Lord Ganesha: Why INR is over-valued in relation to Renminbi using wage rates and how that destroys jobs in India.

The basic problem is that because Modi ji kept the INR over valued to the $, it became cheaper to make a Ganesh idol 4 puja & ship it to Mumbai rather than have the same thing made at Urnoli, in Uran District,a village some 30 km from Mumbai wiping out artisans of generations.

 

 

he village in Urnoli has made these idols 4 generations. It is located by a backwater Channel to Mumbai harbour, home to lots of clay & free water. The idols are made by hand by families. They are dried in the sun & painted by hand. Used once, they have no further value.

So you see my case? Clay is free, so is water & sunshine. Colouring paints & wooden scafolding are the only raw material which costs less than 5% of sale value. The idols are transported in mini-tempos at night to Mumbai. The only major cost is labour. So …

… we have a village, 30 km from Mumbai, unable to competitively sell a low tech product requiring little more than skilled labour to make against imports from China?

How is that even THINKABLE? Yet it is true across a swathe of industries. What economic factor accounts 4 this?
The example implies manufacturers in China are virtually using slave labour at slave wages in order to be able to compete with labour in Urnoli. Or that the INR is so highly overvalued in relation to the Renminbi, that to workers in Urnoli, Chinese labour is cheaper by that much.

Note there is no slave labour in China. And here we are directly comparing wages in China with wages in India. Now since wages in India are cheaper, the only thing that makes Urnoli workers uncompetitive in India’s over-valued INR or dysfunctional exchange rate policies.

The problem predates Modi ji’s 5 years. But the exchange rate problem was exacerbated by Modi ji’s penchant for strong INR. He had to retreat in the face of an explosive rise in crude but the bias continues.

Now there are a army of sarkari economists & others there who will point REER to me. All I say to them is REER itself is bunkum. Firstly despite REER we have hair-cut devaluation every decade or so ranging from 15 to 20%. If REER worked, these devaluations would be unnecessary

Second, in the Urnoli idol case we are directly comparing Chinese & Indian wages. 4 all practical purposes, there are no other costs involved except transportation. 30km in one case, 3000 km in the other. So how does China beat India in Mumbai?

You can go to Urnoli’s villages 2 ways. Firstly via JNPT by ferry/car. Or you can turn off from the Goa Mumbai highway after Pen going towards Mumbai. You can’t miss the turn now that it has flyovers etc. The place is beautiful 4 bird lovers. Verify & tell me how this works.

That is the tragedy of our Sarkari economists. They dare not go beyond sarkars models to apply their trade. They don’t ask stupid questions like me b/c they can’t afford look stupid.

As you can see from the map [load it into your Google Earth] the clay & water are both abundant & free & there villages I speak of are on the banks of the channels. The place is home to millions of sea birds.

 

 

 

 

An Anonymous Post.

Warning:

 

I am not entirely comfortable posting it here because I don’t have the author’s permission to do so.  In fact I don’t know who the author is.  But it makes some important points & offers crucial insight into how “appropriation” works and why it is important to recognise it.  Akaar Patel had once offered a similar insight but he appears to have lost his voice these days.  So take with a pinch of salt.

 

Text of DM:

 

 

“There is a proverb in Malayalam that says that when a trivial man suddenly becomes wealthy, he will hold an umbrella at midnight to avoid the sun. That’s the story of cringeworthy Modi.

His latest interview shows the extent of his megalomania, his vanity, his pretensions and pomposity. He is so in love with himself as PM, so enamoured at getting such a plum post that he perhaps never dreamt would be his, that he now cannot see any boundaries to that ambition. It’s overvaulting. It’s unchecked. It’s urgent. A monumental personality flaw.

So, in his manic hurry to grow exponentially in stature,he merely appropriates all the symbols available of greatness. In the first year, the monogrammed suit and meeting with Obama where he broke all protocols and went into first name calling and informal bear hugging on the first meeting, was intoxicating. It turned his head irrevocably. It catapulted him into a rarified space of wealth, influence, and most importantly power leading to hubris. It’s what classically happens when you get something too precious too soon. You lose its value. You begin to think it’s your birthright. You take it for granted. A niggle of worry about losing it ignites rabid fear.

Then your humble past, the housemaid status of your mother, the tea selling boy, the chowkidar nomenclature, the begging fakir, the visits to the lower middle class house of mother (almost stationed there like a prop) all simply add to the heights you scaled. You use it to fill the ordinary people harbouring modest ambitions, with extraordinary awe.

