Buy in to the 'Green Star'!
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
What does it take to turn the world green - I mean, without poisoning our air, water, and land with toxic residues that perpetuate across time, accumulate in the food chain, reduce sperm count and infiltrate in to mother's milk and foetuses? Food, vegetables, fruit, even opaquely-packaged drinks with preservatives/pesticides and colours that negate any nutritive value they might contain (despite the detailed risk-analysis prepared by the consultant who was compensated with a free 'day-old, returned' Mercedes by the industry!). Toilet cleaners that, going by the composition, smell and color, are likely to turn the Pacific Ocean barren of life. Or, cadmium-doped, brightly colored plastic bags that poison the land they litter (and turn it eligible to receive EPA's Superfund monies! Phew!).
To answer the question, not much. A strong political will, a few economists who will not sell themselves to the devil, and political strength where it matters most – on the floor of the legislatures and at regulatory bodies. I am no expert on the matter, but I do know conventional hazardous consumer products rule the lion's share in the market on account of their scale-derived competitive advantage over competing environmentally-friendly products. In a market where consumers are more conscious of their purses than the impact of their decisions on their children's health, and on the environment we are leaving for them, a few pennies, cents, and paises make the difference between environmental sustainability and a doomed planet. True, there already are environmentally-friendly consumer products. They are costlier – some because they were designed environmentally friendly, others because the constituents are naturally rare and must be specifically grown to manufacture the product. The bottom line? We have a situation where the toxic, but cheaper products attract a huge demand and not because they do not compensate the environment for the damages imposed. Economists call this an externality – wherein one agent, here the producer, undertakes socially sub-optimal private decisions because it is in his interest to minimize cost and thus maximize market share by not taking cognizance of the damages imposed on environment (and public health).
Conceptually at least, a solution is easily designed. Any policy wonk worth his salt would recommend a pigouvian tax equal to the marginal damage imposed by the consumption of the incremental unit as the appropriate incentive to induce manufacturers to internalize environmental damages resulting from the consumption of their products. A tax increases the price paid by the consumer, the margin of the producer and induces both a reduction in consumption and production of the environmentally damaging product. The environmentally damaging product turns relatively costlier to produce and to consume relative to the environmentally-friendly product, thus achieving the objective of the tax.
So, where's the catch? As always, the devil is always in the details. How do we determine which product is bio-degradable and to what extent? Who measures the marginal damage to public health and environment from the various toxic products in our daily life, and how? Let's not pretend. The task is physically unpractical and economically infeasible. Does that mean we don't tax the 'dirty' products? No; where there is will, there is a way. There already is a 'green square' on vegetarian food items on the shelves. Why not a 'Green Star' stamp on bio-degradable consumer products (excluding/including the packaging)? The Government could license the 'Green Star' emblem for bio-degradable consumer products after due certification for which it receives a modest fee. The 'Green Star' stamp would inform consumers, who don't have the time, or the glasses, to read the fine print, as to the bio-degradability of their product. (For those of you who are finicky, the Green star could be further labelled A1, A2 A3....D1, D2, D3 to signify products with different biodegradable contents and 'bio-degradability half-lives', A1 being the most and early bio-degradable product, and D3 being the least and last).
Labeling completed, what we need next is a substitute that mimics a calibrated tax. If environmental damages are assumed proportional to product mass, a weight-based tax could be a reasonable basis for levying the tax. Calibration comes next. Do we tax 'non-biodegradable' products on a linear basis? on a slab basis? Or, on some 'volume/mass-discount/premium' basis? The answer lies in the damage function of product packaging and product constituents – another unknown piece of information. Let's settle for a weight-based tax, say, 2 paise per gram, or twenty rupees a kilo. Such weight-based tax is more onerous on low-priced products than it is on the higher value products – not a bad idea in a market dominated by low-priced, environmentally-inferior consumer products. This turns the environmentally-friendly product relatively attractive to consumers, and increases its market share relative to the environmentally-damaging product. True, the tax is arbitrary, but it is a start nonetheless. Over time, this 'tax-cum-labelling' policy brings about a real shift in consumer taste and shopping patterns, in turn inducing producers to switch to bio-degradable products. A reduction consumption of non-bio-degradable products translates to lesser damage to public health and the environment. Ain't that what we seek?
I emailed this suggestion to the government many, many months ago, if not in this detail. A witness tells me an 'almost-new' Mercedes blew away the paper as the printer spit it out. Lemme know if the Mercedes happens to drive in to your town!!!
ps: And the Green Square shined in the reflected glory of the Green Star (or was it the other way around? Let's find out, shall we?)
Sunday, October 26, 2008
Sunday, September 14, 2008
The Indo-US Nuke Deal is History, How About an Indo-Pak Kashmir Deal?
The Indo-US Nuke Deal is History, How About an Indo-Pak Kashmir Deal?
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
Now that the nuke deal is done, may we breathe again? That would be like Dr. Manmohan Singh playing the fiddle with Kashmir burning. There are many who would agree that we had our priorities wrong in dealing first with the US while the Dal lake (and lately, our metropolises) turned crimson with blood from planned mayhem. The Kashmir problem has proved a curse for India over the decades since Independence. Despite two wars, loss of thousands of civilians and military personnel, and billions in various aid packages, Kashmir continues to be a proverbial thorn in the flesh for India and Pakistan, costing both nations a significant proportion of the GDP in mis-allocated resources and lost economic opportunities. The problem which was barely regional in dimension, has festered in to a geopolitical crisis with ramifications both for internal security, and for international relations with China, US and nuclear treaties (not to mention the ever-elusive 'peace dividend'!). The present policy of military policing of Kashmiri civilians and a focus on cross-border terrorism has been a resounding failure. Political declarations of success notwithstanding, bilateral accords, including the Simla pact, typically lasted at most through the end of the government term. Their unpopularity was revealed both by the defeat of the leaders at the polls and frequent riots, rebellion, terrorist activity and the like that have been engendered since inking the pact. So what are our options? A 'laissez faire' policy can only mean more of the same: more infiltration, more terrorist attacks, more 'Kargils', more bombing in city centers and markets, and rivers of wasted resources tinged with the blood of our brave jawans, Kashmiris and civilians across the length and breadth of our nation – a terrifying prospect and a future we simply cannot accept for our children. Time indeed for an 'out of the box' solution.
The Kashmir issue could be conceptualized as the re-assertion of territorial rights by the historically majority religious community who seek to translate that in to sovereignty from India. In this regard, it has the explicit support of Pakistan which has supported an independent Kashmir despite holding on to POK, an integral part of a Kashmir solution. India, on the other hand, seeks to enforce its interpretation of property rights as followed from the acquisition of J&K from the royals who ruled prior to Independence from the British. These differing views of territorial (religious and majority) rights are being enforced to extents dictated by military might, political necessities, besides religious and majority might. Frankly speaking, I have never been too kind to any one side in the Kashmir tangle. Despite all our military prowess and defence purchases, Kashmir will never be resolved militarily. I believe each party to the strife can and should be more accommodative of the views of other stakeholders. And, given the circumstances, a compromise is both necessary and the only feasible solution. But where is the elusive 'think out of the box' compromise?
There are four cornerstones to the 'Rao Compromise on Kashmir': a stable peaceful and democratic Kashmir, the avoiding of partition-type violence and mass-displacement of minorities, a participative legislative role for both India and Pakistan, and an overriding military role for international organizations. Under an UN-sponsored 'Statehood dialogue', India and Pakistan would sponsor a Greater Kashmir comprising of both the Indian Kashmir and the POK. Citizens would be offered dual citizenship, either Kashmiri and Indian, or Kashmiri and Pakistani, with restricted rights of movements in India and Pakistan respectively. A proportional representation constitution would be framed with a tri-cameral house. A third of the seats would be allotted to UN representatives and other international political and military organizations on a 'nomination basis', thus offering them a political, (budgetary) and military stake in the state. India and Pakistan would together control a third of the seats, again on a nomination basis. Both nations would be free to choose representatives from within or outside their part of Kashmir. The exact split between India and Pakistan in the combined one-third share of the House would depend on how much they would be willing to offer to Greater Kashmir in terms of budgetary support. Kashmiris would elect representatives for a third of the assembly seats. Political parties would then seek a majority to form the government by approaching Indian and/or Pakistani benches and minorities. The government would control various ministries and the Police, while the UN would take over the military function of the state, securing its borders and facilitating orderly cross-border flow of goods and people. Given the tri-cameral and sponsored nature of the House, different sections of the House would have different voting rights depending on context and scope. Certain decisions regarding changes to constitution, property rights, religious rights, territorial integrity, and minority rights would require at least a four-fifth majority in the House, and in particular the endorsement of the UN, thus enforcing the wishes of the sponsor nations and the will of the international community on those critical matters.
