Just Not Cricket!
Ganga Prasad G. Rao, http://myprofile.cos.com/gangar
It's like the Peter Pan story line .......It has happened before and it will happen again.. No, this is not another fairy tale; in fact it is something very real. I mean the collapse of the (Indian) batting line! Time and again the celebrated batting prowess of India has bit the dust before the eyes of the millions thronging fans. Be it Sachin, Gavaskar, Azhar, Dravid, or even the coach Vengsarkar, they knew exactly when to leave Team India in the lurch! A mere 250 runs to win an ODI?, 300 to avoid follow on? or even holding the fort on the fifth and final day? – you say it, we have goofed up! Why, it's the middle order and the tailenders who have time and again come to the rescue of the nation (and were penalized for it by having to bowl immediately after their long stay at the crease while their more respected counterparts stood hands in the pocket in the slips!). So much so, if batsmen were paid by their batting position and expected contribution, I'd sue the BCCI for wage fraud!
I'm not the first one to suggest a re-ordering of the batting line-up. Many captains have experimented with sending middle order batsmen or tailenders up over frontliners. But that was motivated largely by injury concerns or the fear of losing wickets at the fag end of the day. My point is that altering the batting lineup is the captain's prerogative and, in fact, a strategic option. Take ODIs for example. Many would argue that one should come out with one's guns firing, in other words with the best bats to start the innings. Others would join that bandwagon arguing that sending tailenders to start the innings would amount to massacre of the innocents. But, isn't it equally, if not more unjustified, to pressure these very tail-enders with saving the game against a hostile enemy breathing fire after the frontliners abdicated their responsibility by failing abjectly at the crease?
For just for a moment consider a reversal of the batting order. Let tail-enders start the innings. There are two possibilities. First and as expected, they fail and the scoreboard reads 10 for 5. So what? It would have been much the same even otherwise – perhaps with the best batsmen back in the pavilion! At least now, the established bats have an opportunity to prove their mettle knowing there is no one behind them to shore up the innings – an opportunity to prove their mettle, or if they fail, own up to some responsibility for the defeat. Second, one or more of the tail-enders find their groove and move up the scoreboard. Good! No problems! In fact, there is every possibility of fruitful partnerships if tailenders were alternated with established frontline and middle order batsmen who guarded their weaker companion by keeping the strike. Isn't this is a win-win strategy?
You may argue that the bowling team would respond to the change in batting order by re-allocating its bowlers. Yes, they could, but they would be handicapped by the new ball that can't be handed to spinners rightaway. Besides, they might play in to the batting team's strategy if they start with inferior bowlers – which goes to support the assertion that there is nothing lost by opening the innings with tail-enders (now that 'ducking' is not considered unbecoming of even a frontline batsman). In fact, given the various factors - pitch, weather, bowlers - their strength and use, as well as the stage of the game and the (power play) options used or unused – that determine the batting order, it'd be interesting how rival captains anticipate and counter each other's strategy.
So, the next time Sachin walks in to partner Dravid, let the scoreboard read 200 for 9 with 301 as the winning target. Let them earn my respect ...... and their not inconsiderable endorsement moolah!
Friday, March 30, 2007
Thursday, March 29, 2007
Softlanding an Economy
SOFTLANDING
Ganga Prasad Rao
http//myprofile.cos.com/gangar
How often have we heard of 'softlanding' the economy? Of course, we all know what it means – to bring the economy to a sustainable rate of expansion by increasing the interest rate after a period of loose monetary policy. The risk, as perceived by policy makers, is that too much and/or too fast a rise in interest rate could crash the economy in to a recession. Indeed, Keynesian economists have made a profession of macro-economic intervention to raise growth and then seek to softland it when the economy grows unsustainably. But that's not my point.
My argument concerns the nation's economy as a whole. Every emerging economy wishes to grow and grow fast. Yet, perennial growth at more than a couple percent points is 'demanding' in every sense of the word. Do we put our industry on a growth path that exhausts natural resources, inflates prices and exacerbates a million social and environmental externalities? Do we promote envious 'per-capita' consumption policies, permit a 'population bubble' or 'do what it takes' to project an exponential growth in consumption demand to keep the stock market rising? Or, do we take stock of our economy at some point in time realizing that a double-digit exponential growth path is simply not sustainable. And, even if we do agree, what is the alternative? How do we 'softland' the economy to a more sustainable path of growth?
This is a question of some import. What is the structure of the economy that will permit our industry, our environment, our consumers and our trading community to breathe? How do we sustain profit growth without necessarily relying on perennial volume growth? R&D-induced reductions in production cost is a well-known means of increasing margins and profits. Some have alluded to a 'quality economy' in which the increasing wealth of consumers fuels a move toward a higher quality, albeit lower quantity growth path. Policies that promote material recycling, externality taxes on industrial goods and bads and 'health-based' taxes on consumer goods such as sugar and oil constitute another example of a 'virtuous' economy. Presuming efficient policymaking, such an economy would be 'self-correcting' and even sustainable without volume growth. Macro-economic policy makers in emerging economies should realize that the volume-growth based phase is merely a take-off strategy. The main flight must be sustainable, and that sustainability implies a very different mix of policies.
Let's hope our policymakers do not miss the real softlanding in search of short-term transitory monetary softlanding!
Ganga Prasad Rao
http//myprofile.cos.com/gangar
How often have we heard of 'softlanding' the economy? Of course, we all know what it means – to bring the economy to a sustainable rate of expansion by increasing the interest rate after a period of loose monetary policy. The risk, as perceived by policy makers, is that too much and/or too fast a rise in interest rate could crash the economy in to a recession. Indeed, Keynesian economists have made a profession of macro-economic intervention to raise growth and then seek to softland it when the economy grows unsustainably. But that's not my point.
My argument concerns the nation's economy as a whole. Every emerging economy wishes to grow and grow fast. Yet, perennial growth at more than a couple percent points is 'demanding' in every sense of the word. Do we put our industry on a growth path that exhausts natural resources, inflates prices and exacerbates a million social and environmental externalities? Do we promote envious 'per-capita' consumption policies, permit a 'population bubble' or 'do what it takes' to project an exponential growth in consumption demand to keep the stock market rising? Or, do we take stock of our economy at some point in time realizing that a double-digit exponential growth path is simply not sustainable. And, even if we do agree, what is the alternative? How do we 'softland' the economy to a more sustainable path of growth?
This is a question of some import. What is the structure of the economy that will permit our industry, our environment, our consumers and our trading community to breathe? How do we sustain profit growth without necessarily relying on perennial volume growth? R&D-induced reductions in production cost is a well-known means of increasing margins and profits. Some have alluded to a 'quality economy' in which the increasing wealth of consumers fuels a move toward a higher quality, albeit lower quantity growth path. Policies that promote material recycling, externality taxes on industrial goods and bads and 'health-based' taxes on consumer goods such as sugar and oil constitute another example of a 'virtuous' economy. Presuming efficient policymaking, such an economy would be 'self-correcting' and even sustainable without volume growth. Macro-economic policy makers in emerging economies should realize that the volume-growth based phase is merely a take-off strategy. The main flight must be sustainable, and that sustainability implies a very different mix of policies.
Let's hope our policymakers do not miss the real softlanding in search of short-term transitory monetary softlanding!
Tuesday, March 27, 2007
POWER OF COMPOUNDING (IN EQUITY MARKETS? MY FOOT!)
How often have we heard about equity markets and their power of compounding. Invest your money, allow it to bake for several years, preferably a decade or two, lo and behold, you are ten times richer!
Why, I’d start earning as soon as it is legal and retire at 30! The power of compounding will see me through age 59 when social security takes over! Wow! Never knew life could be this easy! Yahoo! I got it made!
WAKE UP, ASSHOLE!
Uhh? You mean it’s not true?
The stock market ain’t your neighborhood streets where you could bully your way to the prettiest girls! It is a dog-eat-dog world where pension funds, insurance funds, mutual funds, ‘HNIs’, ‘FIIs’, corporates and promoters invest or, as some would say, practice treachery or skulduggery day in and day out against each other and against brokers, day traders and speculators even as the government watches over (not so) helplessly. Nobody, except perhaps your mutual fund if you are invested correctly, has your interest at mind.
But the power of compounding is supposed to....
SHUT UP!.
The power of compounding works when the principal appreciates over time even as the interest rate holds for the duration of investment. The interest rate applies to successively larger bases consequent to which the payout rises exponentially over time. Held for decades, even a meager amount grows to something substantial presuming interest rate are near about the two digit mark.
Shall I switch to fixed income then?
SSHHUUTT UUPP!!
The problem is, one doesn’t have a lifetime to wait for and interest rates seldom are what one would like them to be. Indeed, with periodic exception, interest rates have been trending down even in developing countries. That leaves commodities, gold, equities, land or art as alternative asset classes. Commodities are notably short-term investments. Gold has more than hedged for inflation recently but has been known to sleep for years. Land, hmm, that I could invest in, but the formalities are many and the investment is illiquid. Art? I am not sure it will appreciate what with computers mimicking human brain and hand. What does that leave me with? Oh yes, Equities. Company shares traded in the stock market at prices that supposedly reflects present value of the discounted stream of earnings.
So I should invest in equities? OK, OK I’ll shut up.
Equity markets, despite their risk and volatility, are known to provide returns that approximately match the expected growth in earnings. And there is a theorem that requires risky investments such as equities to, on average, outperform less risky investments such as fixed deposits and sovereign bonds. But, mind you, despite claims to the contrary, there is no assurance of compounding in equity markets. Equity markets are a reflection of the future. If that future becomes hazy or uncertain, equity markets will not rise, no matter how long. What could upend this technological society? Global warming, for which we have barely begun to pay, a growing divide between the rich few and the poor masses that is exacerbated by an incrementally capital-intensive, labor-saving economy that automates jobs performed by the poor masses, failure to invest in technology and brains that reduce competitiveness in the world economy, terrorism, nuclear threat, war, political scandals, social turmoil, rank-bad government policies, corruption, even bird flu – to name few!
One presumes the various hedging instruments in the market today can only serve to reduce the volatility around the return, thus increasing the possibility of gains over time. On the other hand, these very instruments, in combination with index ETFs have been used to destabilize the market. It is no secret that once fear grips investors following a crash, it takes a long time for the market to return to its pre-crash level. Besides, returns depend not only on how long one has held the stock, but also whether one invested at a multi-year high or low and whether one redeemed stocks at a high or a low. Since prices are based on expectations of buyers and sellers, and expectations can be manipulated by deception, rumours or staged one-time events, prices abruptly reverse trends when the expectations are belied. Further, your investments are at risk every time inflation rises, every time a large pension or bond fund believes the stock markets are ripe for a fall or the public votes to power a leftist government that intends to fleece businesses to support the poor (or a conservative government that must set right past excesses of the left!). Why, even low price multiples and high earnings growth don’t guarantee appreciation if the ‘big daddy’ ain’t willing to invest, for whatever reason. Held too short, investments don’t yield a return; held too long, they lose any ‘froth’ that might have accumulated over bull runs. Indeed, making money on your investments is an art; a task that requires constant monitoring of economic scenario, economic data, fund news, upcoming market events as well knowledge of financial markets.
So, the bottom line is...
Shhh!
