Samsung’s manufacturing plant inaugurated in Greater Noida yesterday is one of the greatest deals of the Modi government.
Where are the jobs?” is a constant refrain of the Opposition parties and especially Rahul Gandhi on his infrequent sojourns to India. But the Congress has a point even though they also spectacularly failed at building the jobs market when they were in power. India’s demographic dividend still stands the risk of becoming a major dilemma going forward with millions of unemployed and unemployable youth. One panacea to India’s lack of jobs was supposed to be Prime Minister Narendra Modi’s flagship ‘Make In India’ programme, a set of incentives for manufacturers of everything from consumer durables to fighter aircraft to make more of their products and acquire services from India.
Yet for years nothing changed, if anything India’s import dependence on certain products became worse. Three-quarters of the estimated $30 billion of consumer electronics and durables consumed in India annually is imported, mainly from China. Even many of the devices that have a ‘Made In India’ stamp were usually just assembled in India, workers often not doing much more value addition than turning screws. When Rahul Gandhi joked that every selfie a person took in India was like giving a job to a Chinese youth, he might have stretched the analogy a few steps too far, but the point was taken. India was living vicariously on Chinese imports of everything from toys to televisions. The irony of brands celebrating their Indian-ness while selling Chinese imports was lost on promoters, mainly in the smartphone space, gorging on hefty margins until the Chinese companies moved in themselves, squeezing out Indian brands.
But in Samsung’s expanded plant in Uttar Pradesh’s Greater Noida, which will become one of the world’s largest mobile phone plants, Narendra Modi has found a riposte. The new facility is expected to serve not just India but other emerging markets as well and by manufacturing over 120 million handsets annually, including many of the critical components in India, the expanded facility is expected to generate over 5,000 jobs. That is just a drop in the ocean to the quantum of jobs needed in India but this should give a boost to the ‘Make In India’ project and also a tool to Samsung in its fight against Chinese smartphone manufacturers, which have been flooding India. The South Korean firm will almost certainly lobby for higher import tariffs. At the same time, another South Korean firm, Kia Motors, is working overtime to ensure that their new factory in Andhra Pradesh opens as soon as possible to cater to India’s burgeoning car market, giving Narendra Modi a few case studies of ‘Make In India’ success. At the same time, German carmaker Volkswagen announced a ramp-up of Indian operations under its Czech band, Skoda, with a billion-Euro investment in Aurangabad and Pune. But a few stories do not a novel make, and the Government has to do much, much more to incentivise manufacturing in India and make India a favoured destination for new factories that cater not just to the domestic market but also global markets, especially as the world faces the very real potential of a trade war. One in which if India plays it smart, it might not be a net loser.
Writer: Pioneer
Courtesy: The Pioneer
As the fruit bat flies, it’s only 300 meters from Cyber Tower 1 to the massive food court and commercial center that was built to service Ebène Cyber city the hi-tech office community on the out skirts of Mauritius’s capital, Port Louis. But walking from the ostentatious lobby of Cyber Tower 1 to the shops and restaurants can take 20 minutes if you don’t get lost along the way. The fastest route by foot bisects car parks, traverses overgrown vacant lots, and stumbles over temporary walkways past some of the biggest businesses on the island.
Both an urban planning disaster and for many proud Mauritians the very definition of modern office life, Cyber city was first proposed by the government in 2001 as a high tech hub, and now houses almost 25,000 mostly educated, middle class workers during the week. While the development can be criticized for a shocking lack cohesiveness, poor public transport, limited parking or even difficult access by foot, its creation did bring many aspects of modern connected life to Mauritian workers.
Like other local observers, Macbeth says that despite its many design flaws, the project did what it set out to do: create a modern working environment in the African island state, while ameliorating traffic conditions in the capital, Port Louis.
Built on sugar cane fields roughly 15 km to the south along the M1 (one of two modern highways that bisect the country) and completely disconnected from the surrounding urban fabric, Cyber city was promoted as a leap into the future for Mauritius. Despite its many flaws, the 64-hectare campus boasts high-speed internet which just a half a decade ago was a rarity in the country backup electricity generators to bridge frequent power cuts, and net- working systems to guarantee that big businesses can stay online constantly. Despite the island’s geographic distance from mainland Africa, the hub is so well connected that it hosts the African Network Information Center, the internet registry platform for the entire continent.
“It’s actually a whole ecosystem of facilities: intelligent buildings, air conditioning and electric backup,” says Koomaren Chetty, CEO of Business Parks of Mauritius (BPML), the company founded by the government to create and run Cyber city.
The initial phase of the project in 2001 the building of the 12 storey Cyber Tower 1 was designed, engineered and built by Indian companies, with financing for the project covered by loans guaranteed by the Indian government, in what Chetty calls a “turn key” construction. But when BPML commissioned a second building a few years later, they used local architects and construction companies heralded at the time as an example of the Mauritians’ ability to learn quickly from foreigners.
Now in its second decade, Cyber-city highlights an important difference in planned urban growth between developed and developing countries. As the world’s cities grow and intelligent urban design becomes a global discipline, a vision of this tiny African island’s future demonstrates that the concept of a smart city is far from standardized.
“In Europe when we talk about smart cities, we think of revitalization of existing cities,” says Bertrand Moingeon, a professor at HEC in Paris who studies urban development in Mauritius. “But in many places in Africa, including Mauritius, so-called smart city developments actually do the opposite: they create exclusive urban cities far away from the dust, chaos and inequality of the existing city escape,” Moingeon explains. “It goes against social inclusiveness.”
Moingeon agrees: “What we could wish for Africa is that they really develop the most recent model of smart cities,” he says, referring to the latest European and North American developments of the concept, which emphasize social and environmental improvements. For example, in Ijburg a brand new part of Amsterdam built on reclaimed river land daycare centers, university spaces, schools, civic spaces and high- end properties were deliberately built together with the aim of creating community spaces that would be shared by people of different social-economic backgrounds and ages. There is very little urban planning, in terms of amenities, parking and pedestrian areas ongoing growth of Cyber city (several new buildings are in the early phases of construction), keeping track of vacancy rates, which officials peg at somewhere between five and 15%, and overall gross floor area, which is given at roughly 200,000 sq meters, is difficult. However, judging by the parcels of land left vacant at the center of this city, not everything has gone according to plan.
