Stuff that happened

I was at the MINT Asia-HT Leadership Summit held in Singapore on Friday, 13th April. Found Chandrababu Naidu impressive in terms of presenting his views. Of course, he was selling too hard. Nitin Gadkari was disarming and had a smiling disposition. Wish the Indian Prime Minister copied some of that. Tony Blair delivered the keynote speech after lunch. He was impressive. Had a self-deprecating humour. He is partially responsible for the mess that Iraq still is. But, one has to admit that he did come across as a thoughtful guy.

He said that politicians enter office most popular and least capable and leave office least popular and most capable!

He also recalled how Bill Clinton deftly dodged a reporter’s question on whether he was speaking to the next British Prime Minister when he was meeting with Tony Blair, then the leader of the Opposition. Either a YES or a NO would have been bad answers. Clinton was facing his own re-election in 1996 in a few months when this incident happened. He deftly said that he hoped that Tony Blair was speaking to the next President of the United States! That is really on-the-feet thinking and diplomacy.

India’s former foreign secretary Dr. S. Jaishankar made some pertinent observations on the state of play between Asia and West. He said that if Asian nations favoured a multipolar world, they should work towards multipolarity in Asia, to begin with. Second, he said that it might be premature to write off the West. I quite agree with both.

That said, writing this on Saturday, after the ‘surprise’ America-led missile attack again on Syria, one year after the last attack and the last charge that Assad used chemical weapons on his own people, I find myself nodding in appreciation that China has opposed the Western air strikes. As the British MP George Galloway told a reporter, there is no due process. In any case, how can the Western media that criticses Trump at every opportunity suddenly finds something to appove of? In their eyes, how does this one become right? The response of the journalist in this interview to the former British General is simply stunning.

Tucker Carlson of Fox News is worth watching in these two videos.

MarkGB, in his blog, has this explanation as to the real motivation behind the missile attack on Syria:

Of course your government would lie to you, they are lying to you right now. This has nothing to do with saving lives – bombing kills people. This is about preventing the Syrian government regaining total control of the country. It’s about what it’s always been about – breaking the country up, taking the oil, putting the Qatari pipeline through Syria to rival Russia’s dominance of the European oil market. It’s about keeping the region de-stabilsed so that the Apartheid regime in Tel-Aviv can take more of the energy resources in the Golan Heights…and sooner or later…take the water resources in southern Lebanon. [Link]

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The post-WW II order

The Editor
New York Times

Dear Sirs or Madam,

This has reference to the article by Peter Goodman (‘The Post-World War II Order Is Under Assault From the Powers That Built It’, published online on March 26, 2018 – https://www.nytimes.com/2018/03/26/business/nato-european-union.html).

I first comment on some specific statements made by Mr. Goodman before offering general comments.

Naïve comment:

But American leaders have failed to deliver job training and other  programs that might have cushioned the blow for communities hurt by imports.

The scale of the dislocation and jobs displacement was so huge as not to be amenable to such romantically naïve prescriptions.

Faulty logic:

Mr. Trump’s trademarks — “Make America Great Again,” and “America First” — underscore his forsaking of his country’s traditional commitment to collective ideals.”

This is an example of ultimate finessing:

“But if the justice of the liberal order has been contentious, now its basic endurance appears in question.”

An order that is not just will not endure. Period. The cumulative injustice perpetrated by the order has now threatened its basic endurance. That is the way to frame the sentence and understand the developments.

Barking at the wrong tree:

He appears to subscribe to the notion that the United States, the largest economy on earth, must unabashedly pursue its self-interest, free of constraints like naïve reverence for the rules of the global trading system.”

This statement would have been authentic and correct had it been directed at China.

Let us rephrase it and that would make a lot more sense:

“Xi appears to subscribe to the notion that China, the second largest economy on earth, must unabashedly pursue its self-interest, free of constraints like naïve reverence for the rules of the global trading system.”

My comments:

Collectivist ideals were easy to forge in the bloddy aftermath of the WW II,e especially after the holocaust induced killings.

Rising prosperity – again, relatively easy, after the Great Depression and WW II – made it easy to commit to ‘collectivist ideals’.

Then, in the aftermath of the 1979 Soviet entry into Afghanistan and the tantalising opening up of China to the West, it was easy to renew commitment to collectivist ideal. The common threat was clearly recognised and always a visible and identifiable enemy enables one to define oneself as ‘not the enemy and what it/he stands for’.

Then, in the 1990s, after the collapse of the Soviet Union and the reunification of Germany, optimism about the Western system of capitalism and the Grand Euro project cemented the collectivism.