First, invest on yourself, your health, your education, your career and your home. You will save taxes and do yourself a lot of good! Then, spread your investments over time and across asset and fund categories. When you invest, read the fund objective twice, even thrice and ask yourself ‘Do I agree?’. Move out if a fund engages in practices that are incompatible with your objectives or risk perceptions. Don’t wait for the ‘big daddy’ to shave off the cream during bull runs. Learn to sift crashes that owe to changes in economic fundamentals from manufactured ‘crashes’ meant to shave off the cream or shake off the unnerved and the infidels before another bull run. Pre-empt the former and exploit the latter. Plan early to redeem. Spread your redemptions over a period of time when the going is good. Have emergency cash at home and then 3 to 6 months of living expenses in your checking account. And always evaluate returns in financial assets against returns from investments in higher education or home improvement! The bottom line is nothing beats your monthly pay check – and a second earning member! Earn your pay and keep the job. Save money and early. It is the ‘early’ money that counts toward your future. Invest your early money in equities.
Phew! It’s back to work then?
There, you got it right!
Why, I’d start earning as soon as it is legal and retire at 30! The power of compounding will see me through age 59 when social security takes over! Wow! Never knew life could be this easy! Yahoo! I got it made!
WAKE UP, ASSHOLE!
Uhh? You mean it’s not true?
The stock market ain’t your neighborhood streets where you could bully your way to the prettiest girls! It is a dog-eat-dog world where pension funds, insurance funds, mutual funds, ‘HNIs’, ‘FIIs’, corporates and promoters invest or, as some would say, practice treachery or skulduggery day in and day out against each other and against brokers, day traders and speculators even as the government watches over (not so) helplessly. Nobody, except perhaps your mutual fund if you are invested correctly, has your interest at mind.
But the power of compounding is supposed to....
SHUT UP!.
The power of compounding works when the principal appreciates over time even as the interest rate holds for the duration of investment. The interest rate applies to successively larger bases consequent to which the payout rises exponentially over time. Held for decades, even a meager amount grows to something substantial presuming interest rate are near about the two digit mark.
Shall I switch to fixed income then?
SSHHUUTT UUPP!!
The problem is, one doesn’t have a lifetime to wait for and interest rates seldom are what one would like them to be. Indeed, with periodic exception, interest rates have been trending down even in developing countries. That leaves commodities, gold, equities, land or art as alternative asset classes. Commodities are notably short-term investments. Gold has more than hedged for inflation recently but has been known to sleep for years. Land, hmm, that I could invest in, but the formalities are many and the investment is illiquid. Art? I am not sure it will appreciate what with computers mimicking human brain and hand. What does that leave me with? Oh yes, Equities. Company shares traded in the stock market at prices that supposedly reflects present value of the discounted stream of earnings.
So I should invest in equities? OK, OK I’ll shut up.
Equity markets, despite their risk and volatility, are known to provide returns that approximately match the expected growth in earnings. And there is a theorem that requires risky investments such as equities to, on average, outperform less risky investments such as fixed deposits and sovereign bonds. But, mind you, despite claims to the contrary, there is no assurance of compounding in equity markets. Equity markets are a reflection of the future. If that future becomes hazy or uncertain, equity markets will not rise, no matter how long. What could upend this technological society? Global warming, for which we have barely begun to pay, a growing divide between the rich few and the poor masses that is exacerbated by an incrementally capital-intensive, labor-saving economy that automates jobs performed by the poor masses, failure to invest in technology and brains that reduce competitiveness in the world economy, terrorism, nuclear threat, war, political scandals, social turmoil, rank-bad government policies, corruption, even bird flu – to name few!
One presumes the various hedging instruments in the market today can only serve to reduce the volatility around the return, thus increasing the possibility of gains over time. On the other hand, these very instruments, in combination with index ETFs have been used to destabilize the market. It is no secret that once fear grips investors following a crash, it takes a long time for the market to return to its pre-crash level. Besides, returns depend not only on how long one has held the stock, but also whether one invested at a multi-year high or low and whether one redeemed stocks at a high or a low. Since prices are based on expectations of buyers and sellers, and expectations can be manipulated by deception, rumours or staged one-time events, prices abruptly reverse trends when the expectations are belied. Further, your investments are at risk every time inflation rises, every time a large pension or bond fund believes the stock markets are ripe for a fall or the public votes to power a leftist government that intends to fleece businesses to support the poor (or a conservative government that must set right past excesses of the left!). Why, even low price multiples and high earnings growth don’t guarantee appreciation if the ‘big daddy’ ain’t willing to invest, for whatever reason. Held too short, investments don’t yield a return; held too long, they lose any ‘froth’ that might have accumulated over bull runs. Indeed, making money on your investments is an art; a task that requires constant monitoring of economic scenario, economic data, fund news, upcoming market events as well knowledge of financial markets.
So, the bottom line is...
Shhh!
First, invest on yourself, your health, your education, your career and your home. You will save taxes and do yourself a lot of good! Then, spread your investments over time and across asset and fund categories. When you invest, read the fund objective twice, even thrice and ask yourself ‘Do I agree?’. Move out if a fund engages in practices that are incompatible with your objectives or risk perceptions. Don’t wait for the ‘big daddy’ to shave off the cream during bull runs. Learn to sift crashes that owe to changes in economic fundamentals from manufactured ‘crashes’ meant to shave off the cream or shake off the unnerved and the infidels before another bull run. Pre-empt the former and exploit the latter. Plan early to redeem. Spread your redemptions over a period of time when the going is good. Have emergency cash at home and then 3 to 6 months of living expenses in your checking account. And always evaluate returns in financial assets against returns from investments in higher education or home improvement! The bottom line is nothing beats your monthly pay check – and a second earning member! Earn your pay and keep the job. Save money and early. It is the ‘early’ money that counts toward your future. Invest your early money in equities.
Phew! It’s back to work then?
There, you got it right!
Monday, March 26, 2007
Global Thinning is a Good Global Warming Policy
Global Thinning is a Good Global Warming Policy
Ganga Prasad G. Rao
In the good ol' days as an Economist at API, despite all the gassing in my office (apparently, something to do with 'spy key', 'gas key' or 'criminal key'?), I made a list of ideas to impress the twelfth floor into sponsoring my green card (I should have known better!). Any way, one of those ideas was that population control was likely a very effective global warming policy. Come to think of it, population growth is an exponential process. Add to it the human desire to live it up, and what you have it is a 'double exponential' growth of demand for various goods and services, each requiring extraction of raw materials, processing, packaging and transportation, not to mention collection and disposal of waste post-consumption. The GHG emissions from these activities can only add to the existing inventory. And, since we are not waiting for glaciers to show up at our doors (if you know what I mean), why not consider population control as an integral policy measure that ranks equal, pari passu, with other global warming abatement measures such as carbon credits, carbon sequestration and fuel switching (or grow corals, as I have suggested)? If it costs real dollars to sequester carbon in forests and in the earth's strata or switch to cleaner fuels, then why not equivalently and concomitantly, pay newly-weds an annual 'honorarium' until they have their first child, then half that amount until the birth of the second? Participating governments, depending on the degree of emissions reductions required, could entice their citizens with (present value) payments up to the discounted equivalent value of avoided carbon emissions over a lifetime of the (yet) unborn (limited by the marginal conditions imposed by alternative abatement policies and mechanisms). Structured properly, this policy could provide the right incentive, especially to the lower and middle classes who would not mind the compromise. It would both abate and delay population growth, thus reducing the pressure not just on emissions and global warming. The payment could vary from country to country and over time depending on the severity and reality of global warming. Besides, the various other benefits of a lower population density could add to the benefits, turning this in to a win-win policy.
Then again, we could participate in a population growth-bubble driven bull market (don't blame me if my proposal crashes the Sensex!), or, better yet, agree to meet to work out the revised modalities of a binding multilateral framework for CDM!!!
Ganga Prasad G. Rao
In the good ol' days as an Economist at API, despite all the gassing in my office (apparently, something to do with 'spy key', 'gas key' or 'criminal key'?), I made a list of ideas to impress the twelfth floor into sponsoring my green card (I should have known better!). Any way, one of those ideas was that population control was likely a very effective global warming policy. Come to think of it, population growth is an exponential process. Add to it the human desire to live it up, and what you have it is a 'double exponential' growth of demand for various goods and services, each requiring extraction of raw materials, processing, packaging and transportation, not to mention collection and disposal of waste post-consumption. The GHG emissions from these activities can only add to the existing inventory. And, since we are not waiting for glaciers to show up at our doors (if you know what I mean), why not consider population control as an integral policy measure that ranks equal, pari passu, with other global warming abatement measures such as carbon credits, carbon sequestration and fuel switching (or grow corals, as I have suggested)? If it costs real dollars to sequester carbon in forests and in the earth's strata or switch to cleaner fuels, then why not equivalently and concomitantly, pay newly-weds an annual 'honorarium' until they have their first child, then half that amount until the birth of the second? Participating governments, depending on the degree of emissions reductions required, could entice their citizens with (present value) payments up to the discounted equivalent value of avoided carbon emissions over a lifetime of the (yet) unborn (limited by the marginal conditions imposed by alternative abatement policies and mechanisms). Structured properly, this policy could provide the right incentive, especially to the lower and middle classes who would not mind the compromise. It would both abate and delay population growth, thus reducing the pressure not just on emissions and global warming. The payment could vary from country to country and over time depending on the severity and reality of global warming. Besides, the various other benefits of a lower population density could add to the benefits, turning this in to a win-win policy.
Then again, we could participate in a population growth-bubble driven bull market (don't blame me if my proposal crashes the Sensex!), or, better yet, agree to meet to work out the revised modalities of a binding multilateral framework for CDM!!!
Sunday, March 25, 2007
STUPIDITY SQUARED
I have often wondered at the intricacies of the fare system for autorickshaws – those threewheeled skinny, canopied creatures of Asian descent that scurry around ubiquitously on city and town roads. Every auto, whether new or already plying on the road, must have a fare meter. Yet, no driver worth his salt would ply metered rides. The stupidity, indeed the futility, of the entire exercise – from the factory that manufactures these meters to strict specifications, those mechanics who painstakingly install and calibrate it, to the inspectors who verify installation and correct operation of the meter – is mind numbing. Why this rigmarole when it turns in to a piece of junk the moment the FC or license is granted and the vehicle leaves the inspector's precincts?
As an economist without deep pockets, I have often been caught in the dilemma between wishing for a metered (low) fare regime on one hand (especially when touring other cities/towns) and the negotiated fare that my professional self considers optimum given transportation dynamics. "What dynamics?" you may ask. Let me explain. At any point in time and space, a lay person wishing to visit a certain place has the option to ride public transport, beckon a taxi or seek out an auto (not to mention, walk or ride a cycle). His choice is determined by accessibility, availability, fare, comfort during travel and time taken by that mode of travel relative to his schedule. Suppose the person chooses to travel in an autorickshaw. If it happens to be the morning or evening 'rush hour' on busy roads, then autorickshaws are in great demand by the teeming commuters. Demand soars, supply is constrained and fares must rise; in other words no haggling over fares – time is money. On the other hand, during lean midday hours, the number of autos outstrips demand and drivers are not averse to testing their bargaining (I suspect, oratorical) skills against their customer. In fact, and this is less appreciated, the auto drivers price discriminate considering factors as diverse as location and availability of substitutes, time of day, customer's income and purpose of travel, urgency, status (resident vs tourist/visitor), probability of securing a 'followon' customer at the dropoff point, vehicle and road condition and so on. Why, they even withdraw from the roads to restore balance at times of low demand! And we consider them illiterates!
