Sunday, November 25, 2012

Beyond the obvious

Is allowing FDI in multi-brand Retail good for the country? What is the true impact of raising diesel prices or restricting LPG subsidy on the people? Should telecom spectrum and coal mines be auctioned to the highest bidder, or should they be allocated cheaply so that the price paid by the ultimate consumer (for telephone services and electricity) is kept low? Should rail fares be raised? Should the Central Bank reduce interest rates to stimulate industry and make loans cheaper? Should the government act against airlines who fleece passengers by charging exorbitant fares during peak season? Should the government explicitly promote export oriented industries that earn precious foreign exchange? Should cheap imports from countries like China be banned to protect domestic industry? Is the government right in spending thousands of crores on welfare schemes like MGNREGA? Questions such as these are debated daily, and are of interest not only to politicians and bureaucrats who decide on these, but also to citizens whose lives are affected.

How does one take a stand on all these? How does one decide what is right and what is wrong? How does one assess the impact of these decisions – beyond the immediate fallout that we can see (such as, for example, that one would pay more for diesel if diesel prices are raised)? Do these decisions have implications that are beyond the obvious? How do we know what will work out best for us in the long run?

“Economics in One Lesson” by Henry Hazlitt is a remarkable book by any means. Written in such a simple language that even a layman can understand, Hazlitt unravels the mysteries of economic decisions and their long run effects on the health of the economy and welfare in general. Hazlitt explains how markets work, how people behave, how governments decide and what they do to the very people they seek to assist. Hazlitt gives a framework that enables the reader to analyze the long run impact of such decisions, including that  which is not so obvious but nevertheless very important.

Hazlitt's remarkable book should
be compulsory reading for all
The book is divided into twenty five chapters, each dealing with a distinct topic such as taxation, effects of mechanization, import tariffs, export promotion, government price fixing, inflation, and so on. Hazlitt explains the basic principles underlying these actions and the impact of these on the economic activity as a result. Hazlitt uncovers not only that which is seen, but also that which is not seen. In Hazlitt’s own words, “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely on one group but for all groups”

It is amazing how much ignorance about economic issues is prevalent even among the policymakers today. Take the following paragraph from the chapter on government price fixing, for example. You might want to read it in the context of the current mess in India’s Oil & Gas sector, but keep in mind that Hazlitt’s small book was written in 1946!

Hazlitt writes, and I quote, “We cannot hold the price of any commodity below its market level without in time bringing about two consequences. The first is to increase the demand for that commodity. Because the commodity is cheaper, people are both tempted to buy, and can afford to buy more of it. The second is to reduce supply of that commodity. Because people buy more, the accumulated supply is more quickly taken from the shelves of merchants. In addition to this, production of that commodity is discouraged. Profit margins are reduced or wiped out. Marginal producers are driven out of business….if we did nothing else, therefore, the consequence of fixing a maximum price of a particular commodity would be to bring about a shortage of that commodity. But this is precisely opposite of what the government regulators originally wanted to do…. Some of these consequences in time become apparent to the regulators, who then adopt various other devices and controls in an attempt to avert them. Among these devices are rationing, cost-control, subsidies and universal price fixing.” Hazlitt then goes on to systematically demolish each of these.

As we all know, relying on the promise of deregulation, billions of dollars were spent on all stages of the oil & gas value chain in India, from exploration to refining to pipelines to storage & distribution. But the country still doesn’t have enough of what it needs. Most of the capacity in the private sector has been shut or is on the verge of closure, the public sector survives on huge doles of support from tax payer’s money. People don't have enough of what they want and the private producers have all but fled, all because of faulty price fixing.

It is remarkable that such a storehouse of knowledge can be crunched in such a small book and explained so lucidly. This book should be compulsory reading for all the lawmakers who decide our future, and for all of us who choose them.

Sunday, November 18, 2012

Me Mumbaikar

On 26th April 1986, The Times of India carried a cartoon depicting a khadi-and-Gandhi-cap clad politician cautiously touching a sleeping tiger. The tiger roars back, taking the neta by surprise. “He’s alive!”, the neta exclaims, while the common man watches on. It was the story of the 1985 BMC (Bombay Municipal Corporation, then) elections, whose results had just been declared and a seemingly dormant Shiv Sena had scored a surprise victory. A picture is worth a thousand words, and so was this R.K.Laxman cartoon.

