joseph stiglitz ninad d sheth

‘Poor nations are the losers’

Nobel Prize winner Joseph Stiglitz tells Ninad D Sheth that globalisation has a direct linkage with Indian farmers commiting suicide

Professor Joseph Stiglitz is an authority on the ramifications of globalisation and its inherent contradictions. A former World Bank chief economist, he is an insider in this debate and has been sharply critical about the manner globalisation is being pushed all over the world. Prof Stiglitz won the Noble Prize in Economics in 2000 for his path-breaking work on the theory of ‘asymmetric information’. Recently in India, he spoke on globalisation and its myths, the IMF doublespeak and neo-con American pressures, and the stakes for poor countries in free markets of the ‘brave new world’.

You have said in your book that globalisation is not a win win….
Yes. It is far from a win win. The poor countries have a lot to loose on all fronts. Indeed, they have lost a lot under the garb of this win win.

Externally, it puts them at a disadvantageous position in both trade and investment. Internally, it creates a connected elite that is numerically insignificant but is in the global orbit cornering the resources. To be honest, win win is the biggest myth of globalisation.
India is trapped in a paradox of globalisation where there is a possibility of opening too much without equally beneficial access to the West. Does this possibility worry you?

Yes. This is a real possibility. The trade platform is complex and as GATT and subsequent WTO sessions have demonstrated, trade can only be fair if the nations involved fight for their right. There is an uneven balance of power out there. On the issues of agriculture, investment and environment, India may come under tremendous pressure from both the US and the EU. The key would be two-folds, the attraction of Indian markets for the West and India’s own ability to forge an alliance with other countries to push issues. In the latest round the India-China-Brazil chain helped the setting of the agenda. The arrogance of the past is very much evident in the western stance; this has given way to a realisation that this is a new equation. However, the US retains a capability in diplomacy and economics to cut side deals and push its own agenda.

What about the impact on environment of global markets supply chains? You seem to say that it could be a doomsday environment…
This is one of the least studied impacts of globalisation. The environmental impact by its very nature will be drastic. The ability to strip countries bare for centralised profit is starker then ever. Globalisation ensures that commodity prices remain low for a very long period of time. Farmers’ suicides in many poor countries are linked not only to local conditions but also to the supply chain generated by globalisation.

Professor, you were in many ways an insider at the World Bank. When did the turning point come? When did you realise that something was amiss in the fund-bank prescriptions?
There was a slow but sure realisation. In Ethiopia in the late 1980s, I saw that all the IMF was doing with regard to tightening of the structure to lower the budget deficit, or with financial markets and currency stability, was frankly absurd. That on the ground it was leading to massive real deprivation. I pointed it out to the IMF but they were just not receptive. The free market consensus was gospel. There was absolutely no response from the Fund. The bank was supportive initially but the Fund saw no reason to deviate from the chosen path.

The East Asia crisis that followed truly made you choose a different path….
Yes, no doubt. The IMF had a wrong call after another in East Asia. I realised soon enough that the ‘Washington consensus’ was not having any patience for individual prescriptions.

You profess that the free market has an ‘asymmetry of information’. This loads the market in favour of a few players who have the information. Do you agree that recent developments in information technology and its wide availability have cut through these asymmetries?
That is a good question. While information technology has without doubt made strides, there are certain sorts of asymmetries that information technology can overcome very quickly. However, IT has not reduced all the market asymmetries. For example, IT is useful for price information about homogeneous products. This can certainly correct price differentials in the market. The market has many more sources of information such as measuring productivity. And utilising information technology alone cannot do these.

But 360-degree feedback and other software does allow for better understanding of labour productivity as well.
Yes, but the problem is transparency and ownership of the information and the leverage derived thereof. This information is not freely available and thus creates market imperfection.

India has $100 billion of reserves but seems to be at its wits end as to what to do with it.
Yes, it is a tough call. It raises difficult trade offs. You can’t employ these simply in bonds or gold for the yield is only between one and three percent. It is better to pour it into domestic infrastructure creation. However, if you create domestic infrastructure only with foreign reserves it would lead to currency appreciation and in the long run hit job creation; that is a difficult trade-off. The way out is to have an 80-20 mix between the reserve and domestic capital spending on infrastructure. The domestic part can come through taxes for example and that will not lead to currency appreciation or loss of jobs. So my call on the $100 billion is to have 80-20 reserves and domestic ratio through tax collection and that will ensure that there is no currency appreciation.