Despite its seeming frivolousness, this 'rabbit out of the hat' solution is likely a superior compromise because it provides a 'meet you half-way' solution between traditional enemies. It affords Kashmiris a much greater degree of territorial rights and self-governance than under a divided Kashmir. A restricted system of dual citizenship offers Kashmiris the opportunity to integrate with the people of their choice; it ensures the safety of minority citizens on either side of the LOC and pre-empts partition-type mass displacement and strife. The compromise proposal offers India and Pakistan an opportunity to shape the destiny of a Greater Kashmir by offering them a legal means to participate in the formation of the state and its governance. Sponsoring the state of Greater Kashmir will reduce tensions and defence expenditures, enabling both nations to divert scarce resources away to more productive ends that enhance the quality of life of its citizens. Reduction in geopolitical tension will reduce terrorism, improve business climate and in turn pave the way for enhanced foreign investment and overall prosperity. Unlike other solutions where they are often relegated to a peace-keeping role that drains resources and inflicts personnel losses, the UN, in this proposal, has a political role beyond its traditional commitments to international peace-keeping. This offers the international community a direct stake in securing regional peace and enhances the credibility of the solution.
Got a better idea?
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
Now that the nuke deal is done, may we breathe again? That would be like Dr. Manmohan Singh playing the fiddle with Kashmir burning. There are many who would agree that we had our priorities wrong in dealing first with the US while the Dal lake (and lately, our metropolises) turned crimson with blood from planned mayhem. The Kashmir problem has proved a curse for India over the decades since Independence. Despite two wars, loss of thousands of civilians and military personnel, and billions in various aid packages, Kashmir continues to be a proverbial thorn in the flesh for India and Pakistan, costing both nations a significant proportion of the GDP in mis-allocated resources and lost economic opportunities. The problem which was barely regional in dimension, has festered in to a geopolitical crisis with ramifications both for internal security, and for international relations with China, US and nuclear treaties (not to mention the ever-elusive 'peace dividend'!). The present policy of military policing of Kashmiri civilians and a focus on cross-border terrorism has been a resounding failure. Political declarations of success notwithstanding, bilateral accords, including the Simla pact, typically lasted at most through the end of the government term. Their unpopularity was revealed both by the defeat of the leaders at the polls and frequent riots, rebellion, terrorist activity and the like that have been engendered since inking the pact. So what are our options? A 'laissez faire' policy can only mean more of the same: more infiltration, more terrorist attacks, more 'Kargils', more bombing in city centers and markets, and rivers of wasted resources tinged with the blood of our brave jawans, Kashmiris and civilians across the length and breadth of our nation – a terrifying prospect and a future we simply cannot accept for our children. Time indeed for an 'out of the box' solution.
The Kashmir issue could be conceptualized as the re-assertion of territorial rights by the historically majority religious community who seek to translate that in to sovereignty from India. In this regard, it has the explicit support of Pakistan which has supported an independent Kashmir despite holding on to POK, an integral part of a Kashmir solution. India, on the other hand, seeks to enforce its interpretation of property rights as followed from the acquisition of J&K from the royals who ruled prior to Independence from the British. These differing views of territorial (religious and majority) rights are being enforced to extents dictated by military might, political necessities, besides religious and majority might. Frankly speaking, I have never been too kind to any one side in the Kashmir tangle. Despite all our military prowess and defence purchases, Kashmir will never be resolved militarily. I believe each party to the strife can and should be more accommodative of the views of other stakeholders. And, given the circumstances, a compromise is both necessary and the only feasible solution. But where is the elusive 'think out of the box' compromise?
There are four cornerstones to the 'Rao Compromise on Kashmir': a stable peaceful and democratic Kashmir, the avoiding of partition-type violence and mass-displacement of minorities, a participative legislative role for both India and Pakistan, and an overriding military role for international organizations. Under an UN-sponsored 'Statehood dialogue', India and Pakistan would sponsor a Greater Kashmir comprising of both the Indian Kashmir and the POK. Citizens would be offered dual citizenship, either Kashmiri and Indian, or Kashmiri and Pakistani, with restricted rights of movements in India and Pakistan respectively. A proportional representation constitution would be framed with a tri-cameral house. A third of the seats would be allotted to UN representatives and other international political and military organizations on a 'nomination basis', thus offering them a political, (budgetary) and military stake in the state. India and Pakistan would together control a third of the seats, again on a nomination basis. Both nations would be free to choose representatives from within or outside their part of Kashmir. The exact split between India and Pakistan in the combined one-third share of the House would depend on how much they would be willing to offer to Greater Kashmir in terms of budgetary support. Kashmiris would elect representatives for a third of the assembly seats. Political parties would then seek a majority to form the government by approaching Indian and/or Pakistani benches and minorities. The government would control various ministries and the Police, while the UN would take over the military function of the state, securing its borders and facilitating orderly cross-border flow of goods and people. Given the tri-cameral and sponsored nature of the House, different sections of the House would have different voting rights depending on context and scope. Certain decisions regarding changes to constitution, property rights, religious rights, territorial integrity, and minority rights would require at least a four-fifth majority in the House, and in particular the endorsement of the UN, thus enforcing the wishes of the sponsor nations and the will of the international community on those critical matters.
Despite its seeming frivolousness, this 'rabbit out of the hat' solution is likely a superior compromise because it provides a 'meet you half-way' solution between traditional enemies. It affords Kashmiris a much greater degree of territorial rights and self-governance than under a divided Kashmir. A restricted system of dual citizenship offers Kashmiris the opportunity to integrate with the people of their choice; it ensures the safety of minority citizens on either side of the LOC and pre-empts partition-type mass displacement and strife. The compromise proposal offers India and Pakistan an opportunity to shape the destiny of a Greater Kashmir by offering them a legal means to participate in the formation of the state and its governance. Sponsoring the state of Greater Kashmir will reduce tensions and defence expenditures, enabling both nations to divert scarce resources away to more productive ends that enhance the quality of life of its citizens. Reduction in geopolitical tension will reduce terrorism, improve business climate and in turn pave the way for enhanced foreign investment and overall prosperity. Unlike other solutions where they are often relegated to a peace-keeping role that drains resources and inflicts personnel losses, the UN, in this proposal, has a political role beyond its traditional commitments to international peace-keeping. This offers the international community a direct stake in securing regional peace and enhances the credibility of the solution.
Got a better idea?
Thursday, July 3, 2008
NUKE THE ......WAIT!!!! THERE IS HOPE YET!
NUKE THE ......WAIT!!!! THERE IS HOPE YET!
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
As described by one writer, the Indo-US nuclear deal has seen a path more tortuous than the meandering of deltaic rivers. Yet, as the Bush presidency comes to a close and the UPA government totters at the precipice of inflation and mis-governance, the Indo-US nuclear deal stands out as the one hope in the monsoon of despair. Not that it has been supported within or outside the government. For once, the Left has kept its word, at least on paper. Predictably, it has backed away from the deal when it matters the most. Thankfully, that was no surprise! Manmohan Singh's government now faces the prospect of pushing the deal down the unwilling throats of the BJP and the Left by garnering support from the third-tier parties and marginalized/regional political parties and dissenting members of various political parties. So much for a national consensus on a issue that arguably ranks as one of more important events since Independence.
Much of our argument and debate on this issue has centered around the discriminatory nature of the NSG rules, the ambiguity in the interpretation of the Hyde Act and the power it confers upon the President of US to abrogate the treaty unilaterally merely by not certifying compliance to the Congress. Our approach has been, if anything, aloof, while the US has made repeated overtures that we have misinterpreted as their overzealousness to pull us in to their ranks. Far from being constructive, we have used every tool in the bag of our politicians and bureaucrats to try and hoodwink the US in to granting ourselves a virtual 'equal' status – a status belied by our past record in nuclear compliance, intellectual property(?) and nuclear safety. I am not one who believes in the '6 month window of opportunity' rhetoric advanced by some. A deal should not be rushed through in the lame duck session of governments talking nuclear peace, especially when one government would rather not face the parliamentary vote.
