profit e-paper 7th january, 2013

Monday, 7 January, 2013

aasiM sajjad akhtar

For someone intellectually predisposed to view-ing just about everything through the lens ofclass, learning how to navigate the choppy watersof Pakistan's political economy is nothing lessthan an epic challenge.

how, for example, does one make sense of the fact that themuttahida Quami movement (mQm) is best friends with thePakistan People's Party (PPP) one day, and threatens to join theTahirul Qadri (leader of Tehrik-i-minhajul Quran) bandwagonthe next? Indeed, just figuring out an answer to the first half ofthe question is hard enough. most informed observers agree thatthe mQm's support base is urban and broadly “middle-class.”

on the other hand, the PPP caters to a much wider cross-section of society; for instance, it includes in its fold both biglanded scions as well as the rural poor. here one is forced todigress further: the PPP itself appears to represent quite con-tradictory class interests. how is it that both the rural poorand the rural elite have an affinity for the same party?

The typical answer to this question — or rather the caveatthat accompanies it — is that the poor masses that constitutethe support base of mainstream parties are actually irrelevantin the overall scheme of things. In other words, in talking ofthe “class interests” of these parties one is referring only tothe interests of their leaderships.

I find this troubling on more than one account. amongother things, the implication is that ordinary people exerciseno agency at all; in marxist terms this would be called “falseconsciousness.” The reality is that people do exercise politicalchoice, albeit under formidable constraints.

The other implication is that the Pakistani power game islittle more than a circulation of elites, and that there are nosubstantive differences between the various political partiesthat litter the landscape.

While it is true that our political parties all reinforce thestale, patronage-based order that prevails in this country, it issimply preposterous to argue that there are no ideological dif-ferences between them, or that they do not come into contra-diction with one another on a regular basis.

In a nutshell, the composition of political parties and theirovert alignments belie simple class binaries, or notions of theilliterate masses dancing to choreographed tunes.

What can be said without qualification is that class cutsacross almost all other social fault lines in this country. It is nec-essary therefore to understand how and why class and otheridentities — such as gender, religion and ethnicity — come to-gether in definitive ways to produce the seemingly chaoticeveryday experiences with which we are all too familiar.

But even this is not enough. The intricate mosaic is incom-plete without mention of the state. and it is important to bearin mind that the state too cannot be reduced simply to a con-glomeration of “elite” interests.

The state in our context is a creature unto itself, not nec-essarily subject to the whims of landlords, industrialists, oreven the new entrepreneurial contractor in the so-called in-formal sector. I have argued before on these pages that thestate is no longer as coherent an entity as in an erstwhile pe-riod, both in terms of its institutional hierarchies and its abil-

ity to mould outcomes according to the stipulated policy logic.But this does not mean that those who control the levers

of state institutions are any less powerful than they have everbeen. Neither have their loyal ideologues, spread out across thelength and breadth of society, stopped performing their duties.Putting all these pieces together facilitates a reasoned and crit-ical analysis of what is currently unfolding in this land thatnever ceases to surprise. The narrative inevitably can be tracedback to an (unelected) state apparatus that refuses to acceptthe unpredictability of freely functioning electoral democracy.

This “establishment” wheels and deals with opportunistpoliticians of various stripes who in turn employ populist slo-gans that appeal to one or a combination of class, ethnic andsectarian frustrations. These various opportunist politicians,if and when they come to power, are simply unable to deliveranything other than targeted patronage to selected con-stituents, which is their only strategy to remain in governmentfor the subsequent iteration.

Whether or not they are successful depends on the natureof the next electoral exercise, which is of course manipulatedin some measure by the (unelected) state apparatus.

The political parties which maintain a commitment tosome ideology — progressive or otherwise — are eventuallystripped to their bare bones, and over time, become agglom-erations of opportunist politicians with a commitment only toretaining access to state power.

Those parties who refuse to accede to this logic are sur-rounded on all sides, suffocated, and eventually eliminated(read: the left).

Class and ethnic frustrations — women are largely ex-cluded from any meaningful political participation — are ex-acerbated over time by this cynical political order.

The fact that these frustrations can no longer be expressedin any peaceful, democratic manner precipitates the emergenceof various forms of militancy. Some militants are, knowinglyor otherwise, on the payroll of the (unelected) state apparatus,and thereby reinforce parochial divisions in society.

others are branded traitors and subjected to extreme staterepression, which compels many to look for patronage toneighboring or even superpower states.