Enough meandering, let's get back to the point. Clearly, the supplydemand situation changes dramatically across space, time and customer. These fare swings are entirely natural. It is our rules that make demands for higher fares seem illegal (and we, law abiding citizens have always found fault with 'em rowdy drivers!). If anything, the reality is the opposite (and quite sobering). It is immoral and unethical to force uniform, regulated fares regardless of time, location, vehicle, weather or road
Ganga Prasad G. Rao gprasadrao@hotmail.com http://myprofile.cos.com/gangar 1 of 2
condition and that too on poor drivers who brave pollution and congestion to ply their trade. If they cannot pricediscriminate, who can? On a more sombre note, regulated fares do not factor in congestion, pollution, accident risk, road condition, hike in petrol prices and the many other factors that drivers consider when they demand a fare. Besides, regulated fares cause a reduction in supply of autorickshaws during rush hours and at other times of need, not to mention result in inadequate maintenance of vehicles and sour behavior with customers. On the other hand, negotiated fares are efficient and provide the right signal to vehicle owners, operators and users regarding investment, maintenance, safety and patronage.
So archaic is the system that even the police do not enforce it. Then, why the farce of meters and regulated fares. Because no one dare question the Government? or the Police? Because there is no alternative? But, there is! We can do better. A lot better. Why not 'marry' the meter to a 'negotiated fare'? Pray how? Well, presume the unit rate per kilometer is negotiated between the operator and the passenger before embarking on the journey. The auto driver punches this in to the (suitably modified) meter which displays distance traveled, unit rate punched in postnegotiation but pretravel, and the total fare computed by combining distance traveled with the unit rate. The fare is metered; it reflects the distance and the negotiated price for that journey. What more could one ask for? This is a winwin compromise that satisfies meter manufacturers, auto drivers and the public. Indeed, there is nothing that stops this system from being extended to taxis.
Perhaps sanity will yet prevail over Gandhian ideals? (Even economists are allowed to dream, you know!)
ps :Just the other day, we made a impromptu plan to see a movie. So I called up a tax cab, it was engaged. Called another, their fleet was booked for the day. The third didn't serve our locality. The fourth required an hour's wait. The fifth......oh, just forget it! Ever been through a similar experience? Surely then, you have wondered if there wasn't an alternative an alternative that worked when needed. Why not, I ask, why not have a central taxi board where customers place their request by phone, SMS or internet and various taxi outfits bid for customers depending on the locality, time, number of passengers, baggage and destination? Surely, it'll work? Yes, it will.
Wow!, Perhaps I've earned my cuppa tea! achcha to hum chalte hein.......
Ganga Prasad G. Rao gprasadrao@hotmail.com http://myprofile.cos.com/gangar 2 of 2
Shiver me Timbers! The Case of Creeping Benefits and Socialist PSUnomics
Sherlock Holmes I am not, nor is this a piece of detective work. Yet, it might just be a matter deserving the attention of a detective – a detective economist.
Ever worked in a government department, a PSU bank or perhaps a 'Navratna PSU'? No? May be you have a relative who does or did? Then you know what I mean. Our public sector economy is a strange breed. It is neither entirely profit-making,
nor is it entirely service-oriented. Generating employment is a supplementary, if not the primary goal of the public sector. What is the primary goal? God Knows! Perhaps they produce merely to fulfill per capita projections by the Planning Commission! It is a stale joke that some of them will save more money by closing down and paying workers their wages at home! To this day, these enterprises recruit for social causes, be it our ex-servicemen, our sportsmen, our handicapped, dependents of unfortunates who died in various natural calamities or accidents, or for that matter, disgraced IAS officers and quasi-political appointees.
With 'lifetime assured' positions, promotion assured by 'seniority' every few years, 15-30 days of scheduled and unscheduled holidays, subsidized loans, annual bonus and a union that bristles at suggestions to improve productivity, employees at PSEs almost own the place they work at – a virtual El Dorado. One would think they appreciate the largesse. To be honest, the really capable and willing, who don't feel adequately recognized or compensated, move away either to private sector employment or to opportunities abroad. It is the chaff that doesn't; these white and bluecollar employees band together and stage walkouts, dharnas, 'go-slow'(as if that were possible!) and strikes each year, almost
by rotation of calendar. If it is not the new pay scale, it is bonus; if is not subsidized home loan, it is subsidized vehicle loan; if it is not overtime working hours (where is the time to work during regular office hours?), it is the five day week. Unable to compete in the real world or earn promotion by skill enhancement, they seek to fill their pockets by demanding more benefits – uniforms and accessories, transport allowance, children's education, festival advances, subsidized lunch, tea break, smoker's break, sports and games facilities, ayudha puja, vacation travel allowance, vehicle loan, school
admission quota, ..... you name it, the list is endless. It grows every year as they seek novel means to squeeze more out of their employers. And to top it all, the demands can be 'politically leveraged' (blackmail, my friend, is a dirty word) if it happens to be an election year or the factional coalition government happens to rely on the support of the left! Only after these demands are accepted, do they slowly warm up to productivity-linked wages! How is that for strategy?
How do public sector enterprises earn profits in a market when their costs are high and wages rising? Good question. One would presume that they would, sooner or later, go belly up against private producers and imports. But we presume incorrectly. It so happens that India is a 'socialist' country and the 'socialist cause' is important; so important that the government subsidizes the unprofitable public sector firms by issuing bonds (a few tens of thousands of crores rupees worth, give or take a couple of hundred!) to cover the subsidy. Predictably, the PSUs turn the corner and report profits (Hmm, socialism is working!). Employees are happy with higher wages and benefits (Yes, we will vote en bloc!). Consumers are pleased with low prices (life is good, arre DD Sports laga de!). Low prices spur demand growth and keep the economy chugging. The bourses are lit up and the bulls are on a rampage! Good time for a midterm election!). And the pro-labor socialist government lives in to the second term (Yes, two terms are enough. The bonds mature in the third, just in time for the wretched capitalists to take over and deal with!). Hey, what more could you wish for? Hire and fire policy? Efficiency? Competition? Level-playing field? Long-run economic and environmental sustainability? Elimination of subsidies?
Who is that raving and ranting? ...... Calm down, Rao, don't get abusive!
(besides, you have children, don't you?)
‘Coz it Benefits me Analysis !
‘Coz it Benefits me Analysis !
Ganga Prasad Rao
For decades, cost-benefit analysis (CBA), or benefit-cost analysis (depending on your perspective!) has ruled the roost among policy makers who use and advocate it for evaluating the economic attractiveness of policy alternatives and options. The principle is simple: evaluate all incremental economic costs and all incremental economic benefits of alternatives over the baseline or status quo and choose the one that yields the highest incremental net benefits. In reality however, the application of CBA has been clouded by a myriad issues. These concern the definition of costs, measurement of benefits, discount rates, social preferences, compensation to ‘losers’ and so on. All impact studies recognize costs and benefits spread across space and time, first round and second round effects, as well as distributional impacts. Yet, not many studies examine the performance of CBA under various administrative, constitutional, political and electoral systems.
One concern is that few authors recognize the consequences of the fact that the government, more precisely, the incumbent party (and its political appointees) is a major beneficiary of its own policy-making decisions. Howzzat? The incumbents (whether ruling or in the opposition) are an ‘interested party’ to the deliberations and outcomes of mega project proposals because employment generation, higher production and income growth that accompany them are either poll promises, goals on assumption of power, or, factors that decide elections. They are not unaware that doling out a large number of contracts could bring in campaign contributions come election time. The larger the campaign funding needs, the larger must be the value of contracts doled out! Indeed, modern day politics, especially in majoritarian democracies, revolves around appeasing the industry who fund campaigns and implicitly subsidize the poor masses who serve as vote banks.
An immediate implication is that no incumbent will voluntarily accept a net-benefits maximizing option. In fact, incumbents will pitch for those project alternatives that generate employment and contracts that they can dole out in return for favor come election time. Given the dynamics of majoritarian politics and the location/specialization of these contractors, incumbents may prefer projects concentrated in certain regions or industries over other, perhaps more beneficial, projects located elsewhere. Projects will be scaled-up beyond the benefit-maximizing point to generate higher employment and to gain the power to dole out more number of higher value contracts (Pork-barrel spending? Never heard of it!). This will, of course, cause inefficiency from a reduction or reversal of net benefits. Incumbents will also prefer options that are so structured that they provide immediate, concentrated benefits to themselves and their benefactors but impose broadly distributed costs at a future point in time, sometimes in to the next generation. Political appointees may even pre-empt a full cost-benefit analysis by acting early to prune the list of alternatives for which costs and benefits are to examined, ostensibly on grounds of transactions cost or budgetary pressures. Thus, even purists may be misled when incumbents (the ruling and the opposition benches) apparently rely on cost-benefit methodology to motivate mutually agreeable pork-barrel spending within a ‘local domain’ excluding options from the broader domain. For example, a larger than optimum-sized dam may be proposed in Region A (where the incumbent party or representative stands a chance in the next elections) when the benefit-maximizing choice should have been an education or drinking water project in Region B (where voters have rejected the incumbents).
There are at least three issues of interest to the economist here. First, whether cost-benefit analysis should consider the electoral gains to the incumbents, corruption aside, as a benefit while evaluating the project. The second issue is efficiency. And the third, conflict of interest. Let’s start with the first. The incumbent party undoubtedly benefits at the polls if it obtains on one hand, the goodwill of voters delighted with higher employment and income, and on the other hand, the monetary and political support from the industry in exchange for the contracts received from ‘pork-barreled’ public projects. These ‘benefits’ are at the cost of the society at large, particularly the future generation; they are more properly classified as a ‘extra-regulatory or extra-constitutional distributional impacts or rents’ . As real as they are, these rents cannot be included within the ambit of cost-benefit analysis; including such rents would be analogous to causing an endogeneity problem in econometrics. They must however be taken cognizance of by those with stake in good governance.
The second issue, that of efficiency, deserves special mention. The implication here is that as long as elected officials and their appointees decide budgets and spending on public projects, they will rationally seek out labor-intensive projects that generate employment and income among voters. Further, there is an incentive to camouflage an increase in the scale of public projects beyond the economic optimum to favor public work contractors in the guise of addressing equity. Incumbents will also generally favor inefficient resource allocation involving spending in their constituency over spending on efficient projects elsewhere. These biases might eventually find their way, marginally or otherwise, in to productivity, prices, wages and inflation, thus skewing the economy off its growth-maximizing path.
As for the third, there is an obvious conflict of interest when incumbents decide on spending whose outcomes, in part, determine their political future. Clearly, the incumbents’ decisions will be biased toward self-preservation which may or may not be in the interest of efficiency or the good of the nation. One might argue that those facing the ruling benches will oppose such spending, bringing about a compromise closer to the economic optimum. While such may be the case in enlightened democracies, elsewhere, the opposition too has its axe to grind, its campaign needs, and certainly, its very own vote bank to feed. In fact, there is every incentive for the opposition to make mutually agreeable deals with the ruling incumbents on pork-barrel spending. The need to engage in pork-barrel spending depends on political realities, while the power to do so is limited by economic realities, the strength of the ruling incumbents relative to the opposition benches and (the existence and) enforcement of provisions aimed at the agency problem. Indeed, the ‘Principal-Agent’ problem is of particular concern on account of the power and resources vested with elected incumbents and the influence of their decisions on the future of the nation and its people.
