A VADE MECUM ON PRAGMATIC PROGRESSIVISM (Vinkers Personal Finance) May 2016

In ‘An Economist in the Real World: The Art of Policymaking in India ’, Kaushik Basu draws on his previous experience as Chief Economic Adviser to the Government of India to present to policy makers and fellow economists an inside view of the challenges when in power. Avowing his attachment to progressive values and admittedly hailing from a field which ‘is not a moral subject’, the author with great humility, reminds us of the crucial role of Government, its limits and that of the ‘dismal science’ that economics is.

 

Basu is among a handful to have bridged the gap between the world of high level academe to that of decision making, or as he puts it, he parted ways with ‘hedonism (…) to try to make some direct and palpable contribution to society’s economic well-being”.

 

Insights on the inner workings of the economy are numerous and engrossing as Basu details his ‘bouts’ against oligopolistic forces in the food grain market; how he successfully fought for smaller consignments to be distributed thereby allowing more traders to be part of the market. As interesting is his assessment of China’s export strategy with an exchange rate that is artificially undervalued and which has ‘habit formation’ as keystone. This approach has provided a lucrative customer base to the other Asian Giant. The writer also explains the United States’ newfound love for India; the direct result of feeling threatened by China’s rise.

 

 

Broadening the field

Following in the vein of very few of his contemporaries (Stiglitz, Piketty, Sen and Atkinson prominently) who are fighting against the orthodoxy in their field, Basu boldly states that economists do not have the answers to everything (‘there is a lot that we do not understand’ when dealing with inflation), that aping what has been done in the past does not materialise into guaranteed success (‘History makes suggestions but rarely gives a road map’) and that letting the invisible hand dictate is a ‘folly’. Likening the opposition of regulation and crony capitalism to a battle between good and evil, Basu highlights the importance of ‘evolving regulation (…) to sift the good from the bad’.

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Inequality, ‘the defining challenge of our time’ according to Obama, is also at the heart of the researcher’s concern. Very compellingly, while not dismissing the virtues of the free market, he highlights that without ‘purposive action on the part of government, community and society’, this ailment is unlikely to cease. To those who profess that this woe is but the natural order of things, he reminds his readers that when slavery was prevalent, “there were plenty of people who saw nothing wrong with the practice and believed it was the most suitable fate for the “inferior” slaves.”

 

Man at the centre of progress

As his counterpart Stiglitz, Dr. Basu regards the use of GDP as sole yardstick for judging a nation as being grossly insufficient. While he agrees that income distribution matters, other ‘indices of health, security and sense of dignity among ordinary people’ are as crucial. This people-centric view of the economy is furthered by the specialist who advances the view that no change of policy can be successful without people being part of it. And this can only work through an ‘ethos where people are incentivised to deliver what needs to be delivered’.

 

Hubris

The Chief economist and Senior Vice-president of the World Bank warns us against the know-it all figures who embark on perilous routes and end up jeopardising the economic foundations of their countries. The key message is that humility is an integral part of managing the economy and wanton actions are to be shunned;

 

“The reason why knowing one’s limitations is critical is that for any national economy, even the smallest ones, what the leader knows and can directly do will be severely limited. Economic leadership entails knowing one’s limitations and having judgment about where one can directly act, and where one cannot and must draw on other people’s expertise.”

 

This work is an important contribution to field of economics and crucial for leaders of emerging countries. The author delves into a number of topics that sound very a propos to the Mauritian context. From combating poverty to setting the level of taxation and identifying camouflaged Ponzi schemes, the economist shows that the complexities are countless and the grey areas are many (His deft explanation of how corruption proved to be a blessing at the height of the economic meltdown shows the contradictions of the economy). This is a seminal work also because Dr Basu shows that through reasoning and common sense it is possible to say no to the prevailing economic doxa.

 

 

An Economist in the Real World, The Art of Policymaking in India, Kaushik Basu, MIT Press (2015)

The Abyss

From Bad to Worse

Tilted Scales

Tilted Scales

Ideas brought to light by voices from the left are welcomed additions to an otherwise regressive political arena. The author heralds the contribution of Professor Anthony B. Atkinson’s ‘Inequality: What Can Be Done?’ to progressive thought.

Hope never dies. Heightened vibrancy and quality to the debates on inequality remind us of the need to face the neo-liberal hydra that cripples our societies. Socialism, when not anaesthetised can be rendered potent enough to ensure fairness. These promising times for the left could translate into better lives for citizens.