Is there no other way?
Some countries choose to borrow from the markets but given the high fiscal deficit that is not an option for India. If exports are to be protected and job creation is a priority, I see no other way except a mix to raise that money.

You are a great champion of subsidies. For example, in fertilisers here subsidies miss their target those who do not need it corner it the most.
I do not deny that subsidies can be appropriated by the politically vocal. There are ways and means—both conventional and creative—to so design subsidies that they reach the desired ends. We did this with the Clinton administration. There are ways one has to ensure that structural parameters are worked out and fine-tuned.

Since you left, has the IMF ‘mended’ its ways at all?
Yes, they have been receptive. There is a realisation that in East Asia the fiscal measures were too strong. That the bailout problems were mishandled. The IMF has even come out with a paper recently that says that capital market privatisation is not necessarily good for growth. However, in its basic tenor such as emphasis on inflation over unemployment, emphasis on privatisation, and the singular approach to complex problems—it has not changed as much as I would like. On transparency there is no change at all. For example, the executive directors of the IMF still vote in secret.

Will IMF become more stringent in the George Bush unilateral era?
It’s not as simple as that. While the No. 2 person at the IMF is always US-imposed, many people around the world are saying why shouldn’t international institutes be really international, as opposed to American in character? I think that while the IMF will certainly face some neo-conservative pressures it may also face the tide form the other side.

The poorer countries have been aggressive in trade but not in finance…
Yes, they seem to think they need the money. Which is true. But these are not grants; the developing world has an excellent record in returning loans. I think that there is a growing realisation that economic issues are complex and each solution is different. The IMF too will need to pay heed.

Apart from Malaysia, which other country has done well in bucking the IMF’s call?
China. It almost totally ignores the IMF. During the crisis and following it, China did exactly the opposite of what IMF’s position would have been. They lowered the interest rates, they provided billions of dollars in fiscal stimulus, they did not liberalise their capital markets and what have you got? Only 7 percent growth instead of 8 percent!

And Korea?
Korea too. It did not shut down the banks and opted for restructuring. They didn’t opt for forced restructuring either. And they did not close their chip plants and now the chip plants are back in favour and they are again competing globally and making money.

history of indian archeology

The story of Indian archeology during the colonial period is one of accidental discoveries, committed individuals and unexpected developments. This new book captures all three elements in a chatty writing style that, while scholastic in its detail, is not heavy in technique. The three most important elements in the book deal with the imperial agenda in Indian archeology, the fascinating story of the discovery of the Indus Valley civilisation and the comparative differences between Roman and Indian archeological techniques. The books outlines the fact that the discipline of archeology worldwide is only 300 years old.

In India the emphasis of the archeologists was driven by their personal desires. The pioneers of Indian archeology, Alexander Cunningham and John Marshall, had two primary interests — to peer into the history of Buddhism and the fascination with Alexander’s encounter with India. It is not surprising therefore that John Marshall, who is credited with the discovery of the Harappan legacy, worked for 20 years at Taxila in Pakistan. He visited Mohenjodaro only after announcing its discovery by his subordinates in London Illustrated News.

The book brings to light the fact that Harappa in particular was ill served given the techniques of archeology that destroy several layers of priceless materials from the past. The combined destruction brought on by the construction of a nearby railway line which used Harappan bricks in its construction, as well as a slash and find method, destroyed a lot of clues of the past.

The history of museums in India makes for interesting reading, as does the detailing of the loot that the British took from India. Loot was of course for the British Empire and the British Museum in London has perhaps more loot than any other single building in the world.

At the same time the book outlines the role of the British Empire in particular and that of Viceroy Curzon in reviving and sustaining institutional interest in India’s past. The book is a must read for those who are enthralled by the story of how India recovered its history through diligent digging of a few individuals fascinated by things lost in the foggy ruins of time.

Pakistan and Islam

The Islamic republic of Pakistan, to paraphrase Baron Clausewitz, is fogging the war on terror. Like a
geopolitical Jekyll and Hyde, a great game seems to be on. The brave US soldier, in the shadow of the great Himalayan mountain passes, guns drawn, sees in Pakistan at once friend and foe. The international community is like that nervous soldier with a finger perpetually on the trigger.