“It lacks an urban fabric there is very little urban planning, in terms of amenities, parking and pedestrian areas,” says Abbas Currimjee, an architect and developer in Mauritius. To Currimjee, the problems plaguing this artificial city are less about the actual buildings and offices they contain, and more about the the project as a whole. The modern office buildings are serviced by an outdated public transportation system. Photograph: Christopher Schuetze
Indeed, despite the fact that most of the office buildings are at least 10 storey tall, the overall density of the project appears lower than the single story residential neighborhoods that are common here on the island. Much like the cacophony of architectural styles on display, individual buildings vary in the degree of modernity and comfort and some exude a kind of shabbiness associated with a humid climate, poor ventilation, badly functioning air conditioning and the overwhelming smell of food.
During even the lightest rain showers, the awning covering the exit of Cyber Tower 1 arguably the showpiece of the project – funnels a steady gush of water on to the driveway leading up to the building with such ferocity that even cars avoid it.
on those rainy days, the shortage of parking and difficulties accessing the crowded public transport come to the fore. Instead of the sleek transport hub promised in future iterations of the smart city here in Mauritius, decidedly old- fashioned, high floored diesel buses careen from one one street-side bus stop to next, leaving the crowds of well-dressed office workers running for cover.
on those rainy days, the shortage of parking and difficulties accessing the crowded public transport come to the fore. Instead of the sleek transport hub promised in future iterations of the smart city here in Mauritius, decidedly old fashioned, high floored diesel buses careen from one one street side bus stop to next, leaving the crowds of well dressed office workers running for cover.
The new government, in place since the end of 2014, has loudly rolled out the concept of smart cities, which it prescribes as a “cure all” for everything from a sagging construction sector to a means of attracting highly trained foreign workers and their capital. The label is currently associated with half a dozen (inbuilt) projects on the island, of which Heritage City is the only one the government is spending large sums of public cash on.
“We don’t need to make new cities, we need to make our cities smarter,” says Aadil Ameer Meea, one of seven socialist MPs who form the official opposition after a recent election routed the ruling labor party. Meea, who represents a district in the capital, says that instead of putting money into new developments such as Heritage City, Port Louis itself needs to be refurbished and upgraded. Though not officially part of Cyber city, the headquarters of the Mauritian Commercial Bank took its inspiration from the planned community While much political discussion is focused on where Mauritius would get money for the new, ambitious project the government is proposing covering a good part of the projected £563 mil- lion construction costs by taking a loan from Saudi Arabia observers warn of the lessons learned from Cyber city. “of course we are inspired by what has been done elsewhere we are not inventing the wheel,” says Gaetan Siew, who chairs a technical committee that certifies these smart-city projects, bestowing them with hefty tax breaks and other incentives.
While the other projects are less ambitious in scope than Heritage City and Cyber city, and are privately funded, they all are decentralized enclaves that focus on a “live, work, play” concept, green electricity and services. According to View, just as Heritage City is centered around government, other smart city projects are meant to be linked to other themes, creating livable “knowledge hubs”. “Density is linked to sustainability,” he adds.
Back in his office in Cyber city, Chetty acknowledges the development’s short- comings and explains he has a plan in place – under the title “Smart Community” to bring stakeholders together to pay for the creation of community spaces that would allow the various buildings’
In the 1970s, the World Trade Center stood beyond the edge of the city and convinced the world that Dubai was open for business. But Meea points out that market demand seems largely missing from the plan to redevelop the island. Unlike most African countries, Mauritius’s population remains steady. There are roughly 10,000 marriages a year in this tiny country, hinting that barring a massive influx of foreigners, demand for new neighborhoods will be limited.
As commuters still get stuck in morning traffic on the way to the shab by but functional capital, they have plenty of time to ponder the lessons of the island’s landscape. To the right stands an empty sugar field, which if all goes to plan, will soon be the modern, convenient and efficient Heritage City. To the left stands Cyber city, reminding them that buildings do not always make communities and those urban developments cannot create work for everyone.
However the key to concept project success remains ability of the government to create jobs, Mauritius government pushed itself for the being the IT hub in Africa a decade ago but the follow up was lethargic. The initial planning was great but gradually the successive governments failed to attract high end talent from global IT space leading to the slowdown of the domestic IT related investments. The concept projects namely cyber city can thrive only when the parallel growth in the sector is pushed by the government and private sector.
– (Courtesy The Gaurdian -Christopher F Schuetze in Port Louis & Inputs from Rajiv Agnihotri in Mauritius)
The most unique contribution Japan can make to India’s development is in the field of large scale,high-tech and long term infrastructure development, including financing thereof. In addition, India can expect four qualities from Japan: safety, environmental friendliness, ergonomics and strategic trust, leading to a low life- cycle cost. A combination of such qualities is very much desirable but also creates a complexity in the assessment and the decision making process. Let us study these aspects and how the Prime Minister of India Narendra Modi’s policies can help in the matter.
The Nature of Potential Japanese Collaboration with India Japan is well known for bullet trains, which is demonstrably the world’s best as a combination of length, speed, frequency, service and most of all safety — not a single accident fatality despite many severe earthquakes in the total history of more than 50 years. The remote rural part of Japan is also well covered by the public transport despite a very mountainous terrain of the country through breath- taking bridges and tunnels.
Japan’s urban transport systems are also a wonder, with greater Tokyo having the world’s most extensive and smooth urban rail network of 158 lines with 2,200 stations serving 40 million passenger rides daily, a little more than the total population of the region, which is also world’s largest urban conglomerate, at about 35 million. This is further connected with a dense and frequent bus operation as well as increasingly pedestrian and bicycle friendly urban planning.