Yet, the fact that we are not overtly friendly to the US need not stop us from being creative and pro-active. If we are interested in a nuclear deal with countries that pioneered and commercialized nuclear technology, we could recognize their contribution to nuclear science and peace. We could, indeed should, recognize and buy in to their nuclear technology patents if that is possible. We should sponsor conferences and join nuclear research coalitions without waiting for the formalities to conclude, perhaps without even expecting its successful conclusion. India could invite senior nuclear scientists and policy makers of IAEA and the NSG club to take part in 'Meet the Public' face-offs that pit our 'technocrats' against them at televised public meetings. (If the nuclear issue does not evoke public interest, I wonder what else will? Belles walking the ramp on the news channel?) Is our democracy limited to articles written by AERB and DAE officials that tow the official line (or, if they take the opposite line, with tacit official agreement)? Are we merely a 'cry baby' nation that seeks the attention and warmth of the developed world and suckles at its nuclear breast?
Let's do something different. Like go one step ahead of the US and nuclear club and propose a serious mechanism for nuclear disarmament - something they would rather not discuss. By that I don't mean another white paper with pious legalese of the bureaucrats raising the principles of 'Panchsheel' from the dustbin. Why not confront disarmament and commercial trade in nuclear fuel, both issues dear to us, in the nuclear deal? After all nuclear power and disarmament on one hand, and nuclear power and global warming are related if not close cousins, if you know what I mean. Let's propose a different deal – a deal that links disarmament, commercial trade in nuclear fuels and CO2 abatement goals together. Properly designed such a deal could offer nations, belonging to the nuclear club and those outside it the incentive and the flexibility to engage either in disarmament, or carbon abatement, or both, to gain the right to reprocess more fuel and/or engage in commercial nuclear trade as permitted by their resources, technology, and political leanings.
Innovative? Yes, Practical? Sure. Turns the earth greener and safer? Yes! What are we waiting for?
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
As described by one writer, the Indo-US nuclear deal has seen a path more tortuous than the meandering of deltaic rivers. Yet, as the Bush presidency comes to a close and the UPA government totters at the precipice of inflation and mis-governance, the Indo-US nuclear deal stands out as the one hope in the monsoon of despair. Not that it has been supported within or outside the government. For once, the Left has kept its word, at least on paper. Predictably, it has backed away from the deal when it matters the most. Thankfully, that was no surprise! Manmohan Singh's government now faces the prospect of pushing the deal down the unwilling throats of the BJP and the Left by garnering support from the third-tier parties and marginalized/regional political parties and dissenting members of various political parties. So much for a national consensus on a issue that arguably ranks as one of more important events since Independence.
Much of our argument and debate on this issue has centered around the discriminatory nature of the NSG rules, the ambiguity in the interpretation of the Hyde Act and the power it confers upon the President of US to abrogate the treaty unilaterally merely by not certifying compliance to the Congress. Our approach has been, if anything, aloof, while the US has made repeated overtures that we have misinterpreted as their overzealousness to pull us in to their ranks. Far from being constructive, we have used every tool in the bag of our politicians and bureaucrats to try and hoodwink the US in to granting ourselves a virtual 'equal' status – a status belied by our past record in nuclear compliance, intellectual property(?) and nuclear safety. I am not one who believes in the '6 month window of opportunity' rhetoric advanced by some. A deal should not be rushed through in the lame duck session of governments talking nuclear peace, especially when one government would rather not face the parliamentary vote.
Yet, the fact that we are not overtly friendly to the US need not stop us from being creative and pro-active. If we are interested in a nuclear deal with countries that pioneered and commercialized nuclear technology, we could recognize their contribution to nuclear science and peace. We could, indeed should, recognize and buy in to their nuclear technology patents if that is possible. We should sponsor conferences and join nuclear research coalitions without waiting for the formalities to conclude, perhaps without even expecting its successful conclusion. India could invite senior nuclear scientists and policy makers of IAEA and the NSG club to take part in 'Meet the Public' face-offs that pit our 'technocrats' against them at televised public meetings. (If the nuclear issue does not evoke public interest, I wonder what else will? Belles walking the ramp on the news channel?) Is our democracy limited to articles written by AERB and DAE officials that tow the official line (or, if they take the opposite line, with tacit official agreement)? Are we merely a 'cry baby' nation that seeks the attention and warmth of the developed world and suckles at its nuclear breast?
Let's do something different. Like go one step ahead of the US and nuclear club and propose a serious mechanism for nuclear disarmament - something they would rather not discuss. By that I don't mean another white paper with pious legalese of the bureaucrats raising the principles of 'Panchsheel' from the dustbin. Why not confront disarmament and commercial trade in nuclear fuel, both issues dear to us, in the nuclear deal? After all nuclear power and disarmament on one hand, and nuclear power and global warming are related if not close cousins, if you know what I mean. Let's propose a different deal – a deal that links disarmament, commercial trade in nuclear fuels and CO2 abatement goals together. Properly designed such a deal could offer nations, belonging to the nuclear club and those outside it the incentive and the flexibility to engage either in disarmament, or carbon abatement, or both, to gain the right to reprocess more fuel and/or engage in commercial nuclear trade as permitted by their resources, technology, and political leanings.
Innovative? Yes, Practical? Sure. Turns the earth greener and safer? Yes! What are we waiting for?
Thursday, June 5, 2008
The Great Indian Tamasha!
THE GREAT INDIAN TAMASHA!
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
The hot Indian summer bears down upon New Delhi remorselessly. (And we thought there was nothing worse than Police torture!) But in the air-conditioned building that houses the Ministry of Petroleum and Natural Gas, the esteemed Minister could not control his glee. Times have never been better. Imagine playing God with the various sectors of the Indian economy. In these days of rising demand for energy, the government, through its PSUs or royalty-in-kind shares, owns much gas that it rations (the correct term is 'gas allocation') to consuming industries. And pray, who else but the Minister has the power to make those delicate decisions with acumen that only comes with years of honing one's political skills?
There are, after all, many a factor to consider in allocating gas. The fertilizer sector provides a vital input to the agricultural sector – a sector that cannot be ignored lest farmers turn against the government en masse at the ballot box. But the steel industry is insistent that they be allocated gas preferentially. We are an export industry, they say. The executive from the fertilizer industry association counters it by pointing out the need for raising agricultural productivity, now wallowing in the low single digits. But steel is vital to a country's infrastructure. And if infrastructure is the mainstay of Indian economy, then gas should be offered preferentially to steel. Hmm, true indeed, but infrastructure is built over years, while elections are tomorrow. Besides, the Secretary from the Agriculture Ministry just called up to impress that fertilizer plants are built to utilize gas and must be allocated gas if agricultural targets are to be met. But fertilizer subsidy targets have already been reached and breached. Confusion confusion confusion. Time for a chai. “Arre bhai, chai lana”.
“Saab, Ratan ji se chai”!
Chai notwithstanding, the Minister is perplexed. Did GAIL respond to our directive to increase gas production? And Reliance wouldn't cooperate with more gas? Why? Why didn't the steel trade union leaders call in? I'd have allocated another 'mmscmd' to them. Ratan should know that much! And where are the fertilizer and steel plants located? Did those constituencies vote UPA? How in the world do I juggle Madam Gandhi's CMP, Manmohan's promises, Planning Commission per-capita targets, and Chidambaram's subsidy budget while currying favors with Ratan Tata and fertilizer bigwigs with this amount of gas supply? Wha....What are you suggesting? Leave gas production, pricing and 'allocation' to the market?
And take the fizz out of the 'Great Indian Tamasha'?
ps: The dust gathers on World Bank's recommendations on structural reforms in the Indian economy.