In the midst of all of this (planned) chaos, everyday polit-ical economy becomes increasingly normalized, and class mo-bility results for those who learn the rules of the game.

The crisis of capitalism paradoxically produces opportuni-ties for the offspring of peasants and workers to become prop-erty dealers, suppliers of smuggled goods, and new-ageinnovators providing leisure services for the super-rich. Thissame crisis of capitalism pushes the majority of these sons anddaughters of peasants and workers into the hellhole of 21st-century pauperization. To the extent that democracy does existin such a context then, it is subject to a crisis of representationin as much as there is no respite from the tyranny of capital.

This is the proverbial empire of chaos, at one and the sametime collapsing around us and proving its eminent durability.Those who are at its helm will continue to try and make thesystem work in spite of itself, just as the rest of us must con-tinue to try and foment a reordering.

Courtesy: The China Post

Class and the choppywaters of Pakistan'spolitical economy

MohaMed a el-erian

Mohamed a. el-erian is Ceoand co-Chief Investmentofficer of the global

investment company PImCo, withapproximately $1.8 trillion in assetsunder management. he previouslyworked at the Internati…Watching america’s leaders scramble inthe closing days of 2012 to avoid a “fiscalcliff” that would plunge the economyinto recession was yet anotherillustration of an inconvenient truth:messy politics remains a major driver ofeconomic developments. In some casesduring 2012, politics was a force forgood: consider Prime minister mariomonti’s ability to pull Italy back from thebrink of financial turmoil. But, in othercases, like Greece, political dysfunctionaggravated economic problems.Close and defining linkages betweenpolitics and economics are likely topersist in 2013. having said this, weshould also expect much greatersegmentation in terms of impact – andthat the consequences will affect bothindividual countries and the globalsystem as a whole.In some countries – for example, Italy,Japan, and the United States – politicswill remain the primary driver ofeconomic-policy approaches. Butelsewhere – China, egypt, Germany,and Greece come to mind – the reversewill be true, with economics becominga key determinant of politicaloutcomes. This duality in causationspeaks to a world that will becomemore heterogeneous in 2013 – and in atleast two ways: it will lack unifyingpolitical themes, and it will be subjectto multi-speed growth and financialdynamics that imply a range of possiblescenarios for multilateral policyinteractions.With an election looming in Italy, thecountry’s technocratic interimadministration will return the reins ofpower to a democratically electedgovernment. The question, both forItaly and europe as a whole, is whetherthe new government will maintain thecurrent economic policy stance or shiftto one that is less acceptable to thecountry’s external partners(particularly Germany and theeuropean Central Bank).monti may or may not be involved inthe new government. The furtherremoved from it he is, the greater thetemptation will be to alter the policyapproach in response to popularpressures. This would involve lessemphasis on fiscal and structuralreforms, raising concerns in Berlin,Brussels, and Frankfurt.Japan’s incoming government hasalready signaled an economic-policypivot, relying on what it directlycontrols (fiscal policy), together withpressure on the Bank of Japan, to relaxthe monetary-policy stance, in an effortto generate faster growth and higherinflation. In the process,officials are weakeningthe yen. They willalso try to lowerJapan’sdependence onexports andrethink sendingproductionfacilities to lower-wage countries.

