought for a while, then he said "No".
Indians are not unfamiliar with Enron. As a result of its involvement in the beleaguered power plant at Dabhol, the words 'crony capitalism' entered our vocabulary in the 1990s. Unlike India, persons in high places in the United States serve time in jail. American judges are in the habit of meting out exemplary punishment, as Judge Lake did to Jeffrey Skilling of Enron. Indians would dearly like to substitute in the narrative above any number of names, although Andimuthu Raja, former Minister of Communications is the one that comes to our mind today.
Wasted rage?
As things stand in today's India, we investigate, charges are filed; we even establish guilt; but then years go by, and nothing happens. People lose interest. It would be a real shame if all the valuable rage we have accumulated over weeks in the 2G affair were to go waste. One way to ensure it does not happen is to actually put a few people behind bars this time and do it reasonably quickly. It would go a long way to restore our faith in the system.
In a recent opinion poll, 83.4 per cent of the people in eight major Indian cities believed that corruption had gone up after liberalisation, which only confirms that people still do not understand that corruption persists in India because reforms are incomplete and scams occur in sectors like mining and real estate, which have not yet been reformed. That it occurred in telecom, an otherwise reformed sector, does come as a surprise. It has happened because the minister created artificial scarcity in the spectrum and gave it away in driblets to those who allegedly bribed him. The scam could have been avoided if the licenses were awarded via open, transparent bidding on the Internet, as in the case of the 3G spectrum.
The 2G scandal should also remind us about the real corruption of India which does not make the headlines. The ordinary, small and medium entrepreneur still faces on the average 27 inspectors who have the power to close his factory unless he pays a bribe. The most notorious are those in the excise, sales, and the income tax departments. Of course, for every bribe-taker there is a bribe-giver, who is also guilty of wrongdoing. But remember, it is an unequal relationship. The citizen is always vulnerable before a person in authority. The official holds the threat of closing a citizen's enterprise. A few states have tried to rein in petty officials but mostly they run amok, rapaciously. Hence, many young, honest men and women today shy away from becoming entrepreneurs. The 'inspector raj' is one of the reasons that India has failed to create an industrial revolution.
Beginning of accountability
Returning to the big picture, it is a matter of some cheer that in recent months ministers have been sacked, serious inquiries have begun, individuals have been arrested. We are also heartened by Nitish Kumar's huge victory in the Bihar elections, which he claims was the result of good governance. We would like to believe that this is a turning point in our history, the beginning of some sort of accountability in our public life. It is sobering to remember, however, that we said the same thing in 1989 when Rajiv Gandhi's Congress-led government was defeated after the Bofors gun scandal when the Prime Minister's family and friends were allegedly involved in bribes and kickbacks.
We ought to take inspiration from the United States not only because it punishes guilty persons in high places as Judge Lake did in the narrative above, but it enforces its Foreign Corrupt Practices Act (FCPA) vigorously. If any of the telecom licensees in the 2G scam had been American companies—for example, AT&T-- India would have quickly found its smoking gun. Ten years ago, America's Justice Department was investigating 5 to 10 companies involving foreign bribery at any given time; today, it is 150. Under American inspiration, Britain just passed a new Bribery Act, which is even tougher than the U.S. law. To ensure that companies don't simply consider FCPA fines as a "cost of doing business," the U.S. attempts to jail corporate officials, both American and foreign.
The rage of the Indian public would be redeemed not only by jailing a few people but also by instituting reforms in the system similar to the American FCPA. Only then will some of the taint go away from an honest Prime Minister who seems to be presiding over one of the most corrupt governments in recent Indian history.
December 5, 2010
Licence raj could kill microcredit
Although human life is less than the blink of an eyelid interms of the universe, it is staggering what it is able to create. Thirty million (yes, three crore!) poor women in Indian villages have taken small loans and started enterprises. With the loan they buy a cow to sell milk, or invest in a sewing machine to sell clothes or open a small kirana shop. What began as charity work by NGOs has become self-sustaining business, thanks to the entry of professional microfinance companies (MFIs) who are gradually replacing the village moneylender. In many districts, micro-credit is as common as a cell phone or a paan-walla. It has given women dignity, many of whom display the same intelligence and drive as our best entrepreneurs in Bangalore. It is financial inclusion at its best.