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
The hot Indian summer bears down upon New Delhi remorselessly. (And we thought there was nothing worse than Police torture!) But in the air-conditioned building that houses the Ministry of Petroleum and Natural Gas, the esteemed Minister could not control his glee. Times have never been better. Imagine playing God with the various sectors of the Indian economy. In these days of rising demand for energy, the government, through its PSUs or royalty-in-kind shares, owns much gas that it rations (the correct term is 'gas allocation') to consuming industries. And pray, who else but the Minister has the power to make those delicate decisions with acumen that only comes with years of honing one's political skills?
There are, after all, many a factor to consider in allocating gas. The fertilizer sector provides a vital input to the agricultural sector – a sector that cannot be ignored lest farmers turn against the government en masse at the ballot box. But the steel industry is insistent that they be allocated gas preferentially. We are an export industry, they say. The executive from the fertilizer industry association counters it by pointing out the need for raising agricultural productivity, now wallowing in the low single digits. But steel is vital to a country's infrastructure. And if infrastructure is the mainstay of Indian economy, then gas should be offered preferentially to steel. Hmm, true indeed, but infrastructure is built over years, while elections are tomorrow. Besides, the Secretary from the Agriculture Ministry just called up to impress that fertilizer plants are built to utilize gas and must be allocated gas if agricultural targets are to be met. But fertilizer subsidy targets have already been reached and breached. Confusion confusion confusion. Time for a chai. “Arre bhai, chai lana”.
“Saab, Ratan ji se chai”!
Chai notwithstanding, the Minister is perplexed. Did GAIL respond to our directive to increase gas production? And Reliance wouldn't cooperate with more gas? Why? Why didn't the steel trade union leaders call in? I'd have allocated another 'mmscmd' to them. Ratan should know that much! And where are the fertilizer and steel plants located? Did those constituencies vote UPA? How in the world do I juggle Madam Gandhi's CMP, Manmohan's promises, Planning Commission per-capita targets, and Chidambaram's subsidy budget while currying favors with Ratan Tata and fertilizer bigwigs with this amount of gas supply? Wha....What are you suggesting? Leave gas production, pricing and 'allocation' to the market?
And take the fizz out of the 'Great Indian Tamasha'?
ps: The dust gathers on World Bank's recommendations on structural reforms in the Indian economy.
Monday, February 25, 2008
Nothing 'White' About This Milk!
Nothing 'White' About This Milk!
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
Energy prices are in the news again. That's probably the understatement of the year. Crude prices have been skyrocketing. And with it, prices of petroleum products, at least of those products not controlled by the government. As it happens, this is a particularly important caveat for industries that are 'intensive' consumers of petroleum products – especially those such as the road freight where diesel is subsidized and aviation sector where gasoline is taxed. Elsewhere, as in energy-intensive sectors characterized by government-owned or -subsidized firms competing with private firms, the net impact of government control on energy prices is not immediately apparent.
After years of government-sponsored monopoly, the milk market has finally opened up. Where there was a single all too familiar government sponsored- and supported regional milk cooperative, there are now a few inter-regional competitors. As a shareholder in one of these private competitors however, I have had mixed feelings about patronizing one or the other brand of milk. No economics textbook will dare print this, but many consumers presume that higher priced milk produced and marketed privately is superior in quality to the government-subsidized milk, despite nominally conforming to the same quality standard. Indeed, until very recently, I too followed this dictum. Lately though, I have begun wondering about my choices. As the crude rises beyond the $100 mark, I have pondered over the incentives facing private milk producers and cooperatives under a regime of differentiated prices for the power/fuel they consume during pasteurization. (Pasteurization, as you know, is mandatory, and accounts for a third or more of the cost of production). In particular, what should we expect following a hike in energy prices when private firms pay the full cost for power while cooperatives are either subsidized directly for their power consumption, or subsidized for milk production? Now I have presumed that milk from cooperatives is lower in quality even within the so called 'toned' or '3% or 6% fat' category. But, under this 'mixed' industrial structure where private players co-exist with milk cooperatives, the conventional logic about higher priced milk vended by the private producer being superior does not necessarily stand. It seems to me that private players already burdened to pay in full for their energy consumption, will seek to economize further on their pasteurization cost. On the other hand, cooperative producers not under any immediate pressure to curtail energy cost or the cost of milk production, are likely to respond less or only respond after a delay. A hike in energy prices hurts the private producer more than it does the milk cooperative. Naturally, a private producer seeks to reduce his pasteurization cost while the milk cooperative is yet indifferent. Does that mean I am better off buying milk from the cooperative when energy price rise, product quality standards notwithstanding? My suspicions are strengthened every time I taste what seems like raw milk. (In all honesty, that could be a more common, but less reported problem since most South Indians boil their pasteurized milk. I wonder though if milk producers take advantage of this practice!).
There are other, equally sobering thoughts. Like how long private milk producers can withstand the drag on their profits before succumbing. Like what happens to energy efficiency in the dairy sector if consumers switched to subsidized, lower-priced cooperative milk? Would cooperatives gain the upper hand (and even turn competitive!) by exploiting scale economies consequent to a rise in demand following a price hike by private producers in response to higher power/fuel prices? Wouldn't that be a case of perverted incentives fit for exposition in a book on regulatory economics? A case fit for our judges at the CCI!
......And, how is the stock market's answer anticipating these possibilities. Shall I call up the 11 am 'Buy or Sell' segment on NDTV Profit?
Ps: Years ago, I thought of gainfully using dairy manure for growing fodder and in organic farming. Whatever happened to that idea?
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
Energy prices are in the news again. That's probably the understatement of the year. Crude prices have been skyrocketing. And with it, prices of petroleum products, at least of those products not controlled by the government. As it happens, this is a particularly important caveat for industries that are 'intensive' consumers of petroleum products – especially those such as the road freight where diesel is subsidized and aviation sector where gasoline is taxed. Elsewhere, as in energy-intensive sectors characterized by government-owned or -subsidized firms competing with private firms, the net impact of government control on energy prices is not immediately apparent.
After years of government-sponsored monopoly, the milk market has finally opened up. Where there was a single all too familiar government sponsored- and supported regional milk cooperative, there are now a few inter-regional competitors. As a shareholder in one of these private competitors however, I have had mixed feelings about patronizing one or the other brand of milk. No economics textbook will dare print this, but many consumers presume that higher priced milk produced and marketed privately is superior in quality to the government-subsidized milk, despite nominally conforming to the same quality standard. Indeed, until very recently, I too followed this dictum. Lately though, I have begun wondering about my choices. As the crude rises beyond the $100 mark, I have pondered over the incentives facing private milk producers and cooperatives under a regime of differentiated prices for the power/fuel they consume during pasteurization. (Pasteurization, as you know, is mandatory, and accounts for a third or more of the cost of production). In particular, what should we expect following a hike in energy prices when private firms pay the full cost for power while cooperatives are either subsidized directly for their power consumption, or subsidized for milk production? Now I have presumed that milk from cooperatives is lower in quality even within the so called 'toned' or '3% or 6% fat' category. But, under this 'mixed' industrial structure where private players co-exist with milk cooperatives, the conventional logic about higher priced milk vended by the private producer being superior does not necessarily stand. It seems to me that private players already burdened to pay in full for their energy consumption, will seek to economize further on their pasteurization cost. On the other hand, cooperative producers not under any immediate pressure to curtail energy cost or the cost of milk production, are likely to respond less or only respond after a delay. A hike in energy prices hurts the private producer more than it does the milk cooperative. Naturally, a private producer seeks to reduce his pasteurization cost while the milk cooperative is yet indifferent. Does that mean I am better off buying milk from the cooperative when energy price rise, product quality standards notwithstanding? My suspicions are strengthened every time I taste what seems like raw milk. (In all honesty, that could be a more common, but less reported problem since most South Indians boil their pasteurized milk. I wonder though if milk producers take advantage of this practice!).
There are other, equally sobering thoughts. Like how long private milk producers can withstand the drag on their profits before succumbing. Like what happens to energy efficiency in the dairy sector if consumers switched to subsidized, lower-priced cooperative milk? Would cooperatives gain the upper hand (and even turn competitive!) by exploiting scale economies consequent to a rise in demand following a price hike by private producers in response to higher power/fuel prices? Wouldn't that be a case of perverted incentives fit for exposition in a book on regulatory economics? A case fit for our judges at the CCI!
......And, how is the stock market's answer anticipating these possibilities. Shall I call up the 11 am 'Buy or Sell' segment on NDTV Profit?
