Why freebies at the time of elections?

Image courtesy: Economic Times 

Suddenly it looks as if the sky has opened up. It is raining freebies.

It happens every five years. Six months before the State Assembly elections (and for that matter the General elections) political leaders open the purse. Cutting across party lines, and with the kind of promises they make, it looks as if they are ready to perform the magical trick – to take a rabbit out of the hat for you if they win elections. Not their hat of course, for they have learnt the art of seducing the voters with public money.

How much the promise of Rs 15-lakh in your bank accounts must have swayed the 2014 election result in favour of BJP is for the experts to work out but there is no denying that all kinds of electoral promises that are thrown at voters as allurements obviously do work. Otherwise I see no reason why would politicians try to excel each other in make tall promises before elections knowing well they would not be held accountable once they are voted to power. All you need is to be a little more imaginative when making a promise, to ensure that you are able to tickle the voter’s nerve.

At a time when the youth in Punjab seems to be in a great hurry to settle abroad, I thought the political leadership would be trying their best to check the brain drain by creating economic conditions that meet their aspirations back home. But political parties on the other hand are actually in a race to facilitate their exit. Knowing well that several studies have shown that roughly 1.5-lakh students leave Punjab every year for studies abroad, and find ways to settle there, political parties it seems are not even remotely concerned at stemming this dangerous tide. After all, at this rate, many believe that in the years to come Punjab will be bereft of its enterprising youth, with the brightest of the lot having already migrated abroad.   

Instead, the two major political parties are providing sops that would make it relatively easy for students to migrate. Ahead of the State Assembly polls, Punjab Chief Minister Charanjit Singh Channi has announced interest-free loans to students for going abroad, along with free coaching for IELTS, TOEFL and PTE exams. Earlier in August, president of Shriomani Akali Dal (SAD) and a former Deputy Chief Minister, Sukhbir Singh Badal, had announced an interest-free loan package of Rs 10-lakh for students that would also cover the coaching expenses for IELTS courses that enable students to study abroad.

Given the continuing crisis in farming, and the lack of appropriate employment opportunities, the youth is looking for greener pastures abroad. This is a sad reflection of the failure of successive governments to bring in policies and approaches that could make agriculture a vibrant proposition, that too in a frontline agricultural state, and at the same time provide an effective and functional public health and educational infrastructure. Call it freebies or populism, the fact is that because the government fail to work for the people when they are in power, these kinds of temptations are thrown at them during the electioneering phase.    

In what appears to be a competition of sorts, first the Aam Aadmi Party (APP) promised Rs 1,000 per month for women (not only in Punjab but also in Goa and Uttarakhand) along with 300 units of free power for every household, and this was followed by a promise of doubling this amount to Rs 2,000 per month by the Congress party head, Navjot Singh Sidhu. In a timely editorial: No Freebie lunch, Times of India has also listed other promises including a financial assistance of Rs 5,000 to Rs 20,000 for girl children in Classes 5 to 12, free e-scooter for girl college students in Punjab. For Uttar Pradesh, BJP has promised Rs 1,100 for primary school students for buying school stuff, and Rs 2,000 to 1-lakh girl students. Congress general secretary Priyanka Gandhi has promised smart phones and e-scooty to girl students if voted to power.

The freebies list is quite long.      

In the 2017 State Assembly elections, the former Chief Minister Capt Amarinder Singh for instance had proposed to waive off all outstanding farm loans saying: Karza kurki khatam, Fasal di puri rakam (waiving off of farm debt, outlawing land auctioning and dispassion; and time-bound procurement of grains at MSP). Although only about Rs 4.600-crore of farm debt has been waived off since then, against an estimated Rs 80,000-core plus outstanding, I only wish he had instead of making a half-hearted promise set in a process of rebuilding agriculture. If Punjab had managed to resurrect agriculture, by initiating crop diversification and moving away from intensive farming to agro-ecological farming systems, it would have brought out the government’s intent to help improve agriculture and restore environmental health.

Why only Punjab, I have never understood why State governments are reluctant to set up a commission for farmers income and welfare. Why can’t the State governments make an effort to ensure an economically-viable farm livelihood by taking steps that are within their reach? For instance, why can’t State governments on their own entrust Agriculture Universities and Departments of Agriculture to prepare an Ease of Doing Farming index? Most problems farmers are faced with are linked to governance failure, and this is something the State’s should address. Why wait for directions from the World Bank to start such an exercise.   