This is topped with a long time impeccable record for safety and on-going regular improvements on all aspects. Crucially, since the global financial crisis like Lehman shock, Japan stands out with the biggest financing appetite in terms of the amount and the time period. Japan is already the biggest financier for Asian Development Bank which in turn has India as the biggest recipient, and Japan International Cooperation Agency (JICA) being a leading ODA provider in the world with India the largest recipient for years. Japan Bank of International Cooperation (JBIC) provides up to 40 years of loans and has a big interest in India.
On the other hand this is exactly the need of the time for India — Infrastructure and the long term financing for it. Growth of Demand in India We have seen a strong demand for good quality infrastructure in India over the last decade which supports the commercial viability. Until the early 1990s masses in India would prefer free roads, which was purely a responsibility of the government. Due to various political and government inefficiencies the quality of the public infrastructure development was very pure while the government was also under huge fiscal pressure for lack of tax revenues. The lack of infrastructure also resulted in lack of manufacturing industry which crucially depends on infrastructure and hence India continued to be too dependent on imports both for energy as well as manufactured goods. The fiscal and trade imbalances grew to a state of crisis and forced India to take major steps in economic reforms in the early 1990s.
With the economic liberalization new momentum in the Indian economy kicked in. India saw major foreign direct investments coming in and also the timing coincided with the y2K problem in the global IT industry which demanded huge software manpower. This was an area India could excel given the knowledge of English and relative independence of physical infrastructure like roads and power. The IT industry created a new confidence and global exposure in India.
As Indian people travelled more frequently to developed countries for various IT related jobs they brought back a new expectation of quality. The global exposure through Tv and other means also created new standards of quality and there was a new demand for high quality infrastructure even if it meant paying for the use, like toll roads. In the wake of the economic liberalization India quickly adopted privatization of infrastructure and saw more and more private sector partners coming into infrastructure development and operations through PPP models. This new demand and PPP paradigm provides a platform for Japanese collaboration in India.
Difficulties in Infrastructure Development
Despite the demand, unfortunately various political reasons and regulatory complexity across different ministries and approval authorities has hindered a proper planning and decision making on large scale projects and that’s where a big hope is on the new Modi government. Modi government being a powerful single party government, with the credit and expectations of the Gujarat Model, is in a good position to expedite the decision making on large and complex infrastructure projects, which creates the right opportunity for Japanese engagement.
It’s after 30 years that India has a single party majority in the central government. Over these 3 decades India had coalition governments of various compositions including community parties, regional parties and religion based parties with varying agendas. This led to a big difficulty in reaching agreements with long drawn debates on various aspects of social, environmental, religious, political and economic issues. The nature of the coalition governments also created a model of pacification and appeasement which further complicated the decision making process.
The election leading to PM Modi’s government is also very different from the last single party majority government formed in 1984. In 1984, the assassination of then Prime Minister Indira Gandhi led to a sympathy wave putting her son Rajiv Gandhi, with little political experience hitherto, as a prime minister heading a single party majority government.
Differing agendas and styles of various political parties made even the most obvious of the decision making processes too complex. In the severe political competition, often one party would block the decision only to stop the other party to get credit for a good project. In lack of good public media and education there was also a lack of sufficient debate and analysis in the public for a good judgement which further encouraged the political parties to have their own petty agendas play the game.
New Political Process leading to the election of Prime Minister Modi
The elections in 2014 witnessed a very different approach led by intense debates and information propagation through online media like Facebook, Twitter, WhatsApp and others. As I mentioned earlier India continued to lack physical infrastructure due to inefficiency in the decision making, development and financing processes, but India could excel in the IT industry due to the advantage of English and independence of large scale physical infrastructure for IT industry.
One more relevant factor is the theoretical and debate loving mindset of Indian people. The Indian constitution also allows a great degree of freedom of speech and expression which led to IT driven online media in India. While India is still much behind in terms of printed media, India has leapfrogged in online media.
Social Network Systems have further contributed significantly in the online information propagation and analysis. The online media also has a natural virtue of being better connected with the educated and techno-savvy people of India who are better able to judge the political agenda and are more respected opinion leaders in their respective communities.
political agenda and are more respected opinion leaders in their respective communities.As earlier mentioned the global exposure and economic liberalization has also put the economy and good governance on a higher agenda rather than the religious and regional political agenda which had mostly dominated the elections in the past.
Modi’s humble background of poverty in childhood and being an active member of a nationwide grassroots Hindu organization called Rashtriya Swayamsevak Sangh (RSS) has also contributed to his great popularity in the masses. Prime Minister Modi’s Previous Track Record from the State of Gujarat India is well known to be a very diverse country. The diversity is not just evident in natural and cultural terms but also in the economic situations in different parts of India. Different states of India have very different levels of economic development and infrastructure as well.
Narendra Modi headed the state of Gujarat as the Chief Minister between 2001 and 2014. The progress of the state during the period was a major factor in the election process as well. Gujarat is one of the best states in various parameters. Gujarat is among the very few states of India with sufficiency of electricity which grew the electricity production by 2.5 times during Modi’s tenure. Gujarat state also has better quality of roads compared to the average condition of roads in India. The length of roads also grew by 3.6 times during the tenure of Modi with development of new roads. The whole of country is expecting a similar state of growth in the rest of the country as well under the leadership of Modi.
Prime Minister Modi’s Style of Governance
Narendra Modi’s style of governance in the state of Gujarat speaks volumes. While corruption is a big problem in various aspects of India, Modi himself is known to be a very clean and selfless. He is also a very hard working person with even very few hours of sleep a day. He also demands the same from his administration.
He is also known to be a very hands- on person with an excellent memory. He would remember the person in charge for a particular project and the performance parameters and deadlines and would often personally follow up on the matter by picking up a phone directly.