In the new millennium, after 09/11, the threat of ‘Islamic terrorism’ provided the glue.

But, while all these were going, we had countervailing forces that were chipping away at the collectivist glue – technology, outsourcing and offshoring – that concentrated profits in few hands.

Technological developments, on their part, weakened familial ties, glues and increased the atomisation of families and societies, leaving humans feeling lonely, vulnerable and stressed. The onward and relentless march of technology was another of the ‘Globalist’ projects.
All that they can offer in compensation for what they had and are still unleashing is ‘Universal Basic Income’ – arrogant and stupid at the same time.

Nothing much has changed in the world of finance either. The rise of finance that ruined economies has not been arrested. Even nine years after the crisis of 2008, average bonuses on Wall Street had returned to the levels of 2006!

Blame the ‘globalists’ for the failure of the ‘global project’. Not the populists and the nationalists. They are doing just the final rites on the corpse. The murder of the ‘global project’ was done by the so-called globalists.

Until the world gets it and until people like Goodman gets it, the populists are not going to be pushed back. They will be strengthened by these false framing of the issue and the narrative.

Thank you.
Sincerely,
Anantha Nageswaran

GDP and welfare index

In 2016, two economists created a welfare index. GDP growth and that index correlated well. Recently, IMF economists had extended that welfare index to include environmental sustainability. Again, GDP growth correlates well with this expanded welfare index too.

GDP growth is the best welfare policy and the best redistribution policy too.

A succinct blog post by IMF Research. Links to the underlying papers are there in the post.

 

Are we ‘inevitably’ evil? – the story of the year

NY Times magazine published a very long piece titled, ‘The case against Google’. It will probably be the article of the year for me. It is a business case study, a public policy case study and a business ethics case study – all rolled into one. All of these are interwoven into the personal story of two small entrepreneurs whose search engine proved more powerful than Google for certain types of queries and how they paid for it!

Public policy students and analysts will appreciate the spirit behind ‘anti-trust’. In the process, you learn the story of Standard Oil, the story of Microsoft. Microsoft did win its appeal against anti-Trust decisions. It did not have to break up. But, the legal challenges – even though they failed – made the company a lot more sensitive and allowed an upstart (called Google) to emerge.

Google’s behaviour may not have been against consumer interests but was it simply fair?

One can also reflect on the spiritual and philosophical lessons of this. When Google was formed, it took on the motto, ‘Don’t be evil’. Has it lived up to it? Or, as one grows big, powerful and influential, does it become part of the DNA or almost inevitable to become ‘evil’? Is that true, almost without exception, for individuals, institutions, corporations and sovereigns?

[Note: Google’s new parent Alphabet abandoned that motto and took up, ‘Do the right thing’, circa 2015. Don’t be evil is simple and absolute. ‘Doing the right thing’ is relative, can be subject to interpretation and it can be bent. The yardsticks are malleable.]

Then, does it follow that if you are self-aware, you limit your own growth and stay small, lest you become inevitably evil?

Do we realise that, once we start rationalising, we are no longer wedded (but already divorced) to our values? In fact, the rationalisation is merely a confirmation of the divorce that would have happened some time earlier.

Is there no better way at all than to become inevitably evil? What is that ‘better way’ if there is one? What does it take to traverse down that path? Do the modern society and its organising principles militate against individuals, institutions and businesses walking down that path? Or, is that question too a form of rationalisation? Isn’t it implicit in the question that we have simply re-arranged our priorities?

How do we stop rationalising or, better, realise that we have started rationalising? Is it about having fearless upstarts and advisors telling us that? Does it work?

In the Indian epic Ramayana, Kumbakarnan warns Ravana eloquently of the doom that he was courting by having brought Sita forcibly to his kingdom. It did not work. It was too late. In Mahabharat,  Vithurar was the voice of wise counsel in the Kaurava court. Even Vikarnan warns his brother, Duryodhana of the destruction that awaits in  the path that he had chosen to walk on. No avail.

Indeed, even the wise ones and the exalted souls are not exempt. The illusion of size, power and influence shrouds their intellect. Knowledge, spirituality and reason retreat.

Therefore, ‘are we doomed to end up like this only?

Utterly fascinating, utterly educative and utterly and ultimately sobering, about us. [Link]

Philosophical about PPP

PPP in the subject header stands for Public Private Partnerships. Gulzar has a terrific post on that, in the context of the privatisation of utilities and the railway network in the UK. A great summary.

He should link this to the post (another terrific one) on corporate ethics in India. What is the difference? May be, one is too sophisticated and one is not. But, does that matter to the outcomes?

