Economics Matters

Because the world is ruled by little else

Devil’s Advocate – I

with 4 comments

There is one thing I don’t understand about the Socialist utopia. Everyone will have food,clothes, houses, the morning Hindu, free IPL tickets etc etc. But think about the average dweller. All around him he sees the same kind of houses. Every month he gets the same pay, same as everyone else, same always. Every girl around is wearing the same damn dress. And of course everyone loves all his fellow men and loves to kiss all their a##es.
Seems heavenly indeed. But I want no part of that. Let me rot in this greedy capitalist hell. I love differences. I appreciate inequality. And more than anything else I always love a good debate. So let me go ahead and start a few on the issues where I feel there is a mind numbing confromity of views. In fact to make matters easier, I would play the Devil’s advocate.
1. The %$%$%$%$  Rupee Spectrum scam:
Before discussing the issue, we need to know the data first. So what is the issue here. A corrupt central minister cost the exchequer nearly 10,000 Cr. No wait it is 30000 Cr. No no 60000 Crore. Well can someone give me a number? No? Of course no. One thing I don’t understand is, who came up with all these numbers? The logic seems to be, now that the government has garnered for itself funds to the tune of 67,000Crores from 3G allocation, if it had done the same for 2G too, we would all have been richer by some 60,000 Crore. (Again this linear reverse calculation of possible price is senseless )
Wrong. We would have been all the more poorer. 3G is going to take a real long time to establish itself in India and even if it does it is going to be quite costly. All the mobile operators have emptied their pockets out for the auction. They had to. Business logic dictates that a failure to get the lucrative portion of the spectrum, however high the cost may be, would convert into a huge loss in market share. So most of their bottomlines are hurt. Now who is going to bear these costs ultimately? The consumer of course. The competition towards zero tariff that we are all enjoying in voice and messaging services may never happen or might take a long time to happen in 3G services. Companies will try to maintain a lower bound. But there are still a dozen players in the market and competition is inevitable. So they would look to cut costs in other areas. One possible effect could be a freeze in expansion of infrastructure. This again would only hurt the consumers.
Oh my God. Why are you whining so much like you own these companies, I hear you say. Doesn’t government get all the money. Isn’t it our money? Well you wish.
How can one be happy about wealth being transferred from the private economy to the government? The only aim of the politicians is to win the next elections while making some money for themselves. So a part of these funds would disappear into a black hole and the rest would go just to bridge our deficit. Our profilgate, over spending politicians just got a relief for themselves, without changing their habits a bit. And we are celebrating that our deficit is wiped a little. But at whose cost?
Do I have a solution? I hate proposing solutions. I believe it is immoral to tell others what to do with their lives. But I would just postulate what would have happen if a free market lover ( definitely not our current Prime Minister ) comes to power. He would decide that the government played no role in the creation of wireless technology.  So it is wrong to claim the wireless spectrum as it’s property and levy ownership tax for it. The dozen or more telecom companies would then be in a bit of a spot. How to settle the ownership claims among themselves. Well they would have probably formed a consortium (like FICCI ) and worked out property arrangements among themselves through contracts. Any company that owns a part of spectrum would pay all others some amount for their sacrifice of ownership. In this way all the funds would have stayed within the telecom industry and no one would have lost at net. But I am just theorising ( a fancy word for dreaming ). One or other of our businessmen would have sent a delegation to Delhi complaining of foul play by  competitors and requested the government to intervene. Isn’t it more important that your rival suffers, even if it means you suffer a bit too?
(Check Swaminathan Iyer’s views on this topic here. He is my favourite Indian economist- one who actually understands economics as something more than statistics)
2. A tale of two brothers:
Media loves villains. And our political establishment keeps providing them some. Two brothers from Karnataka are the latest and the scariest of the lot. Here are two corrupt politicians who are stealing all our natural resources. If only we could get a few honest bureaucrats to kick them out, our country would be richer.
Well exports are a very funny issue in economics. Sometimes people bereave that the country is exporting less than it imports, we are becoming poorer etc. At other times people complain about resources leaving the country as exports. Both these views have a fundamental flaw. They view the country as one big grocery store. I would love to discuss this particular notion in detail. But in a latter post.
Now to the issue at hand. I am not a paid agent of these people. I do not know them. I have never visited that place and hell I have never been to a mine. And that’s precisely my point. People may be right in saying that these two men have no right over those lands. True. But you and I don’t either. How can we complain that someone is stealing something from us, when we don’t even know what the thing is. To say that all ores are national resources is simply, well to put it mildly Socialistic ( Atrocious is the correct word ). Why should anyone particular resource be classified as national resource? How would you like it if your industry were declared a national resource and all those who profit from it declared criminals. Now don’t say, this is different. Iron ore is a raw natural resource. It is crucial to safety, etc etc. You can come up with any reason you want if you have passed judgement beforehand. Recently Tamilnadu government nationalised ( Yes, that’s the word ) all the schools. How does that sound?
So are these politicians faultless? Most probably not. With the huge power they enjoy, they could have scared competitors out of business. Illegally appropriated someone else’s property etc etc. But are these the reasons they are being hounded? No. Do the rival politicians who hound them want to correct these wrongs. No they want to nationalize them so that these resources will forever stay the personal fiefdom of their sons and daughters. Infact the prime reason why only corrupt people flourish in mining business in this country is the immense number of regulations. We have denied private players a proper chance for decades. It is foolish to believe that in the absence of an owner, a property will stay in public hands. If you believe that, you are under a socialist delusion. Any so called common property is always exploited by the most powerful man around. So nationalization simply transfers wealth from private players who frugally administer the wealth, to corrupt men who do not care heck about it. Why would these politicians care not to mine every tiny bit out without saving for the future, when they know that the mine is not theirs.
In all the history of the world no one has ever washed a rented car. Just remember that.

