West's strategy: ignore Gaza, focus on Russia

Western governments have chosen to turn a blind eye towards the horrific killings in Gaza, apart from making anodyne statements that equate Israel's brutal measures with rockets fired ineffectually by Hamas. Instead, they have ratcheted up tensions in Ukraine, aimed clearly at pushing Russia on the defensive through harsher sanctions.

The US and western nations claim that they know it was a Russian missile supplied to pro-Russian separatists that brought down MH-17. Even if true, it is hard to prove that it was a deliberate act of killing. At worst, the separatists would have judged wrongly. The mistake would be no different from the downing of an Iranian civilian airplane by an American warship in Iranian airspace over Iranian territorial waters and in the course of the normal flight of the airplane. That too was a mistake: the Americans mistook the place for a military craft. The Americans refused to apologise and eventually settled for compensation of $62 mn.

In the case of MH-17, the facts have yet to be established clearly. What we have so far is pure speculation from the western propaganda machine. Atimes brilliant columnist Pepe Escobar has some hard-hitting things to say about this and he warns us about what to expect when the black boxes are decoded by the Brits:

Based on the wealth of info now in the open, the top probability of what caused the MH17 tragedy was an R-60M air-to-air missile shot from a Ukrainian Su-25 - and not a BUK (there's also the possibility of a double down; first an R-60M and then a BUK). The R-60M is very fast, with an ideal engagement distance of up to five kilometers. That's how far the Su-25 detected by the Russians (they showed the graphics) was from MH17.

SBU - Ukrainian intel - for its part confiscated the recordings of Kiev control tower talking to MH17. That would certainly explain why MH17 was overflying a war zone (Malaysian Airlines revealed they were forced to). Hefty bets can be made the recordings are now being "doctored".

Then there are the black boxes, which will not de decoded by the Malaysians or by the Dutch, but by the Brits - acting under Washington's orders. As The Saker blogger summed up the view of top Russian specialists, "the Brits will now let the NSA falsify the data and that falsification will be coordinated with the SBU in Kiev which will eventually release the recordings who will fully 'confirm' the 'authenticity' of the NSA-doctored recordings from the UK." To make it more palatable, and erase suspicions about Anglo-American foul play, the Dutch will announce it. Everyone should be forewarned.

Take a look also at a piece by M K Bhadrakumar on how the West is moving resolutely forward to box in Russia. The objective, he argues, is not containment of Russia alone but sustaining US dominance of the world order:

The rest of the world understands perfectly well what the new Cold War is all about. Even the Europeans aren’t duffers, they too comprehend what is going on, as their great reluctance to isolate Russia testified all these weeks and months. 

Most certainly, there is no ideology involved here. It is not a war on socialism or on terrorism, nor is it a war about Ukraine or Russia intrinsically. In plain terms, the new Cold War is about the perpetuation of the US’ global dominance. 

Without the Bretton Woods system, without NATO, without nuclear superiority over Russia, the US faces the prospect of becoming a vastly diminished power over time. Without the trans-Atlantic leadership, it gets reduced to what it used to be before World War I one hundred years ago — an influential regional power in the Western Hemisphere.

In the meantime, hell will continue to be unleashed in Gaza.

Hindu obscurantism?

On TV yesterday, I saw a panel discussion involving Dina Nath Batra whose books claim that ancient Hindus had knowledge of television, stem cell research etc. Karan Thapar was asking his guests whether there was any historical basis for these views. The historians on the panel scoffed at the suggestion and Thapar himself was ridiculing Batra's contentions.

This morning, I stumbled across a quote from Robert Oppenheimer, the father of the atomic bomb at a website about aspects of Hinduism:

While he was giving a lecture at Rochester University, during the question and answer period a student asked a question to which Oppenheimer gave a strangely qualified answer:
Student: “Was the bomb exploded at Alamogordo during the Manhattan Project the first one to be detonated?
Dr. Oppenheimer: “Well — yes. In modern times, of course.
Some people suggest that Oppenheimer was referring to the Brahmāstra weapon mentioned in the Mahabharata.The appreciation didn’t stop there. So much so he always gave the book (Bhagavad Gita) as a present to his friends and kept a copy on the shelf closest to his desk.

As is well known, watching the first ever atomic explosion at Los Alamos  in the Nevada desert, Oppenheimer was moved to quote from the Viswaroopa scene of the Gita, Brighter than a thousand suns, the splendour that is me. As the mushroom cloud reached its peak and the enormity of the destruction it wrought became evident, Oppenheimer was reminder of another line from the Gita, I am become death, destroyer of all worlds. 

Let I should be misunderstood, this is not an endorsement of Batra's works, I am not qualified to speak on the subject. I give the quote from Oppenheimer as it is of more than passing interest. 

BRICS Bank is a welcome idea

The Brics Bank will happen thanks, in large part, to the determination of the leaders of both India and China to make it happen. PM Modi let the Chinese proposal of locating the bank in China go through so that the idea could move forward. Xi Jianping settled for equal sharing of equity and voting rights.

Western commentators ask what binds the Brics together. Well, what binds together Israel and the Arabs in the UN or, for that matter, the US and Russia? The point is that international institutions subserve common interests. Initial lending by the bank will be small- say, $40 bn -$60 bn. But that's the financing that developing countries get for infrastructure from the World Bank. So even this small amount positions the bank as a direct competitor to the World Bank. Ditto with the $100 bn contingency fund for BoP crises. At least developing countries will not be entirely the mercy of the IMF-World Bank hereafter.