He should also link this post to the NYT page link he had given in one of his ‘Weekend Reading Links’.

Now, let us get philosophical.

How do we solve this? If governments are captured, how do you expect the government to extricate itself out of it? It is now powerless. Ex-ante, it had. Now, it does not. It is captured.

The only way is to wait for change agents to come when a crisis presents itself. Over time, the change agents are captured too and we wait for newer change agents! It is an unending struggle between power and people.

Lot of permanent fodder for bloggers 🙂

Punarapi Jananam; Punarapi Maranam. Endless cycle.

Two examples:

(1) Differentiated banking – inefficient – one size – one umbrella – scale – exploitation – conflict of interest – opacity – management bandwidth – households hit – fat bonuses – trim banks – back to differentiated banking.

(2) Higher taxes cripple private incentives – lower taxes – system gamed – business concentration – capital income rises faster than labour income – raise taxes.

The lesson for policymakers and critics is that: solutions will keep coming back in cycles because contexts keep changing or keep going and coming around in circles.

So, there is no permanent pro-market; no permanent pro-government attitude; no permanent fixation on low taxes or high taxes. No permanent commitment to fiscal policy solutions or monetary policy solutions. No permanent commitment to re-distribution nor to economic growth.

That is a bit like Hinduism of yore. Everything goes. Contexts dictates the prescriptions just as occasions dictate the dress we choose from the wardrobe. Even Dharma was and is context-specific in Hinduism.

But, that is too demanding, even of intellectuals. A permanent state of abstraction or being unsettled is not easy to handle. Clear and ‘black or white’ demarcations appeal to our bounded rationality. We like things to be settled. ‘Happily ever after’ appeals to us for we do not like to revisit the stories and find that our heroes and heroines were back to a different set of griefs and challenges afterwards.

So, we are going to live with religions and philosophies and economic and social dogmas that claim to be universal, permanent, absolute and all-weather prescriptions.

Once this path is fixed, the powerful know how and when to game the system. The rest of us will be happy for smaller mercies, miracles and good luck. Those who can blog, can keep blogging!

What can break this cycle? Some loud thinking here:

Without a spiritual outlook and detachment on the part of the rulers – they minimise the risk and incidence of capture – the cycle of capture and release and capture will be endless.

Some change agents come with their own agendas. For example, is Trump draining the swamp? I doubt because he has just received a certificate from Lloyd Blankfein of Goldman Sachs. That says it all.

Now, if and when he finally goes, after one term or two terms or whenever, the old elites will be back in the saddle – the elites who gave us financial de-regulation, Public-Private Partnerships, etc.

But, amidst all this, some good have happened. Millions of Chinese workers and their families have had better lives than they would have. Few millions of Indian software workers and their families benefited from globalisation. The Philippines and Mexico workers have benefited.

So, amidst the capture, let us count the small blessings because ‘WE (the World Economy) are like this only’.

Australia ‘chooses’

Just minutes after reading this blog post at macrobusiness.com.au, I came across this Editorial in South China Morning Post that is disappointed with the new foreign policy white paper from Australia. The Editorial writer (s) appears particularly miffed that the white paper uses the term, ‘Indo-Pacific’ rather than ‘Asia-Pacific’. Interesting times. It is important that the logic of inexorable rise of China is challenged. Good that Australia is waking up. The White Paper can be downloaded from here.

Some key observations that I noticed through a quick keyword search on ‘Indo-Pacific’ and ‘India’:

We define the ‘Indo–Pacific’ as the region ranging from the eastern Indian Ocean to the Pacific Ocean connected by Southeast Asia, including India, North Asia and the United States.

The starting point is to be clear about the kind of Indo–Pacific region we want. We set out our vision for a neighbourhood in which adherence to rules delivers lasting peace, where the rights of all states are respected, and where open markets facilitate the free  flow of trade, capital and ideas.

Our alliance with the United States is central to Australia’s approach to the Indo–Pacific. Without strong US political, economic and security engagement, power is likely to shift more quickly in the region and it will be more difficult for Australia to achieve the levels of security and stability we seek.

To support a balance in the Indo–Pacific favourable to our interests and promote an open, inclusive and rules-based region, Australia will also work more closely with the region’s major democracies, bilaterally and in small groupings. In addition to the United States, our relations with Japan, Indonesia, India and the Republic of Korea are central to this agenda.

The Indo–Pacific democracies of Japan, Indonesia, India and the Republic of Korea are of first order importance to Australia, both as major bilateral partners in their own right and as countries that will influence the shape of the regional order.