The economic impact of politics in theUS, while important, will be lessdynamic: absent a more cooperativeCongress, politics will mute policyresponses rather than fuel greateractivism. Continued congressionalpolarization would maintain policyuncertainty, confound debt and deficitnegotiations, and impede economicgrowth. From stymieing medium-termfiscal reforms to delaying neededoverhauls of the labor and housingmarkets, congressional dysfunctionwould keep US economic performancebelow its capacity; over time, it wouldalso eat away at potential output.In other countries, the causal directionwill run primarily from economics topolitics. In egypt and Greece, forexample, rising poverty, highunemployment, and financial turmoilcould place governments underpressure. Popular frustration may notwait for the ballot box. Instead, hardtimes could fuel civil unrest,threatening their governments’legitimacy, credibility, andeffectiveness – and with no obviousalternatives that could ensure rapideconomic recovery and rising livingstandards. In China, the credibility ofthe incoming leadership will depend inlarge part on whether the economy canconsolidate its soft landing.Specifically, any prolonged period ofsub-7% growth could encourageopposition and dissent – not only in thecountryside, but also in urban centers.Then there is Germany, which holds thekey to the integrity and unity of theeurozone. So far, Chancellor angelamerkel has been largely successful ininsulating the German economy fromthe turmoil elsewhere in europe.Unemployment has remainedremarkably low and confidencerelatively high. and, while growth hasmoderated recently, Germany remainsone of europe’s best-performingeconomies – and not just its paymaster.While some would have favored greaterpolicy activism, merkel’s Germany hasprovided a steady anchor for aeurozone struggling to end bouts offinancial instability and put an end toquestions about its survival as a well-functioning monetary union (one thataspires to becoming much more). achange in German leadership would,therefore, raise questions abouteurope’s policy underpinning.how politics and economics interactnationally and globally is one of theimportant questions for 2013 and beyond.There are three scenarios: good economicsand effective politics provide the basis fora growing and more cooperative globaleconomy; bad economics interact withdysfunctional politics to ruin the day; orthe world muddles through, increasinglyunstable, as a tug of war betweeneconomics and politics plays out, with noclear result or direction.Part of the answer depends on whathappens in three countries in particular– China, Germany, and the US. Theireconomic and political stability is

essential to the well-being of a worldeconomy that has yet to recover fully

from the 2008 global financialcrisis. Current indications, albeitincomplete, suggest that the threewill continue to anchor the global

economy in 2013. That is the goodnews. The bad news is that their

anchor may remain both tentative andinsufficient to restore the level of

growth and financialstability to whichbillions of peopleaspire.

Mohamed A. El-Erian is CEO andco-Chief InvestmentOfficer of the globalinvestment companyPIMCO, withapproximately $1.8trillion in assetsundermanagement.

The political economy of 2013

Courtesy: Project Syndicate

14-Business Pages- 7th January_Layout 1 1/7/2013 3:29 AM Page 1

02

Monday, 7 January, 2013

Business

chandrahas choudhury

LaST week, ratan Tata retired on his 75thbirthday after more than two decades incharge of the Indian corporate behemothTata Sons Ltd. Tata will be succeeded byCyrus mistry, 44.

The house of Tata owns dozens of prominent In-dian businesses and brands, from the Taj Group ofluxury hotels to the super-inexpensive Tata Nano car.It is widely perceived to represent Indian capitalismat its best, enjoying the goodwill of millions of cus-tomers, the loyalty of more than 400,000 employeesand the investments of 3.8 million shareholders,while also reinvesting a substantial part of its profitsinto philanthropic work overseen by a set of trusts.

Tata's tenure at the helm was notable for itslongevity, ambition and stewardship of a venerabletradition. (The family-owned house of Tata wasfounded in 1868 and had only four chairmen beforeratan Tata, including the legendary J.r.d. Tata,ratan's uncle and immediate predecessor, who ranthe business from 1938 to 1991.) But Tata's leadershipwas especially meaningful because it ran exactly con-current to a new phase of Indian capitalism itself, andmirrored India's rise as an economic superpower.

Tata's reign began in 1991, the same year thatIndia's socialist government was forced to deregulatethe economy after a balance-of-payments crisis,abruptly throwing the country into the currents ofglobalization. Suddenly, the biggest Indian businesshouses, which had long been inward-looking andprotected by government controls, faced the prospect

of having to compete with the best in the world. Thismove had a special resonance for Tata Industries, themanaging agency that oversaw a network of dozensof companies manufacturing everything from steel tosalt to tea, and involved in almost every sector of theeconomy from hotels to telecommunications.

In 1991, ratan Tata was 54 years old and had al-ready spent almost three decades at the Tata Group,beginning as an apprentice on the shop floor of TataSteel in 1962 and working his way up. Nevertheless,many close observers of Indian business (includingsome leading executives at the Tata Group who hadhoped to land the top job) were skeptical of his abil-ity to advance the group's interests in a new financialand technological era.

But Tata gradually worked through the chal-lenges, streamlined the house's odd mix of busi-nesses, integrated them all under a common brandlogo and took the group into emerging new sectorssuch as information technology and car manufactur-ing. Today, the group's most profitable business isnot hotels or steel, but the information technologyfirm Tata Consultancy Services.

