Passage 1
http://www.thehindu.com/todays-paper/tp-opinion/creating-wealth-without-justice/article756923.eceCreating wealth without justice
TODAY'S PAPER » OPINION
April 27, 2010The HINDU
Capitalism and greed: The failure of communism, despite its ideals of a fairer society, to increase wealth resulted in its demise. Many nations now place their faith in capitalism and governments choose it as the strategy to create wealth for their people. The spectacular economic growth seen in Brazil, China and India after the liberalisation of their economies is proof of its enormous potential and success. However, the global banking crisis and the economic recession have left many bewildered. The debates tend to focus on free market operations and forces, their efficiency and their ability for self correction. Issues of justice, integrity and honesty are rarely elaborated to highlight the failure of the global banking system. The apologists of the system continue to justify the success of capitalism and argue that the recent crisis was a blip. Their arguments betray an ideological bias with the assumptions that an unregulated market is fair and competent, and that the exercise of private greed will be in the larger public interest. Few recognise the bi-directional relationship between capitalism and greed; each reinforces the other. Surely, a more honest conceptualisation of the conflicts of interest among the rich and powerful players who have benefited from the system, their biases and ideology is needed; the focus on the wealth created should also highlight the resultant gross inequity.
( Professor K.S. Jacob is on the faculty of the Christian Medical College, Vellore.)
Passage 2
http://pib.nic.in/newsite/erelease.aspx?relid=57463
Dr. Vijay Kelkar`s address at the 26th Sir Purshotamdas Thakurdas Memorial Lecture
The 26th Sir Purshotamdas Thakurdas Memorial Lecture was held in Mumbai on 29th January. On the Occasion Shri VijayKelkar,Chairman, Finance Commission spoke on the topic ‘On Strategies for Disinvestment and Privatisation’
The following is the text of his speech:
the net profits of the Central PSUs works out to be only2.2% of their total assets. It is true that this ratio is higher for the oil companies such as ONGC and Oil India, but in general, the net return on the capital employed in PSUs seems to be lower than for the India’s private corporate sector. If one includes the State level PSUs, then the private corporate sector would show significantly higher returns on the capital employed. While the public sector or the State-led entrepreneurship played an important role in triggering India’s industrialization, our evolving development needs, comparatively less than satisfactory performance of the public sector enterprises, the maturing of our private sector, a much larger social base now available for expanding entrepreneurship and the growing institutional capabilities to enforce competition policies would suggest that the time has come to review the role of public sector, particularly the structural composition of the portfolio of public sector or in other words, of the country’s “public capital assets”. That is why I have chosen the topic of ‘Strategies for Disinvestment and Privatisation’. I have a feeling Sir Purshotamdas too would have agreed about the importance as well as contemporary relevance of this issue.
3. Let me begin by focusing our attention on the assets of the State. What should the composition of these assets be? The answer to this critical question can provide an important perspective on the issue of disinvestment and privatization.
4. Very often, this question is not seen in the correct light. Many people in the policy discourse advocate State ownership of one more enterprise. Each of these proposals might appear to make sense in the small. But budget constraints are a harsh reality of life. Ultimately, there is a budget constraint in terms of the overall assets of the State. When the State chooses to own Rs.1 of something, this comes at the cost of owning Rs.1 of something else.
5. The interesting and important question that we should all be asking ourselves is: What should the portfolio composition of the government be? What assets should be held by the State? We need to think about this question, and once we have a consensus and clarity about what the portfolio composition ought to be, we should embark on a set of adjustments that take us to a different, and hopefully better, asset composition.
6. The portfolio composition of the State is not something that should remain static at all times. A few decades ago, India was in a very different setting. After independence, the Bombay Plan was drafted by the business community. It envisaged government investment in capital-intensive and technologically-complex problems of the time, such as production of steel or electricity. In the 1970s, the argument was made that if the government did not run an airline, then the private sector could not.
7. Some of the choices made in this period reflected the needs of the developmental State and this was a useful part of the early growth trajectory of a country. But those compulsions are no longer with us. The private sector is now fully able to muster the capital and technology required to produce steel or electricity. The landscape has changed and our thinking must change too.
8. So what assets should the government own and control? Most of us would agree that the airline industry works quite well as a purely private affair. All over the world, governments have got out of airlines. The decades of losses and poor performance of Alitalia is commonly held up as an example of what goes wrong when a firm is brought under public ownership. At the opposite end, most of us would agree that rural roads have to be on the balance sheet of the State. These roads typically do not have adequate traffic, and tolling would not generate adequate revenues. If the government did not own rural roads, these roads would not exist. Similarly, the public health capital in our towns and cities will need to come from the public sector. Equally, the preservation and improvement of forest cover will have to be a new priority for the public sector assets.
9. So there is a spectrum of assets, ranging from airlines to rural roads, where government ownership is inadvisable for airlines but required for rural roads or public health infrastructure. How should we think about where each problem falls? I would like to describe two broad categories where I think the story is quite clear.
10. The first area where we have a good understanding is goods and services on ordinary competitive markets. An example is steel. Now that India has near-zero tariffs on steel, it is a globally competitive market. Many private companies produce steel. The old argument - about capital and technology required for steel companies being out of reach for the private sector - is no longer convincing. We are now seeing Indian firms exporting steel into the global market - which demonstrates that there is no gap in technology. And, we are also seeing Indian companies turning into multinationals and buying up global steel companies - which demonstrates that there is no gap in capital availability for Indian companies.
