This superb Article by Sri Dunu roy, a man who as the EPWtruly says is known for his outstanding work in rural development and inspreading environmental awareness.The facts that he has stated including the ones regarding all the dam sitesfalling within Seismic Zone IV bordering Zone V, or in Zone V near centralthrusts or regarding having ignored or being silent on so many issues likeenvironmental assessment, damage to flora and fauna etc are in themselves ofgreat relevance. Similarly, the examples he has quoted from USA, the ultimatelocation for scientists and development managers are equally revealing andstartling.The alternatives he has suggested have come from his long experience in thesefields and would prove highly beneficial for our country if they are properlyadopted.
The entire article can be downloaded from: http://www.epw.in/uploads/articles/12742.pdf
Tuesday, October 28, 2008
Mobile poverty research: Substitutions for mobile phone services
Does owning a mobile phone drive people further into poverty, or is it advancing the livelihoods of the poor? A study conducted by Kathleen Diga in a rural district of Uganda found that owning a mobile phone did both, depending on how it was used.
The research looked broadly at technology spending patterns, specifically mobile phone use in households and what people were giving up to get mobile phones. This ethnographic study in rural Uganda focused on women. The study found that the women got income either from husbands – about $1 a day, or from small business. In 2007, when the study was conducted, 3 minutes off-peak talk time on the same network cost about 40c – which equated to about 40% of the daily household budget.
Given this substantial comparative cost of communication, the question was hence what were they giving up in order to use mobiles? Giving up travel, for instance was seen as a benefit given the costs of transport. Other households were giving up store-bought food – sugar, flour, oil, etc. In this case, those who had gardens could substitute with home produce while those without gardens actually gave up food.
Women were still disempowered in terms of access to the mobile phone because in most instances the male head of the household controlled it. An interesting question not covered in this study is the phone as a status symbol, because it would appear that even when possessing one was seen as beneficial, the costs of operating were eating into the meager household income. Hence it would seem that the benefits might be overstated.
It emerges that whereas there are organized groups that are moving ahead in terms of innovative and cost-effective phone usage, at the level of individual usage, where the phone is already in the hands of an individual, there is little concern with education/ information outreach and training to reduce costs and increase efficiency and benefits. This need for outreach must be the onus of service providers, NGOs, or governments through regulation and licensing procedures.
Consumer protection organizations that should be taking up this fight are frequently weak and ineffectual. The mobile phone, like any form of technology needs to be used appropriately, and its users empowered, for it to yield any positive change.
The research looked broadly at technology spending patterns, specifically mobile phone use in households and what people were giving up to get mobile phones. This ethnographic study in rural Uganda focused on women. The study found that the women got income either from husbands – about $1 a day, or from small business. In 2007, when the study was conducted, 3 minutes off-peak talk time on the same network cost about 40c – which equated to about 40% of the daily household budget.
Given this substantial comparative cost of communication, the question was hence what were they giving up in order to use mobiles? Giving up travel, for instance was seen as a benefit given the costs of transport. Other households were giving up store-bought food – sugar, flour, oil, etc. In this case, those who had gardens could substitute with home produce while those without gardens actually gave up food.
Women were still disempowered in terms of access to the mobile phone because in most instances the male head of the household controlled it. An interesting question not covered in this study is the phone as a status symbol, because it would appear that even when possessing one was seen as beneficial, the costs of operating were eating into the meager household income. Hence it would seem that the benefits might be overstated.
It emerges that whereas there are organized groups that are moving ahead in terms of innovative and cost-effective phone usage, at the level of individual usage, where the phone is already in the hands of an individual, there is little concern with education/ information outreach and training to reduce costs and increase efficiency and benefits. This need for outreach must be the onus of service providers, NGOs, or governments through regulation and licensing procedures.
Consumer protection organizations that should be taking up this fight are frequently weak and ineffectual. The mobile phone, like any form of technology needs to be used appropriately, and its users empowered, for it to yield any positive change.
