The Capiatalist Contradictions !!!

Capitalism can solve poverty: Infosys mentor
TOI, January 6

NEW DELHI: Infosys Technologies chief mentor NR Narayana Murthy says capitalism is the only resort for India to solve its problem of poverty, even as he finds "serious crisis of moral dimension" in most Indian leaders.

The non-executive chairman of one of India's largest and most admired software companies also advocates some radical economic reforms such as hire and fire policy, privatisation and foreign investment in retail trade industry.

"If India has to solve its problems of poverty, we have to embrace capitalism. I believe that is the only hope we have," Murthy said to a private news channel.

"Capitalism is about providing equal opportunity for everybody and to make sure that people have incentives to perform better and better. It also thrives in an environment of competition," he said.

"Let's remember that all countries which embraced communism have failed. Even in Cuba the only person that Fidel Castro could trust was his brother," he said and suggested that capitalism responded to human nature better.

Murthy also maintained that the quality of leadership was not that good and said while the United Progressive Alliance (UPA) government had some good intentions, the need of the hour was to move forward at a much faster pace.

"I think, barring a few exceptions, we do not have good quality leadership in the country. That is a fact. We do not have leaders who put the interest of society above their own personal interest," Murthy said.

"We do not have people who can straddle both the worlds, the urban and the rural, the rich and the poor, the educated and the not-so-well-educated. I think we need leaders who straddle all these worlds," he said.

"There is a serious crisis in the moral dimension of most of our leaders, in the ethical dimension of our leaders, in the competence dimension of our leadership, in the ability of our leaders to connect with large masses of people."

Yet, he singled out Prime Minister Manmohan Singh as an able leader with vision, political capacity and courage to force change, but observed that the "fragile coalition" he was heading was holding him back.

"Unfortunately he leads a very fragile coalition. If he were to lead a majority Congress party government, I have no doubt at all he would move much faster than he has been able to. I'm 100 per cent certain."

Turning his attention to radical reforms India needs to implement to tackle the challenges it faces, Murthy began with the need for laws permitting retrenchment and suggested privatisation of state-run firms as opposed to divestment.

"All over the world it has been demonstrated that only when you have the right to retrench, then only you will become bold to create more and more jobs. I would say that is one of the primary things we have to do," he said.

"Corporations and the government must work together so that even if people have to be retrenched they would have the wherewithal to support themselves for six months or a year before they can get another job."

Asked if he advocated privatisation of India's vast public sector, including the so-called 'Navratnas' (nine gems among state-run firms), Murthy replied in the affirmative and said even infrastructure development should be in the hands of the private sector.

"There is no doubt at all. I don't believe the government should be in business.

I think the Navratnas would perform better if they are in private sector hands or if they operate as if they are in the private sector," he said. "I believe even infrastructure should be built by private sector.

The government should create policies that encourage private sector to create infrastructure - for example, airports, roads, power companies, distribution companies, ports."

Murthy said that the retail trade industry in India , that is open only to single-brand multinational corporations, should be thrown open to investments from overseas. "When we have opened it to large Indian groups, it means the mom and pop stores are likely to suffer anyway.

So why not open it to large multinationals? Let them bring the best technology, best practices so that at the end of the day the consumer benefits."

India, China growth not pro-poor: World Bank

TOI, January 6

WASHINGTON: The post-reform economic growth in Asia's two "awakening giants" India and China has not been balanced across regions or sectors, nor has it been particularly pro-poor in either country, according to a World Bank study.

In both countries, there has been a marked geographic unevenness in the growth process, with numerous lagging regions, including some of those that started off among the poorest, say Bank's Shubham Chaudhuri and Martin Ravallion in their paper on "Partially Awakened Giants: Uneven Growth in China and India".

In China, growth in the primary sector (primarily agriculture) did more to reduce poverty and inequality than growth in either the secondary or tertiary sectors, say the authors in the paper written for a new World Bank report, "Dancing with Giants: China, India, and the Global Economy."

On the other hand, in India, with higher initial inequality in access to land than China, agricultural growth was less important than tertiary sector growth. Income inequality is rising, although India has not yet experienced the same trend increase in inequality that China has seen.

Poverty in both countries is not becoming any more responsive to aggregate economic growth and is becoming more responsive to rising inequality.

India's poor did not start the reform period with the same advantages as China's poor, in terms of access to land and education, Chaudhuri and Ravallion said.

Persistent inequalities in human resource development and access to essential infrastructure within both countries, but probably more so in India, are impeding the prospects for poor people to share in the aggregate economic gains spurred by reforms.

The geographic dimensions of their inequalities and the associated disparities in fiscal resources and governmental capabilities loom large as policy concerns for the future in both countries, they said.

In the future, it will be harder for either country to maintain its past rate of progress against poverty without addressing the problem of high and rising inequality.

However, it is not particularly useful to talk about "inequality" as a homogeneous entity in this context, the authors said.

Policy needs to focus on the specific dimensions of inequality that create or preserve unequal opportunities for participating in the gains from future economic growth, they suggested.

Arguably both countries are seeing a rise in these bad inequalities over time as the good inequalities (conducive to efficient growth) turn into bad ones, and the bad inequalities drive out the good ones.

"While both countries need to be concerned about the "bad inequalities" we have pointed to, we suspect that it is China where the near-term risk that rising inequality will jeopardize growth is greater," the authors said.

Arguably, the Chinese authorities have been able to compensate for rising inequality by achieving high growth rates; by this view, it is the rising inequality that fuels growth in China, through the political economy of maintaining "social stability," they said.

The "Catch 22" is that the emerging bad inequalities in China will make it harder to promote the growth that will be needed to compensate for those inequalities. Maintaining sufficient growth will require even greater efficacy of the policy levers used to promote growth.

Whether or not the problem of rising inequality is successfully addressed, there are likely to be implications for the rest of the world. If the problem is not addressed, then there is a risk that the high growth rates will not be maintained, with spill over effects for trade and growth elsewhere.

"If it is addressed, and depending on exactly how this is done, there may be some short-term costs to growth, although (as we have argued) redressing the bad inequalities would actually be good for growth.

There may also be consequences for the pattern of trade, such as through a change in the sectoral composition of growth," the authors said.

For example, in both countries there appears to be potential for cash crop expansion, which would attenuate one important source of concern about rising inequality, and it can be expected that a non-negligible share of this expansion in domestic cash-crop output would be exported.

The new initiatives underway in both countries are probably steps in the right direction, although continuous evaluative research will be needed on the efficacy of these approaches relative to alternatives, they said.

There are important but poorly resolved issues concerning the appropriate balance between types of interventions.

But an even harder challenge remains, namely to improve governance-capacity, accountability and responsiveness-notably (but not only) at the local level. If this challenge is left unmet, the ultimate efficacy of any of these initiatives will be in doubt, the paper concluded.