11. Under these conditions, private ownership works best. This should be seen at different levels. First, under ordinary circumstances, private ownership generates the best incentives for cost-minimisation, innovation, and dynamicadjustment of corporate strategy. This is not an ideological position. An extensive research literature has examined privatisation experiences from all across the world, and the findings suggest big gains in productivity from private ownership.
12. The second aspect of public versus private ownership concerns the issues that arise when a company approaches bankruptcy. In the private sector, bankruptcy is taken seriously. The fear of bankruptcy generates drastic responses in terms of selling off parts of the company, modifying business strategy, etc. These are healthy responses from the viewpoint of the economy. When an unhealthy company sells off a factory to a strong company, the control of assets of the economy moves into the best hands.
13. Output and employment are optimised through these adjustments. In contrast, in the public sector, managers have a tendency to be relatively relaxed about the prospect of bankruptcy. Drastic adjustments when faced with extinction do not take place, because the managers know that there is no real danger of extinction. Public sector companies are always able to access capital from the taxpayer. So there are two problems. Adjustments do not take place because of the lack of fear of extinction, and the taxpayer suffers from periodic claims on resources every time the company gets into trouble. There is also a deeper problem here. If in the market place, one of the participants like a PSU is operating under a “soft budget constraint” and that too with deep pockets, then it can adversely affect the performance and fortunes of even efficient private sector companies operating in that sector and such a market structure will systematically misallocate resources.
14. The second area where private ownership is clearly desirable is in regulated industries. In India, we are now seeing numerous regulated industries, ranging from finance to infrastructure, where a government agency performs the function of regulation and multiple competing firms are located in the private sector. Here, the simple and clean solution – government as the umpire and the private sector as the players – is what works best. This configuration is used in every advanced country, and we in India also face the challenge of setting up this architecture of government as regulator with massive investment coming in from the private sector which builds multiple competing firms.
15. In many of these industries, we have a legacy of government ownership either directly by government departments or in the form of PSUs. The problems described above are very much there: productivity tends to be lower in public sector companies, the fear of bankruptcy is absent, and the risk of asking for money from the taxpayer is ever present. There is an additional issue. This is the conflict of interest between government as an owner and government as the regulator. For instance, the formulation and implementation of competition policy will be much vigorous and fair if government companies are not out of action.
Passage 3
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GUEST EDITOR
REDUCING OUR DEBT TO NATURE
We in India have been persistently ignoring the signs and symptoms of environmental degradation which have now reached crisis proportions. World Environment Day is one particular occasion in the year when we can reflect on all these issues and resolve to take the next steps with a sense of purpose and determination, feels Dr RK Pachauri, chairman, IPCC and director-general, TERI
It is entirely possible that millions of people could become climate refugees and move to locations that are at higher elevations. While a number of these vulnerable communities would have to take measures for adapting to the impacts of climate change, globally it is essential that we mitigate the emissions of greenhouse gases and thus avoid some of the worst impacts of climate change that would take place in coming years and decades.
Mitigation would require a major shift in the way we produce and consume energy. A shift away from overwhelming dependence on fossil fuels is now long overdue, but unfortunately, technological development has been slow and inadequate largely because government policies have not promoted investments in research and development, myopically as a result of relatively low prices of oil since 1985 up to 2006 or so. It is now, therefore, imperative for a country like India treating the opportunity of harnessing renewable energy on a large scale as a national imperative. This country is extremely well endowed with solar, wind and biomass sources of energy. Where we have lagged, unfortunately, is in our ability to develop and to create technological solutions for harnessing these resources.
One particular trajectory for carrying out stringent mitigation of greenhouse gas emissions assessed by the Intergovernmental Panel on Climate Change (IPCC) clearly shows the need for ensuring that global emissions of greenhouse gases peak no later than 2015 and reduce rapidly thereafter. The cost associated with such a trajectory is truly modest and would amount, in the estimation of the IPCC, to not more than 3 percent of the global GDP in 2030. In other words, the level of prosperity that the world would have reached without mitigation would at worst be postponed by a few months or a year at the most. This is clearly not a very high price to pay for protecting hundreds of millions of people from the worst risks associated with climate change. Any such effort, however, would require lifestyles to change appropriately also. Mitigation of greenhouse gas emissions is not a mere technological fix, and clearly requires changes in lifestyles, transformation of a country's economic structure, whereby effective reduction in emissions is brought about such as through the consumption of much lower quantities of animal protein. The Food and Agriculture Organization (FAO) has determined that the emissions from the livestock sector amount to 18 percent of the total. The reduction of emissions from this source is entirely in the hands of human beings, who have never questioned the impacts that their dietary habits of consuming more and more animal protein are bringing about. Mitigation overall has huge co-benefits, such as lower air pollution and health benefits, higher energy security and greater employment.
World Environment Day is one particular occasion in the year when we can reflect on all these issues and resolve to take the next steps with a sense of purpose and determination. However, a change in the right direction would require efforts everyday of the year and the ability to bring about a rapid transformation towards a sustainable future for humanity. It would be tragic to contemplate no change in today's human actions, which are based on technological sophistication and progress far beyond our most optimistic projections even a few years ago. Technology can be directed in a manner that creates sustainable solutions. If despite the knowledge and capacity we possess, our civilisation collapses because of violation of the central organizing principle of saving the environment, we would qualify as the most selfish generation in history.