Increasing World Food Prices: south Asia at Risk
Expanding existing social assistance programs that directly targets poor households is necessary to protect South Asia’s poor in the face of a dramatic increase in global food prices, a World Bank South Asia expert said today.Shanta Devarajan, World Bank Chief Economist for South Asia, said many countries in the region have cash-transfer programs and schemes that provide grains at lower costs directly to the poor. He advised the governments “to enlarge the safety nets by increasing the amount of cash- transfers and the number of people receiving low cost grains while still passing on the price increase to other domestic consumers who can better afford it.”World food prices have been increasing rapidly since 2006, and the rate of increase during 2007 had been much higher than average. According to the Food and Agriculture Organization (FAO), overall food prices have increased by 75 percent in dollar terms since 2000. “Most countries in South Asia are net importers of food and have suffered severe terms of trade shocks of 1 percent of GDP,” said Devarajan. The foreign exchange earnings and international purchasing power for these countries have also decreased.Devarajan believes that food prices are likely to continue to increase in the near future. He attributed this phenomenon to raising standards of living in countries like China and India, increased use of food crops for bio-fuels and animal feeds, and increased oil and fertilizer prices.In South Asia, which has the largest concentration of poor people in the world, the increase in food prices is particularly damaging since food accounts for a substantial share of poor people’s income. South Asian countries, however, have very few options available to deal with the challenge. Devarajan advised that governments have to be careful that such measures do not end up hurting those they want to help.
Shantayanan Devarajan, World Bank Chief Economist for South Asia talks about the impact of high food prices on South Asian.
Options for South Asian Governments
Price Controls:
In the past, South Asian governments have resorted to imposing price controls which actually created food shortages that ultimately hurt the poor. “Imposing price controls benefits the middle-class families and the non-poor,” said Devarajan. If food prices are controlled, it makes farmers less likely to produce crops to meet the increasing demand. This will have an even more adverse impact on food prices.
Subsidies:
Devarajan also recommended against untargeted subsidies, which are mostly counter-productive as they put bigger stress on the budget because governments have to pay for the support. Borrowing from the central bank is one way of financing the subsidies, but this lead to higher inflation.Devarajan said targeted subsidies are a better option. They have been used in South Asia to provide relief for poor families in the past, and, by definition, they are not universal and exclude the better-off who can afford to pay market price. As an example, he cited Bangladesh where mostly poor people consume low-cost coarse grain. The government was able to provide relief following the recent floods and cyclones by targeting poor people with this type of grain.By using targeted subsidies, governments will be able to protect poor families without distorting the relative prices of food products, while reducing the overall cost to the budget.
Long-term Solution:
Even with targeted subsidies, many of the programs will be seen as permanent if food prices continue to rise. Targeted or untargeted, eventually these programs will be a drain on the treasury. Therefore, such schemes have to be time bound, and governments have to develop a long-term strategy to address food price increases.One of the best ways to reduce food prices is to increase agricultural productivity. The World Development Report 2008, entitled "Agriculture for Development," has called for a revival of agriculture in South Asia.
Suggestions for South Asia
Bangladesh:
Most affected by price increase:Bangladesh, which imports a substantial portion of major grains consumed by its people, has been particularly badly affected by the continued increase in world food prices. Natural disasters in the past year – two major floods in July and August 2007 and a cyclone in November 2007 - destroyed about 2 million metric tons of rice crops.Bangladesh is currently importing rice from its immediate neighbors, India and Myanmar, to meet the shortage. Devarajan pointed out that this has already created a problem because, several times in past few months, India has imposed ban on rice exports or has increased the minimum export price, and each time, the price of rice in Dhaka spiked. (Read Beggar thy neighbor?)However, Devarajan is confident that Bangladesh “has the potential to cushion the blow on its poor. The country has very well run social assistance programs that have worked well during the floods and cyclone of 2007. At the same time, Bangladesh should try to avoid measures such as price controls or untargeted subsidies even if they are politically popular,” cautioned Devarajan.
Pakistan:
New Government:Unlike Bangladesh, Pakistan does not have a widespread social assistance program that targets the poorest of the poor. In addition, most Pakistani families consume the same kind of wheat, making it difficult to target poor people. Any subsidy on wheat will thus be an untargeted subsidy. Since a newly elected government has just come into power, it is imperative that it withstands pressure to act in ways that may not be efficient in addressing the needs of poor.During a recent visit to Pakistan, Praful Patel, World Bank Vice President for South Asia, said that high international prices for petroleum and food commodities are creating challenges for the Pakistan’s economy. Patel discussed with Pakistani leaders ways to protect the poor as domestic prices are adjusted. Patel offered World Bank technical assistance to build upon international best practice in responding to the current situation.“Any adjustment will be painful,” said Patel. “But there must be an appropriate safety net for the poor. The incoming government has requested our support, and we will help ensure there are smart subsidies to the poorest. These must be well targeted and efficient programs, including cash transfers, where leakage is minimized. We know this can be done because we saw the excellent response from the government after the earthquake where affected families were provided relief and cash transfers quickly and effectively.” (Read More)
India:
Phase out Minimum Support Price (MSP):The Indian government buys wheat from farmers at a Minimum Support Price (MSP), which is highly distortionary and contributes to high costs for its budget. Devarajan suggests that the government should use this opportunity to do away with this policy, since the world food prices are about the same as MSP. “The subsidy has a high leakage to higher-income groups,” he said.
