None of the experts saw India’s debt bubble coming. Sound familiar?

Jayati Ghosh

So now India is the latest casualty among emerging economies. Over the past 10 days, the rupee has slid to its lowest-ever rate, and the Indian economy may well be on the verge of a full-blown currency crisis. In this febrile situation, it is open season for rumours and pessimistic predictions, which then become self-fulfilling.

This means that even if there is a slight market rally, investors quickly work themselves into even more gloom. Each hurriedly announced policy measure (raising duties on gold imports, some controls on capital outflows, liberalising rules for capital inflows and so on) has had the opposite of the desired effect. Everything the government does seems to be too little, too late – or even counterproductive.

These are all classic features of the panic phase of a financial market cycle. This doesn’t mean that a crash is inevitable, but clearly it is possible. The real surprise in all this is that investors and Indian policymakers are surprised. For some reason, they apparently did not foresee this turn of events, even though the story of every financial crisis of the past, and many in the very recent past, should have caused some nostrils to twitch at least a year or two ago.

Read the rest of this entry »

Lift your head from the sand

Sunita Narain

The outrage over the suspension of an official, Durga Shakti Nagpal, for simply doing her job—check illegal sand mining in the rivers of Uttar Pradesh—has highlighted a crucial issue. It is now evident that illegal mining of sand from rivers and beaches is rampant and the underbelly of this industry (I’m calling it industry for want of a better word) is powerful and connected. Worse still, all this is happening in violation of the orders of the apex court of the country. Before this brouhaha dies down we need to discuss and resolve the way to control this business, which is operated at small scales in scattered locations and managed by local goons and thugs. It is not an industry that makes for easy regulation.

But regulation is a must. Sand removal has always been done to de-silt rivers and channelise the flow. But never in this rapacious manner—the river is literally wiped clean from the bottom. As a result, the crucial recharge zone—think of it as a sponge that holds water and slowly seeps it out into the surrounding for use—is destroyed. The river is hollowed out, its ecology disturbed and fish habitats damaged. Removal of sand, therefore, needs to be assessed for environmental damage, restricted and carefully regulated.

But sand has slipped through the cracks in the regulatory system for many years. All till construction industry boomed and extraction shot up. Sand, gravel and stone are the raw material that drive this sector, which is registering a 10 per cent growth annually. We do not realise that the concrete house we build is two parts of sand, four parts of stone and gravel and only one part of cement. Not surprisingly, there are no estimates of the amount of this natural material required. Everyone plans for cement but forgets it is only a binder. The river pays the cost.

Read the rest of this entry »

Pursuing Profits – or Power?

James Boyce

Do corporations seek to maximize profits? Or do they seek to maximize power?

The two may be complementary—wealth begets power, power begets wealth—but they’re not the same. One important difference is that profits can come from an expanding economic “pie,” whereas the size of the power pie is fixed. The pursuit is a zero-sum game: more for me means less for you. And in corporations, the pursuit of power sometimes trumps the pursuit of profits.

Take public education, for example. Greater investment in education from pre-school through college could increase the overall pie of well-being. But it would narrow the educational advantage of the corporate oligarchs and their privately schooled children—and diminish the power that comes with it. Although corporations could benefit from the bigger pie produced by a better-educated labor force, there’s a tension between what’s good for business and what’s good for the business elite.

Read the rest of this entry »

The First World Keynes Conference: A Follow Up

Erinc Yeldan

The First World Keynes Conference convened over the heated days of June 26-28 at the Izmir Economics University.  Given the current impasse in mainstream economics over the ongoing great recession, it is no surprise that the Conference attracted quite a few dissident voices from many alternative paradigms and fields of research.

It is quite clear to all social scientists able to maintain their sense of scientific clarity that the causes of the global crisis lie beyond the rhetoric of toxic assets, in the realm of what should be called Toxic Economics Textbooks[1].  As the opening lines of the Conference Invitation attest,

“The vastly dominant mainstream model –New Consensus Macroeconomics (NCM) and the related Dynamic Stochastic General Equilibrium (DSGE) model – has not only suffered a severe blow by the eruptions of the recent world financial crisis but must be seen as part of its cause: the quasi-religious believe in super-efficient markets and the self-regulatory capabilities of the representative agent, the main assumption of the framework, pursuing relentlessly its own egoistic interests has distracted most professional economists from investigating the unthinkable: a violently unstable economy. The uncritical acceptance of very restricted formal models as a good approximation of reality has led many economists to produce tools which reinforced organic instability.”