In the process, he built a close knit network of bureaucrats around him in the state of Gujarat whom he has also taken along with him to the central government into the Prime Minister’s Office. A large part of critical decision making is done from the Prime Minister’s Office directly under the PM’s supervision. This is quite unlike the previous Prime Ministers where the decision making was decentralized to various other senior politicians as well as other members of the ruling party.
Modi has further kept the decision making closer to him as most of the senior ministers are younger than Modi himself at the age of 66. It’s also observed that most of the Ministers around PM Modi are strong followers of PM Modi, which along with a very Prime Minister’s Office led decision making process is drawing analogies to the White House style model of the United States of America.
Role for Japan in the New Plans by Prime Minister Modi
For the plan for 100 new smart cities announced by the Modi Government, Japan has the world’s best technology and implementation examples, like the Yokohama Smart City. Japan has some of world’s best transport systems technology and expertise for ports, airports, highways and railways, as also noted above.
While we face many accidents in Indian transport systems, safety is another attractive and complimentary aspect of Japan. With zero fatalities in 50 years of operations of running 5 minutes behind each other, Japanese bullet trains are equipped with a technology to detect an earthquake about a minute in advance and special technology for emergency stop from a high speed of 300 kilometers per hour within the minute.
Strong safety features are commonly seen in all aspects of Japanese infrastructure systems where even a single death by accident is infrequent enough to become national Tv news.Natural disasters like earthquakes and typhoons being quite common in Japan, such a strong preparedness is seen in Japan for the same that life and work continue almost as normal despite a significant earthquake.
As a personal experience, when the world media thought Japan was devastated by the earthquake and Tsunami on 11th March 2011, my Japanese col- leagues continued to work to meet a promised delivery for a client in the same afternoon. My worried brother from India researched and informed me that my office building is the strongest in the world for earthquakes and that it’s safer for me to stay in here for the time being. Such earthquake resilient construction technology is much desirable for India where we also face occasional significant earthquakes.
Nuclear power has been seen as an important source of energy and India and Japan have finally reached a civil nuclear technology collaboration agreement after years of discussions due to India not being part of NPT and Japanese sensitivities to nuclear matter being to only country suffering from a nuclear bomb. Japan faced a serious and unexpected natural disaster of 15 meters high Tsunami hitting its Fukushima
Nuclear Power plant on March 11th 2011, leading to a serious accident. This adds to Japanese experience and lessons learnt from a disaster which makes the Japanese nuclear collaboration even more desirable for India and is high on PM Modi’s priority list for collaboration with Japan.
After safety, the second quality of environmental friendliness is demonstrated in the least carbon footprint per unit of GDP in Japan among the large countries of the world. As the world is already facing a serious challenge of climate change and India catches up on per capita energy consumption with the industrial world, it’s important for India and the world to adopt eco-friendly technology across the life-cycle of production, usage and disposal. Japan has the best of low carbon emission power production technology across different sources like thermal, hydro, solar, wind, geothermal and nuclear. Not many countries of the world have enough of such technology and capacity to finance it.
With more than $100 billion of asset under management, one of the prime mandates for Japan Bank of International Cooperation (JBIC) and Japan International Cooperation Agency (JICA) is environment. Already there are many JBIC and JICA fi nanced environment friendly projects in India, but there is still a tremendous untapped potential where PM Modi’s plans for smart cities and new energy projects are very important platforms.
Urban Infrastructure, a leading infrastructure development and operator group of India, I facilitated an MoU of GMR with JBIC of Japan bilateral collaboration in technology and capital and can witness the willingness and potential between both the countries. Ergonomics of Japanese systems needs to be experienced to be believed and the Japanese products exported overseas are a good sample for the same. Japanese systems are also very friendly for the physically disabled.
Last but a very important quality I mentioned is being strategically trusted. Japan respects India for the philosophy of Buddhism and Mahatma Gandhi and remembers Justice Radha Binod Pal, who gave the sole dissenting comment in the Tokyo War Crimes Tribunal, and Subhash Chandra Bose very fondly for their pre independence collaboration with Japan. During the Japan Visit PM Modi also met the surviving colleagues of the above in Tokyo.
While India helped Japan critically with early diplomatic recognition and natural resources after the war, JICA, world’s largest ODA agency was founded with India especially in mind and continues to work quietly for the humanitarian developmental needs of India. On the other hand, while with very little mind share compared to USA, UK, Singapore or other English speaking countries, Japanis more trusted and respected in India.
This trust mandates mutual collaboration in the areas such as ports, telecommunication and defense technology. Prime Minister Modi has announced 16 new ports where discussion with Japanese ports is already underway. An unprecedented sales and future domestic manufacturing in India of defense related Japanese amphibian planes US2 is also at an advanced stage.
And in India’s desperate plans to reduce the import bill by promoting domestic electronics manufacturing Japan can be an ideal, trusted and equally desperate partner. Japan is in a desperate need for a market for survival of Japanese high tech electronics industry, where India is a holistic and near green field opportunity for Japan to start cost effective manufacturing in newly planned Electronics Manufacturing Clusters and cater to an expected $400 billion Indian electronics market by 2020.
The high cost of Japanese technology is an often cited concern, but that can well be compensated by the very low cost long term financing by a cash rich and very willing Japan, along with reduced life cycle cost in the long run. This raises possibilities of dedicated Japan-India funds which can support Japanese technology with Japanese financing.
A combination of technology with the government financing raises some debates on the international competitive bidding processes and various guidelines of the multilateral organizations like World Trade Organization, IMF and Asia Development Bank etc. Also a longer and more rigorous life- cycle assessment process is required to fully appreciate the economic feasibility and attractiveness of the combination of Japanese technology and financing package.
India has seen too many example of use of cheap technology and inadequate planning processes leading to failure of various infrastructure projects. This includes various power plants, city developments and infrastructure development projects. The problem is often further exacerbated because of the corruption involved in the process. India as well as foreign investors from Japan are looking up to a strong leadership of PM Modi to enforce a strong due diligence and planning process, building a confidence to focus on long term aspects and higher quality, reduce the corruption and hence improve the overall decision making process.
