Rakesh Mohan’s trilogy

I just finished reading a series of three articles that Rakesh Mohan wrote on RBI and the government relationship. He wrote about the attempts to scuttle its independence, to extract a higher dividend out of it, the changes to the composition of the RBI Board and the proposal to set up an independent Board for payment and settlement, away from RBI and on the composition of the Monetary Policy Committee, etc. It is a good three-part series.

The series was a much-needed articulation of the priorities of RBI and their importance in the national context.

I did not know about the changes to the process of nomination of Government directors made in 2012:

After the Department of Financial Services was carved out from the Department of Economic Affairs in the Ministry of Finance, provision has been made for a second nonvoting government director on the RBI board. This provision amending the RBI Act was quietly inserted in 2012 as a clause in the Factoring Regulation Act (!) with almost no discussion in Parliament. [Link]

Also, the other amendment that the government had made in 2013 to make directors demit office after the completion of four years without appointing their replacement promptly.

Notice that both these changes happened under the watch of the UPA II government. Yet, the Congress was very strident in its criticism of the government’s thrusting of the decision on demonetisation on the RBI in 2016 as an infringement of its independence.

His points on the merits of the Board for Payments and Settlements being under the RBI umbrella and on the drawbacks of the composition of the Monetary Policy Committee (MPC) without all Deputy Governors were well made.

A credible central bank is actually a boon to the government and an instrument it can deploy in times of stress. That credibility is earned through protecting, preserving and nurturing its independence rather than through curtailing it or chipping it away slowly and slyly.

You can read all the three articles here, here and here. They may be behind a paywall, though.

While Dr. Rakesh Mohan’s articles constitute a defence of the institution, Rajeev Malik raises some valid questions on the recent meeting of the Monetary Policy Committee of the Reserve Bank of India. They are pertinent questions. I am sure that the MPC was not unaware of them.

They just attached a different risk weights to the arguments than Rajeev does here. It backfired in the market – based on stock market reaction. I am not sure that it is the relevant yardstick to judge a central bank’s effectiveness.

Be that as it may, these views were worth airing.

De-globalisation and cultural marxism

Rana Foroohar has a well-written piece in FT on how elites are failing to see deglobalisation coming. It marshalls facts to show that ‘elites’ may be misreading or not reading the situation at all correctly.

Personally, the useful thing about the piece is that it cites research on elites’ strengths and weakness in cognition. The biggest weakness is overconfidence and that negates all other strengths in my view.

Since, we all come under the category of ‘elites’ as per the definition – it is not just material wealth or positions of power that determine ‘elite’ status – we must beware of the weakness in ourselves.

The paper cited by her can be accessed here.

This is a good time (make it, ‘great time’) to be a student for the world is in a churn/inflection point. One order is gone or is going and the other order is trying to establish (or, re-establish) itself. I am not even saying if it is good or bad. It is inevitable.

The pendulum will keep swinging from one fashion to the other. That is what Rana Foroohar’s article is hinting it – it is back to nationalism-socialism now. I think there are some common elements between Nationalism on the Right and Cultural Marxism that Anthony Mueller writes about here. Both don’t like markets, competition and both are elitist in their own ways.

Some of his observations, well-known, bear repetition:

Communist authors spread the insight that the socialist dictatorship must come in disguise. Before socialism can succeed, the existing culture must change. Control of the culture must precede political control.

His observation that cultural Marxism is dictatorship of the intellectuals is quite apt and spot on.

Unfortunately, for India, all of these have adverse implications both culturally and economically. In the Indian context, we need less of socialism for the economy (from our starting point) because, in practice, it has always meant state control over assets and incomes and their utilisation or distribution. The state’s record in that is not pretty. It has neither brought about equity nor prosperity.

With respect to cultural Marxism, it has the potential to wreak moral destruction of the individual through its attack on the dominant culture and religion in the country. Thus, India faces twin risks, in this regard. The following paragraph appears pertinent in the Indian context:

The way toward the rule of the cultural Marxists is the moral corruption of the people. To accomplish this, the mass media and public education must not enlighten but confuse and mislead. The media and the educational establishment work to put one part of the society against the other part. While group identities get more specific, the catalog of victimization and history of oppression becomes more detailed. To turn into a recognized victim of suppression is the way to gain social status and to obtain the right to special assistance, of respect and social inclusion.

