Monday 19 December 2022

Manmohan Singh on Public Goods

A public good is 'non-rival' and 'non-excludable'- i.e. the cost does not increase when more avail of it (e.g. if more people listen to a radio broadcast, the cost of radio broadcasting does not go up). Also, nobody can be prevented from tuning into the broadcast. 

I read in 'The Accidental Prime Minister' that Dr. Manmohan thought loan waiver for farmers is a 'public good'. This is nonsense. If more farmers get loan waivers, the cost to the Exchequer rises unless those loans were not recoverable- in which case there is no 'loan waiver' there is just a 'write-off. Moreover, there is an opportunity cost. If farmers loans are written off, other non performing assets are not being written down and thus there is greater 'Balance Sheet weakness' which undermines the provision of credit and which increases volatility associated with exogenous shocks. 

Sanjaya Baru writes- 

One evening in late 2007 after sitting through a long inconclusive discussion on the subject of loan waivers with senior officials and ministers, Dr Singh walked back to his private working space at 7 RCR. There, in that quiet corner, looking out into the patch of green where a peacock or two would always be walking around, pecking at food, he sat and gave me a long lecture on the history of loan waivers in India. It was the British, he explained, who first understood the nature of rural indebtedness and the importance of keeping the farmer alive.

The British understood that marginal farmers need to sell up and move to manufacturing jobs in urban areas. There is no point keeping a sub-subsistence farmer alive and trapped in what will soon become a negative marginal product activity. That's how you get Malthusian famines once there is an exogenous shock- e.g. Burmese rice imports getting cut off as happened in 1942, or else a global grain shortage and US use of 'the food weapon' in 1974. 

Another point is that loan waivers are far from transparent. Giving them empowers the 'arhatiya' middle-man who arranges the thing for the illiterate farmer. The result- as was seen during the recent Farmer's protests- is that the farmers prevent the disintermediation of the middle-man which is needful to gain economies of scope and scale and enable the adoption of higher value adding or more environmentally friendly agricultural policies.  

Rural credit, he recalled K.N. Raj telling him, is a ‘public good’.

Raj was a stupid as shit. Credit, by definition, is rival and excludable.  If you get a loan, someone else does not. 

Economists define a ‘public good’ as any good or service that, once provided, does not discriminate between beneficiaries and non-beneficiaries.

Nonsense! A radio broadcast is a public good but it discriminates between those who have radios and like listening to that particular broadcast and those who don't.  

A street light is a common example of a public good.

It is a local public good. It discriminates between those who live on that street and those who don't.  

Government spends money on street lighting and everyone who uses the street, irrespective of whether she is a taxpayer or not, a citizen or a visitor, benefits from it.

But those who don't use that street get no benefit whatsoever. We won't pay for street lighting in some far away place which we will never visit.  

A loan waived by a bank may appear to be a private good since the primary beneficiary is the debtor.

He is the only beneficiary.  

However, in keeping farmers alive,

the farmer can stop being a farmer and enjoy a better life. Why not lend money to beggars and then waive those loans, provided the beggar doesn't do anything productive at all?

Land is scarce. Why not get farmers to give up unviable farms and do something else instead? 

in sustaining the livelihood of farmers and in ensuring rural social stability,

i.e. vote banks for the Party. But Punjabi farmers have stopped voting for Congress. Kejriwal has swept the polls.  

a loan waiver in the case of an impoverished and highly indebted farmer would have wider social benefits.

It has negative external effects. The Banking system become weaker and less able to allocate capital efficiently.  There is 'moral hazard'. People borrow in the expectation of not having to repay the debt. They may use the money for ostentatious expenditure.

Many countries, including developed market economies, justified farm subsidies on such social grounds.

Subsidies are different from loan waivers. It is foolish to use the latter as the former because you then encourage a spendthrift culture whereby people maximize their debt, in the expectation that the loan will be waived, but do not upgrade the underlying asset. Thus there is no productivity gain which there would be with a subsidy. 

A debt waiver was a subsidy, and a public good

It was neither. It was a corrupt scheme to create a vote bank. It damaged the economies of those States where it was most salient. Manmohan harmed Punjab. 

.Dr Singh recalled how every thirty years or so there had been a farm loan waiver in India and the last one had been sanctioned by Charan Singh in 1979.

