India / US: A Strikingly Similar Paralysis

Policy Paralysis wafts like an invisible veil of smoke into a room full of card players with cigarette stubs lying on their ashtrays, and goes almost unnoticed until someone begins to sneeze. The 2 largest democracies in the world have come from opposite ends of the growth curve, and now seem to be treading down the same road to nowhere for a whole host of reasons.

The US has been on a tepid recovery as far as the numbers go, although the number of jobless citizens out there still spells worry. Recent studies show that the US would grow at approximately 2% this year, which is leaps and bounds ahead of Europe, which at this stage is still stuck with its own economic malaise.

The 2nd largest democracy in the world however still has a looming 15 Trillion dollar debt problem which stands out on the world stage like a perennial eyesore, perennial because it would take a lot of courage and discipline to set right. The American Congress in the meantime, does not have the appetite for any more constructive decision-making unless they are compelled to.

The largest democracy, India on the other hand appears to have fallen from the grace it had only a few months ago. In February this year, to an attentive and burgeoning middle-class, over a televised budgetary address, the finance minister proudly projected an 8.5% GDP growth for this fiscal.

Little did he know then, that by Christmas, a whole host of factors which include supply side pressures along with external conditions both within and beyond his realm of control would mercilessly throw these figures out of the window.

It is easy to point of that the policy paralysis in the 2 largest democracies have different root causes. In the US, it has been the result of severe ideological differences. One party thinks that a Robin Hood Tax on the rich coupled with increased Government spending is the way out of a recession while the other thinks that Government is in fact the problem!

In India, it has been incoherent policies and intra-party fighting between ministries about the right way ahead clubbed with the odd multimillion rupee scandal that grabs the headlines every now and then.

Having reached this regrettable state of paralysis, there are 2 key points that must be noted. Firstly, Paralysis is a Government operating under Crisis.

Paralysis simply permits the inertia of inaction to prevail until a disaster unfolds. When forced into action, the path of political brinkmanship will first be embarked upon, until one of the 2 sides decides to blink. The other side would then claim a sort of victory regardless of the outcome. The US debt debacle and the most recent payroll tax hike are text-book illustrations of this phenomenon.

The second point to be observed is that the anaemia of paralysis also causes the government to start kicking a whole bunch of half-filled cans down the road. It’s almost as if a government that has been given the mandate to govern by the people has lots its credibility to rule. In India, key differences on policy matters by different ministries (as stated above) have caused the country millions in the form of Foreign Investment. Crucial projects in the pipeline (such as Posco and Vedanta) remain clogged in the pipeline for lack of political will.

So how does one take on so crippling a paralysis of this nature? The 2 known approaches are already being used.

Firstly, Big Business or Business Councils could weigh in some of their urgency on the government. In the US, the iconic conglomerate head, Donald Trump has decided to conduct a republican debate on the 27th of December with all the presidential candidates (only a few have agreed). He has been for the past few months trying to bring his own list of issues to the forefront (one of which has been taking China on head-on). In India last week, the FICCI (a leading Business Council) rapped the government’s knuckles hard for rolling back a critical reform it had already introduced on multi-brand retail that would have taken the country a step forward.

The other approach is clearly visible in makeshift tents in the cold winter outside Wall Street as self-interest groups decide that working within the system has till date brought no form of change whatsoever to their lives. Next week, post-Christmas, the Anna Hazare camp in India will enter its next phase of agitations against what it sees as the Government trying to frame anti-corruption legislation that is as fierce as a paper tiger.

When policy paralysis begins to hit the front pages of tabloids frequently and becomes the subject of dinner table discussion, one does needs to worry. The impasse does more harm in many cases than good and often yields unintended advantage to opposition parties at the ballot box.

The onus is thus on the incumbent administration to crank the engines of growth (no matter how rusty they may be) and get the economy chugging along once again. When this happens, the smoke from the engines would bring many a welcome sneeze.

First posted on technorati


Occupy Wall-Street: In the Days of Oliver

“Please sir, I want some more ..”, the young boy Oliver held his bowl up with more than a slight quiver to the Master. Fear gripped not only him but also the entire congregation of students, of what the outcome would be. The outcome, as told by Charles Dickens was indeed favorable to Oliver Twist, but not in the short term. 

Back then as well, in the days of Oliver, there existed fat cats. These were men of high standing and stature who were well out of reach of the poor. Between then and now, nothing much has changed in terms of attitudes, except for the fact that the pie has tripled or even quadrupled in size and there are more people with knives and bowls at the table.

The leftists and socialists often blame the skewed system of capitalism for not providing equal opportunity to all, while capitalists in turn consider socialists to be a bunch of lazy bums wanting to live out of taxpayer’s money in the name of social security. The truth lies of course between the melted cheddar in the middle.

What began as just an ordinary run-of-the-mill march against high prices in Israel has now turned into a full throttle drive against capitalism across the highways of the world as the segment of the seemingly deprived join hands on facebook.

The demands of the Protesters in Wall Street are by now, common knowledge. Their prime concerns revolve around the bankers who were bailed out with TARP money and are still around earning hefty bonuses. Worse still, those who invested in their schemes have gone broke. 

A CNN Contributor even suggested that the protesters align themselves with shareholders and voice their concerns in Shareholder meetings. This of course assumes that the crowd on Wall Street believes that working within the system would yield the desired results.

The only other legal option is off the table. The protesters from all the major cities cannot consider any form of Class Action lawsuit, since on all counts it was the Incumbent Administration that showered 800 Billion of Dollars on the Banks, with absolutely no conditions attached.

To be fair though, Capitalism to a large degree is more appealing that her half cousin socialism and has to a large extent many feathers in its cap. Free markets after all encourage entrepreneurship and meritocracy, and it is indeed no surprise that Silicon Valley still attracts some of the best talent in the world.

In the days of plenty, the Oliver’s were too insignificant to be heard. The fat cats were munching their exotic seafood unseen on the rooftops while the middle class were taking home a fair chunk of the pie. Everyone was content and no one wanted to rock the boat. Surprisingly though, between 1979 and 2006, the lower class saw their incomes rise by 11%, the middle class by 21% and the uber-rich by a whopping 256%!!

Despite this gross imbalance, the general public as it seemed, had absolutely no objections. Then came the Lehman Brothers collapse which was soon followed up by the plight of “Income Stagnation” heaped upon an already over-debted middle class.

Sensing danger, the chieftains of capitalism meanwhile turned their anger towards the Obama Administration and began to blame him for the countries unending woes. “Obamacare has ripped the state exchequer off its future earnings and will put millions of Americans in debt !!” has been their rallying cry till date. 

The Middle class gradually hollowed themselves out and joined the ranks of the Oliver’s on the table with knives and spoons. Like an angry bunch of kids, they are fed up with the administration. They know that Big Government is not the solution because it ends up borrowing more than it has, but they don’t understand why an elite group of individuals should still take home bonuses when thousands are unemployed.  

Elsewhere the man who promised Change in Washington has abandoned the senate to its own devices and has limited himself to making targeted statements against Congress whenever he gets a chance. The Republicans have mastered the art of Brinkmanship and are determined to use any future exigency to extract the last drop of blood from an already divided Congress!!

Outside in the cold, as winter sets in, the obstinate protesters vehemently brave the cold and claim that they represent the 99%. As their numbers swell and the government continues to blink, the din will grow louder. The crisis continues on its downward spiral as capitalism’s moment of reckoning has finally arrived.

Article first published as Occupy Wal-Street: In the Days of Oliver on Technorati.