By Ravi Kanth Devarakonda

GENEVA, Jan 28 (IPS) – The Davos delegate seems short of faith this year about anyone’s ability to save the world from the financial tsunami that the bosses have unleashed. And with colleagues such as Ramalinga Raju of the now infamous Satyam Computers languishing in jail for fraud, the Davos delegate is uncertain what the 21st century holds for what was being celebrated until the other day as global capitalism.

Everyone has questions, but few seem to have the answers.

Little wonder that this year’s annual meeting of the World Economic Forum (WEF) that got under way Wednesday in Davos, Switzerland, is anything but glorification of financial capitalism.

WEF leaders say the writing has been on the wall for some time. ”I have always cautioned about the dangers of unregulated financial capitalism,” Klaus Schwab, WEF founder and executive chairman told IPS.

In the face of the financial crisis crowned by fraud, Schwab said: ”It is an extraordinary meeting this year.”

Satyam’s Ramalinga Raju and heads of the collapsed Lehman Brothers had addressed several sessions at the WEF meeting last year, and were stars at the Davos meetings for years.

Schwab admits that there is now an image problem because of some of the earlier participants. There are always bad apples that are difficult to spot in time, he says.

”Since we are in the midst of an unprecedented crisis, we set two objectives,” said Schwab. ”How to get out of the crisis,” and ”how to strengthen the global system after the crisis.”

This year’s meeting will also help the G20 leaders who met recently in Washington to further their debate on the global financial architecture, he said.

There is a sense that the Davos gathering is more needed now than ever before. Around 42 heads of states – compared with two dozen last year – are scheduled to attend the five-day session to find some ways of stopping the recession from sliding into a depression, a la the Great Depression of 1929.

With likely zero growth in much of the international economy and a proliferation of uncoordinated fiscal policies, early recovery looks difficult, chief economist of the United Nations Conference on Trade and Development (UNCTAD) Dr Heiner Flassbeck told IPS. ”Nobody knows how the economic situation will change,” he said. ”The real economy is facing several risks.”

A UN report has called for stronger regulation of financial markets and institutions, adequate international liquidity provisioning, an overhaul of the international reserve system, and a more inclusive and effective global economic government so as to prevent any repetition of the crisis.

Schwab says this year’s meeting will be a serious but sober one, with some 2,500 participants drawn largely from business. But in a change from earlier meetings, the WEF this year will not see too many brainstorming sessions involving investment banks such as Morgan Stanley or Goldman Sachs, that the British newspaper The Guardian lists as among 25 key actors at the heart of the meltdown.

It is intriguing that despite the freezing financial climate, more than 1,400 chief executives will be at Davos for the event. Among the leaders attending are Chinese premier Wen Jiabao, Russian Prime Minister Vladimir Putin, German Chancellor Angela Merkel, British Prime Minister Gordon Brown and Japanese Prime Minister Taro Aso.

In a year when nationalisation and the rescue of rich investment banks by the poor taxpayer have become the order, political leaders are bound to play a major role.

‘Privatisation of profits and socialisation of losses’ has been the Davos mantra for years. To the simple taxpayer, this year it sounds more bitter than ever before.

Delegates are due also to think about the real climate, not just the economic one. A lengthy debate is scheduled on climate change and whether the world can conclude another agreement to replace the Kyoto Protocol at a meeting due in Copenhagen later in the year.

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1. Satyam boss quits, admits inflated profits The boss of Satyam, India’s fourth-biggest software firm, has resigned...