This is primarily because when in power the government’s focus invariably shifts to corporate. Whether at the Centre or in the States, economics only means providing sops, tax concessions and stimulus packages to companies. Whenever there is an effort to provide financial assistance and support to the poor including farmers, a dominant section of the media tries to run it down as populism. Popular leaders succumb to media pressure (and also from mainline economists who say the same), and encourage policies that feature on the failed concept of ‘trickle down’. More sops and that includes huge tax cuts for corporate is seen as a sign of economic growth, as it is generally believed to ‘trickle down’ to the poor at a later stage. But it hasn’t. As a study by London School of Economics shows that 50 years of tax cuts for the rich have failed to ‘trickle down’. It has only helped the rich amass wealth.

If only when in power, the political leadership instead of only aiding the companies also makes a sincere effort to uplift the people at the bottom and the middle rung, there would be no need to shower freebies at the time of elections. What some people term as ‘populism’ actually constitutes what real economics should be. If you deprive people of what they really need, you will have to throw allurements at them. This can only be stopped if political masters try to follow what economist E A Schumacher had conveyed through his seminal work Small is beautiful–- treat economics as if people matter. #

Source: Only uplifting people at the bottom can stop politics of freebies in India. Bizz Buzz. Jan 7, 2022. https://www.thehansindia.com/business/only-uplifting-people-at-the-bottom-can-stop-freebies-politics-in-india-723860

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Agriculture now requires a 'Credibility Revolution'

Nobel Prize winners for Economics 2021. 

Pic courtesy: cbsnews.com

The Nobel Prize for Economics this year reflects a shift in global economic thinking towards a more pragmatic and realistic approach to achieve growth. Knowing the obscene wealth equality the world is witnessing, where free markets have helped accumulate wealth in the hands of a few, the award this year will hopefully encourage economists to be more pragmatic and not to be swayed blindly by neo-classic theories.

What makes the award this year stand out is evident from the citation, which says: “This year’s Laureates have provided us with new insights about the labour market and shown what conclusions about cause and effect can be drawn from natural experiments. Their approach has spread to other fields and revolutionised empirical research.” Not only for the labour markets, the approach is also vital for the future of global agriculture and the transformation in food systems the world is expecting in the years ahead keeping the SDGs in focus.

We will try to understand how the “credibility revolution” in empirical economics, based on “natural experiments” can play a significant role in undoing the great harm supply demand principles have done to farm livelihoods everywhere in the world. After all, if markets were so good, and as we are repeatedly told that supply demand will lead to price discovery, why is that farmers across the globe are often not even able to recover the money they spend on producing a crop? Why is that farmers are faced with a terrible agrarian distress, and are sometimes left with no other option but to take the fatal route? Perhaps the Royal Swedish Academy of Sciences, which awards the Nobel for economics, should now focus on the evidences available in farming to analyse the causal relationships, not forgetting that nearly half the world’s population is directly and indirectly involved with agriculture.

This year’s Nobel Prize for Economics, which has gone to three US-based economists – Prof David Card of the University of California, Joshua D Angrist of MIT and Guido W Imbens of Stanford University – explain the importance of “natural experiments” over mathematical experiments, which can be easily manipulated. While Card, along with Kruegar, established that higher labour wages leads to higher employment, countering the market economy argument which emphasises on keeping wages low for increasing employment; whereas Angrist and Imbens demonstrated how investment in school education can help in higher incomes for students.

Knowing the pitfalls of applying randomised trials and mathematical experiments based on various models and formulae, which can be easily manoeuvred to match the end result the researcher wants, there is a growing realisation for the need to move instead towards evidence-based research. This can help in reformulating and redesigning the economic welfare policies in a manner that it is not only effective but also leads to an all-encompassing economic growth. For instance, the Nobel this year challenges the labour reforms that India is aggressively pushing for, which relies more on deregulating minimum wages for labour. If workers get higher wages, let’s not forget we also have the possibility of pulling more people out of extreme poverty.

In America, if the minimum wage by 2024 is raised to $ 15 per hour (from the existing $7.25 unchanged since 2009), studies show it will benefit 40 million workers.