Looking at the example of Japan’s development with a long term focus on quality, which leads to over economic efficiency, India Japan collaboration can be expected to grow rapidly through a confident decision making process expected from PM Modi.Two major free market democracies of the world with common traditional values and mutual trust have perfect economic complementarities where Japan can provide the technology and finance for the development of India and India can reciprocate with a growth market and global human resource for ageing Japan. ‘The most potent bilateral relationship of the world’, as Prime Minister Abe proclaimed during his visit to India, had been waiting for strong leaderships from both sides. With the two Prime Ministers Abe and Modi, expectations are now very high indeed.
Going forward
One of the most significant contributions from Japan to India can be in large scale infrastructure projects like high speed railways, smart cities, ports and industrial zones, requiring both reliable eco friendly technology and long term financing, where Japan is the world leader in combination. With the strong new government in India one can expect effective decision making on such large scale projects and hence a new paradigm of effective Japanese collaboration in India.
– Sanjeev Sinha (The writer is Indo Japan Business and Investment Advisor based in Japan)
A stable India should seek to shape the world, rather than respond to situations. On the eve of India’s foundation, no one could have imagined how successfully it would come to navigate the international system. At that time, there were legions of skeptics who believed that the half life of this new country would be measured in years, perhaps decades at most.
The question of when India would split apart was one of the staples of public discussion going back to Churchill’s celebrated remark, “India is a geographical term. It is no more a united nation than the Equator.”
Today, however, India’s unity is taken for granted. In one of the greatest feats of modern history, India has built a cohesive nation despite incredible poverty and diversity. India has done just as well in regard to its territorial integrity. India as a unified territorial entity has survived despite being located in an extremely contested and unsettled regional environment. And, India has managed, despite great material weakness, to protect its political autonomy.
INDIA HOLDS ITS OWN
No one who has had the pleasure of negotiating with Indian colleagues on the other side of the table will conclude that this is a country that is incapable of protecting its interests. When I was working on the civil nuclear negotiations, my team was often accused of being unable to protect American interests, and of course there were a few Indians who made the same complaints about their team. But there were no Americans who walked away from that conversation believing that India is incapable of holding its own!
The reason why many outsiders invariably end up complaining about India being reactive is precisely because Indians have held on to the view with good reason that success in navigating the world derives principally from success in political, economic, and social management at home. This has characterized the way New Delhi has thought about its relationship to the world.
The first constant is an abiding obsession with economic growth. Whereas India began managing economic growth primarily through autarky and dirigisme, today it is shifting to a vision that has greater room for globalization and a greater acceptance of market forces.It is still an incomplete transition,but the fact that it is underway offers the greatest opportunities for developing the US-India relationship, not simply at the level of strategy or diplomacy, but where it matters most, in people’s cheque books and their pockets.
CAPACITY-BUILDING
Second, India has focused on building state capacity and empowering its citizenry from the very beginning. It is far from completing this task successfully, and yet this is one area where India’s success will be determined entirely by its internal actions. Outsiders including well meaning outsiders like those in the US can help, but only on the margins.
The choices that India makes with respect to its own institutions and how it invests in its people will make the real difference to India’s strategy. There are big debates now, centered around the balance between the state and the market in achieving India’s goals. The US can provide ideas from the sidelines, but this is an argument that Indians will have to work through themselves.
The third and last component of India’s grand strategy has been a desire to enhance its national security while minimizing security competition. India settled for such a conservative strategy because it has always been aware of its own weakness. Weaknesses within and the unsettled environment without have pushed Indian policy makers to become defensive positionalists, focused not necessarily on improving India’s position in the world, but rather on preventing its position from deteriorating further. At its core, Indian policy therefore has always focused on avoiding the foreclosure of options.
This approach sometimes rattles an anxious US, which would like to see a far more energetic India that acts as a sharper of its environment rather than as a country that simply protects its equities. The US government must remember, however, that India’s defensive positionalism is intimately linked to its own stage of development.
The day that India overcomes the internal challenges will be the day that India gets into the shaping business as opposed to simply the adjustment business.
India today finds itself between the times. It has accomplished the core task of what states are supposed to do:to protect political integrity in the broadest sense. Such success came against great odds, but India’s tasks are now becoming far more complicated because popular expectations within are rising just when new great powers and new threats are becoming manifest in its extended neighborhood.
As India succeeds, people including many in the US have great expectations of it. Therefore, how India understands itself, its role, and its contributions will concern not only Indians, but everyone involved in the US India partnership. Americans need to appreciate that no matter what labels India uses, its size, its history, and its aspirations will always ensure that New Delhi marches to the beat of its own drum. No matter what its circumstances, India will not become the kind of treaty ally that some Americans would like to see.
The fact that India seeks to plot its own course, however, is not necessarily a threat to American interests. In fact, Washington ought to ask itself not what India can do for the United States, but what India will become: Will India be strong, even if independent, or will it be weak? An India that is strong is fundamentally in American interests, a perspective well recognized when I served in the George W. Bush administration. We did not engage in nuclear cooperation with India on the expectation that there would be a quid-pro-quo. We did not push the transformation of US Indian relations merely out of expectations that India would help us to realize narrow interests. Rather, if India could find the sources of its own strength, its success both as a democracy and as a rising power would contribute towards creating a balance of power in Asia that is ultimately favorable both to US and Indian interests.
-Ashley J. Tellis
Hemant Setya reports for OPINION EXPRESS from New Delhi
Japan is coming; rather they are consolidating their presence in India with an aggressive trade policy. Buoyed by a landmark free trade pact and the launch of nuclear negotiations, India and Japan are set to scale a new frontier in bilateral ties by launching 24 green cities in the proposed Delhi-Mumbai Industrial Corridor (DMIC). 'Japan and India are planning to set up 24 green cities in the DMIC area,' Aftab Seth, a former Indian ambassador to Japan and a driving force behind the green initiative, told us in a Nikkie Eco meet jointly organized by India-Japan trade associations.