Read the rest of this entry »

When Foreign Investors Sue the State

Martin Khor

In the recent public debate surrounding the Trans-Pacific Partnership Agreement (TPPA), an issue that seems to stands out is the investor-state dispute settlement system (ISDS).

It enables foreign investors of TPPA countries to directly sue the host government in an international tribunal.

In most US free trade agreements, the tribunal most mentioned is ICSID, an arbitration court  hosted by the World Bank in Washington.

The ISDS is a powerful system for enforcing the TPPA’s rules. Any foreign investor from TPPA countries can take up a case claiming that the government has not met its relevant TPPA obligations.

Read the rest of this entry »

Gas, Found and Lost

Sunita Narain

Natural gas as fuel has environmental benefits, particularly when compared to burning coal for power generation or using diesel for vehicles. So when the government increases—in fact, doubles—the price of domestically produced natural gas it has far-reaching implications for air quality and public health. But these benefits do not matter at all in the price-benefit calculations. Government’s rather simplistic logic is that if the price is increased, Reliance Industries, which has monopoly over gas fields and, therefore, holds all the cards, will put in more money in drilling for gas and this, in turn, will mean more gas for use. Simple. But equally simply stupid.

The fact is that if natural gas becomes so expensive that it cannot compete against coal and diesel then it will not be used. In the case of power plants, roughly 20,000 MW of capacity is lying idle for want of gas. Now, even if gas is produced—and there is no guarantee that at the doubled rate Reliance will find more gas—its use in power plants will raise tariffs, rendering power unaffordable. Dirty coal will win.

But we should not be surprised. The health advantage of gas is nobody’s concern.

Read the rest of this entry »

What It Takes To Deliver Midday Meal

Sunita Narain

The tragic loss of 23 young lives because of contaminated food in a Bihar school is unacceptable. But it is also a fact that the Mid Day Meal Scheme, under which cooked food is compulsorily provided to children in government schools, is too important and critical to give up on. The only questions that matter are: why does the scheme not work as well as it should and what can be done to fix it?

The answers are complicated. Providing nutritious food to children in schools helps address two key problems; hunger and education. Progressive political leaders found the answers in their states. In 1982, M G Ramachandran, the then chief minister of Tamil Nadu, set up the nutritious meal programme. It is legendary that he took deep interest in the working of the scheme. Former district officials will tell you of his surprise trips to schools and his fury if anything was found out of order. This was top priority, so it worked.

In the mid-1990s, the Central government adopted these ideas coming from different states and framed a national midday meal scheme. But nothing much happened. In 2001, the Supreme Court directed all governments to provide cooked food to all children in primary schools. Since then the scheme has evolved. The Central government agreed to provide free grain (rice and wheat) and funding for transport, cooking cost and recently even an honorarium for the cook. The state government is required to top up this funding; pay for vegetables and pulses; provide infrastructure in schools and manage affairs.

Read the rest of this entry »

Demographic Transitions, Malthusian Traps and Supply-Constrained Growth

Matias Vernengo

Gregory Clark’s book The Farewell to Alms re-popularized the Malthusian model (for the relevant chapter go here). The basic idea is that population dynamics and the so-called demographic transition do have an important impact on economic growth. Robert Malthus’ idea is relatively well known, even if there is an incredible amount of confusion in the way it is explained by modern neoclassical authors.

Read the rest of this entry »

At the TPPA Open Day

Martin Khor

Last Thursday I took part in an unusual Open Day on the Trans-Pacific Partnership Agreement in Kuala Lumpur.

A thousand people turned up at the event, showing how this trade agreement has aroused great public interest and concern.

The organiser of the half day event was the Ministry of International Trade and Industry (MITI), which had been criticised by several citizen groups as not revealing enough information about the TPPA.

It was unusual because the Trade Minister Datuk Seri Mustapa Mohamed spoke frankly of a “trust deficit” on TPPA between MITI and the public.

Read the rest of this entry »

Should China Deregulate Finance?

Kevin Gallagher

Rumor has it that China is set to accelerate the de-regulation of its financial system.

China is “too big to fail.” Nobody in the world can afford for financial liberalization to fail there.

For years, China has restricted the ability of its residents and foreign investors to pull and push their money in and out of the country.

While that may be illiberal, there was a sound reason for this restriction: Every emerging market that has scrapped these regulations has had a major financial crisis and subsequent trouble with growth.

Read the rest of this entry »