To sum up, cost-benefit analysis presumes neutral decision-makers. When decision-makers find themselves potential beneficiaries of the policies they decide, cost-benefit analysis tends to be manipulated to support inefficient, pork-barrel spending some of which is returned as ‘rents’. Further, since such ‘rents’ motivate regulatory decision-making, their consideration in the design of administrative or constitution provisions seems necessary. Further, survival being the ‘mantra’ of politicians, truncated and biased analyses are likely to continue because no Principal-Agent contract can foresee all eventualities and because the transaction cost increases with the stringency of enforcement of the contract. In this context, economists should examine political incentives from a Principal-Agent perspective for the particular type of constitution/electoral system when advocating cost-benefit analysis, lest such analysis be manipulated to serve the interests of the power coterie and subvert the letter of the law.
There is no other easy solution to the Principal-Agent problem. Law-makers could conceivably volunteer to ‘bell the cat’ themselves by enacting regulations that tighten the monitoring and enforcement of the ‘Principal-Agent’ contract . Alternatively, a ‘carrot and stick’ policy could just do the trick. If the law were amended to apportion public funds as performance-based compensation to incumbents and funds for their elections using the yardstick of short-run and long-run measures of economic progress and fiscal prudence that include current and ‘projected’ GDP growth and budget deficit, long bonds or related instruments or constructs, then elected principals may have the incentive to act to maximize economic efficiency conditional on equity concerns. A panel of ‘economist expert-judges’ appointed to work with elected representatives with power to direct cost-benefit analyses, interpret results and recommend alternatives to political incumbents who would then make the efficiency-equity trade-off calls would work too. Administrative law concerning public spending could be repealed to mandate explicit examination of costs and benefits of different alternatives of different scales/configurations/qualities including status quo and the same required to justify the choice. Finally, the organizational structure of the government could be altered by devolving policy-making and public-spending authority to apolitical bureaucrats whose fortunes are not tied to election campaigns or political appointees. These neutral bureaucrats could be professionally and legally required to follow best practices as laid down by academics and law-makers.
And, yes, we could enact another law banning campaign contributions and corruption. Until that day, let’s close our eyes and preach cost benefit analysis as we always have.
Amen!
Post script, 5/7/6
This situation involving exploitation of cost-benefit analysis to further majoritarian political goals may be exacerbated when the activities/projects are subsidized by the government. Public investment in subsidized activities can be particularly ruinous because of the demand they generate. This can result in a ‘positive feedback loop’ in which politicians enrich themselves by doling out contracts on subsidized public projects that in turn generate higher demand, further investment and more contracts.
Ganga Prasad Rao
For decades, cost-benefit analysis (CBA), or benefit-cost analysis (depending on your perspective!) has ruled the roost among policy makers who use and advocate it for evaluating the economic attractiveness of policy alternatives and options. The principle is simple: evaluate all incremental economic costs and all incremental economic benefits of alternatives over the baseline or status quo and choose the one that yields the highest incremental net benefits. In reality however, the application of CBA has been clouded by a myriad issues. These concern the definition of costs, measurement of benefits, discount rates, social preferences, compensation to ‘losers’ and so on. All impact studies recognize costs and benefits spread across space and time, first round and second round effects, as well as distributional impacts. Yet, not many studies examine the performance of CBA under various administrative, constitutional, political and electoral systems.
One concern is that few authors recognize the consequences of the fact that the government, more precisely, the incumbent party (and its political appointees) is a major beneficiary of its own policy-making decisions. Howzzat? The incumbents (whether ruling or in the opposition) are an ‘interested party’ to the deliberations and outcomes of mega project proposals because employment generation, higher production and income growth that accompany them are either poll promises, goals on assumption of power, or, factors that decide elections. They are not unaware that doling out a large number of contracts could bring in campaign contributions come election time. The larger the campaign funding needs, the larger must be the value of contracts doled out! Indeed, modern day politics, especially in majoritarian democracies, revolves around appeasing the industry who fund campaigns and implicitly subsidize the poor masses who serve as vote banks.
An immediate implication is that no incumbent will voluntarily accept a net-benefits maximizing option. In fact, incumbents will pitch for those project alternatives that generate employment and contracts that they can dole out in return for favor come election time. Given the dynamics of majoritarian politics and the location/specialization of these contractors, incumbents may prefer projects concentrated in certain regions or industries over other, perhaps more beneficial, projects located elsewhere. Projects will be scaled-up beyond the benefit-maximizing point to generate higher employment and to gain the power to dole out more number of higher value contracts (Pork-barrel spending? Never heard of it!). This will, of course, cause inefficiency from a reduction or reversal of net benefits. Incumbents will also prefer options that are so structured that they provide immediate, concentrated benefits to themselves and their benefactors but impose broadly distributed costs at a future point in time, sometimes in to the next generation. Political appointees may even pre-empt a full cost-benefit analysis by acting early to prune the list of alternatives for which costs and benefits are to examined, ostensibly on grounds of transactions cost or budgetary pressures. Thus, even purists may be misled when incumbents (the ruling and the opposition benches) apparently rely on cost-benefit methodology to motivate mutually agreeable pork-barrel spending within a ‘local domain’ excluding options from the broader domain. For example, a larger than optimum-sized dam may be proposed in Region A (where the incumbent party or representative stands a chance in the next elections) when the benefit-maximizing choice should have been an education or drinking water project in Region B (where voters have rejected the incumbents).
There are at least three issues of interest to the economist here. First, whether cost-benefit analysis should consider the electoral gains to the incumbents, corruption aside, as a benefit while evaluating the project. The second issue is efficiency. And the third, conflict of interest. Let’s start with the first. The incumbent party undoubtedly benefits at the polls if it obtains on one hand, the goodwill of voters delighted with higher employment and income, and on the other hand, the monetary and political support from the industry in exchange for the contracts received from ‘pork-barreled’ public projects. These ‘benefits’ are at the cost of the society at large, particularly the future generation; they are more properly classified as a ‘extra-regulatory or extra-constitutional distributional impacts or rents’ . As real as they are, these rents cannot be included within the ambit of cost-benefit analysis; including such rents would be analogous to causing an endogeneity problem in econometrics. They must however be taken cognizance of by those with stake in good governance.
The second issue, that of efficiency, deserves special mention. The implication here is that as long as elected officials and their appointees decide budgets and spending on public projects, they will rationally seek out labor-intensive projects that generate employment and income among voters. Further, there is an incentive to camouflage an increase in the scale of public projects beyond the economic optimum to favor public work contractors in the guise of addressing equity. Incumbents will also generally favor inefficient resource allocation involving spending in their constituency over spending on efficient projects elsewhere. These biases might eventually find their way, marginally or otherwise, in to productivity, prices, wages and inflation, thus skewing the economy off its growth-maximizing path.
As for the third, there is an obvious conflict of interest when incumbents decide on spending whose outcomes, in part, determine their political future. Clearly, the incumbents’ decisions will be biased toward self-preservation which may or may not be in the interest of efficiency or the good of the nation. One might argue that those facing the ruling benches will oppose such spending, bringing about a compromise closer to the economic optimum. While such may be the case in enlightened democracies, elsewhere, the opposition too has its axe to grind, its campaign needs, and certainly, its very own vote bank to feed. In fact, there is every incentive for the opposition to make mutually agreeable deals with the ruling incumbents on pork-barrel spending. The need to engage in pork-barrel spending depends on political realities, while the power to do so is limited by economic realities, the strength of the ruling incumbents relative to the opposition benches and (the existence and) enforcement of provisions aimed at the agency problem. Indeed, the ‘Principal-Agent’ problem is of particular concern on account of the power and resources vested with elected incumbents and the influence of their decisions on the future of the nation and its people.
To sum up, cost-benefit analysis presumes neutral decision-makers. When decision-makers find themselves potential beneficiaries of the policies they decide, cost-benefit analysis tends to be manipulated to support inefficient, pork-barrel spending some of which is returned as ‘rents’. Further, since such ‘rents’ motivate regulatory decision-making, their consideration in the design of administrative or constitution provisions seems necessary. Further, survival being the ‘mantra’ of politicians, truncated and biased analyses are likely to continue because no Principal-Agent contract can foresee all eventualities and because the transaction cost increases with the stringency of enforcement of the contract. In this context, economists should examine political incentives from a Principal-Agent perspective for the particular type of constitution/electoral system when advocating cost-benefit analysis, lest such analysis be manipulated to serve the interests of the power coterie and subvert the letter of the law.
There is no other easy solution to the Principal-Agent problem. Law-makers could conceivably volunteer to ‘bell the cat’ themselves by enacting regulations that tighten the monitoring and enforcement of the ‘Principal-Agent’ contract . Alternatively, a ‘carrot and stick’ policy could just do the trick. If the law were amended to apportion public funds as performance-based compensation to incumbents and funds for their elections using the yardstick of short-run and long-run measures of economic progress and fiscal prudence that include current and ‘projected’ GDP growth and budget deficit, long bonds or related instruments or constructs, then elected principals may have the incentive to act to maximize economic efficiency conditional on equity concerns. A panel of ‘economist expert-judges’ appointed to work with elected representatives with power to direct cost-benefit analyses, interpret results and recommend alternatives to political incumbents who would then make the efficiency-equity trade-off calls would work too. Administrative law concerning public spending could be repealed to mandate explicit examination of costs and benefits of different alternatives of different scales/configurations/qualities including status quo and the same required to justify the choice. Finally, the organizational structure of the government could be altered by devolving policy-making and public-spending authority to apolitical bureaucrats whose fortunes are not tied to election campaigns or political appointees. These neutral bureaucrats could be professionally and legally required to follow best practices as laid down by academics and law-makers.
And, yes, we could enact another law banning campaign contributions and corruption. Until that day, let’s close our eyes and preach cost benefit analysis as we always have.
Amen!
Post script, 5/7/6
This situation involving exploitation of cost-benefit analysis to further majoritarian political goals may be exacerbated when the activities/projects are subsidized by the government. Public investment in subsidized activities can be particularly ruinous because of the demand they generate. This can result in a ‘positive feedback loop’ in which politicians enrich themselves by doling out contracts on subsidized public projects that in turn generate higher demand, further investment and more contracts.
Saturday, March 24, 2007
Poverty, Population, Politics and the Environment:The Unholy Tangle
Poverty, Population, Politics and the Environment:The Unholy Tangle
Ganga Prasad G. Rao
Ever wondered why our country has no place for the 'clean and green' parties? Why do political parties assiduously avoid anything that could remotely be termed 'green'? Because being ‘green’ signifies a rich economy and the poor masses will not vote for a party seen as anti-poor. Every rupee spent on pollution control and cleanliness is, as they rightly, self-deceptively or wrongly perceive, taken off the bowls of the poor. (So say the communists; I wonder if the 'right' is behind them. Strange bedmates indeed! Why, that's a conspiracy you'd never suspect!). Little wonder that being green is a stigma no political party would risk!