More in my EPW article, BRICS Bank future hinges on governance.

MH 17: We need the truth, not western hysteria

I wrote yesterday about western attempts to whip up hysteria against Putin over the downing of MH 17 without understanding the context in which the incident happened- or, for that matter, without getting to the bottom of what happened. The west think they have Putin cornered. International opinion over the shooting of a civilian aircraft, they hope, will stop Putin in his tracks where Ukraine and the countries that surround Russia are concerned.

Well, the Russians have hit back quickly, as this report in FT outlines. They seem to have proof that MH 17 was tracked by an Ukrainian military aircraft. More revelations should be forthcoming from Russia in the days ahead.

Read also this article in atimes. The author raises the all-important question of motive in the incident:

So who profits?
The key question remains, of course, cui bono? Only the terminally brain dead believe shooting a passenger jet benefits the federalists in Eastern Ukraine, not to mention the Kremlin.

As for Kiev, they'd have the means, the motive and the window of opportunity to pull it off - especially after Kiev's militias have been effectively routed, and were in retreat, in the Donbass; and this after Kiev remained dead set on attacking and bombing the population of Eastern Ukraine even from above. No wonder the federalists had to defend themselves.

And then there's the suspicious timing. The MH17 tragedy happened two days after the BRICS announced an antidote to the IMF and the World Bank, bypassing the US dollar. And just as Israel "cautiously" advances its new invasion/slow motion ethnic cleansing of Gaza. Malaysia, by the way, is the seat of the Kuala Lumpur War Crimes Commission, which has found Israel guilty of crimes against humanity.

Washington, of course, does profit. What the Empire of Chaos gets in this case is a ceasefire (so the disorganized, battered Kiev militias may be resupplied); the branding of Eastern Ukrainians as de facto "terrorists" (as Kiev, Dick Cheney-style, always wanted); and unlimited mud thrown over Russia and Putin in particular until Kingdom Come. Not bad for a few minutes' work. As for NATO, that's Christmas in July.

 

Downing of MH 17: a sober perspective

The shooting down of Malaysian airline MH 17 has drawn condemnation all around. Rightly so, for international civilian flights should not become part of hostilities raging anywhere in the world and particularly when neither the airline nor its passengers are in any way involved with the hostilities.

At the same time, one cannot help noting that the condemnation of the incident has quickly been sought to be turned into a condemnation of Russia and its role in the Ukraine conflict, with most of the western media duly obliging. This is uncalled for. In the first place, judgement must be reserved until an independent enquiry is completed and its findings become available. The west may have reason to believe that the shooting is the work of pro-Russian separatists but this has to be established.

Secondly, to say that it is Russia that is fomenting rebellion in Ukraine and that it is Russian weapons and support that must be held responsible for the shooting down ignores the full dimensions of what is going on in the region. Ukraine has been raining bombs on the pro-Russian people. In recent months, the separatists have sought to defend themselves by trying to bring down Ukrainian aircraft. Russia is helping the separatists who are predominantly Russian and have strong links to Russia.

Ukraine is being supported by the US and Europe. Western support to Ukraine, which has involved bringing Ukraine into a EU Free Trade pact and also attempts to bring it into Nato, is part of a larger design to pin Russia down to its neighbourhood with the help of nations that ring Russia. That would prevent Russia from projecting itself onto the international stage. This is the broader context in which the shooting down has occurred. It has been left to noted American scholar Stephen Cohen to present a sober and balanced picture of what's going on in the region:

Let me mention, because I think it’s relevant to what you’re covering here (the reference is to the news channel) your very, very powerful segments before I came on today about what’s going on in Gaza, the pounding of these cities, the defenselessness of ordinary people. The same thing has been happening in East Ukrainian cities—bombing, shelling, mortaring by the Kiev government—whatever we think of that government. But that government is backed 150 percent by the White House. 

Every day, the White House and the State Department approve of what Kiev’s been doing. We don’t know how many innocent civilians, women and children, have died. We know there’s probably several hundred thousand refugees that have run from these cities. The cities are Donetsk, Luhansk, Kramatorsk, Slovyansk—a whole series of cities whose names are not familiar to Americans. The fact is, Americans know nothing about this. We know something about what’s happening in Gaza, and there’s a division of opinion in the United States: The Israelis should do this, the Israelis should not do this. But we know there are victims: We see them. Sometimes the mainstream media yanks a reporter, as you just showed, who shows it too vividly, because it offends the perception of what’s right or wrong. But we are not shown anything about what’s happened in these Ukrainian cities, these eastern Ukrainian cities.

Why is that important? Because this airliner, this shootdown, took place in that context. The American media says it must have been the bad guys—that is, the rebels—because they’ve shot down other airplanes. This is true, but the airplanes they’ve been shooting down are Ukraine’s military warplanes that have come to bomb the women and children of these cities.

 There is another aspect to the tragedy that people have drawn attention to. The aircraft was using a route directly over the war zone that several other flights had steered clear of. Was the aircraft directed to that dangerous route? And by whom? See this story, for instance.