Success, however, creates envy as the Pandavas discovered in the Mahabharata. The problem began in October when politicians in Andhra Pradesh accused microfinance companies of loan sharking and causing suicides. They called for interest rate controls and told women to stop repaying loans. The police began to imprison MFI employees. The state issued an ordinance that requires MFIs to obtain government permission for each loan, which means that 1.3 crore tiny loans in Andhra villages will require prior approval—an impossible task, reminiscent of the dreaded licence raj and a clear invitation to bribery. Meanwhile, a credit culture of weekly repayments built over a decade is destroyed. Banks, fearing default, have stopped lending to MFIs, and this miraculous business is about to close, thus killing the hopes of three crore micro-entrepreneurs.
Microfinance companies charge 24% to 32% interest, which appears high until you realize that we too pay 30% on our credit cards and village money lenders charge 65% to 100%. Even the Nobel Prize winning Muhummad Yunus' Grameen Bank charges 20% interest (based on subsided credit). The truth is that it is expensive to deliver and collect loans weekly in rural areas. Customers do not think it high because they earn far more from the businesses they start with their loans. Success invites rogues and some loan sharks have disguised themselves as MFIs (with names like 'Vessel under the Borewell') and are giving the industry a bad name by using strong arm collection tactics. Suicides are, of course, a terrible tragedy. But it is extremely unlikely that suicides could have been caused suddenly by professional MFIs who have built trust with customers over a decade. If rogue MFIs are responsible, they should be punished. Why kill the ethical ones through Licence Raj?
Officials want to shut this business because it threatens the government's microfinance company which gives subsidized loans at only 3%. But women prefer private MFI loans because they say you need to bribe to get a government loan. And when you add the cost of multiple trips to the city and the bribe, the government loan ends up costing over 40%. The private MFI delivers the loan at the doorstep every seven days. Although official's claim that women are being duped, we all know that a poor person is far more aware of every paisa she earns and spends.
Politicians had so far ignored MFIs, but the successful public stock offering (IPO) of one of the microfinance companies woke them up. If MFIs were making good money, why couldn't they have a slice? They colluded with officials to announce a harsh ordinance that has brought the entire micro-lending industry to its knees. Since it is a matter of survival, they are waiting for MFIs to come running to them with bribes.
Microfinance should be regulated, but in an intelligent manner. MFIs should be transparent and be obliged to disclose interest rates. Competition should be encouraged—it will lead to lower rates. Rogue MFIs should be caught and punished. Imposing caps and harsh interest rates controls will destroy the industry as it did in Tunisia and Columbia. Countries that had tried to control loan rates have invariably killed their microfinance business for industry margins are thin. Our regulators should learn from countries like Peru, which has imposed capital buffers, and this has led to a stable environment.
This astonishing story reminds us that the poor do not need charity but opportunity. Just when microfinance's success is inspiring other businessmen to seek a 'fortune at the bottom of the pyramid', such as Tata's Nano, its own death would be a tragic loss. Crores of women would be thrown into the money lender's clutches. Andhra's image will also take a beating. Until recently, Andhra was hailed for pioneering this industry. An international official was heard to say recently, 'corrupt officials and politicians of Andhra are about to kill the chances of the poor'. The new Chief Minister of Andhra, Kiran Kumar, should now step in and not allow this to happen.
Success, however, creates envy as the Pandavas discovered in the Mahabharata. The problem began in October when politicians in Andhra Pradesh accused microfinance companies of loan sharking and causing suicides. They called for interest rate controls and told women to stop repaying loans. The police began to imprison MFI employees. The state issued an ordinance that requires MFIs to obtain government permission for each loan, which means that 1.3 crore tiny loans in Andhra villages will require prior approval—an impossible task, reminiscent of the dreaded licence raj and a clear invitation to bribery. Meanwhile, a credit culture of weekly repayments built over a decade is destroyed. Banks, fearing default, have stopped lending to MFIs, and this miraculous business is about to close, thus killing the hopes of three crore micro-entrepreneurs.
Microfinance companies charge 24% to 32% interest, which appears high until you realize that we too pay 30% on our credit cards and village money lenders charge 65% to 100%. Even the Nobel Prize winning Muhummad Yunus' Grameen Bank charges 20% interest (based on subsided credit). The truth is that it is expensive to deliver and collect loans weekly in rural areas. Customers do not think it high because they earn far more from the businesses they start with their loans. Success invites rogues and some loan sharks have disguised themselves as MFIs (with names like 'Vessel under the Borewell') and are giving the industry a bad name by using strong arm collection tactics. Suicides are, of course, a terrible tragedy. But it is extremely unlikely that suicides could have been caused suddenly by professional MFIs who have built trust with customers over a decade. If rogue MFIs are responsible, they should be punished. Why kill the ethical ones through Licence Raj?