But the tragedy does not stop there. In our country, we care for the poor. We subsidize their education, their health, their food, their electricity and their transportation. Nothing wrong with that. They deserve help in an opportunistic society that denies them equal opportunity. But what it brings about is a semblance of security and comfort; and with that comes family, a larger family supported by welfare money. In the perverted subsidy system that we have, raising larger families obtains more subsidy since welfare is denominated in per-capita terms, not per 3-member family. A trifling, but one with enormous implications. One being that some of the highest birth rates are found amongst the poorest, subsidized classes.
On the macro stage, as the poor multiply, so does the subsidy. A larger share of government revenues go toward subsidies and interest payment on ‘past loans’ (read ‘past subsidies’). Less remains for more productive investments. The 'welfare trap' is now well and truly set! The poor grow in numbers, but turn poorer despite the subsidy. The country's growth is stunted; it can no longer afford investments in new technology, pollution control, R&D, quality public education and other productive projects. It remains, perhaps for ever, a third-world nation where the poor masses vote to power a government that subsidizes them in a ‘I’ll scratch your back; you scratch mine’ deal; a government that has made its compromises with the rich and powerful; a government that has no place for the middle class and the intelligentsia, a (perpetual) government (regardless of who is in power) that will shun anything green or environmental! Indeed and in fact, Welcome, to Hell!
Ganga Prasad G. Rao, gprasadrao@hotmail.com, http://myprofile.cos.com/gangar
Ganga Prasad G. Rao
Ever wondered why our country has no place for the 'clean and green' parties? Why do political parties assiduously avoid anything that could remotely be termed 'green'? Because being ‘green’ signifies a rich economy and the poor masses will not vote for a party seen as anti-poor. Every rupee spent on pollution control and cleanliness is, as they rightly, self-deceptively or wrongly perceive, taken off the bowls of the poor. (So say the communists; I wonder if the 'right' is behind them. Strange bedmates indeed! Why, that's a conspiracy you'd never suspect!). Little wonder that being green is a stigma no political party would risk!
But the tragedy does not stop there. In our country, we care for the poor. We subsidize their education, their health, their food, their electricity and their transportation. Nothing wrong with that. They deserve help in an opportunistic society that denies them equal opportunity. But what it brings about is a semblance of security and comfort; and with that comes family, a larger family supported by welfare money. In the perverted subsidy system that we have, raising larger families obtains more subsidy since welfare is denominated in per-capita terms, not per 3-member family. A trifling, but one with enormous implications. One being that some of the highest birth rates are found amongst the poorest, subsidized classes.
On the macro stage, as the poor multiply, so does the subsidy. A larger share of government revenues go toward subsidies and interest payment on ‘past loans’ (read ‘past subsidies’). Less remains for more productive investments. The 'welfare trap' is now well and truly set! The poor grow in numbers, but turn poorer despite the subsidy. The country's growth is stunted; it can no longer afford investments in new technology, pollution control, R&D, quality public education and other productive projects. It remains, perhaps for ever, a third-world nation where the poor masses vote to power a government that subsidizes them in a ‘I’ll scratch your back; you scratch mine’ deal; a government that has made its compromises with the rich and powerful; a government that has no place for the middle class and the intelligentsia, a (perpetual) government (regardless of who is in power) that will shun anything green or environmental! Indeed and in fact, Welcome, to Hell!
Ganga Prasad G. Rao, gprasadrao@hotmail.com, http://myprofile.cos.com/gangar
Ship Ahoy!
Fact or Fiction?
Ganga Prasad G. Rao
Today, I shall don the cap of a rabid cynic of capitalism and politics as practiced and opine on a grand conspiracy.
I call this the Narmada monstrosity. Remember the familiar refrain "This has happened earlier and will happen again" in Peter Pan stories? So it is with Narmada. When the urban masses seek a quick and dirty way to riches, it must be the poor and the environment that must bleed and give way. Gujarat, with its ship-breaking yards, produces many thousand tonnes of scrap iron that must be remelted. Electric Arc Furnaces (EAFs) that melt scrap in to metal soak up electric power like a dry sponge soaks up water. These 'shops' must economize on power to stay competitive in the cut-throat iron and steel ingot business. They cannot afford the high prices that their power company charges them. Nor can they set up expensive cogen-plants that larger plants do. The days of living in the shadow of 'T&D losses' are fast coming to an end. With plastics and composites eating away at the margin, markets (and profits) can be sustained and expanded only if large quantities of power can be found at low, low prices.
Enter the Narmada valley. A secluded, forested region inhabited by tribals through which flows the river Narmada. Pardon me, it is not a river anymore. It is more a chain of water storage and power generation structures. There is a word for such wanton destruction of natural environmental systems; we call it 'development'. It is such 'development' that that will provide low-priced hydro-power for EAFs and other power-hungry refining firms. It is such 'development' that will provide water for farmers sited near far-off deserts so they may produce sugarcane at controlled prices and pass it on to sugar companies whose stocks clock a meagre 400% rise annually. It is such 'development' that obtains the billion litres of water necessary for soft drinks bottlers to profit off the ever-thirsty populace. What could be wrong, you ask? Isn't it a booming economy?; Isn't everybody happy making money? Alas, no! What about the tribals of Narmada valley who lived off the river and the forests surrounding it? Oohhh, you mean them? Didn't the government give them money to move away? Yes and No. The government gave the tribals, the original inhabitants of the land, no choice but to move, and that too on its terms. Uprooting them from their mother's lap for a pittance, moving them to parched land that does not support their lifestyle, the government denied them the promised compensation after they cooperated. A booming economy you say? The tribals never heard of it! Jobs for everyone you say? Yes for everyone ('cept them 'no good' tribals). Out of the forest that nurtured them and in to ugly jungle of modern civilization, these tribals find themselves with no compensation, no resources and no opportunity. Little wonder they'd rather die than move.
But wait, that's not all. Now, the government seeks to raise the height of the dam again. Again? Yes, again. The Tamils have a saying "patta yedatthil padum" (you'll get hurt in the same place as you did the last time). After all, it is easier to increase the reservoir and displace a few more tribals than to build a new thermal power plant or seek a new hydro project! Besides, we are used to the protests; they are not headline news anymore! And, they certainly do not influence public opinion or voting at the booth (sic – we can deny them rations and force them to sell out if necessary)! What's in it for the political parties? Well, nothing if you discount the reins of the state government, the 'occasional' monetary support to electoral candidates, a few positions on the board of companies and the like....! Why, even the Supreme Court judges have learnt to stay away after issuing their decree! Death threats don’t go well with coffee, you know! What about international opprobrium? Oh, Don’t you worry, we’ll let them in to our stock market. That should keep them quiet! But don’t you have any morals? Ethics?......Are you even listening?
Uh? What? ....."Ship Ahoy"!
Epilogue:
When the tribals, deprived of their home and forest, seeking food to feed hungry mouths unaccustomed to pepsi, trudge down the hills, snaking their way through the plains to the beaches of Gujarat, to break down ships in to iron scrap – scrap to be melted with power produced from a hydro-project that drove them out of their homes, that’s when the irony strikes, the final insult........when owners of the resource become slaves of its exploiters! When it comes to exploitation nothing beats our ‘desi’ brand of capitalism. Indeed, no one is poor enough to escape it!
Cruelty, thy name is (Government-authorized, Court-endorsed) Development!
Sarve Janaaha Sukhino Bhavantu!
Ganga Prasad G. Rao
Today, I shall don the cap of a rabid cynic of capitalism and politics as practiced and opine on a grand conspiracy.
I call this the Narmada monstrosity. Remember the familiar refrain "This has happened earlier and will happen again" in Peter Pan stories? So it is with Narmada. When the urban masses seek a quick and dirty way to riches, it must be the poor and the environment that must bleed and give way. Gujarat, with its ship-breaking yards, produces many thousand tonnes of scrap iron that must be remelted. Electric Arc Furnaces (EAFs) that melt scrap in to metal soak up electric power like a dry sponge soaks up water. These 'shops' must economize on power to stay competitive in the cut-throat iron and steel ingot business. They cannot afford the high prices that their power company charges them. Nor can they set up expensive cogen-plants that larger plants do. The days of living in the shadow of 'T&D losses' are fast coming to an end. With plastics and composites eating away at the margin, markets (and profits) can be sustained and expanded only if large quantities of power can be found at low, low prices.
Enter the Narmada valley. A secluded, forested region inhabited by tribals through which flows the river Narmada. Pardon me, it is not a river anymore. It is more a chain of water storage and power generation structures. There is a word for such wanton destruction of natural environmental systems; we call it 'development'. It is such 'development' that that will provide low-priced hydro-power for EAFs and other power-hungry refining firms. It is such 'development' that will provide water for farmers sited near far-off deserts so they may produce sugarcane at controlled prices and pass it on to sugar companies whose stocks clock a meagre 400% rise annually. It is such 'development' that obtains the billion litres of water necessary for soft drinks bottlers to profit off the ever-thirsty populace. What could be wrong, you ask? Isn't it a booming economy?; Isn't everybody happy making money? Alas, no! What about the tribals of Narmada valley who lived off the river and the forests surrounding it? Oohhh, you mean them? Didn't the government give them money to move away? Yes and No. The government gave the tribals, the original inhabitants of the land, no choice but to move, and that too on its terms. Uprooting them from their mother's lap for a pittance, moving them to parched land that does not support their lifestyle, the government denied them the promised compensation after they cooperated. A booming economy you say? The tribals never heard of it! Jobs for everyone you say? Yes for everyone ('cept them 'no good' tribals). Out of the forest that nurtured them and in to ugly jungle of modern civilization, these tribals find themselves with no compensation, no resources and no opportunity. Little wonder they'd rather die than move.
But wait, that's not all. Now, the government seeks to raise the height of the dam again. Again? Yes, again. The Tamils have a saying "patta yedatthil padum" (you'll get hurt in the same place as you did the last time). After all, it is easier to increase the reservoir and displace a few more tribals than to build a new thermal power plant or seek a new hydro project! Besides, we are used to the protests; they are not headline news anymore! And, they certainly do not influence public opinion or voting at the booth (sic – we can deny them rations and force them to sell out if necessary)! What's in it for the political parties? Well, nothing if you discount the reins of the state government, the 'occasional' monetary support to electoral candidates, a few positions on the board of companies and the like....! Why, even the Supreme Court judges have learnt to stay away after issuing their decree! Death threats don’t go well with coffee, you know! What about international opprobrium? Oh, Don’t you worry, we’ll let them in to our stock market. That should keep them quiet! But don’t you have any morals? Ethics?......Are you even listening?
Uh? What? ....."Ship Ahoy"!
Epilogue:
When the tribals, deprived of their home and forest, seeking food to feed hungry mouths unaccustomed to pepsi, trudge down the hills, snaking their way through the plains to the beaches of Gujarat, to break down ships in to iron scrap – scrap to be melted with power produced from a hydro-project that drove them out of their homes, that’s when the irony strikes, the final insult........when owners of the resource become slaves of its exploiters! When it comes to exploitation nothing beats our ‘desi’ brand of capitalism. Indeed, no one is poor enough to escape it!
Cruelty, thy name is (Government-authorized, Court-endorsed) Development!
Sarve Janaaha Sukhino Bhavantu!
Friday, March 23, 2007
Democracy, Elections and Voting
Hello, 22nd Century, This is India, Hello, ....., Hello?
