Saturday, October 20, 2007

Time, Time, Time,

I've gotta think about something to say that's positive. Or some sort of critique that goes somewhere. A post a day. Oh well, ... on busy days, I'll just refer to stuff that I've read. ... Say, I know ... I'll pick the low-hanging fruit that is a Marcus Gee editorial.

Now then, ... t'would appear to be the case that Gee has chosen to write about India's economic reforms, as opposed to US foreign policy. Why not? One can mindlessly cheerlead for neo-liberalism anywhere one wants to, since it's the mindlessness that's important. Not the specific details of time and place.

The article is called: "India May be on the Right Track; Too Bad it's on the Slow Train," and with a title like that, you know you're in for some sensitive, nuanced analysis. As near as I can tell, it appears that Marcus has got ahold of an OECD report: ("Economic Survey of India 2007") and has decided that not only is it the god's own truth on everything, but that it requires Marcus's attention to really bring the prescriptions in the report home to the timid, half-heartedly neoliberal Indians.

According to Gee, the OECD report celebrates India's recent economic progress, which is due to "market" reforms, but because India is so powerful and proud, the report's authors have to restrain their enthusiasm about recommending, or pressing, further market advice on it.

you can almost picture its authors biting their knuckles to hold themselves back. ... What they must really want to say is: Are you blind? Can't you see what a dose of the market has done for you? Can't you see what you could achieve if you took a little more?
What has the dose of the market done for India? According to the OECD, and Gee, it has done the following:

1. Over the course of two decades, the contribution of exports as a proportion of India's GDP has tripled.

I'm not sure why that statistic is something to unreservedly celebrate. It's actually quite meaningless on its own. It could of course mean that India is earning foreign currency which is then being used to invest in the country's development. But it also means that India's exposure to foreign economic conditions has grown, and it is less in control of its own destiny.

2. India's GDP has grown to the point where, "by one measure," it is the third-largest in the world, and is growing by 9 percent a year.

At the end of the day, I'm going to agree with Gee, that India's overall economy has grown due to its involvement with the rest of the world's economy. What I'm not going to do is to point to every statistic of growth as an unmixed blessing that surely means more food in the belly of every Indian child.

As India re-enters the world economy, foreign dollars can buy up Indian assets and Indian rupees can buy up foreign assets, and this bidding can build up money values of the Indian economy so that it's GDP appears to have brought more real economic growth than it has. As well, Indians fleeing the subsistence economy of the countryside for the paid labour market might represent an relatively substantial increase in those individuals' per capita contribution to the GDP but with no real increase in their personal living standards. They might have worked for adequate food and shelter then, but are now working for pay that affords them inadequate food and shelter, but it is only the latter work that got entered into national economic statistics.

Besides increasing the monetized (and therefore easily countable) proportion of India's economy, there's also the reality that even real GDP growth can be distributed unequally, a reality that appears to have been lost on the OECD and Gee. Determined to talk about GDP growth six ways to Sunday, he continues:

Annual growth in gross domestic product per capita - a standard measure of a country's wealth - has accelerated from just 1.25 per cent in the three decades after India achieved independence in 1947 to 7.5 per cent at present, a rate that will double average income in 10 years.

Here's the thing: I could never see myself writing such a sentence without thinking about the fact that the average income of myself and Bill Gates is something like $10,000,015,000. Not only is it the case that this growth in India's GDP is not being distributed evenly; as we'll see, some people (many people) are seeing absolute losses in their economic well-being. You can take homeless people and sell them to pet-food companies and increase the GDP. I doubt those homeless people would be all that pleased about their re-entry into the world of government economic statistics. This is basic stuff. It's why us "irresponsible" leftists don't cheer whenever the economy grows by half-a-percent. You have to dig a little more deeper, or else you'll be forced to write drivel, week after week, for major national newspapers at a respectable personal salary, forever.

That, by the way, was the sum total of Gee's account of the OECD report's glowing progress report for market reforms in India. That exports are a larger proportion of a substantially growing GDP. Gee then turned his attention to what India needs to do to achieve even more spectacular GDP numbers:

What's frustrating is New Delhi's hesitance to take the next step. The reforms that are needed to sustain and ramp up India's boom are blindingly obvious; the government's policy progress painstakingly slow. Hobbled by its Communist coalition partners, afraid to take on rural lobbies and other entrenched interests, the Congress Party administration of Prime Minister Manmohan Singh is failing to do what's needed.