Ps: Years ago, I thought of gainfully using dairy manure for growing fodder and in organic farming. Whatever happened to that idea?
Wednesday, February 20, 2008
Nothing 'Fringe' About The Fringe Benefit Tax!
Nothing 'Fringe' About The Fringe Benefit Tax!
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
Two years back FM Chidambaram proposed in his budget what was considered a 'bold' step to the left by proposing a 'Fringe Benefit Tax' (FBT) on firms. It was a surprise, though one that we should have expected of a communist-backed coalition. The FBT taxes a firm's expenses on certain categories of benefits provided to executives (one's own and clients/suppliers) in the course of business. The Fringe Benefit Tax was bitterly opposed by the industry and not only because it hurt their bottom line. It created a new rationale for taxation that could be copied in other countries. It forced firms to monitor expenses that they considered 'on the house', so to say. More than anything else, it smacked of government intervention in matters considered privy by the company. After all, offering fringe benefits to one's executives and clients is an entirely private decision of the company. Or, is it?
What are the incentives of firms with regard to this expense category? I am no company economist (at least not yet, and after this column, never!), but it seems to me that those incentives depend on ownership structure, manager incentives and the type of industry. A private company in which all economic profits flow to the owners will likely seek to minimize expenses, including benefits to its managers and employees. Thus, fringe benefits if any, are likely necessary and competitive with those required to retain managers and employees. But what are the incentives elsewhere, in particular, in publicly-held companies traded on stock exchanges? Executives in publicly-traded companies are answerable to majority stockholders who tend to be mutual funds, HNIs, and FIIs besides the original promoters. Their compensation package is not a rigid Rs X lakhs per years; rather, it is a combination of a base pay, incentive pay and various fringe benefits. While the incentives are most commonly bonuses and stock options for executives, benefits take various forms - from company-provided residence and vehicle, membership in posh clubs, cruises and lavish vacation in foreign countries billed as 'business trip', to exotics that I dare not even think off lest I have a heart attack from jealousy! Jealousy aside, do these firms, their executives and managers have any incentive to self-aggrandize each other with 'fringe benefits'? In a booming stock market, or conversely, in a market down on account of extraneous reasons, do promoters (who serve as executives in firms with low public ownership) and managers have an incentive to pad up cost to under-report profits so they may add some comfort to their stressful lives? Why should they work their butts off so Prasad Rao may short the company stock and make his 4-figure getaway (and why should my executives suffer if the market crashed on account of sub-prime losses half-way across the world)?!!! I suspect there is, though the extent to which executives and managers in the higher echelons of the company engage in such nefarious, hard to detect practices depends on the firm's management tenets, 'auditorial scrutiny' and the degree of competition in the industry. The problem of illegal fringe benefits is likely more prevalent in industries with economic rents (whether on account of oligopoly, patents or regulatory price protection) than in intensely-competitive industries. Then, again, fringe benefits might camouflage so many other illegal payments – illegal considerations to competitors, suppliers and customers, even good times that are bestowed upon government and regulatory officials when they visit factories, or even implicit sharing of vacations with policy-makers at conferences ... the list is endless.
Anyway, it is this suspicion regarding the incentives behind these 'on the house' expenses that can be readily explained off as business expenses necessary to retain clients/talent that underlies my support of the FBT. As I write, the FBT is under the proverbial guillotine; its fate hanging in balance ('No FBT' or your scalp!). Knowing human greed and urges though, and the disdain with which the retail shareholders are treated with, I'd argue that the FBT is not a bad idea that helps the government and the public keep a tab on the degree of self- and -mutual aggrandizement/appeasement that promoters and managers engage in. In a country with endemic poverty, where many a poor live off the dividends and stock price appreciation, a tax on 'luxury' expenditures by firms is, in my opinion, eminently justifiable. It even serves a social purpose by forcing firms to monitor and account for FBT expenses. The FBT provides the shareholders an additional handle with which to question the performance of their firm. An FBT tax necessitates record-keeping that could help monitor corruption and evaluate executive performance; it would facilitate comparison of firms within or across industries. And it opens a little 'wiggle room' for the FM in his otherwise cash-strapped budget.
I'd vote for the FBT!
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
Two years back FM Chidambaram proposed in his budget what was considered a 'bold' step to the left by proposing a 'Fringe Benefit Tax' (FBT) on firms. It was a surprise, though one that we should have expected of a communist-backed coalition. The FBT taxes a firm's expenses on certain categories of benefits provided to executives (one's own and clients/suppliers) in the course of business. The Fringe Benefit Tax was bitterly opposed by the industry and not only because it hurt their bottom line. It created a new rationale for taxation that could be copied in other countries. It forced firms to monitor expenses that they considered 'on the house', so to say. More than anything else, it smacked of government intervention in matters considered privy by the company. After all, offering fringe benefits to one's executives and clients is an entirely private decision of the company. Or, is it?
What are the incentives of firms with regard to this expense category? I am no company economist (at least not yet, and after this column, never!), but it seems to me that those incentives depend on ownership structure, manager incentives and the type of industry. A private company in which all economic profits flow to the owners will likely seek to minimize expenses, including benefits to its managers and employees. Thus, fringe benefits if any, are likely necessary and competitive with those required to retain managers and employees. But what are the incentives elsewhere, in particular, in publicly-held companies traded on stock exchanges? Executives in publicly-traded companies are answerable to majority stockholders who tend to be mutual funds, HNIs, and FIIs besides the original promoters. Their compensation package is not a rigid Rs X lakhs per years; rather, it is a combination of a base pay, incentive pay and various fringe benefits. While the incentives are most commonly bonuses and stock options for executives, benefits take various forms - from company-provided residence and vehicle, membership in posh clubs, cruises and lavish vacation in foreign countries billed as 'business trip', to exotics that I dare not even think off lest I have a heart attack from jealousy! Jealousy aside, do these firms, their executives and managers have any incentive to self-aggrandize each other with 'fringe benefits'? In a booming stock market, or conversely, in a market down on account of extraneous reasons, do promoters (who serve as executives in firms with low public ownership) and managers have an incentive to pad up cost to under-report profits so they may add some comfort to their stressful lives? Why should they work their butts off so Prasad Rao may short the company stock and make his 4-figure getaway (and why should my executives suffer if the market crashed on account of sub-prime losses half-way across the world)?!!! I suspect there is, though the extent to which executives and managers in the higher echelons of the company engage in such nefarious, hard to detect practices depends on the firm's management tenets, 'auditorial scrutiny' and the degree of competition in the industry. The problem of illegal fringe benefits is likely more prevalent in industries with economic rents (whether on account of oligopoly, patents or regulatory price protection) than in intensely-competitive industries. Then, again, fringe benefits might camouflage so many other illegal payments – illegal considerations to competitors, suppliers and customers, even good times that are bestowed upon government and regulatory officials when they visit factories, or even implicit sharing of vacations with policy-makers at conferences ... the list is endless.
Anyway, it is this suspicion regarding the incentives behind these 'on the house' expenses that can be readily explained off as business expenses necessary to retain clients/talent that underlies my support of the FBT. As I write, the FBT is under the proverbial guillotine; its fate hanging in balance ('No FBT' or your scalp!). Knowing human greed and urges though, and the disdain with which the retail shareholders are treated with, I'd argue that the FBT is not a bad idea that helps the government and the public keep a tab on the degree of self- and -mutual aggrandizement/appeasement that promoters and managers engage in. In a country with endemic poverty, where many a poor live off the dividends and stock price appreciation, a tax on 'luxury' expenditures by firms is, in my opinion, eminently justifiable. It even serves a social purpose by forcing firms to monitor and account for FBT expenses. The FBT provides the shareholders an additional handle with which to question the performance of their firm. An FBT tax necessitates record-keeping that could help monitor corruption and evaluate executive performance; it would facilitate comparison of firms within or across industries. And it opens a little 'wiggle room' for the FM in his otherwise cash-strapped budget.
I'd vote for the FBT!
Tuesday, February 12, 2008
Damn Our Environmental Commons?
Damn Our Environmental Commons?