Inside Pakistan, too, the same scene repeats itself. There is no let-up in suicide terror bombings even after an elected government took power. The support for Sharia law and an Islamic state has far greater acceptance in Islamabad then is generally believed. In this respect, Pakistan has more in common with Algeria than Turkey.

All this would matter for little to the outside world, but for one inconvenient fact. Pakistan is the only Islamic state with nuclear weapons. Armageddon is near should those weapons fall in the wrong hands. And a lot of wrong hands hide in those caves on the Afghan border. Thus, even though an economic basket case, humiliatingly dependent on Saudi handouts and American largesse, Pakistan is a problem.

The trouble in Pakistan is neither structural nor political. It has a far deeper root. It is a dilemma inherent in the nature of Pakistan's state. The country was premised as a homeland for the believers. Islam is in its DNA. The founder of this republic, Mohammed Ali Jinnah, was of the opinion that only an Islamic republic can ensure Muslim rights and their way of life. He rejected the secular idea that formed the founding notion of India.

At its founding, the state had to negate both the older civilisation of India and her democratic polity, and only the Islamic way would do. The struggle underway now is between those who demand the Islamic way and those who try to uphold the idea of Pakistan but cannot offer a non-Islamic alternative statehood.

Thus, an Islamic republic that came into being through a surrogate political process is demanding real parents. In the process it has opened the old dilemma of Islam and democracy. In theory, this problem is of course stark and obvious. Unlike republics such as India, where sovereignty is enshrined in the individual, the Islamic way derives it from Allah. The one person, one vote idea has no resonance. The will of Allah should override universal franchise and personal choice.

This premise of a nation of Islam survived for a large part through American support. The US chose to bypass democratic institutions in favour of the Pakistan army. Most generals that ruled the country have studied at American military schools. The current low-profile chief of the Pakistan army, General Parvez Ashraf Kiyani, has done three courses in the US. This includes the elite course at the staff command at Fort Leavenworth.

This American support and Pakistan's role in the Afghan jihad is well documented. It fostered through the dictator, General Zia ul-Haq, in the 1980s, a near realisation of Pakistan's Islamic founding ethic. Those chickens are now truly coming home to roost.

The secular Turkish model that was sought to be replicated in Islamabad has failed completely. The secular impulse in Pakistan is nowhere near Turkey, where literally hundreds of thousands pour onto the streets in defence of secularism enshrined in the Turkish constitution.

The world faces a challenge. A radical fringe in Pakistan with a great deal of mass support is demanding its own tryst with destiny - an Islamic republic with a social and judicial system based on the Sharia. Pakistan's rulers have flirted with Islamic forces in the past. But now that these forces threaten to spin out of control and engulf Pakistan, the country's rulers are at their wit's ends.

There lies the problem. How Pakistan deals with its dilemma will be of great importance not only to them but also to the rest of the world.

leveraging india's soft power

An economic growth rate of nearly eight per cent, a robust military infrastructure and the nuclear weapon capability have come together to define India’s search for security and status in the emerging world order.

However, little attention is paid to a completely different set of sources that can be leveraged by India to consolidate its place in the global scheme of things. This influence becomes visible, from the capability to nurture and leverage, as, in the words of Harvard political scientist Joseph Nye, "soft power".

Soft power has many sources. It is derived from the openness and attractiveness of the cultural aspects of a country that hold an abiding appeal to the international community. It encompasses the allure of its political system, the spiritual foundations on which the country has based its founding ideas and the robustness of its popular culture.

On all three counts, India is almost uniquely placed. Our ability to manage such plurality and mind boggling differences within a widespread and deep rooted democratic polity is of interest to the world.

This appeal is enhanced by the fact that India is in a tough neighborhood. India has on its periphery, a non-democratic, nuclear-armed Islamic republic in Pakistan, and a totalitarian regime in China that has a particularly nasty human rights record — not to mention a rabid Bangladesh and a despotic Nepal.

Democracy is the master weapon in India’s soft culture arsenal. This is not just a vague notion of goodness but a very real tool in international affairs and of interest to like-minded powerful democracies like the USA and Japan. To nurture this power, India has already taken a step by participating in the UN Democracy Fund with a large role for itself. This should help the world in finding alternatives to despotism and look at strengthening democratic institutions from around the world.