“Wealth, like suffrage, must be considerably distributed, to sustain a democratic republic; and hence, whatever draws a considerable proportion of either into a few hands, will destroy it. As power follows wealth, the majority must have wealth or lose power.”

John Taylor, “An Inquiry into the Principles and Policy of the Government of the United States” (1814)

Alternative voices are now more prevalent in the media. Academic works of Atkinson and Piketty, political ‘revolutions’ with the mass appeal of the likes of Corbyn and Sanders, the wisdom of seasoned economists (Stiglitz’s ‘The Price of Inequality’ and Bourguignon’s The Globalization of Inequality more prominently) having percolated to the mainstream as well as the upbeat spirit of figures on the left (Paul Mason’s criticism of capitalism) herald a change from the formatted ideas and the caveats of the No Alternative cohort that we have been accustomed to. All of these are crucial contributions towards rendering equality relevant. If any, the opprobrium cast against Corbyn testifies how the elites cringe when someone stands up to it.

« l’humanité n’est jamais stationnaire. Elle avance ou recule. Sa marche progressive la conduit à l’égalité. »- Blanqui,

Rising inequality is at the centre of the fray. Described by Obama as the ‘defining challenge of our time’, it is the result of the dearth of policies towards taming the interests and appetite of those holding economic power. François Bourguignon highlights the dangers of inequity which ultimately lead to discriminations in the markets for labour, goods and services. In Mauritius, the entrenching of disparities as evidenced by the Gini coefficient is often left unaddressed in Governmental policies. The keys of the economy are best placed in the hands of financial backers. However, as Atkinson rightly weighs in, the need for a ‘countervailing power’ is urgent.

‘Ils diraient volontiers, en parlant du peuple : cet animal est si féroce qu’il se défend quand il est attaqué.’- Blanqui

Dubbed ‘the doyen of inequality economics’, Anthony Atkinson offers insights on what can be done to curb inequality in his influential work. The 15 proposals, described by the writer as ‘radical but realistic’, are explained in simple terms and thus accessible to anyone interested in the subject. Piketty, a student of Atkinson, paved the way for the newfound interest in unfairness. His mentor’s book builds on the same verdict to offer cures to an ailing woe.

Gist of the Proposals

The Man-Machine Relationship

The academic recommends that policy makers should not neglect the human element when embarking on technological change. Care should be taken to encourage the type of innovation that increases the employability of workers.

The scholar uses the example of the taxi driver who takes client from the airport to the hotel to emphasise that the human interaction offers reassurance and allows key information to be shared with the client and is in essence a joint product. The proponent of equality highlights that ‘the human service element adds up to the relative productivity of people vis-à-vis capital’.

Balancing the scales

Departing from the blinkered view that the focus should be on shareholders, the author underscores the need for policy-makers to ensure that power is well balanced among the different stakeholders. In this regard, the Professor is a proponent of including a distributional dimension to competition (‘consumer welfare is an aggregation of individual interests that are diverse and that can be combined only by some process of weighting the circumstances of different groups’).

Additionally, the author judges that it should be enshrined in the laws that trade unions can represent workers on level terms and that social and economic councils including social partners and other non governmental bodies are created. If they already exist as is the case in Mauritius, be reviewed and further strengthened. The scholar cites the example of the ‘Sociaal- Economische Raad’ of Netherlands which has an active role in policy formulation.

 

Of Employment and Earnings

Atkinson makes the bold case for guaranteed employment by proposing that the government should act as an employer of last resort and that this recruitment should be effected at the minimum wage to those who seek it. Public employment programmes have formed part of the New Deal in the U.S while the Mahatma Gandhi National Rural Guarantee Scheme in India is the largest endeavour of the kind and guarantees 100 days of public sector employment to all rural households. This would affirm the value of work, thereby sending a message that “no one is too small to fail”. In Mauritius, where youth employment is daunting, this would help salvage a lost generation.

Furthering his ideas on earnings, Atkinson recommends the adoption of a National Pay Policy which would have 2 parts to it; a minimum wage set at a living wage and a code of practice for pay above the minimum agreed as part of a ‘national conversation’ with the Social and Economic Council. This dialogue would have at its heart the equitable distribution of growth.

 

Ensuring a decent return on savings

Anthony Atkinson’s indictment of the fate of UK pensioners who can no longer sustain themselves as the return on savings is too low deserves our attention. This is a worldwide phenomenon, as the IMF’s World Economic Outlook states, “Real interest rates worldwide have declined substantially since the 1980s and are now in slightly negative territory”. As the inequality expert explains; small savers are the ones most penalised by the low interest rates.