Sri Lanka:
High Inflation:Devarajan said Sri Lanka is also a net importer of food products, and food price inflation is estimated at 34 percent. However, the country is already facing high inflation with an average of 20 percent, independent of food prices. The high inflation is partly due to government borrowing a large amount of money from the central bank.
Nepal:
Scale up:Nepal also depends on food imports from India and other countries to manage its needs. Devarajan said “Nepal needs to expand already existing social assistance programs in rural areas.” However, he pointed out that Nepal has a limited social assistance program to protect the urban poor.
Urban and Rural Poor
While almost all urban poor people are net food consumers, the situation with the rural poor is different. Farmers who are net producers are benefiting from higher food prices. However, farmers with small arable lands and landless laborers are net consumers of food, as they may not produce sufficient amounts for their families’ requirements.
Shantayanan Devarajan, World Bank Chief Economist for South Asia talks about the impact of high food prices on South Asian.
Options for South Asian Governments
Price Controls:
In the past, South Asian governments have resorted to imposing price controls which actually created food shortages that ultimately hurt the poor. “Imposing price controls benefits the middle-class families and the non-poor,” said Devarajan. If food prices are controlled, it makes farmers less likely to produce crops to meet the increasing demand. This will have an even more adverse impact on food prices.
Subsidies:
Devarajan also recommended against untargeted subsidies, which are mostly counter-productive as they put bigger stress on the budget because governments have to pay for the support. Borrowing from the central bank is one way of financing the subsidies, but this lead to higher inflation.Devarajan said targeted subsidies are a better option. They have been used in South Asia to provide relief for poor families in the past, and, by definition, they are not universal and exclude the better-off who can afford to pay market price. As an example, he cited Bangladesh where mostly poor people consume low-cost coarse grain. The government was able to provide relief following the recent floods and cyclones by targeting poor people with this type of grain.By using targeted subsidies, governments will be able to protect poor families without distorting the relative prices of food products, while reducing the overall cost to the budget.
Long-term Solution:
Even with targeted subsidies, many of the programs will be seen as permanent if food prices continue to rise. Targeted or untargeted, eventually these programs will be a drain on the treasury. Therefore, such schemes have to be time bound, and governments have to develop a long-term strategy to address food price increases.One of the best ways to reduce food prices is to increase agricultural productivity. The World Development Report 2008, entitled "Agriculture for Development," has called for a revival of agriculture in South Asia.
Suggestions for South Asia
Bangladesh:
Most affected by price increase:Bangladesh, which imports a substantial portion of major grains consumed by its people, has been particularly badly affected by the continued increase in world food prices. Natural disasters in the past year – two major floods in July and August 2007 and a cyclone in November 2007 - destroyed about 2 million metric tons of rice crops.Bangladesh is currently importing rice from its immediate neighbors, India and Myanmar, to meet the shortage. Devarajan pointed out that this has already created a problem because, several times in past few months, India has imposed ban on rice exports or has increased the minimum export price, and each time, the price of rice in Dhaka spiked. (Read Beggar thy neighbor?)However, Devarajan is confident that Bangladesh “has the potential to cushion the blow on its poor. The country has very well run social assistance programs that have worked well during the floods and cyclone of 2007. At the same time, Bangladesh should try to avoid measures such as price controls or untargeted subsidies even if they are politically popular,” cautioned Devarajan.
Pakistan:
New Government:Unlike Bangladesh, Pakistan does not have a widespread social assistance program that targets the poorest of the poor. In addition, most Pakistani families consume the same kind of wheat, making it difficult to target poor people. Any subsidy on wheat will thus be an untargeted subsidy. Since a newly elected government has just come into power, it is imperative that it withstands pressure to act in ways that may not be efficient in addressing the needs of poor.During a recent visit to Pakistan, Praful Patel, World Bank Vice President for South Asia, said that high international prices for petroleum and food commodities are creating challenges for the Pakistan’s economy. Patel discussed with Pakistani leaders ways to protect the poor as domestic prices are adjusted. Patel offered World Bank technical assistance to build upon international best practice in responding to the current situation.“Any adjustment will be painful,” said Patel. “But there must be an appropriate safety net for the poor. The incoming government has requested our support, and we will help ensure there are smart subsidies to the poorest. These must be well targeted and efficient programs, including cash transfers, where leakage is minimized. We know this can be done because we saw the excellent response from the government after the earthquake where affected families were provided relief and cash transfers quickly and effectively.” (Read More)
India:
Phase out Minimum Support Price (MSP):The Indian government buys wheat from farmers at a Minimum Support Price (MSP), which is highly distortionary and contributes to high costs for its budget. Devarajan suggests that the government should use this opportunity to do away with this policy, since the world food prices are about the same as MSP. “The subsidy has a high leakage to higher-income groups,” he said.