Officials want to shut this business because it threatens the government's microfinance company which gives subsidized loans at only 3%. But women prefer private MFI loans because they say you need to bribe to get a government loan. And when you add the cost of multiple trips to the city and the bribe, the government loan ends up costing over 40%. The private MFI delivers the loan at the doorstep every seven days. Although official's claim that women are being duped, we all know that a poor person is far more aware of every paisa she earns and spends.
Politicians had so far ignored MFIs, but the successful public stock offering (IPO) of one of the microfinance companies woke them up. If MFIs were making good money, why couldn't they have a slice? They colluded with officials to announce a harsh ordinance that has brought the entire micro-lending industry to its knees. Since it is a matter of survival, they are waiting for MFIs to come running to them with bribes.
Microfinance should be regulated, but in an intelligent manner. MFIs should be transparent and be obliged to disclose interest rates. Competition should be encouraged—it will lead to lower rates. Rogue MFIs should be caught and punished. Imposing caps and harsh interest rates controls will destroy the industry as it did in Tunisia and Columbia. Countries that had tried to control loan rates have invariably killed their microfinance business for industry margins are thin. Our regulators should learn from countries like Peru, which has imposed capital buffers, and this has led to a stable environment.
This astonishing story reminds us that the poor do not need charity but opportunity. Just when microfinance's success is inspiring other businessmen to seek a 'fortune at the bottom of the pyramid', such as Tata's Nano, its own death would be a tragic loss. Crores of women would be thrown into the money lender's clutches. Andhra's image will also take a beating. Until recently, Andhra was hailed for pioneering this industry. An international official was heard to say recently, 'corrupt officials and politicians of Andhra are about to kill the chances of the poor'. The new Chief Minister of Andhra, Kiran Kumar, should now step in and not allow this to happen.
November 14, 2010
In search of America's liberty and India's dharma
It is one thing to win power, another to wield it. Two dispirited leaders met in Delhi this week. President Obama was chastened by dramatic electoral losses in the US Congress and Prime Minister Manmohan Singh disheartened by never ending corruption scandals. Both seemed to have forgotten the fundamentals of what created their respective democracies. Just as one cannot understand America without the concept of liberty, so is India inexplicable without the idea of dharma. At the end, their spirits did lift but both leaders have much work to do to restore confidence in their ideals.
John Boehner, the new speaker-to-be of the House of Representatives and an architect of the Republican recapture of power, explained Mr Obama's fall from grace. He said that President Obama had 'ignored the values that have made America—economic freedom, individual liberty and personal responsibility'. It does not matter if Mr Boehner is right; half of America believes it. Every nation is an 'imagined community' and what voters 'imagine' is what counts. America's image of itself is a land of opportunity and entrepreneurship—it is not a European style welfare state with a culture of entitlement. Mr Obama forgot liberty in is his pursuit of equality, say his critics.
Just as America's founding fathers were obsessed with liberty, so were India's founders deeply attached to dharma--so much so that they placed the dharma-chakra in the middle of the Indian flag. The Congress party still does not realize how much it is diminished by the relentless series of corruption scandals. People insistently ask, 'where is dharma in our public life?' This is a sad because we placed so much hope in a prime minister, who is personally honest and who promised good governance as his primary goal in his first three major speeches when the UPA first came to power in the middle of 2004.
The ideal that exists in the Indian imagination is of a ruler guided by 'dharma'. In this context, dharma does not mean 'religion', which is a recent usage that emerged only in the 19th century Bengal when Christian missionaries claimed that 'Jesus' path was the true dharma'. Hindus countered their challenge, claiming that theirs is sanatana, 'eternal', dharma. The meaning of public dharma which inspired the makers of our Constitution is 'doing the right thing'.
Although the economic circumstances of India and America are different, the answers to their problems are surprisingly similar. America is a rich country which is stuck in a jobless recovery--wages have been lagging for decades. Its best and brightest prefer to work in services and its industrial base is fast eroding. India is poor but rising rapidly. Like America, its high growth rate is driven by services, not by industry. In our euphoria over India's growth we forget that we still have to create an 'industrial revolution'. Only through low tech, labour intensive industry will we be able to create jobs for the rural masses.
Both India and America have to get their best and brightest to go into industry rather than glamour jobs in finance.
Instead of creating bogus jobs through employment guarantee schemes, India needs to create genuine jobs through private enterprise. To do this we need to reform our labour laws; pass the land acquisition law; remove 'inspector raj' which encourages bribery but discourages entrepreneurs; and push massive skills training through public private partnerships. Our present high growth will only take us to a middle income status--$5000-$7000 per capita income. After that India will get stuck like many Latin American states, unless we improve governance and create an industrial revolution. 'Let us not take high growth for granted', says the respected economist, Ajay Shah.