How truly superb it must be to be Marcus Gee! Like a child, he's constantly frustrated that others fail to see the world as he does, but also like a child, he harbours these gigantic hopes, nay, certainties, that all will be much, much, better, if only the rest of the world does the few simple things that he asks of it.

So what "blindingly obvious" policies do the Indians have to implement? Obviously, workers have too many rights in India, and it must be made easier in a country of over one billion (1,000,000,000) people, to toss people willy-nilly into destitution. Nothing bad could ever happen with a totally deregulated labour market in India!

First, reform labour markets. Job protection laws are stricter than in any other OECD country except the Czech Republic and Portugal.

Here's the chart Gee is referring to for this factoid:

You'll also notice that India is roughly up there with those economic basket-cases of Germany and Sweden! T'would seem that protecting workers isn't always pure death for a national economy.

But anyway, let's look at the unemployment rate in the Czech Republic. It's about 10 percent, the same as most other Continental European economies. (You can read the standard neoliberal argument for the causes of this unemployment here, but really, I can't get too excited about policy prescriptions that call for the total disregard of older or disabled workers, and for the elimination of social housing.)

What's Portugal's unemployment rate? It's 8.2 percent. Again, similar to other European nations which enjoy a better quality of life than do the majority of the world, including the majority in the United States, when things like crime, healthcare, and housing, are factored in.

The point is that both of these countries share a number of statistics with other European countries, statistics which India's people would no doubt enjoy for themselves. From his comfortable perch, Gee wants to throw a country of one-billion people over to the roller-coaster of the unregulated capitalist labour market.

What does the OECD have to say about India's labour market?

Economic growth could be made more inclusive by achieving faster growth in regular employment, as opposed to casual and self-employment. Although regular employment has risen, it still represents only 15% of total employment and its growth has been almost exclusively in the smaller, least productive enterprises. Employment in firms with more than ten employees accounts for only around 3¾ per cent of total employment (one quarter of regular employment) and has been falling. Indeed, India has a much smaller proportion of employment in enterprises with ten or more employees than any OECD country. The number of workers has also fallen in the manufacturing sector where the share of labour income in value-added is low compared to other countries and capital-intensity is relatively high. Such developments indicate that India is not fully exploiting its comparative advantage as a labour-abundant economy.

Pardon me, but this all sounds a little strange. Only 15 percent of Indian workers work in regular employment, and while only one-quarter of those work in firms with more than ten employees, supposedly allowing firms employing over 100 workers to more easily fire people is supposed to kick-start India's labour market into creating more jobs? All this on top of the fact that India's regular employment sector has been shedding workers, we should make it easier for them to shed more workers, in order to create jobs? (I know there's some sort of bullshit neoliberal logic behind this about the costs of hiring people being prohibitive and blah, blah, blah, but I'm more certain that this is more about allowing rich people to buy up big firms and trim their labour costs quickly and easily to recoup their expenses, than it is about creating jobs for Indian workers.)

Then there's the complaint that India's large firms are too capital-intensive, and that India isn't exploiting its comparative advantage in cheap labour. If Indian capitalists and managers are pursuing a capital-intensive approach to manufacturing, who is to say that this is wrong? Aren't automated factories and robotics and all the rest part of the cutting-edge of manufacturing these days? What is this report asking for? That India recreate the assembly-lines of the United States circa 1950?

None of that section seemed to make sense, even on its own grounds.

Gee and the OECD then set their sites on India's retail sector. According to Gee, laws protecting small shopkeepers are hurting efficiency and keeping prices high. Foreign retail firms should be allowed into India, to compete freely with domestic shops and chains. One would imagine that there are hundreds of thousands, if not millions, of shopkeepers in India. Doing to them what Wal-Mart does to thousands of small retailers across North America, only on a far greater scale and in a country as desperately poor on a per capita basis as India is, sounds to me like further dogmatic, arrogant foolishness.

(Of course, Gee and his ilk will argue that bigger, more "efficient" Western retailers will bring lower prices to Indian consumers, thus raising living standards, but notice how this is just one more instance of definite short-term pain for only promised long-term gains.)

