News & Analysis
Corruption of India's Economic Miracle?
India Says No to $80 Toilet Paper ... An anticorruption campaign has given voice to a growing middle class tired of public indignities ... A year ago, no one in India could have imagined that cabinet ministers, powerful politicians, senior officials and CEOs would be in jail now, awaiting trial for corruption. The credit for this dramatic shift belongs in no small part to the anticorruption movement of a 74-year-old activist, Anna Hazare, supported by determined justices of the Supreme Court, an exceptional auditor general, rival television channels in search of "breaking news" and, crucially, a newly assertive Indian middle class. The long-term impact of this movement is unclear. It could lead to something profoundly good, or it could destabilize the whole system. – Wall Street Journal
Dominant Social Theme: If India could only remove the corruption plaguing its government, prosperity might come to all ...
Free-Market Analysis: More and more is being written about the anti-Indian corruption movement, which is led in part by Anna Hazare (see above article excerpt). We've commented on this movement in the past, which is gathering momentum in India and may in fact partake of the austerity meme sweeping Europe and America. You can see the original article here: Government Anti-Corruption Meme.
The original article focused on another austerity and anti-corruption campaigner, Swami Baba Ramdev. Baba Ramdev has insisted that India's large denomination bills – Rs.500 and Rs.1000 – should be withdrawn from the entire country in order to lessen financial fraud.
The anti-corruption meme is now complicated by skepticism about the bonds of so-called BRIC countries such as China and India - which has seen significant weakness in corporates of late. There are fears that both India and China will be affected by a further slowdown in Western economies. (We hadn't noticed they'd picked up.) Markets slumped around the world overnight.
China and India are both vulnerable to Western slowdowns. But the corruption issue, for India anyway, has taken center stage. The original article focused on another austerity and anti-corruption campaigner, Swami Baba Ramdev. Among other things, Baba Ramdev is seeking direct elections, the repatriation of all illegal funds, a methodology to ensure that all Indians declare and pay their share of taxes and, finally, the death sentence for any politician found to be corrupt. Anna Hazare is seeking stern measures to counteract corruption as well.
Hazare once served in the military and lives off his military pension. He has no family and stays in one room attached to a temple in the village of Ralegan Siddhi, which Hazare has transformed over the 30 years from poverty-stricken helplessness into a showplace of Indian modernity.
In doing so, Hazare has gained a somewhat authoritarian reputation. By virtue of his small military pension he was one of the wealthiest men in Ralegan Siddhi and over time he has been able to enforce his will on the community. He has banned smoking and drinking and has been known to flog citizens publicly for drunkenness.
No elections have been held in Ralegan Siddhi for at least 20 years, apparently on the instructions of Hazare. He has reportedly demanded that lower-caste families go on an all-vegetarian diet and has apparently flogged some who refused. His anti-corruption revolution, nonetheless, has resulted in great strides for Ralegan Siddhi as a model civic showplace. Poverty has been markedly reduced. Clean water and numerous other community advances have been lauded by the World Bank among other UN agencies.
The conclusion being reached by the UN and Western media alike seems to be that, generally speaking, the movement is a very good thing for India. If India, the logic seems to go, can reach a level of honesty and transparency of Western societies, then what has traditionally been seen as a third world country, can transform itself into a first-world estate similar to Europe, Britain or America.
Hazare, who dresses only in white, has styled himself as a modern Mahatma Ghandi, and this has no doubt helped his appeal at home and abroad. He has used hunger strikes like Ghandi and and marches against the government. A hunger strike last month in Delhi resulted in the government agreeing to consider a platform of Hazare reforms, which the Wall Street Journal calls a significant achievement as politicians of all parties have "stonewalled the creation of an anticorruption agency for 40 years."