India should also emulate Mr Obama's obsession to improve the 'quality' of primary education in order to build our industrial base. He is the first Democratic president to say that 'bad teachers should be fired if they can't train kids to succeed'. India's problem with government schools is much worse than America's. One in four government primary school teachers here is absent and one in four is not teaching. Yet, our new Right to Education Act is silent on outcomes. Mr Obama's courage to take on teachers' unions in America should inspire our leaders to also speak out about the 'dharma of a teacher'.
Mr Obama's visit ended on a high note and two politicians have since been sacked. The real work must now begin. To restore dharma in public life, Dr Manmohan Singh must drop corrupt members in the UPA cabinet; push civil service reforms to make officials (including school teachers) accountable; enact labour reforms and the land acquisition bill; stop the dangerous Food Security Bill, which holds the potential for becoming the biggest corruption scandal in India's history. Only then will he begin to restore dharma and make India deserving of 'great power' status.
John Boehner, the new speaker-to-be of the House of Representatives and an architect of the Republican recapture of power, explained Mr Obama's fall from grace. He said that President Obama had 'ignored the values that have made America—economic freedom, individual liberty and personal responsibility'. It does not matter if Mr Boehner is right; half of America believes it. Every nation is an 'imagined community' and what voters 'imagine' is what counts. America's image of itself is a land of opportunity and entrepreneurship—it is not a European style welfare state with a culture of entitlement. Mr Obama forgot liberty in is his pursuit of equality, say his critics.
Just as America's founding fathers were obsessed with liberty, so were India's founders deeply attached to dharma--so much so that they placed the dharma-chakra in the middle of the Indian flag. The Congress party still does not realize how much it is diminished by the relentless series of corruption scandals. People insistently ask, 'where is dharma in our public life?' This is a sad because we placed so much hope in a prime minister, who is personally honest and who promised good governance as his primary goal in his first three major speeches when the UPA first came to power in the middle of 2004.
The ideal that exists in the Indian imagination is of a ruler guided by 'dharma'. In this context, dharma does not mean 'religion', which is a recent usage that emerged only in the 19th century Bengal when Christian missionaries claimed that 'Jesus' path was the true dharma'. Hindus countered their challenge, claiming that theirs is sanatana, 'eternal', dharma. The meaning of public dharma which inspired the makers of our Constitution is 'doing the right thing'.
Although the economic circumstances of India and America are different, the answers to their problems are surprisingly similar. America is a rich country which is stuck in a jobless recovery--wages have been lagging for decades. Its best and brightest prefer to work in services and its industrial base is fast eroding. India is poor but rising rapidly. Like America, its high growth rate is driven by services, not by industry. In our euphoria over India's growth we forget that we still have to create an 'industrial revolution'. Only through low tech, labour intensive industry will we be able to create jobs for the rural masses.
Both India and America have to get their best and brightest to go into industry rather than glamour jobs in finance.
Instead of creating bogus jobs through employment guarantee schemes, India needs to create genuine jobs through private enterprise. To do this we need to reform our labour laws; pass the land acquisition law; remove 'inspector raj' which encourages bribery but discourages entrepreneurs; and push massive skills training through public private partnerships. Our present high growth will only take us to a middle income status--$5000-$7000 per capita income. After that India will get stuck like many Latin American states, unless we improve governance and create an industrial revolution. 'Let us not take high growth for granted', says the respected economist, Ajay Shah.
India should also emulate Mr Obama's obsession to improve the 'quality' of primary education in order to build our industrial base. He is the first Democratic president to say that 'bad teachers should be fired if they can't train kids to succeed'. India's problem with government schools is much worse than America's. One in four government primary school teachers here is absent and one in four is not teaching. Yet, our new Right to Education Act is silent on outcomes. Mr Obama's courage to take on teachers' unions in America should inspire our leaders to also speak out about the 'dharma of a teacher'.
Mr Obama's visit ended on a high note and two politicians have since been sacked. The real work must now begin. To restore dharma in public life, Dr Manmohan Singh must drop corrupt members in the UPA cabinet; push civil service reforms to make officials (including school teachers) accountable; enact labour reforms and the land acquisition bill; stop the dangerous Food Security Bill, which holds the potential for becoming the biggest corruption scandal in India's history. Only then will he begin to restore dharma and make India deserving of 'great power' status.
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