The next "blindingly obvious" policy for India to pursue is to "get government out of business." Here Gee reveals his dogmatic opposition to any field of the economy being handled by the public sector. Anything can be a business. Education, health care, you name it. In some cases, a public sector monopoly can do a better job than can a competing private sector, or a regulated private monopoly. In this case, Gee specifically refers to electricity. Much of the energy sector remains in "clumsy state hands."

This impacts on Gee's fourth recommendation; that the Indian government invest in improving its economic infrastructure of roads, ports, railways, etc. These areas are underserved by India's state-dominated electricity system, wherein management is so lax as to allow 40 percent of the power to be siphoned by the grid before it gets to its clients, causing frequent brownouts.

Finally, while it's spending all this money upgrading its ports, railways, and roads, India has to do more to reign in its budget deficits. While they've been doing some work in this regard, they could do much more, as Gee confidently (simplistically) puts it: "governments still spend far too much on wasteful food and fuel subsidies that don't really help the poor. "

So, what should they do Mister Gee? Eliminate these subsidies? Alter these subsidies? There's actually a healthy debate going on in India about the structure of the food subsidies. From his track record, there's no doubt that Gee, dogmatically believing that subsidies distort market, thinks that they should be totally eradicated. The OECD argues that these subsidies could be better targeted, so that the benefits actually reach the poor they're intended for, but as the last link shows, how one subsidizes poor farmers, and poor consumers, in a country with so much poverty, is a difficult matter. Do you wipe-out local farmers during times of local shortage by bringing in subsidized grain for consumers? Do you pay farmers subsidized prices and sell to consumers at a loss and perhaps open yourself open to cheating from farmers? Do you hand out food vouchers that can be stolen and sold on the black market?

I can't really fault the OECD's complaints about corruption and mismanagement. I'm not a fan of the OECD's overall analysis, but they're a serious institution. The sloppy arrogance of Gee throughout his article just rubs me the wrong way.

And the truth of the matter is a lot more murky than Gee realizes. For instance, the "dose of the market" has created better GDP numbers, but the standard of living of the majority of the population appears to have actually fallen, as this report from the CCPA makes clear:

According to Professor Usta Patnaik, “The average [Indian] family is absorbing annually nearly 100 kilograms less in food-grain today than a mere five years ago. [That is] a phenomenal drop... never seen before in the last century of India’s history.” Ninety percent of pregnant women aged between 15 and 49 are malnourished and anaemic.

Even though the Indian economy is booming, the country has actually slipped in the UN Human Development Index ranking from 124th to 127th. Driving this deterioration has been the reduction
of official spending on health care and education. Health care spending dropped from 1.4% of GDP in 1991-92 to 0.9% in 2001-02. As in China (see second article in this series: Monitor, October 2005), harsh poverty in the countryside has forced millions of people to migrate to cities in search of employment. More than 30 million people inhabit urban slums in India.

The political fall-out from this disaster might be one reason that India's mainstream politicians are so leery of embracing anymore of Gee's and the OECD's neo-liberal snake-oil. In the 2004 elections, the people of India rejected the slick, pro-globalization campaign of the incumbent Bharatiya Janata Party (BJP), and opted for the professed "secularism and self-reliance" of Sonia Gandhi and the Congress Party.
The vote against the BJP was a vote against trade liberalization and economic reform for global corporate welfare. It was a vote for self-reliance, basic needs, human dignity, economic justice.
In Indian history, these values have been referred to as "Swadeshi". The opposite of "Swadeshi" is economic dependency, of the kind we experienced during colonialism and are now experiencing through W.T.O., World Bank, IMF driven corporate globalisation which allows Monsanto's profits to grow while Indian peasants get into debt which allows Suez to sell our sacred Ganges water to us.

And why shouldn't the majority reject this model? Other articles mention the tens of thousands of farmers' suicides in the countryside, and I wondered whether this was a long-term problem in that country of over one billion people, but this article from Vandana Shiva explicitly states that the problem first started in 1997, as pro-corporate agricultural policies began to push more and more small farmers into hopeless debt:

1997 witnessed the first emergence of farm suicides in India. A rapid increase in indebtedness, was at the root of farmers taking their lives. Debt is a reflection of a negative economy, a loosing economy. Two factors have transformed the positive economy of agriculture into a negative economy for peasants - the rising costs of production and the falling prices of farm commodities. Both these factors are rooted in the policies of trade liberalization and corporate globalisation.