India now sits in the front rank of Australia’s international partnerships.

We strongly encourage India’s strategic engagement with East Asia and the United States. We will work with India in the East Asia Summit (EAS) and build on the growing strategic collaboration between Australia, India and Japan.

Who will ‘burn the house down’?

My friend and co-author Gulzar Natarajan has a lengthy and detailed post on few very important and thoughtful articles and reports that have been doing the rounds in the last week or so. His post is  very comprehensive.

I have the following comments on his blog post. It is a slightly expanded version of the comment I left on his post.

I am pleased to see that you had linked to the perceptive essay by Jonathan Rothwell in NYT on the elite interests that have gamed the system and the rules in their favour. Rothwell may be making one mistake, however.

In his long essay and in his tweets, he is dismissing the role of technology and globalisation in the extremely distorted income distribution. But, they were the pursuits and priorities of elites who gamed the regulations (as per his own analysis) to pursue technological upgradation and globalisation that delivered profits. So, they did contribute to the problem of inequality because they were ‘elite’ projects. Some of the domestic factors he lists could be more important but it would be hard to dismiss technological progress and globalisation as inconsequential for in-country rise in inequality in the developed world. In this regard, the review of the book, ‘Captured Economy’ is worth a read. It is well written.

As we discussed bilaterally, to a degree, the recommendation of the Mckinsey Global Institute (MGI) on more digitisation and more technology to restore the ‘glory’ of U.S. manufacturing (mind you, the ostensible problem they were dealing with was the declining labour share of income) vindicates Rothwell above!

MGI report notes that the labour share of income in the U.S. had dropped from 59.8% in 1970 to 55.6% in 2015 and that manufacturing contributed 68% to this decline. But, the solutions they propose, even if they restore the glory of U.S. manufacturing somewhat, might actually further erode labour income share if machines and robots replace workers while only requiring and paying some highly skilled workers and fewer of them. On paper, that might boost labour share of income but the median worker pay will not have improved. Even now, the decline in the U.S. labour share of income will be far pronounced if financial services workers are excluded.

One does not identify the decline of the manufacturing as a principal contributor to the decline of labour share of income and proceed to give solutions that might worsen the situation further. At the very least, there should be a debate/discussion in the report on the consequences of their proposals for the labour share of income. But, I had not read the full MGI report but only the Executive Summary. May be, the full report has such a discussion. The full report and the Executive Summary can be found here.

Further, although Tony Rothman in ‘Project Syndicate’ focuses more on customer convenience and the ‘ends’ of technological upgrades being lost (motion is not progress) in the welter of mindless ‘improvements’ and ‘enhancements’, that too is part of the problem.

As you conclude, the solution is to ‘burn the house down’ completely. But, that leads us to a cul-de-sac. In the Seventies, the pendulum swung (the house was brought down, as it existed then) due to a combination of factors:

  • Excessive abuse of labour power;
  • Economic misery – stagflation
  • The turning of the intellectual tide in favour of rules over discretion, Disgust with politics as usual (Nixon’s impeachment, Ford’s pardon and Carter’s perceived or real ineffectiveness)
  • Rise of alternative leaders who were not exactly perceived ‘extreme’ like in the case of Donald Trump

May be, I am missing out some.

But, if we try to develop a comparable checklist now, we do have

  • Excessive abuse of the power of capital by capitalists
  • Instead of stagflation, we have extreme inequality
  • There was disgust with politics as usual – it is demonstrated in the multiple political election and referendum results across Europe and the United States

But, what is missing are these two,

– There is intellectual resistance to changing the status quo – many would lose out on their personal perks and influence. Notice how many are writing as boldly as Dani Rodrik is writing. Very few. Those who do are not deemed ‘mainstream’. For example, the monetary policy establishment has managed to brand even the BIS and folks like William White and Claudio Borio, et al, as ‘extreme’ or ‘fringes’.

The ‘99%’ is unable to mobilise and have a sane leadership with clarity of purpose and goals as capitalists on either side of the Atlantic were able to achieve in the Seventies.

Usually, crises help overcome all these drawbacks and throw up policy and personnel (leadership) alternatives. One thought that the 2008 crisis would do that. To a degree, it has. It has cracked open the door. But, the door is still being manned and protected well, despite cracks in the door and in the castle.

Perhaps, it needs another crisis to ‘burn the house down’ as you put it. Or, may be, somewhat less dramatically, as Mark Klieman had written (tweeted by Jonathan Rothwell),

a political strategy capable of mobilizing forces proportionate to the massive task at hand. [Link]