Hazare's support, which seems to have deep resonance with the Indian middle class, is important, too. The Journal estimates that "the middle class is almost a third of India's population today, up from 8% in 1980. Since reforms in 1991, India has become the world's second-fastest-growing economy and the middle class is expected to become 50% by 2022." Here's some more from the Journal article:
"There are still vast areas of horrible deprivation, but a significant number of Indians have experienced a palpable betterment in their lives. As a result, the discourse of the nation, or what Alexis de Tocqueville called "habits of the mind," are changing. People have begun to believe that their future is open, not predetermined, and can be altered by their own actions.
"The same thing happened in the West after 1800. In her book "Bourgeois Dignity: Why Economics Can't Explain the Modern World," Deirdre McCloskey argues that the West rose not only because of economic factors but because the discourse about markets and innovation changed. People became encouraging of entrepreneurs. New perceptions and expectations emerged.
In the same way, the rise of India and China has brought dignity to their middle classes. Ordinary conversations over chai in India are now about markets and focus on the contrast between private success and public failure. While the private sector provides cutting-edge services and products to the world, the roads outside are potholed, electricity is patchy and water supply erratic. The difference between the two worlds is accountability: In private life, if you don't work, you don't eat; in public life, jobs are effectively for life."
The Journal has some cautions. Hazare's movement may contribute "to undermining India's finely crafted constitutional system, which has made its democracy the envy of the developing world." Hazare's hunger strikes have caused change, but legislation can only be realized by working within the system.
"India's churning reflects a deep middle-class anger with pervasive graft in the government, police and judiciary. Bourgeois dignity may well hold the key to this Indian puzzle, but it needs to find expression within the bounds of the country's constitutional system. Street theater seldom makes for lasting reform—and sometimes brings down the good with bad."
This is the conclusion to the article, and while it sounds reasonable, it seems to us that the assumptions on which the article is built are not necessarily accurate. For one thing, the article glosses over the fairly Draconian authoritarianism of the anti-corruption movement.
For another, the article assumes that the current Indian vitality is the result of inexorable cultural and entrepreneurial shift. We would argue this is entirely incorrect. India's resurgence is driven by central banking money printing and may not be seen as a natural expression of industry and society.
It is extremely important that the progress of the BRICS be placed in perspective. Brazil, China, India, even Russia, all have aggressive central banking policies. China and India, especially, have economies that are obviously being stimulated by excessive money printing. Both countries have a problem with price inflation as a result.
Progress built on printing money from nothing is ephemeral. In America and Europe, thanks to the debasement of money and the vast resources it grants (temporarily) to government, economies can seem quite healthy one moment and then ill the next.
Money printing hollows out economies. It distorts business and job growth. It makes people feel wealthier than they are in reality. In both China and India, economic implosions will eventually take place. It cannot be otherwise, because central bank money stimulation inevitably leads to an exaggerated business cycle and subsequent busts.
For this fundamental reason in particular, the Wall Street Journal article is flawed. India has not necessarily experienced a resurgence of business and market creativity. It is simply going through the same cycle of monetary stimulation that the European PIGS and America went through recently.
Such monetary stimulation inevitably leaves behind ruined and fractured societies. In the case of India, the anti-corruption movement will likely make things worse, as it is in no way an expression of ancient Indian culture, which was decentralized and extraordinarily tolerant.
The India of today, based on reports having to do with the anti-corruption movement, would seem to be inheriting the worst parts of Western socioeconomic systems. India's decentralized principalities have been merged into one bureaucratic morass.
Money printing, in fact, is fooling the Indians into believing their economy is far stronger than it is – and also increasing the corruption of the bureaucracy. The anti-corruption movement is providing the Indian middle class with a simplistic approach to dealing with such problems.
The real issue of the way the West has organized Indian society from the top down, starting with central banking stimulation, are not being addressed. The solution is seen as one of authoritarianism rather than a reconfiguration of India's basic institutions.