So much for "second generation" reforms

There is disappointment that Jaitley's budget didn't have much to offer in the way of "second generation" reforms. This was supposed to be just the right time. Two years from now, we would be approaching the next round of elections. Moreover, the government could now blame the state of the economy on its predecessor and justify reforms on that ground; further along, it would be difficult.

Why so? Well, because when the economy is floundering and people are in distress because of high inflation and lack of jobs, delivering "bitter medicine" is not easy, especially when it is not certain that the medicine will always produce the desired results. You can't have cash transfers unless you are reasonable sure these will work (so cash will reach correctly and there would be outlets from where people can access food, for instance). You can't privatise public sector banks wholesale and face the risk of a banking crisis. You can't allow foreign investors to gain control of companies in strategic sectors such as defence and insurance.

"Second generation" reforms can happen only in a gradual way and when conditions are more conducive. That's what the UPA thought and that's what the NDA is discovering. More in my article in the Hindu, Short-term costs, long-term benefits.

Did I read Nitin Gadkari's mind?

I wrote yesterday that it was futile to pin too much hope on PPPs in the present situation in which the model was broke. Along comes the following statement by Nitin Gadkari on how the government intends to proceed with road projects:

In a significant shift of policy, he (Nitin Gadkari) also said that public private partnership (PPP) model was not feasible at present for award of road projects due to a host of issues "created by the previous government" and that schemes will be bid out on engineering, procurement and construction (EPC) mode.
"Projects were bid out by previous government without even 10 per cent of the required land acquisition. Work could not start on the project where financial closure took place two years back. Banks withdrew financial closure...PPP mode is not possible now. We will work on EPC model for a few years," he said.
Unlike PPP model where the private sector has to fund the road building, in the EPC model, the government funds a highway, with private firms designing and building the road.

Some late thoughts on the budget

I was travelling, so didn't have a chance to comment on the budget (not a bad thing, considering the deluge to which hapless readers and TV reviewers are subjected on budget day and thereafter).

Well, the budget is a tribute of sorts to the UPA government. I don't mean this a criticism of the present finance minister or the government. They may have been vociferous in their criticism of the UPA when they were in opposition. Now, having assumed office, they are better placed to appreciate the constraints, both political and economic, very well. So, there is very little of the "second generation" reforms in the budget. The unwillingness to tackle subsidies is glaring. I also noted the reference to maintaining the "public sector character" of banks. That means the NDA government will not allow government shareholding to fall below 51%; the PJ Nayak committee report on bank governance has been ignored.

The budget is mostly an attempt to balance the books and keep the fiscal deficit under control so as not to rattle the credit agencies and the markets. Has the finance minister done a good job of that? Will the fiscal deficit target of 4.1% be met? The task is difficult, chances are that the deficit will end up at around 4.5%, but it's not impossible, seeing what Chidambaram did in FY 2014-14- ruthlessly cut expenditure in order to meet the target.

I guess Jaitley will do likewise if the revenues he expects don't materialise. There is, of course, a price to pay. The combination of fiscal and  monetary compression will mean that growth will be the casualty and growth in 2014-15 will end up 5-5.5% rather than 5.5-5.9% as projected. What astonishes me is that most of the media criticism has been mild; a budget such as this coming from the UPA would have been savaged. Not that the media would be right in doing so. My own reading, as I said, is that both the UPA and the NDA governments have read the political economy correctly. There is only so much that can be done in the present environment without seriously antagonising the electorate.

Let me now turn to the infrastructure sector on which the FM has lavished a lot of attention. The broad trend in recent years is for the government to reduce its own role in investment and to leave it to the private sector to drive infrastructure through the mechanism of public private partnerships (PPPs). Jaitely's budget seeks to accentuate this trend. According to one estimate, central government investment (directly and through support to the state plans) in infrastructure will be only 15% of the total. The rest is left to the private sector.

That's a tall order. For two reasons. First, in all of the developed world and in China, infrastructure development has been largely the domain the state. The FM mentioned that India has the highest number of PPPs in the world today, 900. How come we lead in this one respect while lagging behind in so many others? Could it be that the world has understood that PPPs are the not the best way to develop infrastructure?

Secondly, the PPP model we have used thus far is broke. Every component has to be reworked: the bidding norms, the concession terms, dispute resolution etc. There are issues extraneous to the model that need to be fixed: land acquisition, environment clearances, fuel supply linkages etc. In other words, there are major institutional issues that need to be addressed in order to get PPPs going again. This won't happen in a hurry.

The budget overlooks these realities and instead expects that private investment will be lured by improving returns at the margin through various means:

• Investment infrastructure trusts whose interest income will be exempted from tax\
• Tax holiday upto 2017 for power companies
• Less onerous CRR, SLR and priority sector norms for banks that raise long-term funds for infrastructure which will help banks lend at lower rates

All these will help improve returns. But the problem today is not the level of returns. It is variability in returns or risk. And that requires fixing the issues mentioned above. Once the demand side is taken care, supply of finance can be tackled.

I have serious reservations about the way bank finance for infrastructure is sought to be made cheaper. Lowering statutory requirements raises issues of risk management. A simpler way to reduce lending rates for infrastructure would have been been to allow banks to issue tax-free bonds. (Or simply revive development finance institutions with access to concessional finance). I also doubt that the level of bank recapitalisation budgeted, around Rs 11000 crore, suffices to give banks the confidence to increase loans to infrastructure in a big way.