Crucially, starting around the turn of the cen-tury, Tata did a great deal to transform the companyfrom a major Indian player to a significant globalplayer. The group's major acquisitions since 2000include the tea brand Tetley in 2000, the ritz-Carl-ton hotel in Boston in 2006, the steel companyCorus Group Plc for $7.6 billion in 2006, and theJaguar Land rover car operations from the Fordmotor Co. in 2009. Tata Group is now one of India'sfew genuine multinational companies, with a pres-ence in at least 56 countries. In 2011-2012, 58 per-

cent of its total turnover of about $100 billioncame from outside India, up from about 5

percent two decades ago.Writing about Tata's retirement

in the Financial Times, JamesCrabtree said:

Tata is a symbol of In-dian capitalism, with a rare

reputation for combiningfast growth and ethical

conduct in a nationstill bedevilled by

corruption. Its de-parting chairmanis also his coun-try’s mostrevered businesspatriarch – mak-

ing this once-in-a - g e n e r a t i o n

handover one ofthe most watched

events in India’s busi-ness history. more than

that, however, Tata has also come to embody its na-tion’s adventures with globalisation.

The business newspaper mint ran some of thebest coverage of the once-in-a-generation handover(including this timeline). aveek datta quantified theprogress made both by the Tata Group and the In-dian economy since 1991 in a story called "ratanTata: a Journey in four Stages":

The story of the Tata group and ratan Tata overthe past 20 years is one of growth and competition,productivity and efficiency gains, and globalizationand innovation. The Tata story is replete with run-inswith the establishment and the political opposition,and failures and frustrations. and, in some ways, it isthe story of India itself, only with a happier ending.

The group’s aggregate sales at the end of 2011-12, at rs. 4.51 trillion, are 43 times the turnover in1992-93, the first full fiscal after Tata took over aschairman. Net profit growth in the same period hasbeen even more spectacular, rising 51 times. . . .The aggregate market capitalization of the group atrs. 4.54 trillion in fiscal 2012 is 33 times higherthan it was in 1992-93. In the same period, theSensex, the benchmark equity index of BSe, grewnearly eight times.

and in a long cover story in the weekly magazineoutlook, the writers measured Tata's achievementsagainst a to-do list he made in 1991 at the beginningof his tenure:

Perhaps the secret of ratan Tata’s success liesin his ability to think big—and small. While heguides the Tata group to pick up the luxuriousPierre hotel in New York, he’s also driving thelaunch of the budget Ginger hotels in India. hehas the ability to envisage an automotive businessthat encompasses diverse businesses such as theiconic Jaguar and Land rover marques on the onehand, the world’s cheapest car the Nano, on theother, and hardy, rough-road trucks sandwichedin between.

Tata’s big deals are balanced by projects focusingon the lowest common denominator. In fact, mr Tatahas been among the very few to perfectly understandthe pysche and the needs of the Indian consumer—and build successful businesses around those insights.That is, by recognising that the big market opportu-nity lies in making desirable products affordable fora larger audience and creating successful products tocater to a market need—be it the passenger-car foraywith the Indica in the early 1990s, the promise to cre-ate a rs 1 lakh car or for that matter, making water fil-ters that don’t need electricity (for rural areas).

Tata pointed out the opportunities for expansionat the lower end of the Indian consumer market inan interview in 2006:

I think industries in India, by and large, havemostly been looking at the small section of the popu-lation at the top of the pyramid, the 200-250 millionmiddle class that is the consuming public. That's anacceptable model because of its consonance with thescale and size of our companies. The 400 million andmore just below them is what we have to target, be-cause they are potential consumers. Can we go andcater to that marketplace? I think there is an oppor-tunity there. But it should not be, cannot be, that low-cost products come to mean inferior or sub-standardproducts and services; definitely not. The aim is tocreate products for that larger segment – good androbust products that we are able to produce innova-tively and get to the marketplace at lower costs.

Tata left with a flourish, announcing an ambi-tious vision for the company over the next decade atthe annual meeting of the group's top executives lastapril. revealing that the annual turnover had ex-ceeded $100 billion in the previous fiscal year, hesaid he hoped for this figure to increase to $500 bil-lion by 2020-2021. In a piece in the Business Stan-dard called "ratan Tata's Vision 2020," Surajeet dasGupta noted:

Tata’s vision for the future assumes an annualcompounded annual growth rate (CaGr) of over 20per cent for the next nine years. This is in line withthe growth he has achieved in his 20-year tenure aschairman. The group registered a 22 per cent CaGrbetween FY 1992 and FY 2011, the tenure in whichhe was chairman. . . . The scale of Tata’s ambition isevident from the fact that in the 2011 Fortune 500global list, the largest company was Walmart, with aturnover of $421 billion.