Mumbai: Atleast four leading banks today hiked their interest rates in foreign currency deposits, apparently with a view to mop up more such deposits in the face of tight liquidity conditions.
These banks are the State Bank of India, Bank of Baroda, HDFC Bank and Union Bank of India, according to a PTI report.
SBI today said its foreign currency non-resident (B) account deposits in US dollar, having a maturity of 1-2 years, will now attract a rate of 2.96 per cent as against 2.46 per cent earlier.
The increase will be effective from tomorrow. (Sept.19, 2008)

Rate for deposits having a 2-3 years, 3-4 years and 4-5 years tenure have been hiked to 3.06 per cent (2.56), 3.38 per cent (2.88) and 3.6 per cent (3.10) respectively, SBI said. Deposits in Euro and Pound in the 1-2 years maturity, will now attract 5.08 per cent (4.58) and 5.77 per cent (5.27) respectively.

Similarly, interest rate for NRE deposits having a tenure of 1-2 years has been increased to 3.71 per cent (3.21). NRE deposits in 2-3 years and 3-5 years maturities have also been upped to 3.81 per cent (3.31) and 4.13 per cent (3.63) respectively, SBI said.

Other leading public sector lenders Bank of Baroda, HDFC Bank and Union Bank of India also announced similar hikes in their FCNR(B) and NRE deposits with immediate effect. HDFC customers will now get 2.95 per cent (2.45) for their FCNR(B) deposits in US Dollar in 1-2 years tenure and 3.05 per cent (2.55) in the 2-3 year maturity, the report said.

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The trading frenzy that sent prices soaring

By Iain Macwhirter

Published 17 April 2008

Iain Macwhirter on why the price of basic foodstuffs rocketed, from London to Haiti

Four people were killed in food riots in Haiti. From Bolivia to Uzbekistan there have been violent protests against the doubling of food prices. In Italy, mothers are marching against the price of pasta. The World Food Programme has seized up and the World Bank on 13 April forecast that 100 million people face starvation. It should not have come as a surprise.

Conventional explanations for the food crisis range from climate change to dietary change in China, from global overpopulation to the switch of agricultural production to biofuels. These long-term factors are important but they are not the real reasons why food prices have doubled or why India is rationing rice or why British farmers are killing pigs for which they can’t afford feedstocks. It’s the credit crisis.

This latest food emergency has developed in an incredibly short space of time – essentially over the past 18 months. The reason for food “shortages” is speculation in commodity futures following the collapse of the financial derivatives markets. Desperate for quick returns, dealers are taking trillions of dollars out of equities and mortgage bonds and ploughing them into food and raw materials. It’s called the “commodities super-cycle” on Wall Street, and it is likely to cause starvation on an epic scale.

The rocketing price of wheat, soybeans, sugar, coffee – you name it – is a direct result of debt defaults that have caused financial panic in the west and encouraged investors to seek “stores of value”. These range from gold and oil at one end to corn, cocoa and cattle at the other; speculators are even placing bets on water prices.

Just like the boom in house prices, commodity price inflation feeds on itself. The more prices rise, and big profits are made, the more others invest, hoping for big returns. Look at the financial websites: everyone and their mother is piling into commodities. It is the great bull market of the Noughties. The trouble is that if you are one of the 2.8 billion people, almost half the world’s population, who live on less than $2 a day, you may pay for these profits with your life.

This speculation doesn’t happen on its own, however. Commodities such as gold and oil are favourite “hedges” against falling currencies. But this time all manner of other commodities, such as wheat and rice, have been swept along in the inflationary slipstream.

Investment houses, pension funds, private equity groups and banks are driven by profit not morality, and they invest wherever they can see the biggest return. It is not a conspiracy, but it is a conscious strategy, backed by the central bankers of the west as they try to help Wall Street back on its feet. Put another way, the banks are exporting our debts to the developing world. The collapse of the dollar means that most international commodities are more expensive for poor people to buy. The dollar’s decline is a direct result of the low interest rate policy of the US Federal Reserve and the Bank of England, which shockingly cut interest rates on 10 April even as inflation spiralled.

When interest rates are below the rate of inflation, investors have to keep moving their funds from sector to sector in search of higher returns. In the 1990s they piled into internet stocks. When that bubble burst in the 2000 stock-market crash, they shifted into property and complex collateralised debt dealing based on US “sub-prime” mortgages. Now, with the collapse of the property bubble – not just in the US but across the world – investors are on the move again, and the only place left is commodities. It’s the third bubble and it’s hitting the developing world hard.