There is one other issue in infrastructure today which cannot be ignored. Many of the leading companies are neck deep in debt. Their loans have to be restructured, they need to monetise their assets. Only then will banks will confident enough to lend. The bottomline: I can't see the infrastructure sector reviving in the near future.

Two people will be greatly disappointed with this budget, the BJP's mentors Jagdish Bhagwati and Arvind Panagariya. Wonder what they have to say. 

Sheryl Sandberg: how not to say sorry

Sheryl Sandberg charmed the media and got to meeting the PM and the president during her recent visit to India. But the storm created by Facebook's experiment on its users' emotions refuses to die down. One privacy group in the US is reported to have filed a complaint with the US Federal Trade Commission.

I have been trying to figure out what precisely was the violation of privacy involved. I must confess the news reports are less clear than I would have liked. Here is what I read in the Guardian:

The study conducted over one week in 2012 and published in the Proceedings of National Academy of Sciences, hid "a small percentage" of emotional words from peoples' news feeds, without their knowledge, to test what effect that had on the statuses or "likes" that they then posted or reacted to.

I guess this is what is being interpreted as an attempt to manipulate the emotions of Facebook users. Another article, written by Geeta Seshu, quotes from the study itself:

The experiment manipulated the extent to which people (N = 689,003) were exposed to emotional expressions in their News Feed. This tested whether exposure to emotions led people to change their own posting behaviors, in particular whether exposure to emotional content led people to post content that was consistent with the exposure—thereby testing whether exposure to verbal affective expressions leads to similar verbal expressions, a form of emotional contagion.

Leaving aside the allegations of violation of privacy, there is the matter of Sandberg's reaction to the episode. Lucy Kellaway, FT's columnist quotes Sandberg as saying that the experiment had been “poorly communicated. And for that communication we apologise. We never meant to upset you.”

Kellaway calls this a "perfect lesson in how not to apologise" and proceeds to spell out why in the most scathing terms:

This was bad on four scores. She didn’t take personal responsibility. She didn’t say sorry for the thing itself. Her “didn’t mean to upset you” was patronising, and worse than that, a lie. The experiment was specifically designed to upset some users, by showing them negative comments. That was the whole point.

Geeta Seshu points that India has 100 million Facebook users, next only in size to that of the US and likely to overtake the US soon. The privacy issues are significant, Seshu warns and she thinks Modi should have raised the issue with Sandberg:

But coming back to India and India’s huge population of Facebook users, in the absence of a privacy law, there is a dire need for much more debate and understanding on how much of our data is up for grabs and how much of control we have over its use/misuse.  

Sadly, our Prime Minister, who should have been more alert to issues of privacy and surveillance, given the disclosure last week that the US government’s NSA had authorized surveillance of his own political party, seems to have looked the other way. 

 

Should we worry about business houses owning media?

Reliance Industries' acquisition of control over Network 18 has generated some comment, albeit mostly on the Net, not the print media. There is concern over the implications of business houses or corporates owning or controlling the media, whether print or visual media. The Aditya Birla group  has a substantial stake in the India Today group and the Tata house controls Tata Sky. As Vanita Kohli Khandekar notes in a perceptive piece in BS, there is little people getting worked up over business groups entering, well, another business. Many of the large newspapers in the country are controlled by those who came from a corporate background.

The point is that as long as there is diversity in ownership, we need not worry unduly. Some business house will support the Congress, another will support the BJP and a third group may root for some regional party. What we need to ensure is nobody dominates, that is, there is plurality and diversity and that all conduct the media businesses in accordance with norms, in others, a regulator that keeps an eye on the media as a whole. Khandekar has valuable suggestions to make:

One, an independent-of-the-government media regulator with powers a la Federal Communications Commission (US) or Ofcom (UK). They set the business rules, keep a check on ownership, prevent the formation of monopolies, stop bad practices and create a healthy environment for free media.
Two, a law that forces any organisation in the news business to publish its accounts and every detail of who owns it, how it is funded, its revenues, and so on at fixed periods, online. This forced transparency will deter the "unsavoury" entrants, reduce hyper-competition and, therefore, the plummeting of standards.
Three, a high-quality, independent, taxpayer-funded broadcaster. If Doordarshan was a world-class news channel, it would force the private ones to aim for better quality like the presence of BBC has done in the UK.

The last point cannot be over-emphasised. I have noted in my blogs that DD has improved quite a bit. (Rajya Sabha TV's Samvidan on Sunday, which is about the making of the Indian constitution, is a model of quality programming). One hopes that under the new government, DD gets the support it needs in order to provide the lead to private players. 

Punish bankers, not banks

We have another mega-settlement for another mega-violation in banking. BNP Paribas has agreed to cough up $8.9 bn for violations of US sanctions against specified countries. An article in FT argues that the fines are disproportionate and that they hurt shareholders rather than bankers. Banks have no choice but to settle when American regulators come after them. This enables regulators to impose enormous fines and it also boosts the political fortunes of those who work for regulators:

These huge and disproportionate sanctions are the result of an unseemly competition between rival US regulatory agencies, each keen to mark its turf and get its teeth into the prey, while promoting the careers of political appointees. They are abetted by a legal system in which criminal indictment carries potentially fatal consequences. An institution that is accused of wrongdoing swiftly finds itself losing the confidence of investors and counterparties, making it impossible to do business. Its life saps away long before a case reaches trial. In these circumstances, banks have little option but to cough up.