Ganga Prasad G. Rao
Yes, it's me again! And yes, it is our democracy again! WWAAI I TT!, I have a question before you hit 'delete'. When you vote, why and whom do you vote for? For one candidate over his challengers? For one party against other parties in the fray? For democracy against anarchy? Out of a feeling of duty and national pride? To express your appreciation for a certain candidate, party or to justify the holiday the government declares? A vote under obligation or duress for being the recipient of past favors? Or some combination that you don't have the time for, the will to or the conscience to figure out?
Does it even matter, you ask? Indeed. It matters when you vote for the candidate but not for the party, or the other way around. It matters whether you vote to express your right, your opinion or your appreciation for or obligation to a certain candidate. And it matters if you abstain because you do not like the candidates, the parties, their planks (or because you do not like your chances of returning home
in one piece!). And why? Because your favorite candidate is with the wrong party. Because your party is in an electoral alliance that you do not agree with or has fielded a 'dud' counting on your loyalty. Because we hate to participate in a sham democracy that lets politicians and parties of dubious antecedents grab power by buying in to vote blocks comprising our disadvantaged with the promise of subsidizing them. But, most importantly, because we want to avoid the trauma of extended social strife and survive in to the 22nd century as a nation to pursue our dream – of a nation of equals, a nation committed to justice, to freedom, to opportunity, to progress and excellence, to tolerance and peace.
Perhaps it is not too late to consider an entirely different political system? A Parliament constituted by nominated or elected representatives from capitalists – industrial barons, factory owners, businessmen and landowners along with representation from the academe, religion, farmers, blue collar and white collar employees as well representatives from the international community – in short, all except career politicians! Why, such a system would be both decentralized and representative of the society. It could have a better shot at bringing about the broadbased consensus that eludes us today. It is not the only way and it is not the best either, but it sure beats the farce aka India's democratic Parliament! What we do or don't will determine whether India enters the 22nd century as a country of hope, as a country in despair or.... We need leaders with the brains of Dr. Radhakrishnan, the foresight of Ambedkar, the resolve of Gandhi, the vision of Nehru and iron will of Patel ... and the cunning of a fox.
Happy Hunting!
Ganga Prasad G. Rao
Yes, it's me again! And yes, it is our democracy again! WWAAI I TT!, I have a question before you hit 'delete'. When you vote, why and whom do you vote for? For one candidate over his challengers? For one party against other parties in the fray? For democracy against anarchy? Out of a feeling of duty and national pride? To express your appreciation for a certain candidate, party or to justify the holiday the government declares? A vote under obligation or duress for being the recipient of past favors? Or some combination that you don't have the time for, the will to or the conscience to figure out?
Does it even matter, you ask? Indeed. It matters when you vote for the candidate but not for the party, or the other way around. It matters whether you vote to express your right, your opinion or your appreciation for or obligation to a certain candidate. And it matters if you abstain because you do not like the candidates, the parties, their planks (or because you do not like your chances of returning home
in one piece!). And why? Because your favorite candidate is with the wrong party. Because your party is in an electoral alliance that you do not agree with or has fielded a 'dud' counting on your loyalty. Because we hate to participate in a sham democracy that lets politicians and parties of dubious antecedents grab power by buying in to vote blocks comprising our disadvantaged with the promise of subsidizing them. But, most importantly, because we want to avoid the trauma of extended social strife and survive in to the 22nd century as a nation to pursue our dream – of a nation of equals, a nation committed to justice, to freedom, to opportunity, to progress and excellence, to tolerance and peace.
Perhaps it is not too late to consider an entirely different political system? A Parliament constituted by nominated or elected representatives from capitalists – industrial barons, factory owners, businessmen and landowners along with representation from the academe, religion, farmers, blue collar and white collar employees as well representatives from the international community – in short, all except career politicians! Why, such a system would be both decentralized and representative of the society. It could have a better shot at bringing about the broadbased consensus that eludes us today. It is not the only way and it is not the best either, but it sure beats the farce aka India's democratic Parliament! What we do or don't will determine whether India enters the 22nd century as a country of hope, as a country in despair or.... We need leaders with the brains of Dr. Radhakrishnan, the foresight of Ambedkar, the resolve of Gandhi, the vision of Nehru and iron will of Patel ... and the cunning of a fox.
Happy Hunting!
Thursday, March 22, 2007
Rites To Our Constitutional Rights?
Rites To Our Constitutional Rights?
Ganga Prasad G. Rao http://myprofile.cos.com/gangar
Call it human nature, but we generally accept the system in which we grow. That includes our religion, our surroundings and its racial mix, our family, our institutions, political system and the constitution. Not surprisingly therefore, we Indians broadly agree with our constitution, with its basic tenets and the rights it bestows upon us. Our socialist legacy has however brought up generations of citizens who have come to expect from the government many constitutional rights that one should fight for a life, if not a war as our freedom fighters did. These 'wants' should be viewed in the broader perspective of the struggle for constitutional rights in developed countries – albeit of a different nature. Thus, while Indian political and social groups seek support for proclamation of the right to livelihood, right to education, right to equality in outcome (as opposed to equal opportunity), right to subsidized electricity (oh, excuse me, I grew up on it!), right to potable water, or the right to free or subsidized transport, elsewhere in developed countries, the emphasis is on right to selfprotection (euphemism for right to carry and use arms), suicide, privacy, healthful environment, peace or abortion(1)
But what is a 'right'? Human necessities are not rights, nor are our ideals, or for that matter, desires. A right is a constitutionally protected and enforceable contract with all citizens that guarantees recourse to law should they be denied their opportunity to engage in certain activities or to possess legal property in pursuit of livelihood, protection of self and family, and enjoyment of life. All rights impose a cost of monitoring and enforcement on the government and provide perpetual benefits to citizens. Rights are considered so fundamental and necessary that a nation implicitly guarantees to protect and provide them at any cost. Unfortunately, the constitution has little to say regarding the degree to which or the time frame within which to provide the rights (given that the rights are incompletely available or enforced to start with). Perhaps those who penned the constitution did not anticipate how these rights would be manipulated by political parties in their mad, unquenchable thirst for power. Even more unfortunately, our jurists apparently do not always appreciate the economic and political fallout of enforcing these rights. At other times, the courts are inexplicably silent despite repeated and egregious denial of basic rights to oppressed citizens. In an overpopulated world teeming with hunger, unemployment and budgetary deficits, no government can afford to protect all rights of every person born and unborn. This is particularly true if the rights are costly to enforce and obtain little benefit to the society. Then why the sham? Why do Supreme Court judges interpret the constitution as if we live
1 www.hrcr.org
gprasadrao@hotmail.com
1 of 5
http://myprofile.cos.com/gangar/
Page 2
in a world of plenty? Why do they issue edicts on the government to provide schools, water and sewerage without regard to the mandate they have or have not received from the public, and that too by a certain deadline when they are aware of the scale of investments required visavis the size of the budget and the state of public finances? How then should we interpret our constitutional rights? Must the Supreme Court always uphold the rights enshrined in the constitution? Must these rights be sacrosanct regardless of how the economy is doing, regardless of peoples wishes as reflected in the government they elect to power (presuming the elections, composition of the electoral colleges and the votes of elected representatives substantially reflect the peoples' preferences)? Must the constitutional rights be upheld despite evidence that citizens may be willing to trade them off for certain durations in return for other privileges? These are questions of deep import that bear upon the longrun future of the country and its people.
Any economist worth his salt will opine that all free goods are consumed inefficiently. That is, consumers will generally overconsume, store and waste goods and services provided free to them. In fact, free goods will be consumed to the point at which their marginal utility is zero (ie, until the person is 'sated'). Now consider that rights are but 'legalese' for 'guaranteed free goods, services or options' held and enforceable by members of the public. It doesn't take a rocket scientist to deduce that rights too will be overconsumed – especially if they happen to be luxuries otherwise! Consider the 'right' to safe drinking water and the right to vote. Every country aspires to provide safe drinking water to its citizens. Yet, most developing countries are many decades away from the goal. The fact of the matter is that water is easily provided to large communities located near large water sources, albeit with some investment. However, providing safe drinking water to small, remote villages can be quite costly, since the fixed cost is distributed over less number of residents. From a national perspective, providing safe drinking water to the first few ten percents of dense, urban population may be relatively inexpensive. As villages turn remote and surroundings hostile, providing safe drinking water becomes incrementally more expensive, and turns prohibitively so for covering the last twenty or ten percent of the population that is dispersed sparsely. If per capita benefits are presumed constant across all degrees of coverage, it follows that net benefits are probably maximized well short of the hundred percent coverage that politicians and rights activists would like the constitution to guarantee its citizens. In other words, economic efficiency dictates a smaller public safe drinking water program than what the constitution guarantees. This is clearly no laughing matter. A judge who interprets the constitution literally and directs the government to expand drinking water program could do immense economic harm to the country.
The case of the right to vote is slightly different. Under our constitution, it is the political parties and politicians who exploit the right to vote provided to citizens. This exploitation takes many forms that include frequent midterm elections, inferior candidates, 'unholy' alliances, multiple candidates and so on. Under these circumstances, citizens will generally undervalue the importance of their vote because it comes at no price. More to the point, they have no benchmark to determine the value of the right to
gprasadrao@hotmail.com
2 of 5
http://myprofile.cos.com/gangar/
Page 3
vote that they possess and hence will be unable to make intelligent tradeoffs. The resulting inefficiencies materially reduce the credibility of the electoral process, the claim to representative democracy and indeed the performance of the government.
One may sneer at the brouhaha raised over a matter that has always been in the constitution. But in an increasingly interwoven world where 'country risk' is an important determinant of international monetary flows, foreign investors, especially the big institutional investors and pension funds who invest over decades, look in to a country's constitution, judiciary and enforcement record as well as political promises. They examine a country's obligations to its people and the degree to which these rights can be enforced in its courts. A country that frivolously grants courtenforceable rights to its citizens without providing for the means to achieve, maintain or enforce them is likely to be viewed with suspicion by the international investor community on account of the financial obligations that courts can enforce on the government's budget. On the other hand, too few constitutional obligations could also be viewed negatively by investors who bank upon public expenditures by a proactive government to sustain the industry and the stock market. Put another way, too many rights and the nation is mired in to financially impossible obligations of enforcing them all the time for all citizens at all places; too few rights and the nation is dragged in to anarchy and destruction (and perhaps into a low GDP growth trajectory!).
So, where lies the middle ground? What solutions are out there? One could perhaps subscribe to an international set of rights that are linked to the stage of development of a country. Poor nations with limited resources guarantee only the minimum, leaving the rest as optional campaign promises. Under such a system, different political entities would put forth different 'bill of rights' that suit their perspective, target class of voters, tax and budget plans (beyond those guaranteed under the constitution). A party on the left would stress the right to employment and public property rights while imposing tax on capitalists. A party backed by capitalists would stress private property rights and reduction in taxes. These rights could form part of election campaigns along with other poll promises, thus differentiating political parties unambiguously and facilitating a clearer electoral mandate from citizens as to the rights they wish for and the sacrifices they are willing to make before they vote at the ballot box. This system would ensure that no country subscribes to more rights than are sustainable even while providing for optional rights as determined by voter preferences on one hand and economic conditions as perceived by political parties on the other.
