My last week’s column on why the financial sector needs to take a ride down 90 floors and meet consumers brought me responses from two extremes. On one side, consumers and a handful of finance types said what I had written (that consumers who finally take the brunt of economic tsunamis in the chin through taxes, paying for the follies and institutionalised frauds of a few, needed to be brought to the forefront of finance) made primary sense, that they should have thought of it much earlier.
Halfway across the world, in the fountain of free markets trying to free themselves of regulation altogether, the changes I wrote about are on their way. In the tug-of-war between US President Barack Obama and Wall Street, the tide is slowly turning towards consumers. And while the final outcome still stands on the razor edge of vested interests, lobby groups, political leaders and incentive systems, the next 12 months should see consumers winning. At the macro- and geopolitical-level, Obama will get help from the G20 leaders who will meet next month-end in Toronto.
Free market advocates felt otherwise. “It’s easy to be hostile to finance,” Ajay Shah, a professor at National Institute for Public Finance and Policy and one of the brightest minds in Indian finance, said. “Finance is the brain of the economy. It will always attract the best and the brightest and have the highest compensation. It will be the centre of myriad scams and scandals simply because that’s where the resources of the world are swirling amidst informational complexity. Hostility towards it...just plays into the hands of the communists.”
For the record, I am not against free markets. But if consumers’ interests clash against the interests of a handful who have twisted free markets such that they can enslave the rest of the world — through anti-consumer practices such as throwing reams of fine print at them such that they cannot figure out an insurance policy from a Ponzi scheme, and the regulatory loosening such that unethical practices get legalised — my sense would be to redefine free markets.
But the time for such debates has slipped out of the hands of the Technorati. The age of free markets and whether countries ought to pursue them blindly, taking the US and its prosperity as a benchmark, is over. The era of imagining that the economic well being of a country is best overseen by economists, is also gone for two reasons. One, as Nobel Prize winner Joseph Stiglitz wrote in his recent book Freefall, they failed to predict the ongoing global crisis that’s turned dreams into debris — not merely of households but nations such as Iceland, Ireland and Greece. And two, they have turned free market theories into a religious dogma — not very different from the dogma of communists — where anyone who raises an objection is labelled a communist, thus killing voices of dissent.
Too close to the theories they espouse, economists have failed to see the big changes. The heart of capitalism and its freedom-espousing (not freedom-loving, please note) incumbents — Wall Street and the related schools of financial innovation — are dancing to a socialist beat. They may sing about the virtues of free markets and capitalism but are using the instrument of state (through taxpayers’ money) and socialism to finance their bonuses.
On the other side, the soul of socialism and its totalitarianism state — Shanghai in China that aspires to become a global financial centre — has capitalism as its success currency.
So, between the two economic systems of earth’s two superpowers — in the limelight recently because of the fall of Goldman Sachs in New York and the Rio Tinto non-trial in No. 1 Intermediate People’s Court in Shanghai —the two extremes of political economy have been taken. Due to the complexity of the intersection of these two economic systems (one pretends to be capitalist, the other socialist), the jury is still left wondering who’s who.
Over the past 60 years of its political freedom, India has had to choose between the two. The first 40 years went in the pursuit of socialism, mostly through Russia but with shades of the Chinese communist influence filtering in. In 1984, as Russia and its socialist economic system imploded, India got its first ideological shock. Then, facing a serious economic crisis in 1991, it opened its markets. The resultant whiff of economic freedom brought with it great prosperity, but restricted it — not unlike in the US or China — to the few. Meanwhile, China had adopted capitalism as its economic model under a totalitarian regime and has surged ahead so fast and so far that today it seems India can only aspire to get there.
Bewildered by the success of Russia, then the US and now of China, India as a nation has given up the confidence to be who we are. With no inner conviction, we danced as the opinionated bullets of now-socialism-now-capitalism hit our feet. We forgot that the ground of every nation should be sacred to that nation and needed to be served as such. We forgot that if we followed the path carved out by another nation, we would be vulnerable to its whims and fancies. We forgot that while we did not need to “reinvent the wheel”, we didn’t need to swallow everything, particularly the poison, that the success manthan of their world produced.all, we gave up everything Indian — our ideas, our people, our pride; our vigour, dynamism, originality; our very Indianness. The ongoing crisis could be an opportunity to change all that.
But before we move to the other end of the pendulum and shake off the good along with the bad, let us be circumspect and borrow the best from the West and the East --- with one caveat: keep the interests of India and Indians above any theory, action or -ism.