There are other reasons for food shortages: the diversion to biofuels because of the depletion of oil reserves, the increasing population, changing eating habits in south-east Asia – all these are putting long-term pressure on agricultural resources. But the efforts of institutions such as the US Federal Reserve to revive the economy on the back of a commodities boom have dramatically speeded up global inflation.

Will it work? Will the new “asset bubble” restore the profits of the banks and revive the US economy? In the short term, possibly yes – but at terrible human cost. In the end, the US may be cutting its own throat. Once speculative prices get out of control, there is no knowing when they will stop. Oil is now more than $100 a barrel. Resource-rich countries such as Russia are suddenly world powers again. Hungry people are desperate people. This might be the bubble to end all bubbles.
Source- New Statesman (UK)

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By Girish Mishra

New Delhi: In India, especially in the media and think tanks, there is no dearth of people educated in the formal sense of the term. It is, however, a different matter that many of them have nothing to do with rational thinking based on the principles of logic. This is quite obvious from their writings and speeches on which ‘conventional wisdom’ has a tight grip.

This term was coined by Prof. John Kenneth Galbraith, a leading American economist, in his widely read book The Affluent Society (1958) to describe certain ideas or explanations that are usually accepted, without examination, by people as true. People refuse to look into its logical validity even though new facts contradict it. It, thus, acts as a big obstacle to fresh thinking. It produces some sort of inertia because people continue to hang on to an outdated or fallacious idea or conventional wisdom because they find it convenient, To quote Galbraith, “It is used pejoratively to refer to the idea that statements which are repeated over and over become conventional wisdom regardless of whether or not they are true.” Seldom anybody dares to refute conventional wisdom.

In fact, conventional wisdom is a variety of argumentum ad populum, which rules that a proposition is true because most people subscribe to it. In logic it is fallacious because the truth of a proposition cannot be decided by the fact that most people believe it to be true. Centuries ago most people, except Copernicus and, later, Galileo, thought that the sun went round the earth, which was stationary. Thus the mere fact that a belief is widely held by the public and propagated by the media is no guarantee that it is true.

In India there has been no scarcity of conventional wisdom at any point of time. At present there are three examples of conventional wisdom having a strong grip over the educated. The first one is the so-called incumbency factor. The media as well as self-proclaimed election analysts largely base their prognosis and results on incumbency factor. They have no explanation to the fact that it did not lead to the overthrow of the Congress rule at the Centre during 1952-77 and it has failed to bring about the defeat of the Left Front in West Bengal, for many years and allowed the RJD government in Bihar for more than one term. If it is a law that an incumbent regime must go out of power, it must apply without exception. In fact, this is a convenient excuse to avoid looking into the social, economic, political and cultural factors behind the voting behaviour.

Second example is the concept of BIMARU states that stand for Bihar (including Jharkhand), Madhya Pradesh (including Chhatisgarh), Rajasthan and Uttar Pradesh (including Uttarakhand). Prof. Ashish Bose, an Indian demographer, put forth this concept. Except for the official language, Hindi, there is no commonality among them. While Bihar and a few areas of eastern Uttar Pradesh had agrarian system known as Permanent Settlement, the rest of U.P., M.P. and Rajasthan had completely different agrarian systems going by the names of Ryotwari, Mahalwari, Bhaichara, etc. Even after more than half a century of land reforms, land relations are not uniform throughout these states. While M.P. and Rajasthan had most of their areas under the rule of native princes, this was not the case with Bihar and U.P. This difference is even now reflected in cultural values, social behaviour and politics of these states. While untouchability, child marriages, widow burning or immolation and the tight grip of clans are rarely found in Bihar, eastern U.P. and Awadh while they persist in western U.P., Bundelkhand, M.P. and Rajasthan. Moreover, there was a discrimination against Bihar. Eastern U.P. and Awadh in army recruitment after 1857 and this adversely affected the incomes of these areas. Obviously, all the above-mentioned factors have not uniformly affected the course of economic development of the BIMARU states. Hence this concept is meaningless for any serious economic discourse relating to them.