Anthony Mueller identifies at least two weaknesses in cultural Marxism: one is that it is utopian in nature and because of its inherent nature of promoting group conflicts, it cannot grab political power. Presumably because it divides and does not assimilate or integrate to form a coherent and powerful electoral or voting bloc. He does not discuss ways and means to exploit those weaknesses to nullify the effectiveness or mute the appeal of cultural Marxism.

Worrying and dangerous times for the world and for India.

Economic growth is not an entitlement

That is the title of my column in MINT today. I call the downward revision to global growth forecasts by the International Monetary Fund good news. Spontaneous economic growth ended after about twenty five years since the end of WW II. After that, it has been mostly sporadic. But, financial leverage has propelled economic growth. That is why there have been so many attendant problems  – climate change, environmental and ecological damage, workplace stress, mental health issues for individuals and for families, income and wealth inequality, etc.

Hence, a period of sub-par economic growth for the world economy would be a bitter but necessary medicine for the world economy. Yes, it won’t be easy. But, when the body has become dysfunctional and unhealthy, how can any medicine cure it without side effects and painful and long side effects, at that?

Elsewhere in the column, I wrote that India needs an adult-like conversation on its economy but that it lacks a quorum. It is true of global economy too.

Read my column here.

IMF Asia Regional Outlook

Some highlights:

Pakistan is missing from the summary of the Regional Outlook. Bangladesh has grown faster than India in the last two years (2016 and 2017). In 2018, India and Bangladesh are projected to grow at the same rate. In 2019, India is expected to overtake Bangladesh in its growth rate. Other than Bangladesh, Nepal, Mongolia and Thailand have seen their growth rates revised higher. Everyone else has their growth rate revised lower.

The only thing that IMF could say is that countries should open up their Services sector. I think that they are running out of ideas.

You can find the summary here.

Invisible band vs. Invisible hand

Jonathan Haidt’ column from 2015 on the organisational structure in Sears is useful. But, it is not clear if the blame on the bankruptcy of Sears can be laid solely on that. At some level, there is some merit in having a clean organisational structure with each business in Sears operating as an independent company.  But, he points out that this ruled out cooperation between businesses and that Sears businesses even privileged Samsung brand rather than Sears’ own brand of consumer durables in shelf spaces. Perhaps, the KRAs of the CEOs of each of the businesses could have also included a component for cooperation and synergies between the businesses. An interesting case-study for students of organisational structure and behaviour, etc.

It cannot be said that much of this wisdom is hindsight, because Sears is in trouble now. The article was written three years ago. It can be even called prescient, actually.

He concludes that invisible bands matter as much as inevitable hands. Nice. Read the post here.

Validating Jonathan Haidt is Nick Hanauer whose speech delivered on September 30th at MIT, where Nick Hanauer won the 2018 Harvard and MIT Humanist of the Year award calls for killing ‘Homo Economicus’ to bring about the destruction of ‘neo-liberalism’ that celebrates selfishness or self-centredness.

His profile says that he is a Seattle-based serial entrepreneur, venture capitalist, author, and activist with a knack for identifying and building transformative business models.

These are powerful sentences:

The neoliberal claim that the sole purpose of the corporation is to enrich shareholders is the most egregious grift in contemporary life. Corporations are granted limited liability in exchange for improving the common good. Thus, the true purpose of the corporation is to build great products for customers, provide good jobs for employees, provide a fair return to shareholders and to make their communities stronger—in coequal measure. [Link]

I am all for the pendulum swinging in the direction of greater consideration to other stakeholders, esp. in the developed societies. But, I am far more ambivalent on their benefits for developing societies where these might be interpreted (or, misinterpreted) deliberately as calling for greater government intervention, regulation and the return of State-directed socialism. Let us see.