It is clear from the recent puke worthy interview with Akshay, that that first brush with the most powerful world leader, even today, makes him blush and flush with pleasure as he very immaturely brings in Obama’s name, completely irrelevantly into an unrelated question and claims intimacy of a childhood friend’s familiarity. The tu nonsense will be trolled for a long time. This paints over the grimy beginnings and appropriates all that Obama stands for. Education, class, power, wealth and prestige. In one sweep you try to own it. People who see through want to puke. Many, who don’t, are impressed.

This macro appropriation of colossal power is seen in the speeches where he never fails to tell you he represents 1.3 billion Indians. He made it 6 billion at Davos appropriating 80% of world population in a Freudian slip.

Then he talks about purana naata with all countries he visits thereby creating an earlier bond that increases his network of influence.

The travels, the hugs are part of this appropriation of international spaces where he probably thinks he has conquered hearts and loyalties by landing on the soil in a Caesar-like veni vidi vici mode. This is reflected in his bhakts telling you about how he put india on the international world map.

Then we have the threats. If you are not with Modi you are anti national, traitor, seditionist, terror sympathiser, Pak lover etc. Here, he appropriates nationhood, patriotism, loyalty, pride of all ancestral history, in order to again, in one giant sweep glutton up the country of its past, present, and future.

Furthermore, recently he appropriated the might and significance of our entire armed forces. His minions will swagger about how it is ‘Modi’s army’ as if he were Alexander on an interminable mission of conquest. He tries to buy votes on martyrs as he genuinely thinks they are his foot soldiers.

He will use every tragic event to politically push his agendas. All work done by previous governments are disregarded so that he can have that last applause by placing the cherry on top and claiming to have done the whole job himself.

A master of image management he will announce schemes with pomp and pretend they are achievements merely by virtue of their having been announced. He is not a man pretending. I do believe he is in a mentally delusional state where he believes that he has truly achieved. Hence the allergy to questioning. It will break the mould. That pain, a lot of self deluding mental patients living in denial will tell you, is excruciating.

Several interviews, created on the eve of the elections have put paid to the criticism that he fears the Press. But then, in those meticulously crafted interviews of Prasoon Joshi and Akshay Kumar, we clearly see impotent anchors asking benign rhetorical questions that are all couched in predicated glorious praise embedded in, and preluded by How can you be so amazing Mr. superhero? Are you for real? There’s no one quite like you baby! kind of trash. Yes, it puts your teeth on edge.

This very small dwarf of a man then smiles in self indulgent pleasure desperately trying to control his ecstasy and dons a benevolent, self satisfied, karmic, wise expression before spewing forth a bunch of hallucinations, scripted to make him look progressive, contained, objective, magnetic and well connected. None of which is remotely true. A congenital liar needs no cloak of shame. One that has begun to believe his own lies lives in a parallel, altered universe.

The submissive, obsequious and pusillanimous anchor putty clan simper along with the patience of Job. They could be interviewing God Himself! No counter points, no uncomfortable questions, no interruptions, no interventions, no screaming , nothing! The one with Akshay on mangoes and other trivia tried to paint him as an accessible human while heaping praise and allowing for truckloads of bragging.

If Modi could make a trip to outer space, even if they flew him to a satellite station, he would appropriate the stars, the galaxy and the universe. They would come back with stories of miracles. And the bhajan mandali on Earth would say he is an avataar of none other than Sri Ram.

The megalomaniac’s journey from the regional, through the national and international, to the cosmic and divine would then be complete.”

Restricted Access Model of Corruption:

These are basically my tweets on the issue of some innovations that have surfaced in the sphere of corruption of our political economy that I made some time back.  People have been asking me to consolidate my tweets at one place on some topics.  So this represents the first of such consolidations.

 

I am a rather poor writer with little patience for the art. Will try & blog some ideas and see how it goes.

 

Thank you for reading.

 

Innovations in corruption.

There has been a lot of talk about ushering in a corruption mukt Bharat. The truth is that there has been some fresh thinking about corruption under the new Government & I would like to share my thoughts on the same with you.

So here goes. 1/n
The first is that the earlier regime was riddled with hypocrisy. The fact is running a party machine, fighting elections, and motivating & rewarding political workers is an expensive business. It requires funds that only the wealthy can provide & so there is the inevitable deal.

Under the Congress, prior to 90/91, a combination of the license/permit raj and patronage to those who could pay rents, provided the key funding for Congress. Which is not to say the opposition was chaste. Their chastity was mere lack of opportunity. Model was the same.