The author argues that  regulators in Europe are more reasonable in the fines they impose and that a better way of punishing the banks would be impose higher capital requirements. This would also reduce profitability and hence the incentives for top bankers to misbehave.

The article is right in saying that the sins of bankers should not be borne by shareholders; it is also right about disproportionate fines. But it misses the central point: bankers who violate the law must go to jail. Imposing fines on the legal entities called banks hardly punishes the bankers. Another article in the FT makes this point tellingly:

Indeed, institutions do not break laws – individuals do. Lest there be any doubt on this point Benjamin Lawsky, the superintendent of New York’s Department of Financial Services stated that “BNP employees – with the knowledge of multiple senior executives – engaged in a longstanding scheme that illegally funnelled money to countries involved in terrorism and gdeenocide.”

So there you have it. And the punishment? About a dozen employees have been dismissed and others will be demoted to suffer pay cuts. A number of senior executives are departing. It would be interesting to know on what terms and with what perks. But no individual who was cited for wrongdoing will go to prison.......If no one goes to jail and the fine does no permanent damage, the settlement becomes more a transaction tax than a deterrent. It is unlikely to be seen as justice in the eyes of the public – people who tend to go to prison when they break the law.

The mind of Ajit Doval

Much has been said about the exploits of Ajit Doval, the new National Security Advisor, as a spook. He's said to be the only Intelligence Bureau chief to have been awarded the Kirti  Chakra for bravery. One has read that he penetrated the Golden Temple posing as an ISI officer, managed to get into a dargah in Pakistan disguised as a Muslim, negotiated the surrender of Naga militants and also negotiated the release of the hostages on board the Indian Airlines plane in Kandahar.

No doubt about the man's prowess as a spook. The interesting question now is: what are his views on major issues of national security? An article in the Hindu provides a fascinating glimpse into the mind of Mr Doval. Here are some interesting snippets:

“I consider infiltration of Bangladeshis the biggest internal security problem. Bangladesh supports the demographic invasion of India.”

In his view, “the most effective way of dealing with terrorism would be to identify boys who have got the courage of conviction to match that of the fidayeens and who are capable of taking risks. Identify them and put them in action".

Mr. Doval does not trust the United States — as is typical in officers of his generation. He warns that the U.S. “will seek to outsource their counter-terrorism to Pakistan” as they withdraw from Afghanistan. He was scathing of the U.S.-India nuclear deal, bitterly warning in 2006 that “it will stunt India’s emergence as a genuine nuclear weapon state, cripple its strategic deterrence, and reduce it to a US satrapy.” 

I found Mr Doval's views on the Indo-US nuclear deal striking. On the face of it, Mr Doval appears to be have missed an important fact: the deal is not about nuclear energy or even nuclear weapons alone. It is about getting access to advanced US technologies that can help propel economic growth. Or does Mr Doval think that even the latter is not crucial to India?

Health care fraud in America

Guess what's the leakage in American health care paid for by the tax payer? $272 billion of  1.7% of GDP! That's nearly as large as the total subsidy budget in India. The Economist reports that a lot of ingenuity goes into perpetrating the fraud:

Patients claim benefits to which they are not entitled; suppliers charge Medicaid for non-existent services. One doctor was recently accused of fraudulently billing for 1,000 powered wheelchairs, for example. Fancier schemes involve syndicates of health workers and patients. Scammers scour nursing homes for old people willing, for a few hundred dollars, to let pharmacists supply their pills but bill Medicare for much costlier ones. Criminal gangs are switching from cocaine to prescription drugs—the rewards are as juicy, but with less risk of being shot or arrested. One clinic in New York allegedly wrote bogus prescriptions for more than 5m painkillers, which were then sold on the street for $30-90 each. Identity thieves have realised that medical records are more valuable than credit-card numbers. Steal a credit card and the victim quickly notices; photocopy a Medicare card and you can bill Uncle Sam for ages, undetected.

The Economist says that the way to tackle healthcare fraud is to simplify it and to cut out unnecessary treatment. It says the NHS in UK does a better job. Perhaps the journal has got it wrong. The problem could well be that healthcare is private sector dominated. It may be easier to control leakages if the state has a larger role in direct provision of healthcare.

What lessons might the US experience hold for our welfare programs? One obvious lesson is that we can't close down our welfare programs because of leakages- America is not shutting down healthcare because of the scale of the fraud. Another is that getting the private sector to provide a service and reimbursing the costs could prove most wasteful than the state providing the same services. Switching to private healthcare and trying to provide insurance for the same is quite the wrong way for us to go. It's difficult, it's challenging but we need to do more to make state institutions efficient.

I return to IIMC

I was over at IIMC for a conference a couple of days ago. I was returning to the campus long years after I had graduated. It was, as you might expect, an emotional moment, if not exactly in the same league as General Douglas McArthur's triumphant return to the Philippines in World War II.