Nonsense!  The first nation-wide farm loan waiver was implemented in 1990 by Janata Party government led by then Prime Minister V.P. Singh and cost the government Rs 10,000 crores. This was in response to the militancy of farmer's leaders like Tikait. Charan Singh was PM for just 23 days. Either Manmohan was completely ignorant or else Baru is as stupid as shit and is putting words in his mouth. 

The cycle of mounting debts and accumulating farmers’ grievances would end with an across-the board loan waiver. By 2007, he felt, the time had come for another loan waiver. The policy debate within government went on for several months after that. It was possible that the party was not just mulling the decision, but had also decided to wait for the right political time. In Dr Singh’s mind, though, it seemed to me that afternoon, the decision had already been taken. He understood the political significance of a farm loan waiver, he had respectable policy precedents and an acceptable theoretical justifi cation for what would be criticized by many as a populist measure.

Chidambaram could have spun it as a write off and announced that in future there would be better banking practices and stricter scrutiny of Non Performing Assets. This didn't happen. India was headed for a Moody's downgrading.  

Above all, four years of high economic growth had generated the optimistic view that the country could afford to splurge on such schemes.

Just when sub-prime was going to tank the global economy.  

After several months of deliberation and after taking stock of the views of an expert committee chaired by economist R. Radhakrishna, Dr Singh approved the loan waiver scheme. Chidambaram unveiled the scheme through his budget speech in February 2008, including under it all agricultural loans disbursed by scheduled commercial banks, regional rural banks and cooperative credit institutions up to 31 March 2007 and overdue as on 31 December 2007, with the benefi t to small and marginal farmers, those with holdings up to 2 hectares, being larger than for other farmers. The scheme would benefi t 4 crore, that is, 40 million, farmers and would cost the government about Rs 72,000 crore, that is Rs 720 billion. Despite the high cost, Dr Singh viewed the farm loan waiver as ‘his’ contribution to ‘inclusive growth’.

You can only get an agricultural loan if you own agricultural land. This is not an inclusive measure at all. The Government is buying the votes of the dominant caste. But why should they stay loyal? The other point is that the money the farmer borrows, if not frittered away, will go into urban real-estate and financing emigration. It won't go into the SME sector or agribusiness or anything else. Every wonder why so many farmers make a loss year after year? The answer is that so long as they follow the arhatiya's advise, their real income comes from the loan they become eligible for. But that loan will be written off.  

It was set apart in his mind from the ‘flagship’ schemes for which his party gave all the credit to Sonia Gandhi, the NAC and the NCMP. Still lurking within the Oxbridge economist was a bit of the Punjab farmer, and he knew that this initiative would resonate well in rural India. After Chidambaram’s budget presentation, Dr Singh took ownership of the initiative

which he was welcome to do because it represented bad economics. Furthermore, increased opacity in the Nationalized Bank sector (when is a loan not an agricultural loan?) would mean crony capitalists could loot National Savings and live large. What's not to like about that?  

through a fervent reply to the debate on the motion of thanks to the President, in March 2008, and recited from memory Oliver Goldsmith’s lines from The Deserted Village, ‘Ill fares the land, to hastening ill a prey, / Where wealth accumulates, and men decay; / Princes and Lords may flourish, or may fade; / But a bold peasantry, their country’s pride; / When once destroyed can never be supplied.’

But rural depopulation turned out to be a very good thing for Ireland and England and so forth. It is better to work in high value adding manufacturing or service industries then to gnaw on a potato or turnip on your little farm. Goldsmith died 70 years before the great Irish famine. 

It may be that Manmohan wasn't as stupid as Baru paints him. The fact is Baru had started off as a Leftist and Manmohan too appeared a Lefty- he had studied under Joan Robinson and then had been a colleague of Paul Prebisch at UNCTAD in Geneva. KN Raj had brought him to the Delhi School of Econ and so most people assumed he was as stupid as shit. Perhaps by quoting Goldsmith or crediting Charan Singh with Loan waivers, Manmohan hoped his Media adviser would reassure the Left eco-system that the PM had shit for brains and genuinely wanted to fuck up the Indian economy.

Baru suggests that it was Arjun Singh- a feudal turned machine politician- who entrenched the Left in Academia-

Arjun Singh used his perch at the HRD ministry to reinforce his image as a ‘left-wing secular’ politician, favouring and funding scholars and activities that helped him project this image. Whenever a journalist asked Dr Singh what he thought of Arjun Singh’s political games at the HRD ministry, the PM’s stock reply would be that India needed an educational system that promoted excellence and merit rather than any particular ideology. By favouring pro-Left and Muslim academics in various ways, he created a constituency of support among those who tended to be critical of the PM for following a foreign policy aimed, as they saw it, at ‘cosying up’ to the US—a country at odds with the Muslim world. Such was the sycophancy he encouraged that the Jamia Millia University even named a street on its campus after Arjun Singh when he was still in office.