Tata's closing remarks seem to be both a state-ment of fact and a challenge to his successor, mistry-- a man who, like Tata himself in 1991, was some-thing of a surprise choice from a field packed withmanagerial quality. The sixth chairman of the 144-year-old Tata Sons Ltd. has his work cut out for him.But at least he knows that the history of his organi-zation tells him that, unlike many chief executive of-ficers, he can plan for the really long term.

Chandrahas Choudhury, a novelist, is the NewDelhi correspondent for World View. Follow himon Twitter @Hashestweets.

Courtesy: Bloomberg

laurence copeland

The deal to break the deadlock in the USlooks awful, far worse than going overthe cliff, which I suspect would have been

a lot less damaging than is usually assumed.The 1 January agreement was a compro-

mise over the tax to be levied on high salaries,which is purely a political issue with little bear-ing on the critical economic issue of how toclose the deficit, and otherwise simply takesthe line of least resistance, avoiding the tax riseon middle incomes, extending benefits for thelong-term unemployed and suspending the im-mediate cuts in defence spending which wouldhave been enforced automatically in the ab-sence of an agreement. Worst of all, it defersthe really tough decisions on spending. In fact,given how easily america’s rich can avoidtaxes, it is likely that the tax rise which thePresident has fought so hard to impose onthem will generate nowhere near enough rev-enue to pay for the increased unemploymentbenefits agreed at the same time. In otherwords, far from being a first step towards deal-ing with america’s deficit, this is a step backwhich will only make things worse.

To see how little has been resolved by this11th hour deal, just look at obama’s New Yeartaunt: “If republicans think I will finish the jobof deficit reduction through spending cuts alone[…] they have got another thing coming”. Inother words, the hard bargaining is still to come.

The whole mess is typical of america today,polarised between a republican Party in whichthe moderates worried about their country’s fis-cal position have been overwhelmed by gay-bashing creationist crackpots, and a democraticParty determined to turn the clock back to thetax-a-little-and-spend-a-lot policies of LyndonJohnson circa 1966.

What is actually required for the country’sfiscal stability is a deal to hold out the hope of along term cut in taxes paid for by new measuresto control or at least reduce the growth in the re-ally big-ticket items of Government spending,specifically defence, entitlements, and health-care. a deal along those lines would certainlyhave to involve a short term rise in taxes foreveryone. But it should hold out the prospect oflower taxes in the immediate future, financedfrom two sorts of change.

First, america needs wholesale reform of itstaxation to eliminate the billions or maybe tril-lions of dollars lost through tax loopholes, mostnotably the exemption for loan interest which,by being regressive while at the same time rein-forcing the country’s tendency to overconsump-tion, manages to be damaging both to socialjustice and the economy at the same time. Thelong-term goal has to be to arrive at a regime oflow taxes imposed on a wide tax base, instead ofthe present situation which requires ever highertaxes on a narrow (and unfair) tax base.

Secondly, there have to be extensive cuts inthe major spending programs. defence is nearly

a quarter of the government spending, so it hasto be cut, and welfare costs amount to over 10%(and rising fast), so they too will need to betrimmed. But healthcare is already nearly aslarge a slice of the government budget as de-fence, even before the impact of obamacare,which extends cover to a large swathe of theuninsured population while doing next to noth-ing to control costs – a catastrophic omission,given that america already spends twice asmuch as any other country on medical care forno obvious health benefit.

Without urgent action, the US economy will becrippled by the national debt, which is already bysome measures far greater than national income,nearly half of it owed to foreigners, mostlyto the Chinese Government but also to as-sorted asian and Gulf arab sovereignwealth funds. america’s standard of liv-ing is nowadays dependent on thekindness of strangers.

What a contrast with the up-beat mood four years ago, whenthis President won election withthe campaign slogan, “YeS, WeCaN!”

‘Can what’, we won-dered? Now we know. hemeant we can kick the candown the road. how de-pressingly european!

Courtesy Reuters

Fiscal cliff deal is depressingly European

Ratan Tata, India'scorporate czar, retireswith a $500b vision

14-Business Pages- 7th January_Layout 1 1/7/2013 3:29 AM Page 2