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
English language has many phrases. 'Necessity is the mother of invention' is one all of us have heard of. But, as necessary as environmental remediation is, there is no invention, little interest and certainly no action to speak of. Many rivers in India – choking with garbage and untreated sewage - are the dying testament to this observation. One would presume cities – the hub of economic activity of modern India – are endowed with resources sufficient to maintain their environs. One presumes wrong. In developed countries, lakes and river banks are prime property, protected either by the governing authority as parks and playgrounds or taken over by private developers to build luxury villas and residential enclaves. But, in our cities and towns, the converse reigns true. Our lakes and rivers are choked with garbage of all sorts over and above the untreated or half-treated sewage. Household waste, industrial waste, used tyres, plastic waste, dead dogs, pruned waste from the butcher shop – you name it, it's there dumped by the lake or choking the river channel. They say there is a silver lining to every cloud. Indeed, our water bodies may now qualify for funding from both the solid waste and the effluent monitoring authorities!
It's not as if we the citizens of India do not notice what is happening around us. Stench? Yeah, it does stink, but it's transitory and barely noticeable if one turns up the car windows. (Besides, who opens the window during summers?!). Lakes? Lakes we fill with garbage because that removes them from zoning laws and the grips of environmentalists. Spread a layer of earth; lo and behold, it is prime property for raising a multi-storied building! As for the groundwater, ...hey, don't you have anything better to do? Being a coastal city, these issues do not matter as much to Chennai, because the river flows in to the ocean and the oceans are recognized dumping zones internationally(!). But, consider the plight of villages, towns and cities that lie downstream of cities on major inland rivers like the Ganges. How do these population congregations live with the knowledge that untreated sewage, carcinogenic chemicals and industrial waste, household garbage and bodies are let in to the river upstream? Does anyone use water from or waddle in these rivers? Seriously though, is there any hope for these rivers and these communities?
There is, but only if we care. We all pay property taxes and sewerage fees. But it is the rule rather than the exception that the funds collected are siphoned away, mis-utilized or otherwise inadequate on account of low rates or insufficient coverage. Corruption aside, could we bring about a change in policy instrument that achieves the desired goal? Sadly, public ownership has a demonstrated track record of failure in the stewardship of environmental and public goods – at least in developing countries. Hence, a publicly elected body, with all its politics and interference, is unlikely to safeguard public resources. Private stewardship, on the other hand, if properly designed, could bring about the desired result. Environmental protection and restoration is a particularly expensive activity. It requires dedicated funds collected as user charges (that induce users to conserve on their use of the 'free' public good/convenience). If we could ensure every household, every business and every industry pays a user fee for its solid waste and effluent discharge in proportion to the damage (in other words, a variable, and not a flat tax), the revenues so collected might just open up opportunities to transform our urbs and suburbs. Private companies could be asked to bid to maintain lake bodies and stretches of rivers for an annual fee. Bidders indicate the extent to which they intend to protect the public resource, penalty acceptable in case of default, and their bid. The evaluation committee comprised of community members, officials, and environmentalists would evaluate bids while cognizant of tax revenues and the degree of environmental protection desired. The low/lowest bidder is then handed charge of the public resource for which it is paid regularly following a certification of compliance by a committee constituted of government officials, environmental and community activists. The private firm will zealously guard the resource to ensure its revenue stream and its survival in the environmental protection market. It could invoke police action on illegal garbage dumpers and sue them in court. It could, conceivably, even dam sewage flowing in to the river in its jurisdiction, forcing the upstream authority to resolve the environmental problem or pay up. Sounds impractical? Grow up. Such innovative, if draconian measures, just might be what the doctor ordered to reverse the tide of degradation of our 'environment commons'. (unless, of course, you prefer plague and other air- and water-borne communicable afflictions permeating in our schools)
Where there is a will, there is a way.
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
English language has many phrases. 'Necessity is the mother of invention' is one all of us have heard of. But, as necessary as environmental remediation is, there is no invention, little interest and certainly no action to speak of. Many rivers in India – choking with garbage and untreated sewage - are the dying testament to this observation. One would presume cities – the hub of economic activity of modern India – are endowed with resources sufficient to maintain their environs. One presumes wrong. In developed countries, lakes and river banks are prime property, protected either by the governing authority as parks and playgrounds or taken over by private developers to build luxury villas and residential enclaves. But, in our cities and towns, the converse reigns true. Our lakes and rivers are choked with garbage of all sorts over and above the untreated or half-treated sewage. Household waste, industrial waste, used tyres, plastic waste, dead dogs, pruned waste from the butcher shop – you name it, it's there dumped by the lake or choking the river channel. They say there is a silver lining to every cloud. Indeed, our water bodies may now qualify for funding from both the solid waste and the effluent monitoring authorities!
It's not as if we the citizens of India do not notice what is happening around us. Stench? Yeah, it does stink, but it's transitory and barely noticeable if one turns up the car windows. (Besides, who opens the window during summers?!). Lakes? Lakes we fill with garbage because that removes them from zoning laws and the grips of environmentalists. Spread a layer of earth; lo and behold, it is prime property for raising a multi-storied building! As for the groundwater, ...hey, don't you have anything better to do? Being a coastal city, these issues do not matter as much to Chennai, because the river flows in to the ocean and the oceans are recognized dumping zones internationally(!). But, consider the plight of villages, towns and cities that lie downstream of cities on major inland rivers like the Ganges. How do these population congregations live with the knowledge that untreated sewage, carcinogenic chemicals and industrial waste, household garbage and bodies are let in to the river upstream? Does anyone use water from or waddle in these rivers? Seriously though, is there any hope for these rivers and these communities?
There is, but only if we care. We all pay property taxes and sewerage fees. But it is the rule rather than the exception that the funds collected are siphoned away, mis-utilized or otherwise inadequate on account of low rates or insufficient coverage. Corruption aside, could we bring about a change in policy instrument that achieves the desired goal? Sadly, public ownership has a demonstrated track record of failure in the stewardship of environmental and public goods – at least in developing countries. Hence, a publicly elected body, with all its politics and interference, is unlikely to safeguard public resources. Private stewardship, on the other hand, if properly designed, could bring about the desired result. Environmental protection and restoration is a particularly expensive activity. It requires dedicated funds collected as user charges (that induce users to conserve on their use of the 'free' public good/convenience). If we could ensure every household, every business and every industry pays a user fee for its solid waste and effluent discharge in proportion to the damage (in other words, a variable, and not a flat tax), the revenues so collected might just open up opportunities to transform our urbs and suburbs. Private companies could be asked to bid to maintain lake bodies and stretches of rivers for an annual fee. Bidders indicate the extent to which they intend to protect the public resource, penalty acceptable in case of default, and their bid. The evaluation committee comprised of community members, officials, and environmentalists would evaluate bids while cognizant of tax revenues and the degree of environmental protection desired. The low/lowest bidder is then handed charge of the public resource for which it is paid regularly following a certification of compliance by a committee constituted of government officials, environmental and community activists. The private firm will zealously guard the resource to ensure its revenue stream and its survival in the environmental protection market. It could invoke police action on illegal garbage dumpers and sue them in court. It could, conceivably, even dam sewage flowing in to the river in its jurisdiction, forcing the upstream authority to resolve the environmental problem or pay up. Sounds impractical? Grow up. Such innovative, if draconian measures, just might be what the doctor ordered to reverse the tide of degradation of our 'environment commons'. (unless, of course, you prefer plague and other air- and water-borne communicable afflictions permeating in our schools)
Where there is a will, there is a way.
Thursday, February 7, 2008
Jobs, Jobs, More Jobs!
Jobs, Jobs, More Jobs!
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
No matter which part of the world you are in, you hear the same refrain from politicians – Creating and sustaining employment. That they focus on jobs almost to the exclusion of anything else is understandable. Sustained employment is the source of livelihood of the masses. And the masses can be very rude at the polls if their purse is thin or they don't have a job on voting day! But much as jobs are today the visible sign of economic prosperity, should they be the only focus of our politicians? In fact, should job-creation even be on the politician's agenda?