Kolkata has changed although not as much as you would have thought. The airport is thoroughly modern and pleasing. From the airport to Joka (where IIMC is located), there is now a road that bypasses the city initially and  joins at Park Street. The  ride for the first thirty minutes or so via Rajarhat is exhilarating. It's a two-lane road dotted with greenery on the divider and a pleasing mix of empty spaces and buildings on both sides. There are the exquisite buildings one would associate with the IT sector and even a Finance Centre along the route. Open spaces are making way for mutli-storied apartment complexes. Hmmm, you tell yourself, Kolkata has changed for the better.

Park Street pulls you up short. The buildings and eating joints, rickety and worn, might belong to the time I spent in the city as a student. Alipore, the locality of the old aristocracy, retains its majesty with plenty of greenery, imposing mansions and the National Library. Further down at Behala, you return to the past. There are more buildings and the odd attractive one but the locality as a whole remains as rundown as it used to be. Next come Behala Chowrasta, Shakar Bazar and Thakurpukur. Again, the years seem to have largely passed them by. I pass buses with see people hanging to the straps. I recall my days on these crowded buses (mostly, 12 C) but, in those days, one thought it fun.

Finally, the IIMC campus. Near the main entrance is an unsettling sight, an open sewer on either side of the pathway leading into the campus. I experience a thrill as I cross the arched entrance with the Institute's name inscribed on it. Once you enter the campus, the transformation is real and substantial. In my student days, you had  a set of four hostels separated from the main building by a lake, barracks that served as a library and a some staff quarters in the distance. Otherwise, the entire campus was open and wild.

Now, you are first greeted by an executive complex called Tata Hall. Then comes our set of hostels, now called Ramanujam Hostel. H1 and H2 are entirely for girls (in our time, it was just the top floor of H1). Further on, more hostels (including a Tagore Hall) and a cafeteria. You keep going past wild shrubbery and then you begin to see the real development. A whole set of spanking new hostels and another executive complex (where I stayed), all overlooking the lake. The executive building is still under construction and the mess is yet to come up.

I check in and head for Tata Hall for lunch. Then, I make my way to the main building via the narrow road that skirts the lake. The lake itself is ringed by trees now, which is a pleasing sight but you no longer have an unobstructed view of the lake. I cross an imposing white-coloured building, the new library building and am soon face to face with a multi-storied building. Our 'main building' is no longer that. Classes are held in the new building, which also has faculty rooms.

I search for our 'main building'. I have difficulty in getting my bearings. On the road from the hostel, you turned right, as I recall. I think I have located the 'main building' of our time- it's now called L1, L2, L3 (somebody please correct me if I got it wrong). There is also a Computer Science Center. Behind the office buildings are a complex for the PGP Executive programme and faculty and staff housing quarters. I feel  a surge of pride. Unlike much of the city I just passed through, IIMC shows visible and substantial change.

After the conference, I retrace my steps. Tata Hall is not up to scratch. It's run down, the dining room is dingy and depressing, there are signs of peeling plaster, the building is standard PWD stuff, not something one associates with a top business school. The food was mediocre (and I say this as somebody who is hardly a foodie).

One thing is striking. The employees look emaciated and are poorly dressed. They are helpful, almost eager to please. Suffering is writ large on their faces. That is the impression I carried away from my student days. I'm distressed that this too has not changed. How come? Are these contract employees who are under-paid? They should do a lot better on current government pay scales.

I head for my old hostel. It's exactly as it was. The low entrance, the hostel office to the left, the dining room right ahead, the common room to the right. There are a couple of changes. To the left as you enter is a table with a watchman sitting behind it. The common room has shrunk and has only the table-tennis and billiards tables. The sofas with papers and magazines- they don't seem to be around. At the mess itself, time has stood still. Two rows of tables, about 14 or so in all. The cafeteria outside, run in the old days by the reliable Keshavan, has changed but very slightly. More beverages than before. I ask for a bottle of rose milk. "Shaab, change ho ga?". I cough up most of the coins I have.

I wind my way through the corridors to H-4. I climb up the staircase (I recall I used to scamper up and down at least half a dozen times every day, now it's a measured tread). At the landing of H-4, I turn left and head towards the end. Ah,there's my room. It used to be 207, now it's labelled 309.

I lean against the railing and survey the floor. Right ahead to the right were Mohan Krishnan and Talwar. At the landing itself, Sanjiv Vaidya. At the opposite end was H K Patel. I let the memories surge for a while, take a few snaps and head for the staircase. Almost reflexively, I look straight ahead at the top floor of H1, where the girls had their rooms. Sure enough, a young thing in shorts steps out. She sees me and seems faintly startled. Clearly, an unfamiliar face.

I introduce myself to the watchman. He, in turn, introduces me to a fresh entrant, a boy from IIT Chennai. The PGP-I batch has just started coming in. Several vehicles drive up unloading their passengers. Even the boys seem to be accompanied by one or both parents. I guess that was a luxury in our time.

I park myself in the seating space around a tree outside the hostel and take in the buildings slowly. I recall the innumerable hours had we spent there. Stepping out with a cup of tea was almost mandatory after breakfast and at tea-time. After dinner, there was the post-prandial walk, followed by a session in those seating places. Boy, am I glad I went to IIMC, which gave you the time and the space for these indulgences. At IIMA, life in the first year is a grim struggle for survival. After the torture I went through at IIT Bombay, that's the thing I liked most about IIMC: it was a place for gentlemen. They didn't believe in silly things like compulsory attendance.

