Vijay Kumar Gaba: socialism

Wednesday, September 28, 2022

“Selfie” diminishing 18-20th century ideologies

Households in most parts of the world are struggling to manage their finances. The cost of living is becoming unaffordable for most poor and lower middle class households. The basic necessities like housing, food, energy and healthcare have seen material inflation in most jurisdictions.

Even middle class households are finding it hard to maintain their current lifestyles as the wealth effect created by bloated asset prices is waning fast; savings are depleting due to massively negative real interest rates; and real wages have declined over the past 3yrs.

Historically, such conditions have provided a fertile ground for a workers’ (communist) movement. Countries face widespread civil unrest (anarchy) and anger against the wealthy (burgeon) and capitalist democracies are usurped by the authoritative (dictatorial) leaders. Peoples’ right to basic standard of life takes precedence over liberty and nationalism.

The latest election results in Sweden and Italy are surprising in this context. Both the countries have elected leaders holding extreme Right ideologies. In fact Giorgia Miloni is being compared to the fascist Benito Mussolini, who made the Pact of Steel with Adolf Hitler (Germany) and later Tripartite Pact, including Japan in the Axis Powers to establish the rule of “racial supremacist” in the world.

Until only a few months ago, it appeared that left leaning parties are taking control over major economies. However, that assumption has been belied completely in the recent events in UK, Sweden and Italy. It is also expected that right wing Republicans may take control of US Congress in the ensuing mid-term elections.

So how do we explain this phenomenon of ultranationalist leadership emerging in various parts of the world when one half of the global population is struggling to make two ends meet? In my view, it is important to decipher this puzzle for making a good investment strategy.

One view I got is that uprising of workers occurs only after burgeon excesses reach an extreme. We may therefore be one step away from the revolution.

I am however not inclined to accept this view. I believe that the quantitative easing (QE) that created thousands of millionaires and unicorns, while pushing almost a billion people back into poverty is nothing but a burgeon excess on the extreme. The pandemic and erratic weather patterns that have caused severe food and health crises globally are also an indication that Mother Nature is no longer willing to tolerate the excesses perpetrated by way of unsustainable exploitation of resources under the garb of industrialization, civilization, growth and development.

My view is that the lines between Left (communism), Center (Socialism) and Right (Ultra nationalism) political ideologies have got obliterated in the past two decades. Politics is now driven more by personalities than ideologies. The persons at the helm do not mind using the ideas of the French Revolution, Marx, Lenin, Hitler, and Keynes, et. al. to attain and/or stay in power. We have seen leaders like Trump, Putin, Xi Jinping, Narendra Modi, Imran Khan, etc. to be ultranationalist, socialist, and communist at the same time.

Thus, in this era of ‘Selfie”, personalities rather than ideologies & values are driving the politics. Obviously, the policy making is highly unpredictable. For example, in the case of India, in the same cabinet meeting we could have extremely populist (socialist); ultranationalist and burgeon (capitalist) decisions being taken. President Xi Jinping could liberalize the economy, dissipate Jack Ma, sign a watershed petro-yuan deal with Saudi and annihilate Uyghurs Muslims, threaten Taiwan, invade India and talk about global cooperation (Belt and Road initiative) in the same breath. Biden can leave Afghans on God’s mercy and pledge support to Ukraine and Taiwan. Trump can seek help from Russians to win elections, and Sunni Saudi Sheikh can talk peace and friendship with Jewish Israel and Shia Iran.

Tuesday, July 12, 2022

Challenge of being an Indian FM

Being the finance minister of India is arguably one of the most challenging jobs in the world. The incumbent has to deal with 28 Federal States and 8 Union territories, each having a distinct socio-economic and fiscal profile. Unlike some developed countries like the USA, the Federal States in India are not autonomous and/or self-reliant in fiscal matters. These states rely on the Union Government for financial resources. Besides, the finance minister of India is limited by the constitutional mandate of being “socialist”. To make things more complicated, implementation of GST; acceptance of the recommendations of 15^th Finance Commission; and abolition of the planning commission have materially curtailed the powers of the union finance minister.

Technically speaking, all the policies formulated and proposed to be implemented by the union finance ministry must pass the test of “socialism”, since the Constitution of India overrides all the legal provisions and policy directives. This makes it very hard for the finance minister to pursue the goal of faster growth through promoting capital investments in the private sector that are likely to eventually result in more socio-economic inequalities.

Even when the finance minister tries to extend fiscal and other support to large businesses to stimulate economic growth, these efforts are invariably met with strong opposition from the politicians belonging to the ruling party & opposition; civil society and common people.

To mitigate the political damage that may be caused by such criticism, the finance ministers have often supported the larger public sector; contrary to the stated policy of minimizing the role of the government in business. Also, the finance ministers in India have often taken the path of ‘crony socialism”.

They often pursue fiscal policies targeted to benefit a specific set of voters and/or specific regions; inviting criticism from the businesses and capital market participants. The finance minister is often criticized for inaction in terms of economic policy and reforms; fiscal imprudence in pursuing profligate social policies and programs; incoherent foreign policy; failure of monetary policy in controlling consumer prices; impeding critical infrastructure projects; incongruent taxation policies; and corruption in financial institutions etc.

The socio-economic condition (especially the fast waning demographic dividend) of the country warrants that the governments vigorously pursue the course of faster and sustainable growth over the next couple of decades. However, the pursuit of this goal would inevitably result in widening and deepening inequalities of income and wealth.

The experience of western developed economies indicates that faster growth ultimately results in 10:90 division of the society – 10% people owning most of the wealth and accounting for most of the savings; while the rest 90% just survive. Of course, the standard of life for the underprivileged 90% in developed countries is much better than the corresponding 90% population in India.

The issue that requires deeper research is whether our government has also accepted the 10:90 rule? If yes, then the job of finance minister of India would soon become the most “undesirable” one; because for couple of decades the onus of supporting the sustanance of 90% population will largely fall upon the union finance minister; till the 10% who are afforded all fiscal and other policy support are in position to take the mantle on themselves, i.e., engage more workers and pay more taxes.