Tuesday, 18 October 2016

Book Review : Saving Capitalism From The Capitalists

Raghuram G Rajan & Luigi Gonsales

Image result for saving capitalism from the capitalistsThis is one book with the most inapplicable title; and, yet again, I find myself in wholesale disagreement with western research. Once – just once, I would like to read a Western research that is unbiased and well-thought-out in reference to the east; the east remains, for them, as indecipherable today as it was 300 years ago, despite the modern information age etc. The east remains as much a mystery to the great research houses and brains of the so-called  Great West then, as now.

Harsh words, I know; especially when I am talking about a book co-authored by the redoubtable Raghuram G Rajan. But when I run across such inaccurate beauties as on Pg 289 wrt to India, my take is justified. That said, there is more than enough in other aspects which justifies my low impression of the book, which has completely failed to answer even one question in my mind; a book that is a theoretical tome with little or no real-world applicability in the real world in the East at least. Sorry – blunt, frank and straight.

The book alludes to the India-Pakistan standoff of 2002 after the Parliament attack and Kaluchak massacre {What is this incident doing in a tome on Economics, by the way?}  - and implies that businesses on both sides put pressure on the Governments on both sides; and that both nations were threatening nuclear war! The reality is different – only Pakistan was threatening Nukes, and no one in India was cared about it! The de-escalation was a result of diplomacy, with no known hint of business involvement. In fact, if anything, Indian business has stood by India in times of distress – a prominent Indian business personality even refused to trade with Pakistan; this is on record.

The above paragraph about sums it up; this is a largely theoretical research, a research on the history of the Western economies from the Great Depression and the steps taken since then, and an analysis of the pluses and minuses of those steps. So far, the book is on firm grounds, and is worth 10 stars out of 10 for its analysis and its exemplary approach with real examples from the Western world. It traces a full history exhaustively, but, in my personal opinion, falls short of my previous book review on Economics – The Wisdom of Ants by Shankar Jaganathan, which does an admirable and exhaustive analysis of the rise of economic thought in all schools, prominent or otherwise.

This is where the problem in this book lies – it takes a quasi academic approach; or rather, a theoretical construct and tries to apply it to the real world. Throughout the book, terms like Free Financial Markets, Flow of Capital across Borders, Developed Financial Markets abound; just what, specifically, is implied by these terms by the authors remains unsaid! Just what does a Free Financial Market imply – does it mean no controls, or does it mean basic controls? If you say basic controls, what do you mean? Do you mean convertibility on the current as well as the capital account? Exactly what do you mean?

I am from India – and it is only of academic interest to me what you have done in the USA, beyond a certain point of remaining worldly aware, so to speak. Thus, when you analyse USA, or Italy, or Germany, it is of near-zero relevance to me as an Indian  - not because of the level of – aah – freedom of our financial markets or their development, but due to the structural difference between the economies the book discusses, and my own Indian Economy, and the vast difference in their stages of development.  That said, to those interested in the Western Economies- this is a decent resource, to be  perfectly frank. To those interested in the Indian Economy, Mihir Sharma’s book or even the book by Ruchir Sharma is a far better bet.

The book advocates flow of capital across borders, and the benefits to be had from competition from abroad; while this is actually beyond debate – it isn’t the panacea it is made out to be by some Western Economists, who, it seems to me, speak from their own interest points. What do you mean when you say flow of capital? How is it an aid in development for a developing nation if it is only trading, and does not involve investing in the host nation’s capabilities in terms of state-of-the-art manufacturing abilities? Readers will recall the brouhaha over the 30% local sourcing clause in the retail FDI mash-up.

It is fine for a Westerner to speak of free flow of capital and developed financial markets {please define “developed” – yet to read a definition of this amorphous concept so heavily  bandied about in pink papers, especially from abroad! -  Also, do remember it from these very – aah – developed markets that subprime sunk the global financial world}  ; but remember the West is where there is excess investible surplus, and it is in their interests to open markets in the east. That is pretty much a no-brainer. The question we need to ask is which capital is good for us, in what terms and conditions, and in which focus areas and industries. There is no single rule – there cannot be; for economics isn’t a standalone discipline, regardless of how much the theorists would like it to be. Economics exists in the real world.

This lack of real-world connect becomes doubly apparent when the authors talk of those left behind, or those whose jobs get laid off in the modern world. It becomes even more apparent when they talk of international competition leading to benefits in developing nations. What happens to domestic industry  or old industries when large-scale job losses happen due to so-called international / new competition – and what will be the impact on the internal social structure and the law and order situation of the concerned nation? One can easily recall a series of incidents…  

Frankly, these – and many more -  aren’t questions that can be answered by theoretical economists in rarified top university environs; these are the subject matter of behavioural economists working in tandem with the society and the prevalent political structure; it is upto these real world experts of each country to devise the right, or the optimal approach to economic issues that  each nation faces, One size fits all doesn’t work in the real world, to be completely frank… 

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