I allow the memories to float by and feel a sharp pang. There was a lightness to living then, which is the quality of youth itself. As time goes by, life begins to seem more and more of a burden with endless chores, rigid time-tables and nameless worries. I leave, heavy at heart.

State subsidies to banks

States guarantee bank deposits (upto a staggering $250,000) in the US. (In India, the amount guaranteed is piffling in comparison, Rs 100,000 or around $15,500). As a result, banks can borrow money at a lower interest rate than without the government backstop. This amounts to a state subsidy to banks. The value of the subsidy, according to an article in the Economist, is $100 bn in the UK and Japan, $300 bn in the Euro area and a total of $630 bn for the rich world. One obvious way to prune these would be to reduce the value of bank deposits guaranteed. Raising equity capital requirement for banks (and correspondingly reducing debt) would also serve to reduce the subsidy.

One other thought comes to mind. In reporting their profits, banks must reduce the value of the subsidy they get. Executive bonuses must be linked to profits, adjusted for subsidies. That would help rein in executive pay in banking, which is itself a source of systemic risk.

Private banks are at odds with the law and ethics

There is no let up in the fines being imposed on banks. Banks are now waiting to see whether the reported $10 bn fine on BNP for violating US trade sanctions will materialise. We have the Libor rigging scandal earlier, the fine on Standard Chartered for busting Iran sanctions, the fine on HSBC on money-laundering charges in its Mexican operation.... one wonders when it will all end.

The problem in banking is that the combination of incentives linked to return on equity and persistent high leverage almost makes it inevitable that bank executives will look out for the sharp opportunity and the risky gamble. A modest increase in leverage does not solve the problem. Nor, as an article in the FT argues, will refining executive incentives and slapping fines on banks. The problems are fundamental and they require radical solutions:

As long as incentives are at odds with ethical requirements, common decency will be a minority pursuit. Scandals are inevitable. And as the gap between bankers’ pay and that of executives outside the financial system grows ever wider, business leaders lose moral authority, and the case for enlightened capitalism is devalued. There are honest people in banking. But it has become a less comfortable place for those with a strong moral conscience. 

What are the answers? The article suggests two. One is two go after bankers and prosecute them instead of merely slapping fines on bankers (which means you penalise shareholders rather than executives). The other is to treat banking as a utility, which would mean stringent regulation on what products they can offer, what returns they can make, what they can their executives etc.

The point is that private banks, as they are run today, pose major risks to society. Neither today's level of regulation nor the level of corporate governance diminishes this fact. It is astonishing that the P J Nayak committee on bank governance does not recognise this and argues for a diminished government presence in public sector banks and an aping of the ways of private sector banks, with boards being the key to good governance. It hasn't worked in the west and it won't work here.

How bad is the global downturn- and what can be done?

There is talk of recovery and growth in the western world and in the global economy. In the US, there is celebration because there are more jobs today than at the high point of 2008. We need to hold the celebration, though. We need to compare where output and jobs are today with where we might have been, had the crisis not occurred. An article in the FT sums up some of the findings on this subject.

While several economies have now returned to their previous peak levels of output, very few have approached the previous long term trendlines which had been established for decades before that. For the developed economies as a whole, output remains about 12 per cent below these trendlines.

The trillion dollar question is: can the developed world return to the growth level indicated by the trendlines- and how soon? Now, output can depart from the trendline for two reasons: a permanent loss of capacity and an output gap (that is, output does not fully come up to the output capacity). The article cites a paper that shows that the overwhelming proportion of the departure from trendline is on account of loss of capacity- 7.2%. Only 2.6% of the departure is explained by the output gap.

Now, we can speculate about why the loss of capacity has turned out to be permanent. When you have a protracted recession, labour participation goes down because of a loss of skills, investment spending is crippled, innovation gets a severe setback. Whatever the reason, the fact that only a small portion of the loss of output is on account of an output gap means that fiscal or monetary stimulus can only do so much to restore the developed world to their growth path.

As the article points out, there could be a role for a broader range of fiscal instruments, such as tax cuts, incentives for investment and for work, infrastructure spending etc. But these instruments operate not just on the demand side but also on the supply side. In other words, given the damage that has occurred to economic capacity, there is only so much that demand management can accomplish. Perhaps, that would explain why both the fiscal and monetary stimulus that followed the crisis have yielded so little.

Is your boss a loony?

We tend to think of corporate bosses, including CEOs, as supremely well-adjusted beings, people with a high EQ who have, over the years, smoothed out their edges, perfected the art of dealing with people and- lest I forget- with a terrific sense of values.

The truth is often to the contrary - and it can be rather unsettling. Insead professor Manfred Kets de Vries points out in a recent HBR article that a surprisingly large number of senior executives have a serious personality disorder. As a result, the environment of the company in which the leader operates becomes toxic. People find it hard to function.

Vries identifies four main disorders; pathological narcissists, who are selfish and entitled, have grandiose fantasies, and pursue power at all costs; manic-depressives, who can leave a trail of emotional blazes behind them; passive-aggressives, who shy away from confrontation but are obstructive and underhanded; and the emotionally disconnected—literal-minded people who cannot describe or even recognize their feelings.

