market vs state debate
TRANSCRIPT
State vs Market: (Keynes vs Hayek)
John Maynard Keynes
1883 — 1946
Friedrich A. Hayek1899 — 1992
By:Arpit Jain 09Ravi Kumar Chaudhay 15Raktim Kar 32Varun Mangalvedi 41Neeraj Gaur 49Kuldeep Singh 73
THEORITICAL BACKGROUND OF DEBATE State role in economy through fiscal and
monetary policy Keynes, Hicks etc favoured state role in
economy Hayek, Friedman etc favoured no state role Keynes’ Circular Flow of Income
Framework Hayek’s Means End Framework Two groups: Keyensian and Monetarists
CIRCULAR FLOW OF INCOME
KEYNSIAN CROSSEX
PEN
DIT
UR
ES
INCOME
ΔY
EXCESS INVENTORIES
C + I
C = a + bY
Yfe
The IS-LM Curve
- Fiscal policy: increase I, increase Y -Monetary Policy: Increase M, increase Y
PHILIP’S CURVE
HAYEK’S THEORY
Views economics as a sequence of accidents Views economic problems as coordination
problem – in time and level dimensions Integrates three theories - Price, Capital and
Monetary Price is a communicator Capital explained by Hayekian Triangle Money supply should be market driven Deliberate injections create artificial booms
which go bust later
STAGFLATION – MODIFIED PHILIP’S CURVE
MAIN POINTS
KINDLY DON’T INTERFRE, MONEY
VELOCITY IS CONSTANT
HIGH INFLATION RATE COUPLED WITH
LOW UNEMPLOYMENT IS
THE MANTRA
LOOK AT STAGFLATION
!
OH, BUT I MUST! MONEY VELOCITY IS NOT CONSTANT. AT LEAST, NOT IN THE
SHORT RUN
WE WERE NEVER
MARRIED!
I WANT DIVORCE!
Monetarist
Keynsians
INDIAN BACKGROUND OF THE DEBATE
• Nehru (State) v/s Patel (Market)• Nehru started 5 year plans starting from 1951 • Patel died in 1950, couldn’t draft 2nd 5 yr plan• 2nd 5 yr plan focused greatly on PSUs• Planning commission became very, very
powerful• P.C. Mahalanobis model: focus on pivotal
sector and rest will grow automatically• Results - Public sector undertakings,
investments - Core sector became paramount• Only in 1990s did the economy open up to
non governmental investment
ADVANTAGE MARKETISM
Perfect competition – no state monopolies
Competition strictly on value proposition Price lower and uniform Product quality improvement Product variety improvement All in all – a complete customer
satisfaction
ADVANTAGE MARKETISM
Efficiency improvement Greater productivity Competition forces technological
advancement State monopoly shield removed implies
greater customer focus in production
ADVANTAGE MARKETISM
Transparency in business due to stakeholder demands
Greater disclosure norms for public Entry Barriers for new entrants limited ‘License raj’ had always hindered growth
of industry rapidly Entrepreneurship and creativity
rewarded
ADVATAGE MARKETISM?
Is it really a perfect competition? ‘Information Asymmetry’ Some customer know more than others Some manufacturers can hide information Speculative trading can be rife using
information Market manipulation using information Insider trading Share market scams
ADVANTAGE STATE
Stability Return risky,
Meeting collective objectives by individual sacrifice building a heavy industry at once in an
underdeveloped economy Does not suffer from business cycles Does not experience crises of overproduction Utilities for everyone – cross subsidization Public spending for infrastructure necessary in
rural areas Financial inclusion Affirmative action for deprived sections
ADVANTAGE STATE
Regulation of market necessary Market is not jungle to be left to ‘animal
spirits’ Fair market to be maintained RBI, TRAI, SEBI etc regulatory bodies
have made the markets inclusive and effective
Telecom sector
Reduction in Tariff from Rs 15 in 1995 to 30 paisa /min in 2009
Competition – Resulting New services and improvement
Capital Investment ( Tower Infrastructure)
Penetration in rural India
Banking
Professional approach ICICI leads to Change in
SBI working Monopoly is over Technological
Improvements Internet Banking ATMs
Education
Demand Supply Mismatch in Education
No professional approach in many government institutes
Sleeping Primary school teachers
In many Higher education colleges, results are not Officially Declared even after Year
ISB Hyderabad Govt Vs Private School
Telecom Sector (State Perspective)
SMS rates are set to crash - Telecom watchdog TRAI An expose by TOI on November 5 2009 that SMS
tariffs are 50 to 100 times higher than what it costs service providers.
BSNL, MTNL players in market to prevent cartelization Provide services in rural areas Provide services at low cost
• Fed is the US central bank and controls its monetary policy• Some banks are too Big to Fail• Bail Out by Fed• Claim that the Federal Reserve benefits "Wall Street“ but not "Main Street."• RBI fully owned by Government of India
Banking (State Perspective)
•overusing and polluting of the common groundwater, •giving toxic sludge to farmers as fertilizer,•selling contaminated soda to the citizenry, leaving Indians at risk of dehydration, starvation, and poisoning, and
CSR???
RURAL TARGETING BY FMCG
FMCG companies are targeting rural Improving their lives HUL, ITC and P&G targeting rural
consumer ‘Fortune at the Bottom of the Pyramid’ Arvind Eye Hospital
Clean Development Mechanism Lack of government support for climate
change mitigation Market route to clean environment Lot of focus on alternative forms of
energy Winds, biomass, hydel etc Development work at host countries China, Brazil, India and Mexico at
forefront
Creativity or Cut & Paste
Creativity or Cut & Paste
FORTUNE AT BOTTOM OR MIDDLE?
C.K. Prahlad – Non Executive Board of Director of HUL CavinKare was the first entrant in rural markets not
HUL Annapurna salt was actually due to government
propaganda for iodised salt Arvind Eye Hospital is sustained by NGO donations Business really sustainable at present?
Melamine in Chinese milkSlave-labour involvement accusations Genetically-modified organisms Bottled waterNestlé Purina in Venezuela The baby milk issue
WHAT’S COMMON WITHIN AND BETWEEN THE GROUPS?
MARKET BECOMES STATE IF UNCHECKED
CONCLUSIONS
Mixed economy is perhaps a good solution The correct mix of state and market A hassle free market overlooked by the
state State retaining control of key sectors for
social welfare Performing well in Brazil, Russia, India,
China,