Sri Lanka:
High Inflation:Devarajan said Sri Lanka is also a net importer of food products, and food price inflation is estimated at 34 percent. However, the country is already facing high inflation with an average of 20 percent, independent of food prices. The high inflation is partly due to government borrowing a large amount of money from the central bank.
Nepal:
Scale up:Nepal also depends on food imports from India and other countries to manage its needs. Devarajan said “Nepal needs to expand already existing social assistance programs in rural areas.” However, he pointed out that Nepal has a limited social assistance program to protect the urban poor.
Urban and Rural Poor
While almost all urban poor people are net food consumers, the situation with the rural poor is different. Farmers who are net producers are benefiting from higher food prices. However, farmers with small arable lands and landless laborers are net consumers of food, as they may not produce sufficient amounts for their families’ requirements.
Global Financial Crisis: Effect on South Asia
October 21, 2008 - Over the last 10 years, South Asia witnessed a rapid and robust growth of more than six percent per annum, which enabled millions of people to escape poverty. In 2006, the region recorded a growth rate of nine percent – the highest in the last 25 years.However, in the last five years, price increases of global commodities, especially those of oil, metal, and food, took a toll on South Asia. Budget deficits widened and trade balances worsened. With this, the growth softened and inflation reached double digits. Before the region could recover from the adverse impact of high commodity prices, the global financial crisis has come knocking. The cascading effects of these crises will present daunting policy challenges to South Asia.The adverse impact has the potential to reverse elements of the impressive development gains that South Asia has achieved over the past decade and impede its progress towards achieving the Millennium Development Goals (MDGs).“The slowdown in the global economy will adversely impact South Asian exports and thus foreign earnings,” said Sadiq Ahmed, World Bank Acting Chief Economist for the South Asia region. “Coupled with lower foreign capital flows and domestic investment, this will significantly reduce growth for South Asia.” (Download Analysis - pdf)
Read analysis about the global financial crisis and its impact on South Asia
Read analysis about the global financial crisis and its impact on South Asia
Monday, October 20, 2008
Capital and capitalists nannied by the states: An Interview with Amiya Kumar Bagchi
Saturday, 18 October 2008
"Capital and capitalists will continue to be nannied by the states they control, unless the crisis intensifies the struggles of workers and peasants to change this horrendously unjust and murderous social and political order. Nor will borrowers of recapitalized banks or the insured of the US company AIG benefit from lower interest rates, better access to credit or insurance or less discriminatory insurance rates. The new managers will be busy guarding the capital of their respective managed entities. Unless the rulers are made to see that money market instruments are not the proper vehicles to deliver affordable credit or insurance to the poor and are forced to carry out the structural changes needed to embody that perspective in practice, the old order will continue when the recession subsides."
Radical Notes: Can you explain the nature of the current crisis and how it developed?
Amiya Kumar Bagchi (AKB): A full explanation of the current crisis will be a book-length study. The immediate causes of the crisis can be put as follows: (a) unbridled financial liberalization, the most significant components of which have been the further elaboration of derivatives, including securitized products, increasing the non-transparency of the financial market, (b) the effective demolition of the distinction between deposit banks specializing in loans and investment banks, (c) conversion of the dollar into virtually the sole source of global liquidity, even while keeping a major fraction of the world’s economies in a condition of endemic deficiency of effective demand and (d) the rapid emergence of housing and related markets as sectors of the most intense speculative activity.
Radical Notes: As an economic historian, do you find any uniqueness in the present crisis in comparison to the past ones?