Though the Shiv Sena had been formed nearly two decades earlier, it had largely remained on the periphery of the State’s politics until then. With this victory in the BMC, the Sena saw a strong resurgence, and Bal Thackeray quickly capitalized on it, swaying the local Marathi youth, hit hard by the influx of migrants and the devastating textile strike by Datta Samant in 1982. The Sena has almost continuously controlled Mumbai since then, and when in 1995, Manohar Joshi was sworn in as the 15th Chief Minister of Maharashtra; Thackeray’s power reached its peak. (The term ‘remote control’ first came into political parlance with this very arrangement)

Among his detractors, Bal Thackeray evoked extreme reactions. His contempt for democracy, anti-Muslim rhetoric or use of strong arm tactics made him a soft target of the pseudo-secular intelligentsia. But there is one thing Bal Thackeray could never be accused of – hypocrisy. Thackeray spoke what his heart said, and it was this very forthrightness that endeared him to his masses.

Thackeray’s success came, not because of, but in spite of, an unfriendly media. It has rarely been reported that the Shiv Sena runs one of the largest ambulance networks in the country. Its Sthaniya Lokadhikar Samiti provided jobs to hundreds of jobless youth in the 1980s and early 90s, literally pre-empting them from joining the underworld during the heydays of Mumbai gang wars. At the peak of the Mandal Commission controversy, when even the supposedly upper caste parties like the Congress and the BJP dithered, Bal Thackeray launched a scathing attack on caste based reservations, risking his political career, but staying true to the principles he believed in.  Long before Vajpayee’s Roads Revolution, the Sena – BJP government built a network of more than 50 flyovers in the city, without which city traffic would have come to a standstill today.

In later years, Thackeray tried to expand his base outside Maharashtra, shedding his pro-Marathi stance and embracing the Hindutva agenda. This earned him a large non-Marathi following within Mumbai, but the Sena could not make any meaningful dent outside Maharashtra.

Today, Thackeray leaves the Sena in a precarious state. As corruption dominates the political discourse, the Shiv Sena finds itself on a sticky wicket. Raj Thackeray’s MNS (Maharashtra Navnirman Sena) has split his Marathi manoos voter base down the middle. How Uddhav takes up these challenges remains to be seen.

While most of Maharashtra’s politicians come from regions such as the Konkan, Vidarbha, Central Maharashtra or the sugar belt, Thackeray was the only leading political figure who had his roots in Mumbai. Till the very end, Thackeray remained in Mumbai, trusting his life to doctors who belonged to the very faith he was accused of targeting.

He loved Mumbai and fought for Mumbai. For this and this alone, Balasaheb Thackeray will be badly missed.

Saturday, November 10, 2012

God's own country!

Back from a refreshing trip of Kerala!

Calm and serene backwaters. Tender coconuts. Mouth-watering banana chips. The tempting aroma of freshly brewed coffee. Houseboats. Spices. Rare species of birds. Kadla curry with Appam or Puttu. Pothole-free roads. Disciplined traffic. Long winding village names, which only the Mallus can spell and pronounce! Freshly fried fish. Karl Marx & Che Guevara posters.  Clean white dhoti. Uttapa called as a Dosa, and Dosa simply as a plain ‘roast’! Served along with a Vada that you think is complimentary (till you get the bill, that is). A lake so large you think it is the seaMundum Neryathum, the unique two-piece sari. "Chinese" fishing nets, that actually use Portuguese technology, not Chinese! Beautiful roadside bungalows. Picturesque inland waterways. Ancient "dembles" (!) mostly dedicated to Shiva, holding some of the world’s largest treasure troves known to man. Thundering rains. A quite & peaceful life. Kerala is unique. Kerala has so much to offer.

And a lot more!

Photogenic tea gardens.  Majestic elephants. Ayurvedic massages. Kathakali. Honest autorickshaw-wallahs!  The list can go on…

Some snippets from my recent visit...

Navigating through the backwaters...

The houseboats and the stunning scenery is without doubt Kerala's biggest tourist attraction

The Mahadevar Temple at Kottayam has some stunning architecture on its walls

The unique "Chinese" fishing nets at Fort Kochi

The Bird sanctuary at Kumarakom offers some beautiful sightings 

A mini-Venice, locals around the Vembanad region move around in boats rather than the road