Thursday, May 29, 2014

Some economic discussions - 2

If there is any person whom I personally know for so long and still respect, that must be him. He was instrumental in my survival through a very difficult phase of my life and even before and after that, I've held him in high regard. Our political, social, and economic understanding often finds grounds of clash or resonance. And whether we agree or not, I love discussing things with him - for there are few people with whom I always end up on the learning side. 

Since the whole nation is mired in electoral and political discussions these days, we also had a little chat on Facebook. Copying that here for those interested and for my own long-term reference. I've edited out others' comments and fringe content to maintain the focus.

Anand Mishra wrote:

For the most part, ‘Congress or BJP ‘ is a false choice, at least on the economic front. Both parties are leading us to a middle-income- country trap. “Hindu rate of growth” is not the only kind of trap we have to worry about. Let’s consider Mexico and India together.

Like India, Mexico was a largely socialist country and most industries were state monopolies till 1970s, protected from foreign competition by high tariffs. Later, these businesses were sold off to the private sector, which in practice often meant few wealthy families with access to capital, who wound up buying the businesses at prices well below their book value. The state monopolies became private monopolies. This leaves Mexico with a growing concentration of wealth in the hands of few. Today, the top-ten Mexican families account for more than a third of its total stock market value, one of the highest concentrations among emerging markets. The number of billionaires from India has been on the rise, and the churn within that list of billionaires is very little. In 1990s and early 2000s, it seemed to me that India finally was going through the much needed churn in business when some of the new IT and pharma companies broke onto the scene. Since then, Ambanis, Adanis, Jindals etc have clawed back.

A few strong companies and booming stock markets should, but do not necessarily, make for strong economies, so let’s not confuse the two. Just for the perspective, the GDP per capita (nominal) for India and Mexico are around 1500 and 10,000 $ respectively. So tell me why would you not think that neither BJP nor Congress will address the fundamental risk our economy is exposed to?

Siddhartha Rastogi wrote - Comment 1

Government monitored and regulated capitalism is good... crony capitalism is too bad. Holding this true and picking from where you have left - the new wave of entrepreneurs and the old business houses, we need to see who (between Congress and BJP) promotes more entrepreneurship and competition in the markets. 
I do not have the data but the anecdotal evidence suggests NDA did far better in this domain.

Comment 2

 And also, some very brief step-by-step income impact of liberalization - globalization - privatization:

1. It increases GDP and GDP per capita 

2. Income increase is more for those who already have capacity to participate in the economic process 

3. Poor income groups benefit far lesser than richer ones

4. The income gap increases

5. The thing to see here is not that every one must be getting equally better off. Rather, nobody should be getting worse off. 

6. Now enters the government in the scene - if some one is getting worse off (due to this process and not due to their own laziness), government would intervene and protect the property rights by forcing the beneficiary to pay for the losses.

7. Also, over time, even poor would develop the capacity to participate in the economic system

8. That is when the government spends on education, health, and security (and not on doles) 

9. So the income inequality ought to be a short term (not more than 20-30 years) phenomena. After that, the inequality should fall again.

10. China is a bad example to quote in many ways but Chinese poor are far more enabled to seek opportunities. 

11. To close with Deng Xiaoping's remark, when he was asked about increasing inequality in China as a result of economic reforms: "Let some people get rich first".

Anand Mishra wrote:

The argument that let's have growth now, we will worry about atavistic impulses within the country later, is fallacious.Tad too much reliance on identities in a society, you have an upper limit to growth. We have to find a balance between the human need to have identities and necessity of keeping those identities in private domain. 

Mexico's per capita GDP is at least 6 times higher than ours, and the country has not been able to solve its basic issues of education, health, crime, corruption etc. 

Baaki tumhari doosare comment pe hum baad me baat karnege,mil ke kabhee, many terms like liberalization, globalization are loaded, and I don't know if you and I have similar understanding of those terms. And, beyond a point, I believe, economics also becomes a subject of faith. But I see what you are saying.

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