Alternatively, rights could be evaluated for their costs and benefits perhaps on a per-capita basis and arranged in order of decreasing net benefits for any given distribution of income in the population. Those rights that pass the 'positive net benefits tests' for the income level of a particular country(2) can be implemented immediately because they are beneficial to that society. Other rights, including those that
(2) Since willingness to pay generally varies in some proportion with income.
gprasadrao@hotmail.com
3 of 5
http://myprofile.cos.com/gangar/
Page 4
impose a net cost on the society, may be accepted in to the constitution over time as the country progresses economically and a willingness to pay for more rights rises (or a willingness to bear the burden of inefficient rights emerges). Thus, the positive netbenefits criterion serves as a threshold to determine the set of rights that should be constitutionally protected. It ensures that only those rights with broadbased support among the masses find a place in the constitution.
Finally, demands for various rights could be accepted based on monetary subscription to a program of 'compensated rights'. This system may be indicated when the demanded rights benefit only a narrow section of the nation's population. A system of 'compensated rights' segregates the population in to those who subscribe to it and those who don't, much like private insurance. Despite negating the very definition of 'rights' as understood, such as system could turn out to be free, fair, efficient and economically sustainable in certain contexts. Different population groups would subscribe to different compensatedrights programs based on how they value them and the 'price' at which those 'rights' can be bought. Such a system would be applicable to the right to privacy. Privacy is a matter of utmost concern to certain sections of the population, yet an universal right to privacy is difficult to legislate and enforce. A system that permits the population to selfsegregate with regard to privacy along the lines of an economic threshold (the threshold being those who value the benefits of privacy higher than the fee to obtain the 'compensated right' to privacy) is potentially very useful to a country that cannot enforce the right over the entire population for reasons of feasibility, interest or intent. A variant of the above is applicable in the case of the right to vote. On account of the inefficiencies under the right to vote system discussed above, it is important that voting be transformed from a freely provided right to a privilege – a privilege that requires one to earn it, either by qualifying or by paying for it. Consider a (substantial) 'voting privilege fee' denominated in monthly income of voters. Voters will implicitly evaluate each candidate, his or her party and its electoral agenda against their now valuable vote. The immediate cost to the voter is the sum of the 'voting privilege fee' and the value of the time and effort spent on voting. The benefit is the monetary value (to self and society) of the probability that the chosen representative wins and, with his party, brings about desired changes. The decision involves maximizing expected net benefits across voting for alternative candidates. The 'voting privilege fee' system increases the probability that voters value their vote against the expected performance of alternative candidates and make rational decisions. In fact, voters retain the right to abstain should they find the candidates not worth the privilege they have paid for. (These results are contingent upon the type of electoral, political and government systems in place under the constitution). This is an example of how economic efficiency is improved by turning the constitutionally guaranteed rights in to privileges. To sum up, rights are a sensitive issue among the public since they involve subjective, sometimes emotional, matters that can be provoked or instigated by various entities for their private ends. Indeed, this explains why politicians pry upon and exploit them in their campaigns. Most governments,
gprasadrao@hotmail.com
4 of 5
http://myprofile.cos.com/gangar/
Page 5
political groups and rights activists in developing countries have tended to ignore the economic, financial and legal implications of accommodating such demands, in the process risking large budgetary obligations, additional economic inefficiencies and heightened perception of risk in the community of investors that are not readily detectable or even understood. As we move in to the 21st century and as nations turn wealthier, rights activists are likely to turn more strident with their existing and new demands. No country, especially no developing country, can afford to enshrine new rights in to the constitution oblivious of the cost it imposes on the government. In this context, it behooves rights activists, lawmakers, jurists, politicians and other stakeholders to dispassionately examine the demands for various rights along with the economicsbased resolutions offered and ensure that the country adopts a middle path that is publicly acceptable and economically sustainable.
gprasadrao@hotmail.com
5 of 5
http://myprofile.cos.com/gangar/
Ganga Prasad G. Rao http://myprofile.cos.com/gangar
Call it human nature, but we generally accept the system in which we grow. That includes our religion, our surroundings and its racial mix, our family, our institutions, political system and the constitution. Not surprisingly therefore, we Indians broadly agree with our constitution, with its basic tenets and the rights it bestows upon us. Our socialist legacy has however brought up generations of citizens who have come to expect from the government many constitutional rights that one should fight for a life, if not a war as our freedom fighters did. These 'wants' should be viewed in the broader perspective of the struggle for constitutional rights in developed countries – albeit of a different nature. Thus, while Indian political and social groups seek support for proclamation of the right to livelihood, right to education, right to equality in outcome (as opposed to equal opportunity), right to subsidized electricity (oh, excuse me, I grew up on it!), right to potable water, or the right to free or subsidized transport, elsewhere in developed countries, the emphasis is on right to selfprotection (euphemism for right to carry and use arms), suicide, privacy, healthful environment, peace or abortion(1)
But what is a 'right'? Human necessities are not rights, nor are our ideals, or for that matter, desires. A right is a constitutionally protected and enforceable contract with all citizens that guarantees recourse to law should they be denied their opportunity to engage in certain activities or to possess legal property in pursuit of livelihood, protection of self and family, and enjoyment of life. All rights impose a cost of monitoring and enforcement on the government and provide perpetual benefits to citizens. Rights are considered so fundamental and necessary that a nation implicitly guarantees to protect and provide them at any cost. Unfortunately, the constitution has little to say regarding the degree to which or the time frame within which to provide the rights (given that the rights are incompletely available or enforced to start with). Perhaps those who penned the constitution did not anticipate how these rights would be manipulated by political parties in their mad, unquenchable thirst for power. Even more unfortunately, our jurists apparently do not always appreciate the economic and political fallout of enforcing these rights. At other times, the courts are inexplicably silent despite repeated and egregious denial of basic rights to oppressed citizens. In an overpopulated world teeming with hunger, unemployment and budgetary deficits, no government can afford to protect all rights of every person born and unborn. This is particularly true if the rights are costly to enforce and obtain little benefit to the society. Then why the sham? Why do Supreme Court judges interpret the constitution as if we live
1 www.hrcr.org
gprasadrao@hotmail.com
1 of 5
http://myprofile.cos.com/gangar/
Page 2
in a world of plenty? Why do they issue edicts on the government to provide schools, water and sewerage without regard to the mandate they have or have not received from the public, and that too by a certain deadline when they are aware of the scale of investments required visavis the size of the budget and the state of public finances? How then should we interpret our constitutional rights? Must the Supreme Court always uphold the rights enshrined in the constitution? Must these rights be sacrosanct regardless of how the economy is doing, regardless of peoples wishes as reflected in the government they elect to power (presuming the elections, composition of the electoral colleges and the votes of elected representatives substantially reflect the peoples' preferences)? Must the constitutional rights be upheld despite evidence that citizens may be willing to trade them off for certain durations in return for other privileges? These are questions of deep import that bear upon the longrun future of the country and its people.
Any economist worth his salt will opine that all free goods are consumed inefficiently. That is, consumers will generally overconsume, store and waste goods and services provided free to them. In fact, free goods will be consumed to the point at which their marginal utility is zero (ie, until the person is 'sated'). Now consider that rights are but 'legalese' for 'guaranteed free goods, services or options' held and enforceable by members of the public. It doesn't take a rocket scientist to deduce that rights too will be overconsumed – especially if they happen to be luxuries otherwise! Consider the 'right' to safe drinking water and the right to vote. Every country aspires to provide safe drinking water to its citizens. Yet, most developing countries are many decades away from the goal. The fact of the matter is that water is easily provided to large communities located near large water sources, albeit with some investment. However, providing safe drinking water to small, remote villages can be quite costly, since the fixed cost is distributed over less number of residents. From a national perspective, providing safe drinking water to the first few ten percents of dense, urban population may be relatively inexpensive. As villages turn remote and surroundings hostile, providing safe drinking water becomes incrementally more expensive, and turns prohibitively so for covering the last twenty or ten percent of the population that is dispersed sparsely. If per capita benefits are presumed constant across all degrees of coverage, it follows that net benefits are probably maximized well short of the hundred percent coverage that politicians and rights activists would like the constitution to guarantee its citizens. In other words, economic efficiency dictates a smaller public safe drinking water program than what the constitution guarantees. This is clearly no laughing matter. A judge who interprets the constitution literally and directs the government to expand drinking water program could do immense economic harm to the country.
The case of the right to vote is slightly different. Under our constitution, it is the political parties and politicians who exploit the right to vote provided to citizens. This exploitation takes many forms that include frequent midterm elections, inferior candidates, 'unholy' alliances, multiple candidates and so on. Under these circumstances, citizens will generally undervalue the importance of their vote because it comes at no price. More to the point, they have no benchmark to determine the value of the right to
gprasadrao@hotmail.com
2 of 5
http://myprofile.cos.com/gangar/
Page 3
vote that they possess and hence will be unable to make intelligent tradeoffs. The resulting inefficiencies materially reduce the credibility of the electoral process, the claim to representative democracy and indeed the performance of the government.
One may sneer at the brouhaha raised over a matter that has always been in the constitution. But in an increasingly interwoven world where 'country risk' is an important determinant of international monetary flows, foreign investors, especially the big institutional investors and pension funds who invest over decades, look in to a country's constitution, judiciary and enforcement record as well as political promises. They examine a country's obligations to its people and the degree to which these rights can be enforced in its courts. A country that frivolously grants courtenforceable rights to its citizens without providing for the means to achieve, maintain or enforce them is likely to be viewed with suspicion by the international investor community on account of the financial obligations that courts can enforce on the government's budget. On the other hand, too few constitutional obligations could also be viewed negatively by investors who bank upon public expenditures by a proactive government to sustain the industry and the stock market. Put another way, too many rights and the nation is mired in to financially impossible obligations of enforcing them all the time for all citizens at all places; too few rights and the nation is dragged in to anarchy and destruction (and perhaps into a low GDP growth trajectory!).
So, where lies the middle ground? What solutions are out there? One could perhaps subscribe to an international set of rights that are linked to the stage of development of a country. Poor nations with limited resources guarantee only the minimum, leaving the rest as optional campaign promises. Under such a system, different political entities would put forth different 'bill of rights' that suit their perspective, target class of voters, tax and budget plans (beyond those guaranteed under the constitution). A party on the left would stress the right to employment and public property rights while imposing tax on capitalists. A party backed by capitalists would stress private property rights and reduction in taxes. These rights could form part of election campaigns along with other poll promises, thus differentiating political parties unambiguously and facilitating a clearer electoral mandate from citizens as to the rights they wish for and the sacrifices they are willing to make before they vote at the ballot box. This system would ensure that no country subscribes to more rights than are sustainable even while providing for optional rights as determined by voter preferences on one hand and economic conditions as perceived by political parties on the other.
Alternatively, rights could be evaluated for their costs and benefits perhaps on a per-capita basis and arranged in order of decreasing net benefits for any given distribution of income in the population. Those rights that pass the 'positive net benefits tests' for the income level of a particular country(2) can be implemented immediately because they are beneficial to that society. Other rights, including those that
(2) Since willingness to pay generally varies in some proportion with income.
gprasadrao@hotmail.com
3 of 5
http://myprofile.cos.com/gangar/
Page 4
impose a net cost on the society, may be accepted in to the constitution over time as the country progresses economically and a willingness to pay for more rights rises (or a willingness to bear the burden of inefficient rights emerges). Thus, the positive netbenefits criterion serves as a threshold to determine the set of rights that should be constitutionally protected. It ensures that only those rights with broadbased support among the masses find a place in the constitution.