The second consideration of soft power, is in the spiritual ideas that inform a nation’s history. India can, and indeed does, lead the world in this. From interest in Japan and China in Buddhism, to India’s historic role as a soft power in places as far as Indonesia—the country is well placed to leverage the spiritual advantage. With Germany, we have historic roots of language and culture, while with the UK there is the colonial connection—and with America, it’s democracy.

The consumer dimension of this spiritual power should not be underestimated. Every time a future leader of the outside world comes to India as a backpacker, or a star like Madonna takes up yoga, this soft power permeates their inner space of a foreign constituency. Such bonding is all the more powerful given its voluntary nature.

The third leg of the soft power triad is the power of our popular culture. The fact that Indian movies are now screened in places as diverse as Afghanistan, Egypt and Leicester Square is proof of India’s appeal to the world. Indian movies are shown in scores of countries and have an estimated market of US$2 billion. The fact that Pakistan refuses to allow Indian movies, is proof of the fear that closed societies have of soft power. India must leverage this advantage with the systematic aim of deepening and enlarging this constituency in Pakistan.

These are the opportunities, but what is the reality? On the world scene India has failed to really put soft power into practice. The vibrancy of such assets as Indian food in Britain or yoga in the USA has developed largely by default and by the initiatives of the private sector rather than by a concerted diplomatic effort. Institutions such as the ICCR have understood the need to go beyond our ancient traditions and move into the present day and age of popular culture, but they need to do more.

India has the enormous advantage of a wide spread—and increasingly affluent—diaspora. With the exception of China, the country has the world’s largest non-resident community. The role of this group of 20 million people in spreading India and what it stands for, cannot be underestimated. With overseas people of Indian origin, the country has an embedded advantage.

In places like Mauritius their political presence is significant. In the United States and in Europe, Indians are affluent and slowly moving into the political arena. In the Arab world, the Indian diaspora is the only plurality on offer. The triad of soft power thus gets a leg up through this incredibly powerful overseas community.

As India makes its play in the global empire of ideas, it is discovering that it has a very good hand. When played in synch with the country’s emerging economic might and military capability, soft power could be an ace in our pack. It is both a multi billion dollar marketing opportunity, and in the context of countries like Pakistan, is a diplomatic tool of increasing utility which will pay huge dividends in the future.

Leveraging india's soft power

Indian Media

Indian Media

Ranbaxy sale - innovate or perish

Just when Indians were rejoicing the takeover of iconic British brands Ford and Range Rover by the Tatas, Daiichi Sankyo spoiled the euphoric mood.

In what has been the biggest takeover of a listed firm in India's history the Japanese major paid $4.6 billion in cash for Ranbaxy.

This is not just another takeover. It holds valuable lessons for corporate India as well as the government regarding India's emergence as a global player.

For many years Ranbaxy was held as an example of an Indian multinational that bravely went where few Indian companies had gone before.

In the world of drugs, Ranbaxy was betting big. It was trying to move beyond the generic space where Indian firms can reverse engineer off patent drugs.

It had also benefited in its early days from lax patent protection. This allowed the firm to grow in size by profiting from volumes of scale.

The change came when Ranbaxy set itself a target of developing original drug compounds through proprietary research route.

Alas, the strategy proved to be its undoing as an independent firm. India's economy still lacks firms with the wherewithal to make path-breaking discoveries.

Over the last three years this painful weakness of corporate India was becoming all the more obvious. Ranbaxy was unable to come up with even a single original blockbuster drug discovery. The rights India signed away in the WTO deal were coming home to roost.

With a patent regime loaded in favour of the West, developing new drugs was proving prohibitively expensive. Drug after drug developed by Ranbaxy ran into American and European patent regimes.

On the generic front too there was competition from smaller, more nimble firms. Few know that Ranbaxy was not even in the top five generic drug developers worldwide.

Unable to make patent breakthroughs Ranbaxy was at a stage where it may have discovered that it could reach just so far on its own and no further.

The sale by itself is not bad news for the promoters. After all, the firm was established in 1962 with an investment of Rs 2.5 lakh and gave a return of Rs 10,000 crore to the investors.