Micro- and macro-economists see jobs as part of a larger picture in which a firm or a nation produces an (array) of outputs with several inputs of which labor is but one. The demand for labor and the change in it - which is what employment and job growth/loss measure - is itself derived from demand for products or aggregate economic activity. So, should we not instead worry about aggregate economic activity? A short-sighted, horse-blinded focus on jobs detracts from the larger task of maximizing the economy's growth. Besides, in socialist economies such as ours, a focus on employment - in particular a combination of labor-intensive policies and job quotas and reservations - will detract from profit maximization and turn our enterprises bloated with unqualified labor. Such unabashed support for maximizing employment has other micro- and macro-economic implications as well. First, firms are over-staffed and inefficient on account of a biased capital-labor ratio. Labor-intensive technologies and industries are favored over capital-intensive technologies. Second, the pressure to retain employees biases hours of employment, economics of production, and on a macro-economic scale, wages, the age of retirement, pension funding and even the labor-leisure trade-off. Third, cost-reducing technological innovation such as robotic automation and nano-technology have brought about new scale-economies in high-technology industries. Harping on labor-intensive policies excludes our economy from these advances, turns the clock of economic progress back and reduces our productivity, and in turn, international competitiveness.
These impacts are not necessarily anticipated (or for that matter, appreciated) by politicians with sights fixed for the day after elections. Come to think of it, there may be a 'political rate of unemployment' depending on who is in power, (while we measure the 'natural rate of unemployment' on the Phillips curve with 3SLS instruments)! In fact, the drama turns in to a comedy (I call it a tragedy) when unemployment and job growth are used as leverages by politicians conspiring with the industry (and labor unions?) to divert scarce public resources in to private investments that milk profits under the shelter of tax holidays in the guise of generating jobs for locals. In the days of yore when our country lacked investment, such policies could be passed off as part of the larger cause of nation-building. But in an increasingly competitive world, India can no longer afford its politicians ruining the financial state of the nation by promising jobs and subsidizing labor-intensive industries that play the petty, if enriching game. It is time our politicians desist from such ruinous practices in the interest of the nation - and for our voters and union leaders to understand that lop-sided emphasis on creating jobs could, paradoxically, hurt them in the long-run. If you ask me, there is no better time to reform labor laws, job reservations and the politician's mindset than when the economy is booming and job demand high.
Those who wish to second the motion, raise your hands.
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
No matter which part of the world you are in, you hear the same refrain from politicians – Creating and sustaining employment. That they focus on jobs almost to the exclusion of anything else is understandable. Sustained employment is the source of livelihood of the masses. And the masses can be very rude at the polls if their purse is thin or they don't have a job on voting day! But much as jobs are today the visible sign of economic prosperity, should they be the only focus of our politicians? In fact, should job-creation even be on the politician's agenda?
Micro- and macro-economists see jobs as part of a larger picture in which a firm or a nation produces an (array) of outputs with several inputs of which labor is but one. The demand for labor and the change in it - which is what employment and job growth/loss measure - is itself derived from demand for products or aggregate economic activity. So, should we not instead worry about aggregate economic activity? A short-sighted, horse-blinded focus on jobs detracts from the larger task of maximizing the economy's growth. Besides, in socialist economies such as ours, a focus on employment - in particular a combination of labor-intensive policies and job quotas and reservations - will detract from profit maximization and turn our enterprises bloated with unqualified labor. Such unabashed support for maximizing employment has other micro- and macro-economic implications as well. First, firms are over-staffed and inefficient on account of a biased capital-labor ratio. Labor-intensive technologies and industries are favored over capital-intensive technologies. Second, the pressure to retain employees biases hours of employment, economics of production, and on a macro-economic scale, wages, the age of retirement, pension funding and even the labor-leisure trade-off. Third, cost-reducing technological innovation such as robotic automation and nano-technology have brought about new scale-economies in high-technology industries. Harping on labor-intensive policies excludes our economy from these advances, turns the clock of economic progress back and reduces our productivity, and in turn, international competitiveness.
These impacts are not necessarily anticipated (or for that matter, appreciated) by politicians with sights fixed for the day after elections. Come to think of it, there may be a 'political rate of unemployment' depending on who is in power, (while we measure the 'natural rate of unemployment' on the Phillips curve with 3SLS instruments)! In fact, the drama turns in to a comedy (I call it a tragedy) when unemployment and job growth are used as leverages by politicians conspiring with the industry (and labor unions?) to divert scarce public resources in to private investments that milk profits under the shelter of tax holidays in the guise of generating jobs for locals. In the days of yore when our country lacked investment, such policies could be passed off as part of the larger cause of nation-building. But in an increasingly competitive world, India can no longer afford its politicians ruining the financial state of the nation by promising jobs and subsidizing labor-intensive industries that play the petty, if enriching game. It is time our politicians desist from such ruinous practices in the interest of the nation - and for our voters and union leaders to understand that lop-sided emphasis on creating jobs could, paradoxically, hurt them in the long-run. If you ask me, there is no better time to reform labor laws, job reservations and the politician's mindset than when the economy is booming and job demand high.
Those who wish to second the motion, raise your hands.
Sunday, February 3, 2008
Insurance Humor, Huh?
Insurance Humor, Huh?
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
It's been long since I wrote a humor column. Guess times have not been easy. So what makes me write one today? Did I chance upon a winning lottery ticket? Did someone claim Indian roads to be safe or clean? Did I hear a politician make a promise at an election rally? Or, did someone claim India was a democracy? Thankfully no! What got me thinking on the lighter side is the racket called 'insurance'.
In the US, medical insurance coverage jostle for the top slot with the Iraq invasion in voters minds. Insurance used to be the prudent part of one's savings that went toward ensuring financial stability in times of unexpected medical burden. But what it has turned out in to is a monstrous bureaucratic quagmire that squeezes every penny of earnings beyond breakfast money so lawyers may enrich themselves fighting off medical malpractice cases foisted by Las Vegas vacation returnees. So the choice before the familyman with modest means is either pay up and live in a shack, or join the millions who forego insurance, leaving themselves at the mercy of the state and the hospital should anything wrong befall them.
We in India, and I presume in other third-world nations as well, feel no such pressure. Life runs its course inspite of all the shortcomings of our various systems. To live thru a day and return home from work is a miracle in itself. Ask any Delhiite who walks as the Blue Line screams by, the Mumbaikar hanging precariously to the door of the suburban train rushing through tunnels, or the Chennai college student grabbing a window bar on the bus and hanging on for dear life till the next traffic signal. Why even I feel thankful to be alive everytime I drink a cola! In these days of insurance-administered 'statistics', who knows where one is a 'number'. You did not disclose all your health problems? Well, then you are a 'number' on the road today! Didn't pay a disputed broadband bill? God help you when you cross the street! (unless of course, you have an engagement of the nefarious or immoral kind). Then there are those communal, religious and national duties to discharge that sometimes involve showing up in mass protests or in locations where certain risks have been 'assigned' (They need 2 bodies from union workers to sanction the wage accord, so you better show up!). With all these risks to boast of, would anyone worry at all about insuring himself? If the chances of dying in the next twelve months are higher on the streets than in a hospital bed, would anyone care to buy medical insurance? Or, undergo costly medical procedures for chronic diseases? Why I predict a dramatic fall in the price of plastic surgery in terrorist infested towns! Ain't it amazing how the priority for medical insurance fizzles away by manipulating man-made risks?
Now that should give US policymakers a pause! Wanna go the Indian way? (We even have a software that assigns numbers 'randomly'. It was commissioned by...nevermind the details)!!!!!!!
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
It's been long since I wrote a humor column. Guess times have not been easy. So what makes me write one today? Did I chance upon a winning lottery ticket? Did someone claim Indian roads to be safe or clean? Did I hear a politician make a promise at an election rally? Or, did someone claim India was a democracy? Thankfully no! What got me thinking on the lighter side is the racket called 'insurance'.
In the US, medical insurance coverage jostle for the top slot with the Iraq invasion in voters minds. Insurance used to be the prudent part of one's savings that went toward ensuring financial stability in times of unexpected medical burden. But what it has turned out in to is a monstrous bureaucratic quagmire that squeezes every penny of earnings beyond breakfast money so lawyers may enrich themselves fighting off medical malpractice cases foisted by Las Vegas vacation returnees. So the choice before the familyman with modest means is either pay up and live in a shack, or join the millions who forego insurance, leaving themselves at the mercy of the state and the hospital should anything wrong befall them.