AKB: Capitalism has been racked by speculative crises, almost from the moment of its birth. One of the earliest of such crises was the Tulip Mania in the Netherlands in the 1630s. The second speculative crisis in order of occurrence was the crisis of 1720-21 centring around the so-called Mississippi project in France and the South Sea Company in England: this crisis threatened to engulf much of Western Europe at the time. If we take England only, there were severe banking crises in almost every decade from the 1820s , with the Baring Crisis of 1890-91, characterizing the last decade. In that crisis, the inability of Baring Bros to meet its obligations arising out of its over-exposure to loans to the Argentine government threatened to involve the whole British financial system. That is arguably the first time that the Bank of England acted as the lender of last resort. (Baring Bros collapsed in 1995, as a result of Nick Leeson, its bureau chief in Singapore, losing his bet on movements of Nekkei and the firm’s capital of £800 million disappeared). Then you have the biggest financial crisis of the twentieth century, namely, the Great Depression of the 1930s, which really ended with the onset of World War II that saw the stepping up of military and other public expenditure to unprecedented heights. But as any student of history knows, you never step into the same stream twice. Capitalism in particular has been like a super-chameleon, transforming not only its colour but also its apparent structural relations every few decades. The changes preceding the current crisis are no exception. The uniqueness of the crisis can probably be described as a situation in which governments, so-called specialists in finance not only ignored the totally non-transparent manner in which banks, investment brokers and non-bank financial institutions carried on their business, but positively cheered them in the belief that this was the way to create wealth. One of the most ironic symbols of this atmosphere is the compilation and celebration of the growth of wealth of the 'High Net Value Individuals' (HNVIs) by Merrill Lynch, a firm that had to merge with Bank of America in order to stave off bankruptcy.
Radical Notes: Can we understand the present crisis as a crisis of imperialism and the US hegemony?
AKB: Yes, we can. But we must remember that other G7 countries are also implicated in the US hegemony, and even China’s current pattern of growth is symbiotically related to US hegemony. Whether the crisis will lead to a decline in the murderousness of the US military operations remains an open question. As I have argued earlier, capital wants to win in competition, if necessary in the last instance by using armed conflict. The prospect of a USA threatened with the loss of hegemony using its fearsome arsenal of weapons of mass destruction is mind-numbing.
Radical Notes: How do you assess the impact of the crisis on the developing countries?
AKB: In many developing countries, there are no real stock markets and even if there are, their operations do not have much of an impact on firms which are often too small to be able to raise money in the stock market. In many of them, earlier depredations of imperialism, its domestic collaborators and its agencies such as the IMF and the World Bank have led to the exclusion of most economic agents from formal credit markets. The so-called success of micro-credit agencies in Bangladesh, for example, was built not only on loans extended by foreign lenders but also on the destruction of public sector banking by local businessmen defaulting on their loans. Organizations blessed by the World Bank and foreign donors fished in such turbid waters. The direct effect of the present crisis on such countries may not be great. But they will suffer through the further decline in the demand for their output in foreign and domestic markets because of the global recession. The countries, which have depended greatly on foreign capital for stimulation of their economies such as India, will also suffer through minor or major currency crises and the downsizing of the transactional enterprises operating in those countries and badly affected by the crisis. In the immediate future, the most distressing effect for the common people will continue to be the loss of employment in construction, services and the manufacturing sector and the high cost of food grains, induced by underinvestment in agriculture in developing countries, speculation in commodities by the big finance houses and others and the diversion of cropland to the highly subsidized biofuel in developed market economies, especially the USA.
Radical Notes: A recent report says that India and China - which are considered by many as the bulwark of capitalist growth in the 21st century - have witnessed the steepest market declines between December 2007 and September 2008. They "have lost almost 51% of market capitalization, or m-cap, and this figure could be much higher if the declines of the last fortnight are taken into account." As latest reports indicate, industries in India, especially the aviation industry, have already started shifting the brunt of the crisis on labour, through various means. Do you think these developments are indications toward a full-fledged crisis around the corner? AKB: As far as China is concerned, the slide in stock prices will not have a major effect on the economy, because stocks traded in the Shanghai market provide finance only to a small fraction of firms in the Chinese economy. But the effect on India is obvious not only from the retrenchments already announced by aviation companies and IT firms but also by the continued outflow of FII funds from India and consequent decline in the value of the Indian rupee. The Indian manufacturing sector was already showing a downward trend in fiscal 2007-08, and that trend has strengthened in recent weeks as shown by the Index of Industrial Production (IIP). It is disingenuous of the Finance Minister to call the IIP "not very reliable" when his government has done so much to massage the official statistics so as to produce a favourable picture of its performance in the economic field.
Radical Notes: The Reserve Bank of India (RBI) too is taking measures to ensure liquidity and boost confidence. As a historian of India's banking sector, how do you assess India's financial-structural ability to withstand such crisis at this juncture? How much do you think the neo-liberal policies that subsequent governments have pursued eroded this ability?