The most currently propped up conventional wisdom is ‘Hindu rate of growth’. It has been brought into discussion by both the print and electronic media, currently at the beck and call of the corporate sector. Since almost the entire media and think tanks are highly influenced by American thinking they have been campaigning day in and day out for the adoption of the proposed Indo-US nuclear deal as negotiated by President Bush and Prime Minister Manmohan Singh, without changing even a punctuation mark at the earliest possible because the regime change in Washington, DC may create insurmountable problems.

The Left has been a target of all kinds of abusive epithets. It has been charged with working at the behest of the Chinese who do not want India to become strong. Thus the charge of long-forgotten ‘extra-territorial loyalty has once again been flung at the Left. The editor of the Birla-owned daily Hindustan, Ms Mrinal Pande in a signed article has charged the Left conspiring to keep the Indian economy firmly tied to Hindu rate of growth. One wonders whether she really understands the meaning of economic growth and all the debates pertaining to Hindu rate of growth. She is seemingly unhappy that the Left is obstructing the generation of ample electricity needed to accelerate the pace of economic growth and make India a superpower. Without the Indo-US nuclear deal, she holds, there is no prospect of ample energy generation.

The idea underlying the Hindu rate of growth goes to the late 1950s when Nehru became a target of attack by Indian political formations from the Jan Sangh and Swatantra Party to the Lohia-led Socialist Party besides the Forum of Free Enterprise and various outfits supported by the Americans. In this context Rajkrishna, an economist, heavily influenced by American rightwing thinking came out with the term Hindu rate of growth that ranged between 3 to 3.5 per cent per annum while the population was growing at 2 to 2,5 per cent. Hence, there was no prospect of India prospering economically so long as Nehruvian thinking dominated the strategy of economic growth. There was not even a remote prospect of India becoming a super power.

Ever since economic reforms based on the Washington Consensus have been initiated, the rate of growth has been going up. The latest figure indicates that it was 9.3 per cent during the first quarter (April-June) of 2007-08. Since Dr. Manmohan Singh, as finance minister, initiated economic reforms in 1991 he is being hailed as messiah by the corporate sector-influenced-media. His courage is admired because he has liberated the economy from the dead weight of Nehruvian strategy!

It is a different matter that scholars and serious researchers do not give any credence to the propaganda aimed at belittling the role of Nehru and they dismiss Hindu rate of growth as a variety of conventional wisdom. The paucity of space does not allow us to go into the debate at length. We shall, however, refer to the IMF Working Paper (wp/04/119), “Why India Can Grow at 7 per cent a Year or More: Projections and Reflections” (released on March 24, 2004 as “From “Hindu Growth” to Productivity Surge: The Mystery of the Indian Growth Transition”) by Prof. Dani Rodrik of the Harvard University and Arvind Subramanian of the IMF.

Prof. Rodrik is an internationally renowned economist whose independent thinking, professional competence and honesty have never been called in question. What they say by way of conclusion is worth quoting: “In the conventional view of Indian development process, there was a long and dark period-the period of controls and import substitution—followed by the burst of sunlight and reforms since 1991. The boom in the IT sector fast awakened observers to the facts that the dark age was not all dark; important cumulative elements (the fundamentals) were being built up that yielded rewards with a lag; and sparked the IT boom. In this case, the fundamentals were the pools of skilled human capital built up through the technology, management, and research institutes –a sort of import substitution effort in skilled human capital—that were integral to the Nehruvian vision.