Now let’s try to see how realistic projections based on clearly available evidence can help transform global agriculture. There is no need for any randomised trials, and nor is there any need for applying any mathematical models to know how farmers have been at the receiving end all these decades. Based on ideological perceptions as well as on some outdated economic principles, policy makers have left prices to be determined by market forces. The assumption that less the number of people in agriculture means higher farm income, and the bigger the size of farm means a higher bargaining power to achieve a higher price has fallen flat. In America, ever since Richard Nixon’s agricultural secretary Earl Butz had made that infamous statement asking farmer to ‘get big or get out’ it hasn’t helped farmers get a higher income. Nor has the large farm size led to a higher price discovery for farmers.

Despite less than 2 per cent of the American population remaining in agriculture, the median farm income has been in the negative for over a decade. In 2020, American farmers were saddled with a bankruptcy of $ 425 billion. The rate of suicide in rural areas is higher by 45 per cent compared to the urban centres. The average farm size has risen to 444 acres and still the farm incomes are very low. In Europe, the situation is no better. With hardly 1 or 2 or 3 per cent of population left in farming in European nations, farm incomes have dwindled over the decades. In early March, French farmers had hung suicide dolls on trees outside Parliament to show the devastation and distress farmers were faced with. Like in US, massive agricultural subsidy support is required year after year to sustain the farming population. Prices have either remained static or have declined over the years thereby acerbating agrarian distress. Farmers have increasingly abandoned agriculture and migrated to the cities looking for other jobs.

Even in far away Australia, where the average farm size is 4,331 hectares, nearly 25 per cent of the farms have closed down in 30 years. The rate of suicide among males in agriculture is twice the other sections of the society. So is the case with farm workers.

For past several years, I have consistently talked of the severe farm distress that prevails in the rich and developed countries. The evidence is all there. Despite free markets to be the dominant economic mantra, farmers everywhere in the world have been deprived of a living income. With the economic design aimed at sacrificing agriculture for the sake of economic growth, farming is in the hands of Big Business. The international trade policies too are designed to help the big multinational companies. Whether it is the World Bank/IMF or the World Economic Forum the same agribusiness design is now being pushed onto the developing countries, with the same flawed promise of increasing profitability for farmers. It didn’t happen in the developed world, and it is not going to happen either in the developing countries. A London School of Economics study shows that the same market reforms in agriculture failed to help farm incomes prop up for small producers in Kenya.

But with policy planning, academia and media in the clutches of Big Business, agriculture so far has remained untouched by the “credibility revolution”. #

Source: Credibility revolution can better farmers lot. The Hans India. Nov 14, 2021. https://www.thehansindia.com/business/credibility-revolution-can-better-farmers-lot-715198?fbclid=IwAR2xxyqA7K26e7_KCV6j8E9yFwljy2UpeV42EcA36abKO2DkFOldKch5ft4

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It's time economics gives up on outdated concepts that have failed to prop up farm incomes

Pic courtesy: web 

In an address to Congress, US President Joe Biden stated: “Trickle down economics has never worked. And it’s time to grow the economy from the bottom and the middle out.” This is probably the first time any US President has acknowledged the failure of a dominant economic thinking that is ostensibly behind much of the socio-economic crisis the world is faced with.    

Trickle down is surely an outdated economic concept. So much so, that it should have been erased from the economic thought process by now. And yet, it continues to be part of the economic curriculum and whether we like it or not helps formulate the global economic policies thereby acerbating inequality, and continuing to keep the world in grip of poverty and hunger.  

Whether the US President’s acknowledgement will bring about a change in the way the World Bank/IMF as well as the credit rating agencies have been promoting policies that hinges on to the failed trickle down theory, only time will tell. But let us hope economic institutes, including business and management schools, initiate a debate on how to shift to more realistic policies that “grow the economy from the bottom and middle out” as Joe Biden had envisioned. 

Similarly, there are several other economic concepts and hypothesis that should have been discarded by now. After all, economics is a progressive science and it should move with changing times, improving on ideas with new learning’s. Holding on to outdated ideas, and teaching young students the same outgrown concepts leads to building up a generation of economists whose economic orientation leaves much to be desired.  

This becomes more relevant in the context of the ongoing debate on the three central farm laws. The predominant economic thinking that free markets leads to better price discovery for farmers, given the supply demand equilibrium, has actually failed to translate into higher incomes for small farmers across the globe. To be told that less the population in farming, the higher will be the farm incomes; and bigger the land holdings the higher will be the bargaining power thereby enhancing farm incomes, too has failed. 