Finally, demands for various rights could be accepted based on monetary subscription to a program of 'compensated rights'. This system may be indicated when the demanded rights benefit only a narrow section of the nation's population. A system of 'compensated rights' segregates the population in to those who subscribe to it and those who don't, much like private insurance. Despite negating the very definition of 'rights' as understood, such as system could turn out to be free, fair, efficient and economically sustainable in certain contexts. Different population groups would subscribe to different compensatedrights programs based on how they value them and the 'price' at which those 'rights' can be bought. Such a system would be applicable to the right to privacy. Privacy is a matter of utmost concern to certain sections of the population, yet an universal right to privacy is difficult to legislate and enforce. A system that permits the population to selfsegregate with regard to privacy along the lines of an economic threshold (the threshold being those who value the benefits of privacy higher than the fee to obtain the 'compensated right' to privacy) is potentially very useful to a country that cannot enforce the right over the entire population for reasons of feasibility, interest or intent. A variant of the above is applicable in the case of the right to vote. On account of the inefficiencies under the right to vote system discussed above, it is important that voting be transformed from a freely provided right to a privilege – a privilege that requires one to earn it, either by qualifying or by paying for it. Consider a (substantial) 'voting privilege fee' denominated in monthly income of voters. Voters will implicitly evaluate each candidate, his or her party and its electoral agenda against their now valuable vote. The immediate cost to the voter is the sum of the 'voting privilege fee' and the value of the time and effort spent on voting. The benefit is the monetary value (to self and society) of the probability that the chosen representative wins and, with his party, brings about desired changes. The decision involves maximizing expected net benefits across voting for alternative candidates. The 'voting privilege fee' system increases the probability that voters value their vote against the expected performance of alternative candidates and make rational decisions. In fact, voters retain the right to abstain should they find the candidates not worth the privilege they have paid for. (These results are contingent upon the type of electoral, political and government systems in place under the constitution). This is an example of how economic efficiency is improved by turning the constitutionally guaranteed rights in to privileges. To sum up, rights are a sensitive issue among the public since they involve subjective, sometimes emotional, matters that can be provoked or instigated by various entities for their private ends. Indeed, this explains why politicians pry upon and exploit them in their campaigns. Most governments,
gprasadrao@hotmail.com
4 of 5
http://myprofile.cos.com/gangar/
Page 5
political groups and rights activists in developing countries have tended to ignore the economic, financial and legal implications of accommodating such demands, in the process risking large budgetary obligations, additional economic inefficiencies and heightened perception of risk in the community of investors that are not readily detectable or even understood. As we move in to the 21st century and as nations turn wealthier, rights activists are likely to turn more strident with their existing and new demands. No country, especially no developing country, can afford to enshrine new rights in to the constitution oblivious of the cost it imposes on the government. In this context, it behooves rights activists, lawmakers, jurists, politicians and other stakeholders to dispassionately examine the demands for various rights along with the economicsbased resolutions offered and ensure that the country adopts a middle path that is publicly acceptable and economically sustainable.
gprasadrao@hotmail.com
5 of 5
http://myprofile.cos.com/gangar/
Virtual Real(i)ty
Ganga Prasad G. Rao http://myprofile.cos.com/gangar
Lis'ning to Bon Jovi's 'When you make love, do you look in the mirror?'
and watching the Sermons of the Lord on Daystar TV (by the way, the only window to nature)
I couldn't but muse at the incongruity of me and the world around
of 'posites living in apparent harmony waiting to explode at the slightest
provocation
Born free, enslaved since; living in a concrete jungle denser than Amazon
even as I yearn for Alaska
I worry I might get used to this insanity, and worse yet,
my children wouldn't notice the difference!
Or appreciate truth from the lie, good from bad, innocence from malice, greed
from need, compromises from sacrifices or even cause from effect
Perhaps I am behind the times; I know I am not getting any younger
Left behind in the 'mobile' revolution, I feel so distanced
from my peers and the 'GenNext' as they beep their way to anonymity
I remind myself, I am not alone in this quagmire
that this world has been hijacked by the right
the right that marginalizes the pure, the intelligent, the righteous and the innocent
and puts the devil to shame in justifying their end
with the needs of the poor
Do I work 9 to 5 to impoverish myself and enrich the rich?
and invest in the stock market that cares not for God's Earth,
but the next moment and a half!
I worry where this population-bubble driven, consumerist economy is heading to
and what happens to the 'GiveItToMeRightNow' generation
as they gaze for hours at stupid cartoons or swinging hips
Could this just be the end of the road?,
the 'slight' at the end of the tunnel for the 'nuclear generation'?
Is God aware where this is leading to?
Is he powerful enough, or even willing,
to fight the lie for imbeciles and the undeserving
and set the world back on track?
Perhaps, this is God's test, a game?
If God had a game what would it be?
Would he lure us with sin? With money and 'key'?
Would he drive the tribals out of their forest homes
and supply hydro-electricity
to their roadside virtual realty?
Would he take away land from impoverished farmers
so they may drive in their Tata car
munching Doritos, sipping Pepsi?
Would he? Would he?
Yeah, Yeah, God is Great; Yeah, Yeah, God is Good.........
What if God was one of us?
Just a meek one like all of us
Waiting for the State to act
for Courts to enforce the law
for goodsense to prevail?
I wouldn't bet on it!
I say God is trying to get away from it all
Anyone by name Atlas? !
ps:
Do I have to say the word? Do I have to shout it out?
Yes, the song is plagiarized. Do I have to acknowledge that too?
Lis'ning to Bon Jovi's 'When you make love, do you look in the mirror?'
and watching the Sermons of the Lord on Daystar TV (by the way, the only window to nature)
I couldn't but muse at the incongruity of me and the world around
of 'posites living in apparent harmony waiting to explode at the slightest
provocation
Born free, enslaved since; living in a concrete jungle denser than Amazon
even as I yearn for Alaska
I worry I might get used to this insanity, and worse yet,
my children wouldn't notice the difference!
Or appreciate truth from the lie, good from bad, innocence from malice, greed
from need, compromises from sacrifices or even cause from effect
Perhaps I am behind the times; I know I am not getting any younger
Left behind in the 'mobile' revolution, I feel so distanced
from my peers and the 'GenNext' as they beep their way to anonymity
I remind myself, I am not alone in this quagmire
that this world has been hijacked by the right
the right that marginalizes the pure, the intelligent, the righteous and the innocent
and puts the devil to shame in justifying their end
with the needs of the poor
Do I work 9 to 5 to impoverish myself and enrich the rich?
and invest in the stock market that cares not for God's Earth,
but the next moment and a half!
I worry where this population-bubble driven, consumerist economy is heading to
and what happens to the 'GiveItToMeRightNow' generation
as they gaze for hours at stupid cartoons or swinging hips
Could this just be the end of the road?,
the 'slight' at the end of the tunnel for the 'nuclear generation'?
Is God aware where this is leading to?
Is he powerful enough, or even willing,
to fight the lie for imbeciles and the undeserving
and set the world back on track?
Perhaps, this is God's test, a game?
If God had a game what would it be?
Would he lure us with sin? With money and 'key'?
Would he drive the tribals out of their forest homes
and supply hydro-electricity
to their roadside virtual realty?
Would he take away land from impoverished farmers
so they may drive in their Tata car
munching Doritos, sipping Pepsi?
Would he? Would he?
Yeah, Yeah, God is Great; Yeah, Yeah, God is Good.........
What if God was one of us?
Just a meek one like all of us
Waiting for the State to act
for Courts to enforce the law
for goodsense to prevail?
I wouldn't bet on it!
I say God is trying to get away from it all
Anyone by name Atlas? !
ps:
Do I have to say the word? Do I have to shout it out?
Yes, the song is plagiarized. Do I have to acknowledge that too?
Cataract in a Concrete Jungle
'Twas afternoon; the unforgiving Chennai sun, blazed away yet another dreary day
Turning the water pump on, I had no inkling what would follow
But when the water ran down the overflow spout, what did I see?
the most heartwarming sight - two birds, no, not sparrows, (they have exited this hell we call Chennai)
on the branches of the gauva tree drenching underneath the anthropogenic cataract
I couldn't but stop, watch and imagine their joy at discovering a mid-summer day miracle
For once, I felt childishly happy sharing their joy vicariously as they chirped and flitted in 'n out the evanescent wonder
Yet, in that moment, my heart ached for every deprived, exploited plant, tree and animal
forests razed for timber, mining, roads and colonies,
for seals and walruses that live but to enrich humanity with mink,
elephants, lions and tigers sandwiched between hydro-dam inundation, deforestation and encroachment
dolphins, sharks and whales signed away into oblivion by diplomatically-worded sea treaties, (the EEZ now extends only half-way across the ocean!)
cows denied their grazing land by developers hunting for 'greener pastures' (Do I sense an incongruity?),
snakes that don't slither for want of open land and mongooses that don't peek out lest they turn in to a tyre imprint or adorn the living room wall
crows that anxiously, I fancy almost desperately, caw 'Give us this day our mouthful water' (Now that the neighborhood lake is a colonized 'Extension')
And for that Kingfis.... Wait!, that can't be! The stock market is zooming up again;
I must make haste, for I too have bills to pay before I eat and bills to pay before I sleep.
Where is the Quote? The EPS, the Alpha, the Beta and,
don't you forget, Sharpe Ratio!
Viva Capitalism! Viva Sustainable Development! (Now, there's even a mutual fund if you wish to be an environmentally correct investor!)
ps: If only WWF had shorted the environment at the bourses! Why, they would have put Warren Buffet to shame!
Ganga Prasad Rao
http://myprofile.cos.com/gangar
Turning the water pump on, I had no inkling what would follow
But when the water ran down the overflow spout, what did I see?
the most heartwarming sight - two birds, no, not sparrows, (they have exited this hell we call Chennai)
on the branches of the gauva tree drenching underneath the anthropogenic cataract
I couldn't but stop, watch and imagine their joy at discovering a mid-summer day miracle
For once, I felt childishly happy sharing their joy vicariously as they chirped and flitted in 'n out the evanescent wonder
Yet, in that moment, my heart ached for every deprived, exploited plant, tree and animal
forests razed for timber, mining, roads and colonies,
for seals and walruses that live but to enrich humanity with mink,
elephants, lions and tigers sandwiched between hydro-dam inundation, deforestation and encroachment
dolphins, sharks and whales signed away into oblivion by diplomatically-worded sea treaties, (the EEZ now extends only half-way across the ocean!)
cows denied their grazing land by developers hunting for 'greener pastures' (Do I sense an incongruity?),
snakes that don't slither for want of open land and mongooses that don't peek out lest they turn in to a tyre imprint or adorn the living room wall
crows that anxiously, I fancy almost desperately, caw 'Give us this day our mouthful water' (Now that the neighborhood lake is a colonized 'Extension')
And for that Kingfis.... Wait!, that can't be! The stock market is zooming up again;
I must make haste, for I too have bills to pay before I eat and bills to pay before I sleep.
Where is the Quote? The EPS, the Alpha, the Beta and,
don't you forget, Sharpe Ratio!
Viva Capitalism! Viva Sustainable Development! (Now, there's even a mutual fund if you wish to be an environmentally correct investor!)
ps: If only WWF had shorted the environment at the bourses! Why, they would have put Warren Buffet to shame!
Ganga Prasad Rao
http://myprofile.cos.com/gangar
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