The green cities will include optimised energy supplies, 24-hour drinking water supply, bicycle and walking tracks, and waste and water recycling systems. Preparatory work has already started on pilot projects in seven green cities that will be part of the DMIC, which is bigger in area than Honshu, the largest Japanese island, said Seth. DMIC, spanning six Indian states, is the most ambitious infrastructure project India has launched with Japan, a world leader in green technologies, and is expected to cost $50-90 billion.
Envisaged as a global manufacturing and trading hub, DMIC is expected to be completed in five to seven years. 'Green cities and green technologies will be an important part of the DMIC. It will be like forging a sort of green alliance between India and Japan,' said Seth. The first of these cities will be developed in the Dholera investment region in Gujarat, 110 km from Ahmedabad.
Top Japanese companies like Hitachi, Mitsubishi and Toshiba shall be involved in designing and building eco-friendly towns along the DMIC that will pass through Uttar Pradesh, Delhi, Haryana, Rajasthan, Gujarat and Maharashtra. Basically, every place in this city will be in walking or cyclable distance, thereby cutting the need for pollution-spewing public transportation systems,' said Seth.
To boost green business collaboration, India and Japan organised a high-profile Global Eco-Business Forum on Nov 30 that saw the participation of top Japanese companies like Hitachi, Toshiba and Mitsubishi. Senior Japanese officials, including Masakazu Toyoda, and Ryuji Yanagihara, an expert on green cities, participated in the summit. Minister of Road Transport and Highways Kamal Nath Commerce and Industry Minister Anand Sharma and DMIC Development Corporation CEO Amitabh Kant represented Indian side.
'The Japanese are 10 times more energy-efficient than India,' said Seth, also chairman of Sun and Sands Advisors, Japan's biggest strategic management and financial advisory for cross-border business between India and Japan. 'It will be an opportunity for the Japanese to display to an influential and practising audience their talent in energy-saving devices and environment-friendly technologies,' he added. The expanding green collaboration between India and Japan also has a larger geostrategic dimension as Japan looks at India's business potential afresh to counter China.
'The Japanese are steadily coming to the realisation that they have put too many eggs in the Chinese basket. There is an unease with China. India is seen in Japan as a more lucrative market than Vietnam or Indonesia,' said Seth, adding the signing of the Comprehensive Economic Cooperation Pact (CEPA) next month is going to give a big boost to business ties between the two countries Japan has focused India to be a strategic investment point because the growth story of India has just began, there is an estimate by the world bank that Indian economy is expected to grow at over 9% in the entire next decade hence leading the GDP expected to cross $3 trillion by 2020. The growing economy is seeking huge investment in infrastructure sector to keep up with the overall growth story of the country. Japan is strategically promoting trade and commerce interest in India to participate in the tremendous investment opportunity of a lifetime.
2011 BMW 5 SERIES IS A SMOOTH OPERATOR
The outgoing BMW 5 Series may have ushered in a dramatic leap forward in terms of dynamics, technology, safety and creature comforts, but it's the previous generation – the E39 – that Bimmerphiles still speak of in hushed tones. The departing E60 may have been a more capable package, but it was also the source of much controversy and hand wringing. Blame Chris Bangle. Blame byzantine iDrive menu structures. Blame spirit-muffling layers of electronics. Hell, blame improved competition or hidebound brand loyalists who refuse to accept the new. No matter whose camp you point the finger at, the 2004-2010 5 Series was a polarizing creature, both aesthetically and from behind the wheel. Despite (or perhaps because of) all this, BMW enjoyed record-setting global sales of the Fiver, suggesting that that the traditionalists had it all wrong.
Still, one look at the new-for-2011 F10 model might reasonably lead you to believe that a bit of mulligan has occurred at the hand of Adrian van Hooydonk and his design team – a toning down of the E60's most divisive elements. To be sure, the E60's Dame Edna spectacles have been consigned to a dusty drawer and the raised "Bangle Butt" has kept its date with Celebrity Fit Club. In the not-so-dearly departed's place is a handsome new sedan that appears simultaneously more in line with the 5 Series' lineage yet firmly set on the future. But to label the sixth-generation Fiver as an aesthetic or strategic regression would be incorrect, van Hooydonk tells us. As he points out, BMW design has a tendency to periodically muscle in with big, bold, design statements – to knock down walls – and in the follow-up model, its stylists can move about a bit more in the clean air made possible by its predecessor. Fair enough – we prepared to check our Weltschmerz at the door and give this new Fiver a shot. Has it all been worked out for the better? BMW invited us to hop a couple of planes to Portugal in order to find out.
In-person, a lower roofline and a stretched wheelbase (at 116.9-inches, it's 3.2 inches longer than the E60, making it the broadest in the segment) have combined to give the 2011 5 Series a markedly sleeker appearance. The swage line that originates from just behind the front fenders and gets progressively more defined as it moves rearward lends directional thrust, as does its more aggressively shaped greenhouse. Wide, nearly vertical kidney grilles are attached to a snub nose, and even if the headlamps are now more conservative, the more upright grilles suggest that BMW is pondering a return to the forward-leaning, shark-like front end that defined its history. Indeed, AVH tells us that the sportier the model, the more pronounced we can expect this design hallmark to be (see the E89 Z4 for guidance). Overall, this is a confident, well-balanced shape, a clear design unencumbered by the shouty details of its antecedent. All-in, BMW says that the automatic-equipped 535i weighs in at 4,090 pounds, about 100 pounds portlier than a comparably equipped outgoing model – remarkably little in view of its added size, rigidity (+55 percent over the E60) and technology.