While economists refuse to acknowledge that these hypotheses are perhaps outdated and need to be discarded, the same is being reiterated as the possible way to double farm incomes in India. Given that roughly 50 per cent of the workforce, directly or indirectly, is engaged in agriculture in India, it is amusing to read a report that says policy makers believe that increasing the rate of farm migration from the existing 1.81 per cent to 2.4 per cent per year in India will automatically lead to higher farm incomes. If this was indeed true, I wonder why the same economic thought has failed to hold true for farmers in the developed countries.  

As I have often said, in the United States, farming population has come down to 1.5 per cent, and the average farm size has increased to over 440 acres. Still, farm incomes are on a steep decline. This defies the economic theories that we were made to believe. Just to give you an idea, the wheat price farmers get is much less than what they were getting 150 years back at the time of the American Civil War. More recently, while the median farm income has remained negative for some years, farmers were saddled with a bankruptcy of $425 billion in July 2020. Let me reiterate, the rate of farm suicides in America is 45 per cent higher in rural areas compared to urban centres. If the markets were so good, there is no reason why agricultural subsidies should in reality substantiate farm incomes to the tune of 40 per cent. 

In neighbouring Canada, where the farming population has shrunk to about 1.7 per cent, and the farm size has grown enormously, farmers are indebted to the tune of roughly $102 billion.  Clearly shows that the popular economic understanding that farm incomes go up when the population in farming drops, and as the farm size grows, has not worked here either. 

This is not only true for North America. Europe is no better. In Sweden, since 1990, the numbers of farms have declined by 30 per cent. While the farm size increased, the number of farmers has come down to less than 2 per cent. Despite the dominant economic thinking envisaging higher farm incomes when the proportion of farm population drops, farm incomes too have slumped there. According to the 2018 Common Agriculture Policy (CAP) Strategic Plan of the European Commission, 54 per cent of the average farm income in Sweden is made up by subsidy support. With a direct income support, which is double than what an average European Union farmer receives, Swedish farmers are able to supplement farm incomes reaching some level of parity. 

The same holds true for France, Germany, Denmark, Belgium, Ireland, Spain and UK to name a few of the EU’s major agricultural players. Europe provides a farm subsidy support of $ 100 billion, and yet farm protests against falling incomes are only increasing.  

That free markets have failed to prop up farm incomes in the rich developed countries clearly shows that something is fundamentally wrong in our economic thinking and approach. We can argue about the virtues of markets till the cows come home, but the fact remains that market principles we learnt in our economic courses have failed to translate into higher farm incomes, the only visible beneficiary being the agribusiness companies. How will the same market principles work for small farmers in India, constituting 86 per cent of the farming population, remain a dilemma?  

This calls for an economic rethinking. To make farming a viable proposition, perhaps US President Joe Biden needs to include farm income parity or guaranteed farm incomes as the guiding principle for boosting ‘the economy from the bottom and middle’. #

Global farm income crisis calls for rethinking our economic ideas. Deccan Herald. May 19, 2021. https://www.deccanherald.com/opinion/panorama/global-farm-incomes-crisis-calls-for-rethinking-our-economic-ideas-987423.html?fbclid=IwAR3KdbkxqUIKCx4gX2G1CYAjlzT5NIaYEiRCCrxu-NOgZMKrm88_xT5bDho

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A Rethinking in Economics is Urgently Needed.

This biased economic thinking has to change. While farm loan waiver is despised at, corporate bad debt write-off is believed to lead to economic growth ! 

Former US Labour Secretary Robert Reich tweeted the other day: “America’s richest 1 per cent now owns half the value of the US stock market. The richest 10 per cent own 92 percent. So when Trump says the stock market is the economy, know who he’s really talking about.” Well, Trump is not the only head of a State, who believes that a booming stock market is a reflection of the state of the economy, the list of such leaders is pretty long. This shows how effectively credit rating agencies have drilled the idea into our minds.

Even on a day when India’s Finance Minister rises to present the annual budget all eyes are on the stock markets. When in Sept last, Nirmala Sitharaman announced a slew of measures to build up domestic demand at times of a slowdown; she presented a tax concession bonanza of Rs 1.45-lakh crore to the industry, reducing the basic corporate tax rate to 22 per cent, the celebrations next day were observed on the stock markets. Shares jumped by as much as 5 per cent, the highest in 10 years as some media reports indicated. If only the same amount had been allocated for providing more money into the hands of the poor, stock markets would have remained subdued but perhaps more demand could have been generated thereby refuelling the economy.

