parrotspeak 2 : control is good.
macroscan calls itself a network of 'professional economists seeking to provide an alternative to conservative and mainstream positions....' meaning those who disagree with their views are either a.'conservative' or worse still, b.'mainstream'.
isn't the term 'conservative' supposed to indicate a person/idea/institution who/which seeks to cling to tradition and established norms ? i don't think we should apply the term conservative, as it is understood elsewhere in the world, when we seek to categorize persons/ideas/institutions who/which seek to dismantle an excessively regulated 'command economy' - it wouldn't be accurate because those who held the 'mainstream' position that india should follow the 'socialistic' path until yesterday now 'conservatively' cling to their old trenches. i say trenches because the limited, but definite successes in certain partially deregulated sectors in the last fifteen years in india has driven these 'conservatives' into, understandably, a feeling of being under siege.
i don't think one needs to be a 'professional economist' to recognize a conservative position when you see one. you only require common sense to spot that.
what's this all about ? well, this train of thought started off yesterday when i spotted the jayati ghosh article, which i referred to in my last post, in macroscan. jayati ghosh has been a key votary of the nrega - does that make her a 'heterodox economist' (another label i found on the site) who's neither mainstream nor conservative ? the nrega falls into exactly the same category of 'noble' 'pro-poor' schemes that have been the norm in indian policy-making, as far as i can recall, since my schooldays in the indira gandhi era, and long before that. no, that doesn't make her heterodox, because she pursues a very mainstream, very conservative style of thinking. please ms.ghosh, if you ever read this, don't try to wear the mantle of an objective 'professional' offering 'alternative' ideas.
the lack of objectivity in the article i referred to is what troubles me more than the very real differences in growth between the indian and the chinese economies that she points out. though she doesn't draw any prescriptive conclusions, she definitely does point us in that direction. and what are the conclusions we must draw from her non-thesis ?
that control is good. that china's growth was entirely fuelled by internal resources wisely 'allocated' by the state. that india didn't control its banks enough. deregulation of the banks was foolish.
please read the second significant difference between the indian and chinese economies according to her :
'The control over the domestic economic in China has been most significant in terms of the financial sector, which describes the second big difference between the two economies. In India, the financial sector was typical of the ''mixed economy'' and even bank nationalisation did not lead to comprehensive government control over the financial system; in any case, financial liberalisation over the 1990s has involved a progressive deregulation and further loss of control over financial allocations by the state in India. But the financial system in China still remains heavily under the control of the state, despite recent liberalisation. Four major public sector banks handle the bulk of the transactions in the economy, and the Chinese authorities have essentially used control over the consequent financial flows to regulate the volume of credit (and therefore mange the economic cycle) as well as to direct credit to priority sectors. Off-budget official finance (called ''fund-raising'' by firms) has accounted for more than half of capital formation in China even in recent years, and that together with direct budgetary appropriations have determined nearly two thirds of the level of aggregate investment. This means that there has been less need for more conventional fiscal and monetary policies, although the Chinese economy is now in the process of transition to the more standard pattern.'
i have some questions : how much of the financial 'system' in india was controlled by private banks before deregulation ? was there any room left for private players after nationalisation ?
if it's control that helped china grow faster, why is it now ' in the process of transition to the more standard pattern' ?
let's listen to what an investment analyst says:
Rahul Saraogi of Atyant Capital - 'One out of two loans in China is probably bad. India, on the other hand, has net NPLs [non-performing loans] in its banking system of 3.5%. China's bad loan problem is a legacy of its state-directed lending practices. Interest rates are completely controlled by the PboC, and the big four banks that control over 95% of banking assets have no credit scoring or credit risk based pricing mechanisms in place. It's unbelievable.
China's asset markets are very similar to the Japanese. They are very heavily leveraged and are primarily fueled by property speculation. The Chinese property market coupled with its leveraged and insolvent banking system is a very big accident waiting to happen. India has no such issues.'
if you are interested in the full interview, read it here. and read this businessweek article on the chinese banks here. and here. and more.
ms.ghosh feels the chinese wisely regulated the flow of credit. that's the crux of her argument explaining the third 'significant' difference between india and china. or was it, as saraogi says, mal-invested ?