Underneath its controversial skin, the outgoing E60 ushered in a new era of high-tech solutions for the 5 Series in virtually every arena, from driving dynamics to creature comforts to safety and overall efficiency. In this regard, with the F10, BMW has buried the throttle more firmly into the carpet than ever before. New engines, gearboxes, suspension architecture, rear-wheel steering, user-selectable adaptive drive settings, brake energy regeneration, and yes, another generation of IDrive have been whipped up in a bid to keep the 5 out in front of the new Mercedes- Benz E-Class, Audi A6 and Jaguar XF.
The new single-turbo N55 engine just plain works, with eager revs and a wonderfully flat power curve. Interestingly, it wasn't more than a few months ago that we found ourselves on many of these very same Portuguese roads behind the wheel of another new 5 Series – the 2010 Gran Turismo. Visually, the 5GT may be something of an automotive platypus, but dynamically it proved beyond reproach, setting lofty expectations for this new sedan in the process. Appropriately, a quick ride from the airport in the back of the 5GT before we tucked into the 535i sedan reminded us why the bifold hatchback model exists – space. The longer wheelbase of the 5GT creates epic, limo-like accommodations for rear-seat passengers, with palatial legroom and commanding visibility. Its straight-laced new brother?
Comparatively tight back there (albeit class-competitive), a situation that figures to be the same with the Touring – a model we're no longer likely to get with this new generation. Of course, a sport sedan like the 5 Series isn't purchased for the measure of its back seat, so with the keys (okay, fob) to the new 535i firmly in hand, we headed out onto the lilting coastal roads and motorways northwest of Lisbon to see if we could rekindle a lost Love Connection. As we slipped aboard for the first time, all was at once familiar yet utterly new. From its three-spoke steering wheel to its Brobdingnagian 10.2-inch navigation screen, sturdy switchgear, iDrive porkpie, finicky drive selector and general shapes and materials, the 535i reminds of the 5GT and the new 7 Series, yet it carries its own dashboard design. While evolutionary, it's a beautifully executed space, with long, clean lines and ergonomically sound primary and secondary controls. As with its newer stablemates, the 5 Series receives a much more intuitive fourth-generation iDrive all-in-one controller, and with its rationalized menu structures and direct-function buttons surrounding the central controller knob, it's a system that's finally beginning to make some sense.
While we liked (okay, adored) the out-going 5 Series' N54 3.0-liter twin-turbo inline-six, the 535i receives a new single turbo engine dubbed N55, and it offers exactly the same 300 horsepower and 300 pound-feet of torque. So why bother? Because BMW's smarty-pants engineers have imbued the new motor with superior packaging, cleaner emissions and better throttle response. About that last bit – if you're wondering how a single, larger turbo can be quicker to respond than a pair of smaller units, BMW has cracked the code with the combination of a dual-scroll element and the company's Valvetronic throttle-less intake technology. Suffice it to say that the N55 just plain works, with eager revs and a wonderfully flat power curve (the engine's torque cup runneth over from just 1,200 on through 5,000 rpm). BMW says 60 miles-per-hour can be cracked in 5.7 seconds and top speed is limited to 130 mph – 150 mph if you spring for the Sport Package.
On the track in Sport + mode, the big Fiver's mid-corner stance is flatter than your first girlfriend. For the gluttonous, a turbocharged 4.4- liter V8-powered 550i with 400 hp and 450 lb-ft. will be offered, along with a late- availability 528i with 240 horses. While we're sure that the 550i's extra power is nice, the lighter weight, viceless performance and presumably superior fuel economy of the N55 (no EPA numbers are available yet) has us convinced that it's once again good to be the middle child. As ever, European customers will get a range of diesel offerings, but there are no plans to offer any such models in North America. All-wheel-drive variants, however, are in the pipeline for later this year.
A six-speed manual will be available in the 535i and 550i, but at the launch event, we were limited to torque converter- equipped 535i models. For 2011, there's a new ZF automatic with five clutches(!) and eight forward gears(!!) that offers a wider ratio spread. In the past, we've found that transmissions with this many speeds are prone to hunting, as if their software logic is somehow trying to justify the inclusion of so many cogs. The 5 Series largely avoids this trap, although we did notice a tendency to cycle annoyingly between gears at very low speeds under shallow throttle openings (think: nudging forward in bumper-to-bumper traffic). Notably, BMW is ditching the chrome push-pull paddle-shifters used on other models in favor of traditional pull tabs (right to upshift, left to downshift) – apparently some people found the old Anish Kapoor chrome thumb sculptures hard to use. The new ones work just fine, but we miss the older version's dual +/- action and subtle artistic quality.
For 2011, the 5 Series has discarded its long-serving Macpherson strut front suspension in favor of a new multilink arrangement. The rear end is now also under the sway of a new five-link system, and coupled with BMW's Dynamic Damping Control (read: adaptive suspension) and Active Roll Stabilization (dynamic anti-roll bars), the whole works is at once at ease and eager to please. By that we mean that the ride quality is free from harshness without being floaty, yet it's ready to boogie at a moment's notice.
Word that the F10 would be the first 5 with electric power steering didn't exactly warm our enthusiast cockles, nor did news that all 535i evaluators at the launch would be equipped with optional Integral Active Steering, a variable-ratio system that first made its appearance on the outgoing model. Thankfully, this is a new IAS system, as the first-generation setup never won any prizes for its communicability. Still, we were concerned that EPS and IAS' new active rear steering feature might contribute to feel-free handling, or worse, spooky dynamics. Nope. The Bavarian boys and gals have worked diligently to assuage all fears, and whether we were zipping along the littoral mountain roads, drumming along the motorway, or hammering around all 13 turns of Portugal's 2.6-mile Autódromo do Estoril, the 535i was rock solid, predictable and forgiving. Unlike many other EPS systems we've used, this one doesn't feel like there's an Internet's worth of siliconry busily rearranging ones and zeros to turn the driver's inputs into action. The variable-ratio shouldn't be off-putting during daily commuting, and on serpentine roads, it's a genuine ally – there's actual linearity, weighting and more than a modicum of feedback for one's fingertips to process as you spin the wheel just 2.1 turns from lock-to-lock.