Appeal is made to authorities to ‘offer via national savings bonds a guaranteed positive real rate of interest on savings, with a maximum holding per person’. Indexed-linked savings referred to as ‘Granny bonds’ (as they were restricted to people above retirement age) have been issued for small savers in countries such as the UK and Ireland.

Inheritance for all

Atkinson reminds us that inheritance allows the wealthy to conserve their position at the top of distribution. To counter this, he recommends that a capital endowment (minimum inheritance) should be paid at adulthood. An idea dating back to Thomas Paine who advised the creation of a national fund from which every person reaching the age of 21 was offered a compensation for the loss as the result of landed property. In modern times, this ‘inheritance’ could take the form of a start-up grant for young people as recommended by Le Grand and Reich.

“As the returns to capital continue to outpace the returns to labor, this allocation of ownership further aggravates inequality. Ownership should be broadened through a plan that would give every newborn American an “opportunity share” worth, say, $5,000 in a diversified index of stocks and bonds—which, compounded over time, would be worth considerably more. The share could be cashed in gradually starting at the age of 18.” Robert Reich

 

Atkinson further delves into the inheritance conundrum by advocating the inheritance tax should be scrapped to be replaced by a progressive lifetime capital receipts tax. The alternative thinker reminds us that this idea was enunciated by John Stuart Mill who suggested that ‘a heavy graduated succession duty on all inheritances exceeding a minimum amount, which is sufficient to aid but not supersede personal exertion.’ This new fiscal arrangement would ensure that ‘every single legacy, or gift received by person would be recorded from the date of initiation of the tax, and the tax payable determined by the sum received to date’.

A Strategic State

In a piece in The Observer, Jeremy Corbyn, frontrunner in Labour’s Leadership battle stresses on the importance of ‘shared economic growth’ which can only be created through a ‘strategic state’ (A literal translation of Martine Aubry’s ‘Un Etat Stratège’) in opposition to ‘an absentee government’. The Islington MP defends his perspective with economic realism, ‘If you want to revive manufacturing and rebalance the economy then you need a strategic state leading the way’.

 

In the same vein, Atkinson prescribes the creation of an investment authority that should be created, operating a sovereign wealth fund with the aim of building up the net worth of the state by holding investments in companies and in property. As the economist puts it, ‘The State should be seeking to build its net worth by enlarging its holdings in companies and of property’.

 

Progressive Taxation

Laying the ground for his idea that a more progressive levy structure should be adopted, Atkinson hammers that the main goal of fiscal regime should not be revenue maximization but that we should rather focus on the social objectives with fairness as the keystone. The author advocates up to a top rate of 65% in his work. The academic further advises that an earned income discount should be introduced which would limit the tax imposed on middle and low income earnings. This ‘modest help’ would help those with humble earnings but would not convey the benefit to those with investment income. Quoting from the Mirrlees Review of taxation which highlights that properties need to be taxed on evaluations that are realistic and should be based on current market prices, Atkinson’s cures also include the inception of a property tax based on up to date property assessments.

“An immense wedge [is] being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down.”- Henry George, “Progress and Poverty” (1879)

A better future for our children

Atkinson’s perspective is distinctly on the long term as he recommends the paying of child benefit at a substantial rate. As Atkinson puts it “the investments we make today in disadvantaged children promote social mobility, create opportunity and foster a vibrant, healthy and inclusive society and economy”. Unlike many others who recommend the targeting of families with low incomes, Atkinson disagrees and avers that ‘children are here today and should count today’ and should be deemed as individuals on their own. He thus stands firm by the idea of the universality of child benefit irrespective of the income levels of their families.

A Basic Income to everyone

An idea that present in Rabelais’s and Paine’s writings and defended by Amaryta Sen and Milton Friedman; a universal income paid to everyone. This citizen or participation income would complement any existing social transfers rather than transform them.

 

Atkinson opposes the ideas of John Rawls (firmly against the idea of an income for ‘those who surf all day off Malibu’ and the Belgian philosopher Philippe Van Pariks who believes that participation cannot be used as the yardstick to gauge whether someone deserves a basic income and that everyone whether is ‘participating’ or not should be entitled to same. In 2016, experimentation of a basic income to all without any discrimination based on employment status will be carried out in Utrecht.

Aligning Social Contributions to the new

Atkinson deems that the social security contributions need to be adapted to the changing nature of work. The economist for example highlights the importance of including non-standard workers in the protection net.

The final proposal to offset inequality originates from a global perspective. In line with Amaryta Sen’s proposal in ‘The Idea of Justice’, Atkinson advocates that rich countries should raise their target for Official Development with an assistance of 1% of Gross National income.