AKB: Fortunately, despite all the attempts of successive governments at the Centre since 1991 to force the pace of 'economic reforms', the worst of their designs could not be carried through. These include full capital account convertibility, complete privatisation of the banking and insurance sectors, and total abolition of the distinction between banks and non-banking finance companies. Every time either major international crises or electoral compulsions have stayed their hand. In 1997 and this time around, financial crisis in Asia and the global financial crisis have prevented the enforcement of capital account convertibility. The strength of Indian public sector banks compared with their private counterparts is there for all to see. The worst development under the neo-liberal regime is the naked play of money and communalism in determining the positions all major centrist or right-wing parties have adopted. Another major casualty has been the fiscal stance of the state. It will take quite an effort to get the rich to pay their taxes and to stop the indulgence the state has displayed towards punters and hot money merchants in the financial sector. The quality of Indian democracy has been further sullied under the neo-liberal regime. Hence the ability of the regime to handle the resolution of the crisis in national interest has been badly impaired.
Radical Notes: Various commentators have suggested that the bailing out strategies of different governments throughout the world has ultimately brought the state back in. What is the merit of such conclusion? Can we see this return of the state as just a moment, for which Milton Friedman once said the role of government is "to do something that market cannot do for itself"?
AKB: Yes, the state has been brought in but only to save the illegitimate earnings of the crony capitalists. Will Mr Richard Fuld, CEO of Lehman Bros, be made to disgorge the nearly $500 million he earned from his stock options and bonuses? In the financial year 2007-08 alone, according to Forbes.com, Fuld earned $71.50 million and in the preceding 5 years he had earned $354 million. When Lehman applied for Chapter 11 bankruptcy, Fuld took $22 million from the firm as retirement benefit. What applies to the top managers of Lehman also applies to those of Wachovia and Merrill Lynch, to UBS of Switzerland which is being recapitalized by the Swiss government or Northern Rock, the hosing mortgage bank, which has been bailed out by the Bank of England. In 2004, I published an article with the self-explanatory title, "Nanny state for capital and Social Darwinism for Labour" (Indian Journal of Labour Economics, 47(1), January-March). Capital and capitalists will continue to be nannied by the states they control, unless the crisis intensifies the struggles of workers and peasants to change this horrendously unjust and murderous social and political order. Nor will borrowers of recapitalized banks or the insured of the US company AIG benefit from lower interest rates, better access to credit or insurance or less discriminatory insurance rates. The new managers will be busy guarding the capital of their respective managed entities. Unless the rulers are made to see that money market instruments are not the proper vehicles to deliver affordable credit or insurance to the poor and are forced to carry out the structural changes needed to embody that perspective in practice, the old order will continue when the recession subsides.
Amiya Kumar Bagchi is India's foremost political economist and economic historian. He is the Director of the Institute of Development Studies Kolkata. He was a member of the State Planning Board until 2005, Government of West Bengal and was recently Chairman of a committee appointed by the Government of West Bengal to report on the finances of the government during the Tenth Five Year Plan period. He acted as the official historian of The State Bank of India until 1997. His recent works include (co-edited with Gary A.Dymski) Capture and Exclude: Developing Economies and the Poor in Global Finance, Tulika, New Delhi, 2007, The Perilous Passage: Mankind and the Global Ascendancy of Capital, Rowman and Littlefield, Lanham, Maryland, USA, 2005, The Developmental State in History and in the Twentieth Century, Regency Publications, New Delhi, 2004, and Capital and Labour Re-defined: India and the Third World, Tulika, New Delhi and Anthem Press, London, 2002.
"Capital and capitalists will continue to be nannied by the states they control, unless the crisis intensifies the struggles of workers and peasants to change this horrendously unjust and murderous social and political order. Nor will borrowers of recapitalized banks or the insured of the US company AIG benefit from lower interest rates, better access to credit or insurance or less discriminatory insurance rates. The new managers will be busy guarding the capital of their respective managed entities. Unless the rulers are made to see that money market instruments are not the proper vehicles to deliver affordable credit or insurance to the poor and are forced to carry out the structural changes needed to embody that perspective in practice, the old order will continue when the recession subsides."
Radical Notes: Can you explain the nature of the current crisis and how it developed?