As debts increase and become unpayable, farmers are compelled to sell kidneys or even commit suicide. More than 25,000 peasants in India have taken their lives since 1997 when the practice of seed saving was transformed under globalisation pressures and multinational seed corporations started to take control of the seed supply. Seed saving gives farmers life. Seed monopolies rob farmers of life.

There's so much more I could type, but Gee's probably moved on to more nonsense for me to tackle. One last bash of the old boy's bean is going to have to do it for this post.

Gee mentions taking the economy out of the "clumsy" hands of the state, and handing it over to the supposedly more competent, professional hands of the private sector. Gee must imagine that the public sector bribes itself, that it cuts corners and does a shitty job because public sector bureaucrats have less magical goodness than do private sector bureaucrats.

Only, it was the private, foreign, Union Carbide, making decisions at the home office in the United States that produced the Bhopal tragedy.

The behaviour of foreign firms leaves a lot to be desired. Coca-Cola was taking ground water needed by local farmers for its bottling plant in Uttar Pradesh.

And regarding energy and the private sector, there's the small matter of the hyper-corruption surrounding corporate citizen Enron, and it's hydro-electric project in India:

The impugned contract had involved annual payments to Enron of $430 million for Phase I of the project (740 megawatts), with Phase II (1,624 megawatts) being optional. The "renegotiated" power purchase agreement makes Phase II of the project mandatory and legally binds the Maharashtra State Electricity Board (MSEB) to pay Enron the sum of $30 billion! It constitutes the largest contract ever signed in the history of India.

Indian experts who have studied the project have called it the most massive fraud in the country's
history. The project's gross profits work out to between $12 billion and $14 billion. The official return on equity is more than 30 percent. That's almost double what Indian law and statutes permit in power projects. In effect, for an 18 percent increase in installed capacity, the MSEB has to set aside 70 percent of its revenue to pay Enron. There is, of course, no record of what mathematical
formula was used to "re-educate" the new government. Nor any trace of how much trickled up or down or sideways or to whom.

But there's more: In one of the most extraordinary decisions in its not entirely pristine history, in May 1997 the Supreme Court of India refused to entertain an appeal against Enron.

Today, everything that critics of the project predicted has come true with an eerie vengeance. The power that the Enron plant produces is twice as expensive as its nearest competitor and seven times as expensive as the cheapest electricity available in Maharashtra. In May 2000 the Maharashtra Electricity Regulatory Committee (MERC) ruled that temporarily, until as long as was absolutely necessary, no power should be bought from Enron. This was based on a calculation that it would be cheaper to just pay Enron the mandatory fixed charges for the maintenance and administration of the plant that it is contractually obliged to pay than to actually buy any of its exorbitant power. The fixed charges alone work out to around $220 million a year for Phase I of the project. Phase II will be nearly twice the amount.

Two hundred and twenty million dollars a year for the next twenty years. Meanwhile, industrialists in Maharashtra have begun to generate their own power at a much cheaper rate, with private generators. The demand for power from the industrial sector has begun to decline rapidly. The MSEB, strapped for cash, with Enron hanging like an albatross around its neck, will now have no choice but to make private generators illegal. That's the only way that industrialists can be coerced into buying Enron's exorbitantly priced electricity.

Finally, I leave with this link describing Vanadana Shiva's despair at the lame characterization of the globalization debate from Jagdish Bhagwati:

The book should have been called "An attack on peoples' movements" not "In defense of globalisation" because its entire content is an attack on civil society, its institutions and its leaders.
There are no arguments in defense of globalisation. There are no empirical facts, no concrete realities. The dominant paradigm has to be loosing when one of its leading proponents spends more time quoting Shakespeare than giving us a picture of people's economic realities.

That's all folks!


Alison said...

Excellent piece, Thwap.
Particularly appreciate the link to Roy's piece on Enron in India.
I remember sharing it with a visitor from Brazil who had no sympathy at all for my outrage.
"You're not getting it," she said. "This is how it has always been in the 'third world', but now it's coming for you."

thwap said...

The weaker we're made through unemployment, lack of social programs, and the steady destruction of our civil liberties, the more they'll be able to do to us.

The only silver lining in that cloud is that the poorer they make the world's main consumer market, the sooner their idiotic system collapses.

Into what? That's the question.