The waves of authoritarianism sweeping through the world today are the direct result of the failed economic systems that the great banking families of the West have worked assiduously to put into place. India is not immune to such "austerity" and to a kind of neo-fascism that is taking place as leaders attempt to offer solutions that have little to do with the actual problems caused by monetary inflation, taxation and over-regulation. India suffers from all these problems today.
Conclusion: To a good degree, unfortunately, there is no Indian "economic miracle," only a false euphoria based on monetary stimulation. Within this context the Indian anti-corruption movement can be seen as further degradation of a powerful and ancient culture that once featured tolerance and forbearance rather than the bureaucratic prophylactics favored by the current crop of authoritarian "reformers."
Posted by vivek on 09/08/11 04:52 AM
My take, actually on the prodding of a DB reader:
Someone wrote in asking what I thought of the whole Anna Hazare led Anti-corruption crusade in India.
It looks like one of the most stage managed affairs I've ever seen. of course I'm cynical of the system. Anna has been 'spot-lighted' via some brilliant marketing strategies, using as props, amongst a long list: Gandhi….in your face, the new gandhi. First off, the old british stooge gandhi did us no good. He served his british masters well, holding India back from fighting off the tyranny through non-violence, while violence was visited upon indians in vicious, relentless brutality. Sure, he saved his master's hide well. Left his mark with an India aflame in communal rioting. And with his co-conspirators jinnah and Nehru, left India, never a nation anyways, divided three-ways and forever at each other's throats.
So, that was Gandhi's legacy. Seriously, any Indian's getting their knickers in a twist reading this should get the propaganda, father of the nation crap out of your heads and look at this effette, british trained barrister, trained in Africa (Gandhi was quite the white worshipper by the way), who was presented as a saint, readymade from South Africa. for an Indian population needing one such. How convenient.
Anyways, if that was Gandhi I's legacy, what will this media created Gandhi II leave us with? Sure, he did good work in his village and surroundings. I'd suggest any Right to Information Activist get a list of who purchased land in and around Ralegan Siddhi in the past 7 years and also along the major highways leading to it. It will tell you how long Gandhi II has been in the works and if it yields nothing, then how short-lived this is going to be.
It has been a screaming banshee circus…24X7 TV coverage of a fast unto death that transmogrified to a fast unto something both sides could agree was a breakthrough, to mud-slinging…..
And look at the proposal… to create another giant bureaucratic nightmare. Other humans, equally corruptible. Just saying my morality is better than yours.
What India needs to do is to see the in-debting, en-slaving, de-nuding, eviscerating, culture-destroying westernization for what it is and throw it off.
Refuse to participate.
Actually that is good advice for the world over. Leave the system that is constantly branding you. Do less. Do with less. Do more with less.
India is the deer in headlights of a long perfected (on their own people) social engineering machine that is an awesome opponent. Everywhere, relentless, amoral…..
That is the true path to de-corrupting India. Each one become un-corrupted first. But that is a tall order. Easier by far to join a gang, a crowd, nameless but a part of the brute, unthinking mass that always shoots itself in the foot, following another false messiah. One after another.
Good summary by DB, as always, deeper layers exist.
Click to view link
Reply from The Daily Bell
Thanks Vivek. A most "illuminating" analysis. We are in your debt.
Posted by RR on 09/05/11 11:09 PM
The present Indian system is quite decentralised and very difficult for one small group to control. The power elites are helpless in this setup. No one listens to them. Everyone of any importance wants his cut or hell with you is the name of the game in India.
The PE find it extremely difficult to function in this system. The anticorruption movement is a plan to give draconian powers to the PE. Anyone who opposes or does not fall in line, will have a corruption case against him. Soon in a few years, everyone in any position of authority will be a puppet of the PE.
This movement is a sad development in Indian history. It was not unexpected. The " Pherangies " have planned it well. They first bought all the mainstream media in India. Today all the Indian national newspapers and TV channels are owned by the " Pherangies ". The great Indian leader who knew how to control these western "Pherengies" was assasinated in 1984.