“Nevertheless, the Nehruvian economic legacy went beyond the technical institutions. It included the meta-institutions of democracy, the rule of law, free press, and the technocratic bureaucracy that research shows are crucial to economic development to be sure, these meta- institutions have been buffeted and weakened over time by the vicissitudes of vested interests, time, and politics. It is also true that the potential created by these institutions went unexploited through decades of misguided throttling of private economic activity…. The house that Nehru and others painstakingly built before and after independence, wobbles and all, is now poised to seize the newly created opportunities.”

Rodrik and his associate underline that if India is to go ahead and make its economy a fast developing one, it has to follow the path charted by Nehru, notwithstanding all the foreign- inspired quacks, masquerading as big experts. To quote: “…it is important for India to avoid the mistakes that Latin America made in the 1990s by hastily embarking on an overly ambitious agenda of economic liberalisation and privatisation that ran ahead of the supporting institutions or is best sustained by keeping the private sector excited about investing in the local economy. This requires a pragmatic set of policies towards incentives for dynamic efficiency with market disciplines. The knee-jerk reaction of many economists to move as quickly and as broadly as possible in areas such as privatisation (especially in the infrastructure sector), labour market reform, and capital-account liberalisation has to be tempered with serious empirical analysis and an appropriate concern for social and distributional impacts. The habitual pragmatism and gradualism of Indian policy –making, dictated by the needs to manage pluralism and diversity—the organizing principle of the “idea of India”—is here more of an asset than a liability.”
-IPA (Sept.11,2007)

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By Girish Mishra

New Delhi:

The World Bank, a prominent Western financial institution, has played a major role in the changed strategy of imperialism, pursued after the Second World War. This strategy has been known as Neocolonialism. One can hardly understand the role of the World Bank without having an insight into it. And for that, one has to look back in history.

By the time the First World War started, capitalism had established its supremacy all over the globe. Despite various crises, its vitality remained unimpaired. The First World War, however, heralded the beginning of its end as the only economic system on the rise. Within the world capitalist system, hegemony passed to the USA and Britain and other European powers became destined to play the second fiddle. The October Revolution of 1917 marked the process of shrinking of the world capitalist hegemony as Russia, a major country with vast resources and manpower, opted out. The end of the Second World War marked the break up and, ultimately, final collapse of the colonial system. It began with the Indian subcontinent going out of it. In two decades and so, colonialism of traditional type completely vanished. But the erstwhile colonial powers came out with a new strategy to continue their economic exploitation of their former colonies sans direct political control. This new strategy came to be known as Neocolonialism. Even before this term gained currency, Lenin had noted: “…it must be observed that finance capital and its foreign policy, which is the struggle of the great powers for the economic and political division of the world, give rise to a number of transitional forms of state dependence. Not only are the two main groups of countries, those owning colonies themselves, but also the diverse forms of dependent countries which, politically, are formally independent, but, in fact, are enmeshed in the net of financial and diplomatic dependence, typical of the epoch.” In this connection he referred to Argentina, which was formally independent, but, in effect, was a “commercial colony” of Britain.

It seems Jawaharlal Nehru was aware of imperialist attempts to foist a similar relationship on India by according it “dominion status”. During the 1930s, he had stressed that he did not want India to attain formal political independence, yet remaining an economic colony. Prof. Amiya Kumar Bagchi regards the British “as the real founders of modern neocolonialism, for both in Latin America and in India in the late 19th century they depended more on economic power and political influence at every stage for obtaining the lion’s share of the surplus of the dominated countries.” (The Political Economy of Underdevelopment, OUP, 1982, p.78)

As defined by the Third All African People’s Conference (Cairo, 1961), neocolonialism is “the economic infiltration by a foreign power after independence, through capital investments, loans and monetary aids or technical experts, of unequal concessions, particularly those extending for long periods.”