(To be Continued)

Written by Surya

July 27, 2010 at 4:25 am

4 Responses

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  1. Very nice flow to the article ! I remember reading Bharti Mittal, Airtel saying that 3G wont come cheap to the customers. 2G was a shame. 3G is a sham. Its only the common man that always pays ! 🙂
    You might be running into some trouble by saying Manmohan Singh is not an advocate of free-market economy since he was at the forefront of India’s LPG (liberalization, privatisation, globalization) movement in the early 1990s. It is also his government that has finally acted upon disinvestment of the public sectors. (The BJP started the program under Arun Shourie though !).
    Auctions might not be totally wrong as that is the way every other country does it. It is a pity that we’ll be paying so much for 3G when 4G is around the corner !
    Natural resources are of course the government’s property (which owns it on behalf of the nation). Its like saying you can own rivers and forests.
    Although I differ with many of your opinions, your writing is just too good. It has a nice flow to it. Continue the to-be-continued ! 🙂

    Balakrishnan Vijay

    July 27, 2010 at 6:04 am

    • Thanks da. Yes common man always pays. After all someone has to pay. There is no such thing as free lunch.
      I think our government liberalized because it had no other option. A lot of the reforms were conditions required by IMF for sanctioning the loan. Manmohan Singh was a part of the establishment long before 91. He was the reserve bank governor. He never said any word against the Socialist policies then. We should infact credit Narasimha Rao more for taking the political responsibility. Mr. Singh meanwhile is implementing Right to Education, Right to food etc etc. And government is not selling majority stakes in PSUs. It is just an attempt to bridge deficits. Mrs. Sonia is committed to impress her leftist friends ( google for Jean Derez). Mr. Singh is happy to oblige.
      As regarding natural resources ( a very loosely defined term). Yes it is the prevalent view today that government should own them. I will post my view on this topic later. But let me just reiterate. No resource can be ownerless. The question is are you going to let a private individual own it , improvise it and introduce it in the market or call it a common resource and either let it go unused or be used corruptly and inefficiently by the politicians.

      Good Will Hunter

      July 27, 2010 at 6:22 am

  2. No da. Before 1991, Singh was not in the government. He was only RBI governor, then deputy chairman of Planning commission. It is the Finance ministry that has to do such a change. Also, it took that much time for the mentality of the people to change as well da. PSU disinvestment will take time da. Any privatization will be followed by protests by irresponsible government officials who want to have a gala time.

    Btw, RTE is not a good measure as such. It is a good intention to secure education for all. But its legal constructs are not good.

    By default, anything that is in the nation is owned by the government. Lots of unclaimed lands are there in this country. It doesn’t mean that I can go and occupy that place and claim it to be my own. Although the corruption part of the politicians is certainly a vital factor to be considered, it is certainly not justification enough to allow private individuals to claim them without the government benefitting.

    Balakrishnan Vijay

    July 27, 2010 at 7:46 am

  3. Well my point is not that he should have initiated changes as a bureaucrat. He didn’t. He could have at least registered his discontent somewhere, if he were so passionate about markets. He did not because he is not. He is your average, elite schooled economist who will spin out any theory that the government wants them to come up with to justify their programmes.
    RTE is an evil measure. Not just a not good measure. I already discussed it in
    Let us not forget that Soviet Union was built with good intentions. Infact good intentions have killed a billion people in 20th century.
    Regarding ownership of resources, I believe in private ownership of most resources except a few very complicated ones like rivers, forests, seas. And people who want to own these resources, should compensate the existing owners ( like tribals ). Not the government. As I said, I will explain my point in a latter post.

    Good Will Hunter

    July 27, 2010 at 8:09 am

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