That is why they called her names. India today is under the control of an Italian lady who has no clue of the western money masters and what they plan for India. It is going to be a repeat of the East India Company and slavery once again for Indians if they do see through this game. Sadly very few Indians understand and I am quit pessimistic.
An illitrate retired truck driver from army and a goon is passing off as a Gandhian and the "Pherang" controlled press has whipped a mass frenzy. DB is right as always.
Reply from The Daily Bell
Thanks so much for these insights, RR; they sound quite plausible. Write again on such issues if you choose too ...
Posted by provolone on 09/05/11 02:39 PM
I am living as an expat in Nepal, India's northern neighbor. My earnings come from various Internet based ad companies. Why I should stay in The States and pay full price and taxes, I do not know. Nepal's role is mostly as a pawn to be contested by both India and China. Culturally, it is more similar to India than China.
Corruption or 'graft' as it is called here is truly out of control. In one notable incident this year, members of parliament were caught selling their diplomatic passports. As this pertains to the free market and economics of the region, it is a real turn off for foreign investors. The banks offer some 14-16% interest, but I wont go near them. There is no honest safety from scamming in a place where the law is for sale. As for starting a business, there are many opportunities, but I would not dream of parking myself on the spot where I could be extorted by officials.
So when you report: "Dominant Social Theme: If India could only remove the corruption plaguing its government, prosperity might come to all"
There is some accuracy to that statement if I am to believe there is any similarity in the two countries. As a point, Nepal has the second highest potential for hydroelectric power generation in the world. Investors will not touch the projects. Money spent by international development organizations is pocketed by government cronies. Of course the fear of the state nationalizing any investments into infrastructure also plays a role, but that is intimately related to corruption in my eyes.
Nepal has outsourced its currency production to a French company. It is not a country known for avoidance of state run industry. There is even a state tobacco interest. During shipment of the currency back to Kathmandu a container disappeared. Even printing more money has become a victim of corrupt activities. The government tried to outlaw the previous high value notes, but the people holding the stolen notes have such great influence that the measure was repealed. Naturally there is a liquidity crisis, but investors will not touch the country. I was once given a stack of 500 NPR notes at the bank because they simply did not have enough 1000 NPR notes to fulfill my request.
There is an upside to corruption in that all regulations can be bypassed with cash. In the end I suspect the costs to be greater than even a highly regulated state with rule of law.
Posted by josejoe on 09/05/11 02:19 PM
well. with india overrun with billionaires,how long will it be before the usa has the same problem with trillionaires?
Posted by provolone on 09/05/11 02:14 PM
"I learned that taxi licenses were similar -- some insane multiple like 20 to 30 times the cost of the car itself, perhaps a lifetime of earnings"
Check the cost of the license for a NYC hotdog vendor. Last I heard it was greater than 100k USD. Maybe that information was incorrect, as I heard it from a word of mouth source. Online it seems that there is a lottery system. Most likely some organization enters a large number of applications and then subcontracts out the license to the actual vendor for that incredible fee.
Posted by gamma ray on 09/05/11 01:55 PM
Draconian authoritarianism of the anti-corruption movement indeed!
IMO, the most egregious project spawned from the Indian anti-corruption and anti-poverty meme is the work being done to fingerprint and scan the retinas of every Indian citizen (as reported this weekend in the NY Times).
No doubt TPTB get a dopamine spike in their nuclear accumbens imagining widespread use of RFID collars with shocking devices on all the serfs (bringing to mind images of the classic . The globalists' goal to chip the U.S. population hit a snag more than a decade ago when farmers resisted the National Animal Identification System (NAIS). Resistance to NAIS was not only an outcome of the program having been set up as an extraordinarly cumbersome one requiring constant reporting of all births, deaths, and transport of animals but also because NAIS smacked of a precursor to "the mark of the beast" in the eyes of conservative Christian farming families. Further complicating the plans of the power elite, studies found that microchipping posed a signficant risk for cancer in laboratory animals and pets at the site of injection.