Ergo

Through sloganeering, the admonishing of public servants, the waiving of taxes for the haves and thinly veiled currency manipulation, successive governments have shown their commitment to their financers’ pleonexia. With no incentive to young entrepreneurs, the purchasing power of lower and middle classes clobbered and the laissez-faire philosophy being celebrated, we know that the deluded prophets will be chanting the trickle down mantra yet again. Voters for change in last December’s elections are unlikely to appreciate the vile piquancy of the situation. Left with gossamer changes and waltzes in inanity from blithe politicians, the answer lies in a citizen movement fighting for equality. As Atkinson puts it, “collectively we are not helpless in the face of forces outside our control.”

References and Recommended Works:

Inequality-What Can Be Done? , Anthony B. Atkinson, Harvard University Press, 2015

How to Shrink Inequality? by Robert Reich (http://www.thenation.com/article/how-shrink-inequality/)

The Globalization of Inequality, François Bourguignon, Translated by Thomas Scott-Railton

Princeton University Press.

The Tories are taking us back to 1979 – we need a strategic state by Jeremy Corbyn, The Observer, Guardian Media Group, 23^rd August 2015 (http://www.theguardian.com/politics/2015/aug/22/jeremy-corbyn-labour-leadership-strategic-state)

Capital in the Twenty-First Century, Thomas Piketty (Author), Translated by Arthur Goldhammer, Harvard University Press, 2014.

Agrarian Justice, Thomas Paine, 1797 (http://www.ssa.gov/history/paine4.html)

Textes Choisis, Auguste Blanqui, avec préface et notes par V.P. Volguine, Editions Sociales, Paris 1971.

The Price of Inequality: How Today’s Divided Society Endangers Our Future, Joseph Stiglitz, W. W. Norton & Company, 2012.

Of Decay and Rebirth (Part 1 of 2)/Le Mauricien 20 Mai 2015

Of Decay and Rebirth (Part 1)

Of Decay and Rebirth (Part 1)
In the first of this two part series, the author highlights the need
for reforms within political parties as a harbinger for real change.
It will not be easy.
Fighting for something noble never is. This is a system that has long
existed. It is rotten and has made legions of followers rich. Wisdom
is unlikely to dawn upon the beneficiaries. No epiphany is on the
horizon. Neither should we expect the insiders to relinquish their
desire for easy money nor to limit their own power by welcoming new
ideas and faces. The truly progressive parties should welcome
transformation.
The lid on the dustbin of rancid politics was blown off in February.
The stench has never subsided. Opaque financial maneuverings strongly
rumoured to exist in the political sphere were brought to light. Other
sinister facts have continued to emerge gradually, thereby keeping our
disgust brimming. Parties had been reduced to the role of protecting
the interests of those financing them. But then democracy has never
existed in some parties with dynasties exercising their patronymic
privileges while ethno-casteist considerations continue to thrive in a
most nonsensical manner in others. Even the illusory veil of honesty
has been shattered for those wearing rose-tinted glasses. The shtick
of the seasoned actors no longer works.
Is this politics? This pettiness, this celebration of scandal prone
leaders. This feeding of an opaque and often non-meritocratic system
of awarding tickets which vests all the power in the hands of few?
This cartel that ostracises those who refuse to show enough
flexibility and pledge themselves to kowtow to the party heads? This
caustic stew plagued by the lack of desire to reach out to others; the
unionists, the working people of this country, the artists, the
entrepreneurs and the honest folks that represent a formidable source
of new ideas and paths.  Should it continue to be articulated around
the distribution of hollow titles that are meant at keeping the fools
silent? Is this the age where the long traveled yes-men discover
unexpected revolutionary qualities at the end of their treacherous
journeys and find some solace in desecrating what they adored?  Will
the endless sputtering and jarring continue to dispel hope? This
parody has to end.
We need a revolution and it starts with how parties are run. There is
a need to render their activities as transparent as possible. On
financing, on meritocracy and internal democracy. Renewal has been put
on hold in the absence of strong measures to ensure that new voices
and ideas find their way to Mauritians. A limit on the number of
mandates of MPs would augur a new age. Party cadres need to understand
that the better interests of the country lie in ensuring that they are
replaced after a fixed period. This will allow democracy to thrive and
the omniscience of unchallengeable party members curbed significantly
but more importantly will dampen any desire of clientelism.
A second substantial step would be to improve the organisation of
internal elections within parties. It has to be carried out following
a prescribed calendar with known dates. It has to involve ideas and
not be reduced to a popularity contest. For this is the issue. People
vote on the basis of the media coverage garnered by the different
participants. And how do you vote for echoes. The voices are sparse in
the arena. We need more people with judgment to defend values and bold
ideas. Those who find themselves vouching for the same ideology can
then unite and disseminate what they stand for to as wide an audience.
Voting for ideas instead of people should be at the heart of any real
reform within party politics.
But then, who should vote? Should elections be only open to party
members in an era where partisanship is low? Or should parties reach
out to everyone with like-minded ideals and ideas; to citizens that
are attracted to the proposals being debated. This is the moment where
we fill the chasm between political parties and voters and make them
stakeholders in something noble and profound, where the vision of
politicians and the hopes of voters are elided into one. In the same
vein, open primaries for the choice of candidates are a must if we
want to transform people into difference makers. This would be in line
with the Aristotelian definition of citizen; someone who participates
in ruling and judging in the polity.
Party financing remains the most disturbing blot on a tarnished
tableau. It is dangerously opaque and places the interests of the
masses below that of the lobbyists and financers thus disrupting the
reciprocity of justice that voters are to expect. Progressive parties
need to understand how crippling the overtly generous political
donations are. They pervert the perspective of those who are elected
as they are indebted to their donors and end up ensuring that power is
placed firmly in the hands of the powerful. The publishing of the list
of donors and the sums donated would be only the first step towards
openness. A limit on the donations would be salutary to ensure that no
party becomes another business unit of a conglomerate.
The country’s elation in December has quickly given way to a period of
deep tumult. There has been no healing as we have been thrown into a
financial maelstrom of unseen proportions at domestic level. This mess
has arisen out of excessive power placed in the wrong hands and the
incestuous ties of politicians with financial backers. Accountability
is the maître-mot and in Aristotle’s Politics is key in securing “that
which is the greatest good in polities; the right persons rule and are
prevented from doing wrong, and the people have their due”. And the
people deserve their due.