Even now, when globally the pandemic has left economies bleeding, the stock markets are on a Bull Run prompting Nobel laureate Paul Krugman to say there is something terribly going wrong. This is also evident from the fact that the top 614 of America’s billionaires increased their wealth by over $ 584 billion between Mar 18 and June 17 while more than 45.5 million Americans joined the unemployment queue in the same period. While, much of the wealth increase is related to the Wall Street, economic bailouts and stimulus packages have helped transfer more money into the pockets of the stinking rich. On top of it, is the ‘printing’ of surplus money in the form of Quantitative Easing (QE). According to Fitch Ratings, global QE asset purchases are expected to touch $ 6 trillion in 2020. By bolstering the financial and property markets, this helps the rich become richer. But rarely have I seen the universities deliberating on the need to make QE work for the people. Why does it invariably fail to become part of the economics curricula or be a part of media debates is beyond my understanding?

In India, while the industry is lobbying hard to seek further tax concessions to the tune of Rs 2.50-lakh crore by bringing the corporate tax slab to a low of 15 per cent, an Oxfam study had earlier pointed to a creation of 117 million jobs if the richest 1 per cent globally were to be made to pay an additional tax of just 0.5 per cent over the next ten years. If we look at it economically, this makes terrific sense. To promote inclusive and sustainable growth, UNCSD tells us that creating employment and decent job opportunities will ultimately drive progress. But then why mainline economists have invariably failed to demand imposition of a slightly higher corporate tax if it could lead to such huge employment opportunities, still continues to baffle me.

In the past 30 years, says Bernie Sanders, the wealth of top 1 percent has gone up by $ 22.65 trillion, while the wealth of bottom 50 percent has gone down by $776 billion. “This growing wealth inequality is morally obscene,” he regretted. Inequality is not only related to wealth accumulation, but also stems for an ideological bias. In India, a former Chief Economic Advisor had once said that writing-off corporate bad loans leads to economic growth. The question that wasn’t asked is how come when both the corporate and farmers draw loans from the same banks, writing-off of corporate bad debt leads to economic growth whereas farm loan waiver upsets the national balance sheet? Similarly, why should nations continue to blindly pursue the outdated economic theory that workforce from agriculture needs to be shifted to the urban centres, primarily to ensure that companies don’t have to pay higher wages? Is it not a reflection of an ideological position?

Similarly, why is that any additional investment in agriculture, public health and education is seen as a drag on the economy? For instance, why is it that a sledge hammer blow of a pandemic made the government realise the importance of public health. “The public sector has an inescapable obligation towards health. The private sector alone cannot fulfil it. Of course, there will be public-private partnerships. Over the next five years, the Centre alone should be able to at least spend 2.1 per cent of the GDP on health,” N K Singh, chairman of the 15^th Finance Commission recently said. Whatever the reason, even in normal times the emphasis on public health should not have diminished. But if only the reports of the finance commission for instance were deliberated and hotly debated in the class rooms will the future economists not get a peep into how our financial policies lays the framework for declining public sector investments in social sectors, and also lead to the kind of stark socio-economic inequalities.

Still, the bigger lesson is that if Britain can spend 9.6 per cent of its GDP on public health, why should India not try to catch up with at least 6 per cent to begin with? Why should public sector investment in agriculture continue to hover around 0.4 per cent of the GDP (between 2011-12 and 2017-18) when the sector employs roughly 50 per cent population? Why should the poor continue to live on the margins while the rich are routinely provided with massive bank write-offs, tax cuts and subsidies packed in the name of incentives for growth? Why should we have socialism for the rich, and leave poor to the market forces? Why should growth economics come in conflict with nature?     

These are not difficult questions, but need a rethinking in economics. #

Incentives for the rich, raw deal for the poor. The Tribune. July 13, 2020

https://www.tribuneindia.com/news/comment/incentives-for-the-rich-raw-deal-for-the-poor-112198?fbclid=IwAR2Ih8KFiZ2oQluyebEEYjktGfixk19VaH28aXx-8lBEjcfdA0qMAncAV-g 

READ MORE - A Rethinking in Economics is Urgently Needed.