I am sure this is something many of us will have no difficulty relating to. We have all encountered bosses who are tyrannical, unreasonable, deceitful and full of themselves. The question is: how common or uncommon is this syndrome? Perhaps the more acute or psycopathic manifestations are somewhat rare. However, it appears almost inevitable that, in clawing their way to the top, executives require and develop qualities that renders them toxic by the time they get there. Among these qualities are: ruthlessness, disregard for scruple, a certain low cunning, an ability to manipulate people, and a degree of megalomania that gets confirmed with each round of "success" achieved.

These are the very qualities that contribute to their success- and, of course, they enhance shareholder value. It is important to understand, however, that the very drive, ambition and focus on achievement that propels them to the top enhances their toxicity and that of the companies to which they belong. As one reader writes in response:

If "a surprising number of senior executives do have a personality disorder of some kind", isn't there something inherently wrong in the way we select leaders in business as well as the kind of behaviors we encourage in order to make it to the top?

Vries believes that by identifying these pathologies, one can "coach" leaders back into normal behaviour. I am inclined to be sceptical. Once a person is high enough up the ladder, who are the people who would dare to tell him that he's bonkers? And which leader would want to acknowledge a serious disorder and would want to deal with it.

The unpleasant reality is that, in the competitive world in which we operate and the single-minded focus on results, defined entirely in terms of profit, such behaviours are almost inevitable. We will need to question the basic purpose of the corporation and its culture if "toxic" leaders are to be checked. It is not that you create a situation that requires leaders to be "toxic" if they are to succeed - and then proceed to treat them once you notice the fall-out.

Air India's losses? Look at private airlines

The media has been going to town about Air India's losses. With their penchant for trivialising issues, they have been carrying stories about freebies offered by Air India to its staff and its politicians- as though that is why the airline is running up losses. (Do they private owners of companies do not milk them at shareholders' expense?).

Anyway, Air India's losses for 2013-14 of Rs 2012 crore and projected loss of around Rs 1000 crore for 2014-15 look modest compared to those at Jet Airways, as today's edit in BS makes clear. Jet's losses for the first three months of calender year 2014 are a staggering Rs 2153 crore! Spice Jet and Jet Lite both made losses of over Rs 300 crore in the same period. The problems have to do with traffic and revenues not measuring up to expectations in a highly capital-intensive business. Air India's problem is the large burden of debt accumulated because of a large fleet order placed at a time when there was irrational exuberance about the growth of air traffic. Operational efficiency at Air India is not the issue. Nor is public ownership.

If ownership is the issue, then should we consider nationalising Jet because of the losses it is running up?

Academic research in India and top-ranked journal publications

Indian universities, the IITs and the IIMs rank low in international rankings. Everybody knows why: inadequate faculty publications in top-ranked international journals. The solution that many institutions have adopted is to incentivise publications in these journals by making these a condition for confirmation and promotion.

Pulapre Balakrishnan, writing in the Hindu, questions this approach and proposes an alternative:

In July 2013, a group of scientists and publishers issued a statement called the San Francisco Declaration on Research Assessment (DORA). While identifying peer-reviewed papers as central to an evaluation of research output, they argued for eliminating the use of journal-based metrics, such as the Journal Impact Factor (JIF) in funding, appointment and promotion considerations. It was recommended that research ought to be assessed on its own merits rather than on the basis of the journal in which it was published. It is significant that among the original signatories of DORA was the American Association for the Advancement of Science. 

We need to heed this call. Quantitative scoring based on JIF may wear the garb of objectivity, and cardinality may even bring with it the comfort of transparency to some, but it cannot be a substitute for assessing knowledge creation. The long-standing practice in India had been to have research peer-reviewed and these reports considered by a committee of experts. There should be a return to this practice as it is superior to the points-based system which prejudges content and quality. Finally, in issuing a guideline for assessing research, the UGC must focus exclusively on the researcher’s contribution to knowledge and cease privileging “foreign” publications over “Indian” ones and “international” conferences over “national” ones. 

Balakrishnan does not spell out why precisely we should not insist on publications in top-ranked journals. One important reason that I would venture to put forward is that, at least in the social sciences, it is difficult for Indian researchers, working on Indian problems, to get published in the top journals which are overwhelmingly in the West (mostly, the US). These topics may not be of interest to those journals. Also, publication in a journal requires knowing what topics and approaches are the flavour of the day, networking with journal editors and referees, having the opportunity to have one's working paper critiqued in seminars at leading colleges. Bereft of these advantages, Indian academics face heavy odds. Insisting on A-grade journal publications, in these circumstances, could lead to demoralisation- and faculty not producing anything at all. A classic case of the best becoming the enemy of the good.

That said, what do we make of Balakrishnan's alternative? "Peer-review" within one's own institution can become a farce, an exercise in mutual back-scratching (or back-stabbing). A committee of outside experts is a better idea but, again, these experts must not be constituted by the head of the institution whose faculty is being evaluated. We need an independent body constituted by the government for this purpose. This body must consist of academics with impeccable research credentials. MHRD had proposed setting up a collegium of scholars for making appointments to central universities, IITs and IIMs. Such a body could also be entrusted with the task of reviewing research.

However, we need to be clear about one thing. If we turn our backs on international publications, we must forget about moving up in international rankings as well.