The Congress system was “free-for-all”; anybody who could pay was welcome. Everybody had equal access. The highest bidder won. Second, when the people at lower echelons saw this game, the replicated it at their level. Corruption ballooned. Politics became business.

90/91 changed the game by ushering in economic reforms destroying the old rent seeking model by abolishing the central licensing. This had an unintended consequence. As the Central Govt. shed its control over levers of patronage, the action shifted to the States.

Although no license required, entrepreneurs had 2 still line up before state Govts 4 allotment of land, water, electricity, labour permits & a host of other things. So rent extraction shifted from Centre to states & regional leaders gained power of patronage from the centre.

As power of patronage shifted to States, the Congress leadership in Delhi grew weak and the regional leaders far stronger. So much so that by the end of PVNR Govt., Congress party itself began to unravel as regional leaders revolted or struck out on their own.

As U can see, corruption at all level except Delhi multiplied. It was in the milieu that BJP stepped in. ABV followed the Congress model. Paid the price. When Congress returned to power, it had learned nothing from experience. The old State level rent extraction continued.

The present Govt. did learn important lessons from BJP experience. You cannot decentralize power of patronage & still control a pan-India political party. That’s was the Gandhi family’s political blunder. Modi ji therefore concentrated all such power in himself.

But if money is generated by state level leaders, how do you centralize power of patronage. Hence anonymous electoral bonds. Those seeking patronage go to the top, make the deal, contribute anonymously to the party kitty. Regional leaders are not involved. U control the treasury.

That is why Congress also supports anonymous electoral bonds. If & when it returns to power, it will help the Gandhi family to reestablish central control over the party as it was before 90/91. So they make noises but favor electoral bonds. Now 2 the 2nd innovation.

Recall I said the Congress system was free-for-all & widely emulated at lower levels by those controlling patronage. This model is terribly flawed in game theory terms.

2 simplify, if everybody can corrupt [free access] and everybody can accept bribes, the earnings of all fall.
As usual economics tends to be counter-intuitive but bear with me. First the demand side from tycoons. If tycoons have to compete 4 patronage, they will bid the highest bribe they can afford. Competition puts costs up. Where will they recover these costs from? Obviously you.

So if rents that can be extracted from you consumers are R and the bribe paid is B, [R -B] is the profit to the tycoon. As many tycoons are competing & its is competitive bidding, the [R-B] over time falls to 0. So the tycoons gain nothing from corruption.

On the other side bribes are the total rent that can be extracted. More people you share it with, the per capital share falls. So the free-for-all corruption under the Congress model is very inefficient. Not only that, it is also very noisy b/c prices must be disclosed 2 bidders.

The present Govt. has wisely moved to eliminate the free-for-all model and replace it with a restricted access model. Now everybody cannot bid 4 patronage. Only a selected few crony tycoons may bid. And secondly, the bids are tightly controlled at the highest level.

What the Restricted Access model does to increase both tycoon level & party level yields from rent seeking. Since competition is restricted to few cronies they need not make competitive bids. So B is smaller, [R-B] is bigger, they are happy. And B is not shared. Happiness.

Not only is the Restricted Access model more profitable 4 tycoons & politicians it is also not noisy as before. Since bidding is not competitive, there is no need to disclose price. Lower level corruption is not allowed but actually punished. So corruption visibly decreases.

That then is magic of the Restricted Access Model. You can reduce visible corruption, you can prosecute corrupt people lower down 2 discourage competition, be a corruption fighter & still maximize rent yield to your party. What could be better?

Now you will better understand why even BJP has copied the Congress model of appointing CMs from the central level. U can’t let state level people compete with you for share of rents.

That’s where we are. BMKJ.

 

Some additional notes to above tweets for further study & research:

1.  The idea of restricting access to rents from corruption to a selected few is not new.  It is based on the ideas of Nobel Laureate Gary Becker who first showed that it makes great sense for the corruptors [rent seekers] & the corrupted [the politicians who create rents] to restrict competition for rents by restricting access to them through creating barriers to entry.  This prevents dissipation of rents through competition thus ensuring the maximum returns to both groups.

 

 

2.  The RAM of corruption has the added advantage of reducing visibility of corruption that accompanies wider participation in rent seeking.  Secondly, it allows the elite rent creators [politicians] to claim the hallo of corruption fighters by being seen as keeping out those rent seekers who are in any case to be denied the benefit of rents.  In fact the more you eliminate corruption at lower echelons of Govt. the higher the rents for sharing available to favoured rent seekers & politicians.

 

 

The excerpts from the book “Political Capitalism” by Randall G. Holcombe.