It is in the genius of the capitalist system that it provides for several exit routes to entrepreneurs. So everyone, the promoters of Ranbaxy, its shareholders and the Japanese firm gained by getting the correct combination at the right price.

However, for corporate India the deal comes as both a shock and a loss. This deal exposes the fact that across industries Indians are still incapable of being thought leaders.

Soul-searching has already begun in the Indian corporate world. Several firms across industries could be potential take-over targets since their growth formula depends on incremental volumes and cost arbitrage unlike global leaders that are innovative thinkers and have proprietary research in their portfolios.

Particularly vulnerable are firms in the IT, textile and pharma sectors. Even top firms like Wipro make less than 4 per cent of their turnover from products and patents.

A very large percentage of second-rung IT firms are nothing but glorified code developers. India Inc needs to take a long hard look at its current globalising strategy. Instead of the easy way out where you fill in the gaps in the international trading system based solely on cost advantage, corporate India must invest in research and development.

This is a longer, costlier route to becoming world-class companies but it is also a surer way of ensuring sustainable success.

On the government's part, it would do well to use the proposed $2 billion sovereign fund to buy the right technology which can later be auctioned to Indian firms so as to provide them a firm footing in the exclusive club of original ideas.

Ranbaxy's takeover has a stark message for corporate India. Innovate and prosper or the big fish will gobble you up.

sania needs to face facts

Sania Mirza has succumbed to pressure from the conservatives back home. No sooner had she landed in Hyderabad, she gave a terse statement about pre-marital sex being anti-Islamic, and anti-Indian.
The worry is not just that she has turned her back on what is after all an innocuous reality of our times - pre-marital sex. The real concern is that she has gone a step further and said that it is something she opposes not just because it is against to what "….she stands for as a Muslim" but also because it's contrary " …for what she stands for as an Indian girl." The latter part of her assertion is something a large number of Indian girls would vehemently disagree with.
Sania is the face of cultural schizophrenia of a rapidly modernizing India in a global world. In a society that is as sexually repressed as India, the onslaught of television and print media and the globalization of culture are bound to throw up a modern non- repressed counter culture. Anecdotal evidence at coffee shops and campuses across the country is enough to gather an estimate about the growing strength of this emerging counter culture. It is this new and yet emerging section with modern moorings that needs to be nurtured and encouraged. Comprised mainly of the youth, this group can be an important voice of reasonableness and openness in the new India. They will have an ally in the media which has traditionally been liberal and open in these matters.
Till her latest statement, Sania Mirza was the poster girl of this counter cultural revolution. Indeed, if there is a true young global Indian, it's her. At 19, she has traveled the world and ranks amongst the top few in a truly global sport. Many thought that this articulate and seemingly intelligent person could be placed in the assemblage of someone who epitomized the new, freethinking India.
With her statement, she has disappointed almost everyone who looks up to her. The Muslim woman, fighting a daily battle to articulate her rights, would be the first who would be seething with anger at Sania's statement. This silent majority would now wonder how they can carry on when someone as empowered as Sania couldn't stand by her comment in public. She also alienates the secular youth, who liked the bohemian attitude of her one-liner T shirts. This group does not like anyone who is a put on. You can be sure that those who got her the mega endorsement contracts would be soon undertaking fresh market surveys to reassess her ranking amongst this target group within India.
However the most dangerous outcome of Sania volte face is likely to be the cynicism fostered by the communal elements ever present in everyday India. This confirms their prejudices that Muslims are not open to change. One can almost see such people dance in glee at Sania's retraction. The other interesting thing about the two statements, is in their geography. Sania was her usual confident self in New Delhi but as soon as she reached Hyderabad it was time to be proper all over again. This reflects poorly on her and hints at family pressure in the whole affair.
The irony of the whole debate is that Sania plays an individual sport. The issue of pre-marital sex is - at the end of the day - an individual decision. Role models taking a stand one way or other must keep this in mind. The "good Indian girl" argument is absurd and representative of backward thinking and deserves total rejection and scorn.
Sania and India need to figure out that it is possible to globalize on our own terms but only we have the courage to embrace modernity and defy the moral mob. One need to look no further than the robustness of the Indian tradition which is defined by plurality, tolerance and openness. Winning the right of holding on to a dissenting thought is the first step in this battle. If Sania does not grasp this, she will end up losing this match.