We in India, and I presume in other third-world nations as well, feel no such pressure. Life runs its course inspite of all the shortcomings of our various systems. To live thru a day and return home from work is a miracle in itself. Ask any Delhiite who walks as the Blue Line screams by, the Mumbaikar hanging precariously to the door of the suburban train rushing through tunnels, or the Chennai college student grabbing a window bar on the bus and hanging on for dear life till the next traffic signal. Why even I feel thankful to be alive everytime I drink a cola! In these days of insurance-administered 'statistics', who knows where one is a 'number'. You did not disclose all your health problems? Well, then you are a 'number' on the road today! Didn't pay a disputed broadband bill? God help you when you cross the street! (unless of course, you have an engagement of the nefarious or immoral kind). Then there are those communal, religious and national duties to discharge that sometimes involve showing up in mass protests or in locations where certain risks have been 'assigned' (They need 2 bodies from union workers to sanction the wage accord, so you better show up!). With all these risks to boast of, would anyone worry at all about insuring himself? If the chances of dying in the next twelve months are higher on the streets than in a hospital bed, would anyone care to buy medical insurance? Or, undergo costly medical procedures for chronic diseases? Why I predict a dramatic fall in the price of plastic surgery in terrorist infested towns! Ain't it amazing how the priority for medical insurance fizzles away by manipulating man-made risks?
Now that should give US policymakers a pause! Wanna go the Indian way? (We even have a software that assigns numbers 'randomly'. It was commissioned by...nevermind the details)!!!!!!!
Global Warming In My Mittens!
Global Warming In My Mittens!
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
I have had this creepy feeling about global warming for a long time. The phenomenon was recognized even in the sixties and received scant attention for decades. Then, when it did, the focus was on identifying impacts and preparing for them, not solving the problem. Which brings up the slimy prospect: what if global warming is beneficial to humans, if only on balance. No one disputes the real impacts on sea level from melting of polar ice and the Greenland icecaps. Or, for that matter, the increase in frequency of anomalous weather events. The former is likely to be slow relative to the pace of human resettlement so that it doesn't pose a problem in most countries. (Crowded islands excepted). The latter is easily anticipated and partially internalized by various calamity and agriculture insurance policies. Changes in diurnal temperature patterns are anyway dwarfed by temperature changes from day to day. An increase in humidity could affect asthmatics, but they have their inhalers. Even the impacts on glacial melt rivers can be anticipated by prudent water resource management policies. Weigh against this the large areas of semi-frigid land that will open up for agriculture (for a longer part of the year, with water aplenty), the boom in stock markets anticipating higher demand for renewable energy technology and air conditioners, the reduction in fuel bills in the temperates and beyond, and the increase in rainfall (and agricultural productivity) and suddenly, at least privately, one is not too sure if all the brouhaha about global warming is worth the squeeze on the purse that would follow if we tried to reverse it! I half suspect there are those countries that have strategically positioned themselves to capture these gains from global warming.
So, humans could possibly emerge happier from global warming, especially if it is tackled with a bit of sensitivity to the poor. Does that mean all is well and we can get back to sipping tea? It all boils down to how much we care for the impacts on the plant world, the animal world and outlines of geographic features on the globe! Do we care about dogs dying in the extreme heat of the summer exacerbated by global warming and air conditioner exhaust? Does it matter that ships and ocean liners fly kites as they sail the 'northern passage'? Do we care about whales and creatures of the sea going haywire figuring out why the sea is getting warm even as it gets polluted? Does it matter that the mango tree flowers in August to yield fruit on the coldest day of January? Would it hurt your enjoyment of the symphony orchestra if the currents in the oceans turned weaker or reversed directions? Or, animals experienced altered behavior patterns and lower sperm count? Would your grandchildren care that the many biological, chemical and physical phenomena taught to us – carbon cycle, acid rain, eutrophication, desertification, migration, diurnal/seasonal phenomena, glacial melting – to name a few would be altered with unpredictable impacts on plants and animals and their interaction with the environment. Does it matter at all to our policy makers that some of these environmental impacts are essentially irreversible? Why do our leaders and strategists negotiate global warming as if it were merely a human problem? The bottom line, if you ask me, is that as much as we care about our longevity and survival, the human race gives a damn about calamitous impacts of its existence on flora, fauna and the environment (at least not until they drop in to the list of endangered species, by which time it is already too late). Our policies to date have been largely anthropocentric. Will we ever regulate for the plants and animals in Noah's ark?
And here's the frightening prospect (just between you and me). At the end of the day (a few decades from now), we may just find comfort in a hotter world in which the tropics are infested not by insects but humans, while the temperates enjoy the bounty conferred by global warming. And 'we' will suffer hotter summers from warming the world with our coal-fired utilities while 'they' profit from selling us more wheat from an expanded cultivation area and lengthened growing season? In other words, what if it is not 'global collusion', but collusion of the developed world against the developing world - a 'You Pollute For Our Second Rainbow' strategy?
Don't scratch your brains out!
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
I have had this creepy feeling about global warming for a long time. The phenomenon was recognized even in the sixties and received scant attention for decades. Then, when it did, the focus was on identifying impacts and preparing for them, not solving the problem. Which brings up the slimy prospect: what if global warming is beneficial to humans, if only on balance. No one disputes the real impacts on sea level from melting of polar ice and the Greenland icecaps. Or, for that matter, the increase in frequency of anomalous weather events. The former is likely to be slow relative to the pace of human resettlement so that it doesn't pose a problem in most countries. (Crowded islands excepted). The latter is easily anticipated and partially internalized by various calamity and agriculture insurance policies. Changes in diurnal temperature patterns are anyway dwarfed by temperature changes from day to day. An increase in humidity could affect asthmatics, but they have their inhalers. Even the impacts on glacial melt rivers can be anticipated by prudent water resource management policies. Weigh against this the large areas of semi-frigid land that will open up for agriculture (for a longer part of the year, with water aplenty), the boom in stock markets anticipating higher demand for renewable energy technology and air conditioners, the reduction in fuel bills in the temperates and beyond, and the increase in rainfall (and agricultural productivity) and suddenly, at least privately, one is not too sure if all the brouhaha about global warming is worth the squeeze on the purse that would follow if we tried to reverse it! I half suspect there are those countries that have strategically positioned themselves to capture these gains from global warming.
So, humans could possibly emerge happier from global warming, especially if it is tackled with a bit of sensitivity to the poor. Does that mean all is well and we can get back to sipping tea? It all boils down to how much we care for the impacts on the plant world, the animal world and outlines of geographic features on the globe! Do we care about dogs dying in the extreme heat of the summer exacerbated by global warming and air conditioner exhaust? Does it matter that ships and ocean liners fly kites as they sail the 'northern passage'? Do we care about whales and creatures of the sea going haywire figuring out why the sea is getting warm even as it gets polluted? Does it matter that the mango tree flowers in August to yield fruit on the coldest day of January? Would it hurt your enjoyment of the symphony orchestra if the currents in the oceans turned weaker or reversed directions? Or, animals experienced altered behavior patterns and lower sperm count? Would your grandchildren care that the many biological, chemical and physical phenomena taught to us – carbon cycle, acid rain, eutrophication, desertification, migration, diurnal/seasonal phenomena, glacial melting – to name a few would be altered with unpredictable impacts on plants and animals and their interaction with the environment. Does it matter at all to our policy makers that some of these environmental impacts are essentially irreversible? Why do our leaders and strategists negotiate global warming as if it were merely a human problem? The bottom line, if you ask me, is that as much as we care about our longevity and survival, the human race gives a damn about calamitous impacts of its existence on flora, fauna and the environment (at least not until they drop in to the list of endangered species, by which time it is already too late). Our policies to date have been largely anthropocentric. Will we ever regulate for the plants and animals in Noah's ark?
And here's the frightening prospect (just between you and me). At the end of the day (a few decades from now), we may just find comfort in a hotter world in which the tropics are infested not by insects but humans, while the temperates enjoy the bounty conferred by global warming. And 'we' will suffer hotter summers from warming the world with our coal-fired utilities while 'they' profit from selling us more wheat from an expanded cultivation area and lengthened growing season? In other words, what if it is not 'global collusion', but collusion of the developed world against the developing world - a 'You Pollute For Our Second Rainbow' strategy?
Don't scratch your brains out!
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