Amiya Kumar Bagchi (AKB): A full explanation of the current crisis will be a book-length study. The immediate causes of the crisis can be put as follows: (a) unbridled financial liberalization, the most significant components of which have been the further elaboration of derivatives, including securitized products, increasing the non-transparency of the financial market, (b) the effective demolition of the distinction between deposit banks specializing in loans and investment banks, (c) conversion of the dollar into virtually the sole source of global liquidity, even while keeping a major fraction of the world’s economies in a condition of endemic deficiency of effective demand and (d) the rapid emergence of housing and related markets as sectors of the most intense speculative activity.
Radical Notes: As an economic historian, do you find any uniqueness in the present crisis in comparison to the past ones?
AKB: Capitalism has been racked by speculative crises, almost from the moment of its birth. One of the earliest of such crises was the Tulip Mania in the Netherlands in the 1630s. The second speculative crisis in order of occurrence was the crisis of 1720-21 centring around the so-called Mississippi project in France and the South Sea Company in England: this crisis threatened to engulf much of Western Europe at the time. If we take England only, there were severe banking crises in almost every decade from the 1820s , with the Baring Crisis of 1890-91, characterizing the last decade. In that crisis, the inability of Baring Bros to meet its obligations arising out of its over-exposure to loans to the Argentine government threatened to involve the whole British financial system. That is arguably the first time that the Bank of England acted as the lender of last resort. (Baring Bros collapsed in 1995, as a result of Nick Leeson, its bureau chief in Singapore, losing his bet on movements of Nekkei and the firm’s capital of £800 million disappeared). Then you have the biggest financial crisis of the twentieth century, namely, the Great Depression of the 1930s, which really ended with the onset of World War II that saw the stepping up of military and other public expenditure to unprecedented heights. But as any student of history knows, you never step into the same stream twice. Capitalism in particular has been like a super-chameleon, transforming not only its colour but also its apparent structural relations every few decades. The changes preceding the current crisis are no exception. The uniqueness of the crisis can probably be described as a situation in which governments, so-called specialists in finance not only ignored the totally non-transparent manner in which banks, investment brokers and non-bank financial institutions carried on their business, but positively cheered them in the belief that this was the way to create wealth. One of the most ironic symbols of this atmosphere is the compilation and celebration of the growth of wealth of the 'High Net Value Individuals' (HNVIs) by Merrill Lynch, a firm that had to merge with Bank of America in order to stave off bankruptcy.
Radical Notes: Can we understand the present crisis as a crisis of imperialism and the US hegemony?
AKB: Yes, we can. But we must remember that other G7 countries are also implicated in the US hegemony, and even China’s current pattern of growth is symbiotically related to US hegemony. Whether the crisis will lead to a decline in the murderousness of the US military operations remains an open question. As I have argued earlier, capital wants to win in competition, if necessary in the last instance by using armed conflict. The prospect of a USA threatened with the loss of hegemony using its fearsome arsenal of weapons of mass destruction is mind-numbing.
Radical Notes: How do you assess the impact of the crisis on the developing countries?
AKB: In many developing countries, there are no real stock markets and even if there are, their operations do not have much of an impact on firms which are often too small to be able to raise money in the stock market. In many of them, earlier depredations of imperialism, its domestic collaborators and its agencies such as the IMF and the World Bank have led to the exclusion of most economic agents from formal credit markets. The so-called success of micro-credit agencies in Bangladesh, for example, was built not only on loans extended by foreign lenders but also on the destruction of public sector banking by local businessmen defaulting on their loans. Organizations blessed by the World Bank and foreign donors fished in such turbid waters. The direct effect of the present crisis on such countries may not be great. But they will suffer through the further decline in the demand for their output in foreign and domestic markets because of the global recession. The countries, which have depended greatly on foreign capital for stimulation of their economies such as India, will also suffer through minor or major currency crises and the downsizing of the transactional enterprises operating in those countries and badly affected by the crisis. In the immediate future, the most distressing effect for the common people will continue to be the loss of employment in construction, services and the manufacturing sector and the high cost of food grains, induced by underinvestment in agriculture in developing countries, speculation in commodities by the big finance houses and others and the diversion of cropland to the highly subsidized biofuel in developed market economies, especially the USA.