Why did Congress invest so heavily in anti-nationalism? Under UPA-1, it could be argued that this was to keep the alliance with the Left. But why did this trend persist under UPA-2? One answer is that Manmohan- whose attempt to get elected to the Lok Sabha had been sabotaged by Congress because he acknowledged that his party had killed Sikhs in 1984- had a good reason to hate India. Furthermore, if he was going to fuck up farming through loan waiver, why not also fuck up the Indian higher education system? After all, he himself was supposed to be from a farming family and he had indeed risen through higher education. Fucking both up was his duty as a Congress PM.

Baru's book paints a picture of a confused and introverted man who appeared professional to world leaders because he'd mug up what he'd say to them. But this meant that Bush, who had great personal charm of a preppie kind, could play him like a fiddle. This meant Manmohan showed unexpected, indeed unexampled, firmness in standing up to the Left on the 123 nuclear deal. But this was a flash in the pan. It soon became obvious that Manmohan had lost the plot. By 2012 he didn't even know that Pranab as Finance Minister would put in retrospective taxes on corporate income. 

However, India's larger problem was that Baru- son of a senior official- and his ilk had been very well educated into becoming as stupid as shit. Consider the following

The best realist interpretation of non-alignment came from a distinguished Polish Marxist economist, Michal Kalecki, who worked briefly at the Planning Commission in the 1960s and wrote extensively on Third-World development. In his famous essay ‘Observations on Social and Economic Aspects of Intermediate Regimes’, an essay that spawned a most fascinating debate between Dr Singh’s friend and mentor Professor K.N. Raj, and the communist party leader E.M.S. Namboodiripad in the columns of the Economic and Political Weekly,  Kalecki called the non-aligned countries ‘the proverbial clever calves that suck two cows’.

But a beggar who sucks two cocks is still a beggar. Moreover, other beggars look down on him as a cock-sucker. Non-aligned countries were stupid. True, the Soviets would buy shoddy stuff off you and give you fairly decent armaments in return whereas American 'free money' was inflationary and unreliable. Still, one needed to pick a type of economic regime and then work closely with the Super-power promoting that regime. Non-alignment just meant begging and sucking cock on spec.  

The simultaneous suckling of two udders, the US and the USSR,

The Soviets were as poor as shit. They did barter deals advantageous to a country with low living standards. Them guys thought Mithun Chakraborty was a super-cool disco dancer. 

was a tactical response to an opportunity that presented itself. Given the existing geo-political environment, a group of countries that Kalecki called ‘intermediate regimes’—neither capitalist nor socialist in a bipolar world—grabbed this opportunity to further their own developmental possibilities.

No. Egypt, India and Bolivia grabbed the opportunity to turn to shit. Let the working class migrate to the Gulf or elsewhere if it wanted to get paid properly for actually doing some work.  

Good governance is a Public Good- one which the PM must promote. Baru explains why Manmohan could do no such thing. The fact is, he wasn't a Prime Minister at all. He was a servant who lay prone when not ministering to the Dynasty. Perhaps, history will be kinder to him once Khalistan is created and accedes to Pakistan after which the Sikhs are killed and Manmohan's dream of being able to 'breakfast in Amritsar, lunch in Lahore and dine in Kabul' is realized under the Caliphate. Rahul, of course will immediately go on a walk- but that walk will get shorter and shorter which is just as well because the fellow would be getting old and arthritic. 

Meanwhile, Manmohan is remembered not just as the author of the 123 deal which, like subsequent nuclear deals, produced little or nothing because of local opposition, but also for his Sharm al Sheikh gaffe which allowed Pakistan to use Baluchi separatism as a stick to beat India with. Baru suggests that Manmohan wanted to make Indo-Pak peace (i.e. unilateral surrender to Pak) his legacy but Sonia wanted her son to get the credit. Then Rahul realized he would be shot by a Godse if he bent over for the Pakistanis, so, Congress had no Prime Ministerial candidate to offer the country. That's the problem with being anti-national. Your own people will kill you if you take the top job and try to hand the country over to its enemies. Sad. 



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