Sucheta Dalal :The four point formula to destroy a nation (14 October 2001)
Sucheta Dalal

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The four point formula to destroy a nation (14 October 2001)  



On October 10, The Observer of London carried an interview with Joseph Stiglitz, the Nobel Prize winning former Economist of the World Bank who had been shown the door by that hallowed organisation. Stiglitz, in his usual scathing manner talked about how the IMF-World Bank and the World Trade Organisation are interchangeable masks of a single governance system serving the rich nations’ agenda. He talked of how the Bank prescribes the exact same four-point programme for all nations and ends up destroying their economies.

*Privatisation: Stiglitz calls is ‘Briberisation’. He says politicians and officials have happily flogged off their electricity and water companies, lured by the 10 per cent commission paid for ‘shaving a few billion off the sale price of national assets’.

*Capital Market Liberalisation: Stiglitz calls this the ‘Hot Money’ cycle. Along with the flow of investment capital, it channels cash for speculation in markets, currency and real estate, which can disappear equally fast. When that happens, the IMF asks these nations to hike interest rates, in order to ‘seduce speculators into returning a nation’s own capital funds’. He cites the hot money tidal waves in Asia and Latin America as examples.

*Market-Based Pricing: Stiglitz calls it a fancy term for raising prices on food, water and cooking gas leading to what he calls ‘The IMF riot.’ Indonesia, Ecuador and Bolivia exploded into riots over fuel, food and water prices.

*Free Trade: Stiglitz likens free trade WTO-style to the Opium Wars as it allows MNC to fleece people in poor countries by charging usurious prices for branded medicine and other services.

India is more than half way through the implementation of this four-point recipe, but there are interesting differences as well. Briberisation, appears in a more vicious and reverse avatar in India. Politicians have persistently blocked efforts to privatise public sector companies in oil, steel, power, aviation, shipping and telecom. Over the years, they have continued to be bled by the politicians while their value is destroyed by blunting their competitive edge and letting the private sector into monopoly markets. Let’s go to step two. Fortunately, we did not go all the way on capital market liberalisation and the mischief has been restricted to the operations of OCBs. Indian black money flowed out of the country and was re-routed into the market for speculation through FIIs and OCBs. This was not possible initially. Few know that a condition for granting registration to FIIs is that they should come from countries with an effective capital market regulator who is recognised by the Sebi. The recognition of the Mauritius regulator opened the doors to a flood of OCB investments, many of which were registered with $10 capital and a front man posing as promoter.

That takes us to step three or market based pricing: It is a mantra that we have heard repeated ad nauseam by some of the most articulate babus in the finance ministry and planning commission. If market-based pricing has not exactly kicked off, it is because greed and infighting between private sector operators had not allowed the privatisation of utilities to take off. Also, corruption levels in India are so high that politicians are unwilling to give up the golden goose of public utilities. Enron’s controversial power project, which owes a lot to the doughty fight by a few non-government organisations (NGOs) also done its bit to prevent mindless privatisation, usurious tariffs and the inevitable riots.

The opening of our markets has meant inefficient and protected family run Indian companies and the small-scale sector have been badly hit by the free flow of cheap imports. Fortunately for Indian companies, the battle against the WTO prescription has also been taken up by powerful NGOs around the world and disorganised Indian companies may be the fortunate beneficiary of their efforts. What is the way out of this trap? What does Stiglitz have to offer as a recipe for growth? It is something that has never been at the forefront of Indian reforms even a decade after Narasimha Rao initiated his first set of measures. Stiglitz told the Observer that he proposed radical land reform, an attack at the heart of ‘landlordism’, on the usurious rents charged by the propertied oligarchies worldwide, typically 50 percent of a tenant’s crops. Did the Bank follow his suggestion? No. According to Stiglitz: ‘If you challenge (land ownership) that would be a change in the power of the elites. That’s not high on their agenda.’

Though land regulations in each nation that has sought World Bank aid may differ, there is little doubt that Indian land ownership rules are crying for sweeping change. Former Prime Minister PV Narasimha Rao’s book The Insider, has detailed how powerful landowner lobbies scuttle any politician’s effort to introduce serious reforms. The consequence is inefficient farm sizes, exploitation of labour and nearly one-third of farm produce being wasted by spoilage.


-- Sucheta Dalal



 



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