As an ironic aside, the NY Times article championing the Indian biometric ID program as being a cure for corruption and poverty was an amusing contrast to their recent jubilation in an article at how wonderful it was that India has so many billionaires with the clear message being that it was good for India and good for India's economy, although, no mention as to how this reflects a further concentration of wealth - another sign of corruption.
Posted by flying_pig on 09/05/11 11:27 AM
1. Indians are supposedly opposed to corruption - but money printing (counterfeiting) is not considered corruption according to Indians.
2. Hazare's achievement is just another step along the Road to Serfdom - the call for strong leaders to emerge has been answered
3. The fake money printing induced Indian boom is unsustainable despite all the pious protestations of the Indians.
Reply from The Daily Bell
Ha: "Too long; didn't read."
Anyway ... good summary. Though maybe you lost a bit of "nuance?"
Posted by John Danforth on 09/05/11 10:37 AM
The India I saw in the mid-1980's would not have seen any increase in the standard of living of the middle class if money-printing were the only strategy used.
The sole tea-vendor in the train station had at least eight bicycle-sized license plates affixed to his tray. I was informed that those were all official license plates, and that the monopoly power granted by those plates cost approximately several year's earnings in bribes and fees to secure them.
I learned that taxi licenses were similar -- some insane multiple like 20 to 30 times the cost of the car itself, perhaps a lifetime of earnings.
My visit there was to service equipment for the only auto manufacturer in the country, which existed as a state/private monopoly. At the time, theirs were the only cars allowed for sale, and import/export restrictions pretty much killed any option for buying and selling across borders for any but entrenched insiders.
The stultifying bureaucracy apparently made it simply impossible to do almost anything -- and the result was that all of the infrastructure had been built by the English before they left, and it had pretty much been crumbling since.
The legendary tolerance of the Indian people extended to tolerance of existing conditions and a fatalistic attitude towards corruption, accepted as simply as was the color of the sky. It was a startling object lesson for me to learn what the real effects of 'the world's largest democracy' were.
I am not any kind of expert on India, having left the territory with the resolve to never, ever go back. Nonetheless, something fundamental has changed since then that no amount of counterfeit money-printing could accomplish. At the least, the noose had to be lightened to allow people to start businesses without being killed in the cradle by local bureaucrats. The main essential difference now is that India has had an industrial revolution, and people are now busily engaged in making products for sale. Without the value-creation process, their economy would have fizzled immediately.
All this is not to take away from the points raised in the article, but to round out the picture a little. Central bank money-printing is every bit as dangerous to India as elsewhere. But the extent that real value is being produced and sold is the exact extent of the potential for any real increase in the standard of living. What has been wrought from this is a growing sector of people who expect to be able to succeed in life on their own effort, without being strangled by bureaucracy.
It will be interesting to see how the influence of this new perspective plays out as the money-printing bust exacts its toll on their lifestyles. I wonder if the people will passively accept a slide back into the appalling poverty of the past. And as mentioned here, whether they will make the mistake of snatching at an authoritarian figure to save them from the corruption of bureaucracy. It may be their perception that an authoritarian is going to be the only way to eliminate the bureaucracy, which is so deeply embedded and so unaccountable that it defies description. I am not in the least surprised that they apparently sincerely believe that only the threat of the death penalty for corruption could make a dent in the imperious, haughty demeanor of those in official positions. Too bad that won't work. You can't reform bureaucracy, you have to eliminate it. They always shrug and explain that the bureaucrats above them prevent them from doing their job, and it is the truth.
I sincerely hope this kind and peaceful people can throw off the yoke that has burdened them for so many generations. Hopefully the internet reformation will inform enough of them to guide them away from a tyrant in shining armor as a false savior.
Reply from The Daily Bell
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