Neocolonialism, thus, brings about reconciliation between political independence of a country and its economic dependence. Under the old-fashioned colonialism, an imperialist nation hunting for valuable raw materials and minerals, markets, and avenues for investment of surplus capital had to establish its political rule along with necessary administrative set-up over the country grabbed by it. To keep the native population subdued, adequate police and army personnel had to be deployed. In the course of time, this type of arrangement did not remain equal to the task and very expensive. The world wars weakened the colony-holding powers; the pressures from American finance capital for dismantling barriers for its operation became intense; and the struggle of colonial peoples for their independence made colonial rule very expensive and unsustainable even with repression. They, ultimately, had to admit, “their interests in the developing countries no longer required the protection of governors in ceremonial dress, and expensive colonial administrations.” They had to withdraw and some did with a show of “dignity” while others after a lot of bloodshed. According to Judith Hart, the withdrawal of colonial powers or the process of decolonisation was “not the result of any romantic vision of the equality of peoples. It was an overdue recognition that twentieth-century capitalism no longer required colonialism to serve its purpose, and that political and military costs of maintaining it were both high and unnecessary. The United States had demonstrated clearly during the period between the wars, and in the decade after the war, that there were other methods of maintaining economic dominance.” (Aid and Liberation, London, 1973, p.231). The USA had been dominating Latin America, not by direct political presence, but through American private capital.

The decline of old-fashioned colonialism and its replacement by neocolonialism transferred the formal dominance from government to TNCs and MNCs “in whose interests government determine their relationships with their former colonies and with all other developing countries.” (Ibid). TNCs and MNCs began dividing the developing countries among themselves. The 14-point policy statement by President Wilson after the First World War was inspired more by his concern for the interests of American finance capital rather than for the plight of the colonial peoples. To quote Dan Nabudere, “The events of the next war brought to the US the realization that her expanded production in key sectors required new markets. With the general offensive by the Soviet Union, particularly after the war when Eastern Europe was no longer under the control of imperialism, imperialism was faced with the need to preserve what remained of its power. The new policy was to intensify the idea of the self-determination of all peoples in order to give a progressive stance to imperialism and take away the initiative from the Soviets. The US could lose nothing by pursuing such a policy, which actually strengthened her economy. It is in this sense that the US multilateral strategy which called for the abolition of colonial preference must be seen and it is from these proceedings, which arise out of imperialism, that the whole neocolonial strategy springs.” (The Political Economy of Imperialism, London, 1977, p.213).

As early as May 1942, Fortune had told the British government to hand over the leadership of world imperialism to the USA: “American imperialism can afford to complete the work the British started: instead of salesmen and planters, its representatives can be brains and bulldozers, technicians and machine-tools. American imperialism does not need extra-territoriality, it can get on better in Asia if the Tuans and Sahibs stay home.”

In the changed circumstances, after the collapse of the Soviet Union and the disintegration of the world socialist system and paralysis of the NAM, the 10-point Washington consensus has been thrust upon developing countries, guaranteeing free flow of goods, services and capital across national boundaries, privatization of public enterprises, drastically curtailing the economic role of state, and doing away with most, if not all, welfare activities. The World Bank has played a major role in the formulation of the Washington consensus and it is one of the major instruments for implementing it just as it did in the formulation and implementation of the strategy of neo-colonialism. There is, however, one major difference. With the free flow of capital in the form of foreign direct investment and foreign institutional investment, countries do not seek the help of the World Bank and its agencies for aid as they used to do in the past. Obviously, its importance for and the capacity to interfere in and mould the economic decision-making process in developing countries have been sharply declining.

It is high time that a fresh look was given to the utility of the World Bank and its mission. Its role and working are thoroughly overhauled to make it a democratic institution rather than a corporate entity, controlled by the USA. Only then it can gain some prestige of its own. But for this, consigning the Washington consensus to the dustbin is a necessary precondition. If this is not done, the World Bank will continue to remain a plaything for the USA, and the person who happens to occupy the White House will use postings in it as largesse. There is never any dearth of the Wolfowitzes with their cronies, especially boy friends and girl friends.

- IPA (June 05, 2007)

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