Radical Notes: A recent report says that India and China - which are considered by many as the bulwark of capitalist growth in the 21st century - have witnessed the steepest market declines between December 2007 and September 2008. They "have lost almost 51% of market capitalization, or m-cap, and this figure could be much higher if the declines of the last fortnight are taken into account." As latest reports indicate, industries in India, especially the aviation industry, have already started shifting the brunt of the crisis on labour, through various means. Do you think these developments are indications toward a full-fledged crisis around the corner? AKB: As far as China is concerned, the slide in stock prices will not have a major effect on the economy, because stocks traded in the Shanghai market provide finance only to a small fraction of firms in the Chinese economy. But the effect on India is obvious not only from the retrenchments already announced by aviation companies and IT firms but also by the continued outflow of FII funds from India and consequent decline in the value of the Indian rupee. The Indian manufacturing sector was already showing a downward trend in fiscal 2007-08, and that trend has strengthened in recent weeks as shown by the Index of Industrial Production (IIP). It is disingenuous of the Finance Minister to call the IIP "not very reliable" when his government has done so much to massage the official statistics so as to produce a favourable picture of its performance in the economic field.
Radical Notes: The Reserve Bank of India (RBI) too is taking measures to ensure liquidity and boost confidence. As a historian of India's banking sector, how do you assess India's financial-structural ability to withstand such crisis at this juncture? How much do you think the neo-liberal policies that subsequent governments have pursued eroded this ability?
AKB: Fortunately, despite all the attempts of successive governments at the Centre since 1991 to force the pace of 'economic reforms', the worst of their designs could not be carried through. These include full capital account convertibility, complete privatisation of the banking and insurance sectors, and total abolition of the distinction between banks and non-banking finance companies. Every time either major international crises or electoral compulsions have stayed their hand. In 1997 and this time around, financial crisis in Asia and the global financial crisis have prevented the enforcement of capital account convertibility. The strength of Indian public sector banks compared with their private counterparts is there for all to see. The worst development under the neo-liberal regime is the naked play of money and communalism in determining the positions all major centrist or right-wing parties have adopted. Another major casualty has been the fiscal stance of the state. It will take quite an effort to get the rich to pay their taxes and to stop the indulgence the state has displayed towards punters and hot money merchants in the financial sector. The quality of Indian democracy has been further sullied under the neo-liberal regime. Hence the ability of the regime to handle the resolution of the crisis in national interest has been badly impaired.
Radical Notes: Various commentators have suggested that the bailing out strategies of different governments throughout the world has ultimately brought the state back in. What is the merit of such conclusion? Can we see this return of the state as just a moment, for which Milton Friedman once said the role of government is "to do something that market cannot do for itself"?
AKB: Yes, the state has been brought in but only to save the illegitimate earnings of the crony capitalists. Will Mr Richard Fuld, CEO of Lehman Bros, be made to disgorge the nearly $500 million he earned from his stock options and bonuses? In the financial year 2007-08 alone, according to Forbes.com, Fuld earned $71.50 million and in the preceding 5 years he had earned $354 million. When Lehman applied for Chapter 11 bankruptcy, Fuld took $22 million from the firm as retirement benefit. What applies to the top managers of Lehman also applies to those of Wachovia and Merrill Lynch, to UBS of Switzerland which is being recapitalized by the Swiss government or Northern Rock, the hosing mortgage bank, which has been bailed out by the Bank of England. In 2004, I published an article with the self-explanatory title, "Nanny state for capital and Social Darwinism for Labour" (Indian Journal of Labour Economics, 47(1), January-March). Capital and capitalists will continue to be nannied by the states they control, unless the crisis intensifies the struggles of workers and peasants to change this horrendously unjust and murderous social and political order. Nor will borrowers of recapitalized banks or the insured of the US company AIG benefit from lower interest rates, better access to credit or insurance or less discriminatory insurance rates. The new managers will be busy guarding the capital of their respective managed entities. Unless the rulers are made to see that money market instruments are not the proper vehicles to deliver affordable credit or insurance to the poor and are forced to carry out the structural changes needed to embody that perspective in practice, the old order will continue when the recession subsides.
Amiya Kumar Bagchi is India's foremost political economist and economic historian. He is the Director of the Institute of Development Studies Kolkata. He was a member of the State Planning Board until 2005, Government of West Bengal and was recently Chairman of a committee appointed by the Government of West Bengal to report on the finances of the government during the Tenth Five Year Plan period. He acted as the official historian of The State Bank of India until 1997. His recent works include (co-edited with Gary A.Dymski) Capture and Exclude: Developing Economies and the Poor in Global Finance, Tulika, New Delhi, 2007, The Perilous Passage: Mankind and the Global Ascendancy of Capital, Rowman and Littlefield, Lanham, Maryland, USA, 2005, The Developmental State in History and in the Twentieth Century, Regency Publications, New Delhi, 2004, and Capital and Labour Re-defined: India and the Third World, Tulika, New Delhi and Anthem Press, London, 2002.
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