All Mystery and No Magic

Interview L’Express Samedi/Fevrier 07/02/15

REINVENTONS LE MMM

Article de Presse

The better angels of our nature (L’Express 19/11/14)

The moment is significant. Rightly, the focus is on the creation of jobs. The prospect of a lost generation hovers dangerously above our common future. There is the need for unity in the face of brewing storms. However, unity and neoliberal policies do not bode well. The youth faces unemployment and insecurity, unaffordable housing prices and dwindling social mobility. Ed Miliband’s words convey the despair: “Young people who fear that they are going to have a worse life than their parents.” Attention grabbing figures are thrown at us to quell our doubts. The sloganeering is out of place.

A lack of far-sightedness plagues us. The one graduate per household epitomizes how a noble idea that that has been poorly planned can create havoc. While knowledge is certainly power, poor preparation can cripple an educated cohort. The feeling of despair the unemployed have endured over the last couple of years highlights the importance of review mechanisms to evaluate policy decisions. We need to get people to work. Keynes playfully suggested that notes be buried in coalmines so that jobs could be created and income provided to the jobless. Tackling unemployment should be the focal point of our economic agenda.

Another related concern is to give the disheartened due recognition and keep them occupied. In Sweden, the creation of an Active Labor Market Program goes beyond the offering of cash benefits to include support, skills and a plan to get back to work. Those who have lost their job need a caring Government. The role of the latter has to extend beyond the bailing out of failing enterprises and embrace that of a strategic partner, a scrupulous regulator and initiator. Stuckler and Basu in their seminal ‘The Body Economic’ underline the importance of employment in chaotic times, “In hard times, having a stable job is often the best medicine. Unemployment and the fear of unemployment are among the most significant drivers of poor health in an economic crisis”.

The easy way out is to set as objective a higher rate of economic growth. Achieving such a goal borne out of a dogmatic vision can only be deemed a pyrrhic victory if not accompanied by jobs and greater prosperity for all. This obsession with growth figures is dangerously misleading if there is no understanding of the grander perspective. As Robert Kennedy pointed out;

“It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.”

The new government will need to commit itself to a New Deal with Mauritians; A contract which offers Mauritians stellar morality in public and private spheres, the closing of inequality gaps, a level playing field and greater security.

This can only materialise when politicians cease to act as pawns for powerful lobbies and relinquish their vested interests. Mauritius cannot be the land of a handful of privileged. The theory that by heaping privileges upon the haves, the ensuing prosperity will percolate to have nots is highly debatable. Real change will only come to fruition when what makes us noble constitute the pillars of our political decision making.