Hallelujah Out on the track, with the optional Driving Dynamics Control rocker switch toggled to its raciest Sport + mode (the other three settings: Comfort, Normal and Sport), this big Fiver's mid-corner stance is flatter than your first girlfriend. The steering gains weight and speed without feeling artificial, the gearbox's marching orders are rejiggered to keep engine revs up and reduce shift times, and the electronic limited-slip tech and relaxed traction and stability control algorithms yield a surprisingly frisky big sedan. While you're never going to convince yourself you're dive-bombing in a Z4, this is a car that shrinks handily at speed, in part because the brakes are pleasingly firm and 18-inch Dunlop Sport Maxx GT run-flats offer credible grip with surprising compliance.
One fly in the enthusiast's ointment: To borrow from an old Western, the 535i is quiet... too quiet. Unless you really stomp on the gas and/or cascade down a handful of gears to get the engine on boil, you're not likely to hear much. That paucity of drivetrain noise is great for when you're cuing up Wagner on the surround sound audio, not so great when you're trying to set your enthusiast driving neurons alight. That said, we're happy to report that wind and tire-noise are similarly muted. Safety-minded options include a brace of cameras to provide a bird's eye parking view (think: Infiniti's brilliantAroundView Monitor), night vision with pedestrian detection, active cruise control and a nifty heads-up display. There's even a self- parking option, a feature that one German BMW official assured us will be sure to please your wife. Oh, yes he did.
The new 5 Series is better looking, more luxurious and more capable yet it is also safer and cleaner. So is it ready to pick up the E39's torch anew? Well, not really. Without going so far as to suggest that that car was a primitive instrument of joy, BMW has moved too far down the field technologically to simply allow its engineers to pour old wine into new wineskins and call it a day. Besides, BMW's customers, competitors and various world governments have all gone and moved the segment's goalposts in the meantime. Having said all that, 2011 5 Series is easier to use, easier on the eyes and far easier to find the magic in than its immediate predecessor. That might not be sufficient to proclaim it a neo-E39, but it might just be enough to move the Roundel to the head of the pack all over again.
Inputs from Gopal Chopra, Delhi Bureau
It has been the question of the day at every high-powered international gathering for two years: Are we out of the woods? The answer at this year's World Economic Forum appears to be an optimistic "Yes, but..." The world may have stepped back from the particular brink of 2008, but it faces huge risks ranging from spiraling food and commodity prices to the danger of trade and currency wars, against a background of growing inequalities that threaten stability.
So at the start of the annual conference at Davos, celebrity economist Nouriel Roubini raised a glass that was half-full – or Nouriel Roubini raised a glass that was half-full - or was it half empty? - and declared it a metaphor for the global economy. Judging by the opening panel that Roubini shared with an international array of business leaders and economic thinkers, it is also a world that is struggling to come to terms with the historic transfer of wealth and influence away from the long-dominant West: Will countries collaborate? Can it work to everyone's benefit or will living standards in the developed world collapse? Will the world run out of re- sources? The panel struggled with these themes.
"There is a global economic recovery," said Roubini, who gained renown for predicting the crisis of 2008 and a few months ago was still warning against the possibility of a "double dip recession." He noted that "balance sheets are strong, confidence is rising," credit spreads have fallen and liquidity - the availability of credit has increased.
But he warned that in the U.S. and Europe, growth remained low and unemployment high, and the U.S. faced a continued real estate crisis and inspired little faith in its ability to tackle its deficit and debt. In Europe, markets have forced an austerity that endangers growth. And in an allusion to China, Roubini said there was "not enough exchange rate adjustment" and warned this could lead to "currency wars and eventually trade wars and protectionism." Advertising magnate Martin Sorrell said he was "surprised, very surprised" by how well business did in 2010, admitting he would not have predicted that the revenues of his firm - global communications empire WPP - would return to pre-crisis levels by the second quarter of last year.
But he warned that corporations were so spooked by the crisis, and perhaps also by the current risks, that "there is an unwillingness in the West to invest in capacity and in increasing fixed costs" - such as new employees. So even though revenues in many cases are back to where they were, people have not been rehired - which explains unemployment but also the high profit margins that are buoying stock prices and balance sheets.
One bright spot for the businessmen: whereas James Turley, chairman and CEO of Ernst & Young, said business felt "demonized over the last couple of years," he said he was now identifying a change of tone from Washington that he attributed to a realization that "business needs to succeed in order for them to create jobs for people." But the panelists all agreed that the global recovery was uneven: tepid in Western Europe, slow in the U.S. and fast in many of the emerging economies. Reflecting the global transition, panelists noted that the transfer of wealth was not just from west to east - but also to the south, with impressive gains in Latin America and Africa. Expanding on the previous shorthand acronym "BRIC" - how Goldman Sachs described the emerging global relevance of Brazil, Russia, India and China - the catch-phrase seemed to be the "Next 11" - a clutch of other emerging nations ranging from Indonesia to Vietnam.
It is in these emerging economies that one sees most of the interesting initial public offerings on stock markets, Turley said. And he noted that trade between emerging markets themselves - by- passing once-dominant trading partners in the West was increasingly common. But the recovery is fueling demand that is causing fast gains in commodity prices - oil and metals, for example - and runaway food prices that are blamed for increasing social instability in some places and account in part for the recent revolution in Tunisia. For many countries, panelists noted, this raises the question is whether to raise interest rates to dampen consumption and bring down prices: that also drives up the currency - suppressing exports and it can harm growth.
Turley also noted that the world would soon face great demo- graphic imbalances, creating some unexpected alliances: In 2020, he said, the average age in the U.S. and China will be 37- 38; in Western Europe and Japan it will be 47-48; and in India and the Middle East it will be 27-28. "This will cause enormous impact and an array of policy issues," he said. The panel identified inequality - in both developed and emerging economies - as a major problem that could feed social unrest, creating uncertainties that might stifle the recovery.
Sorrell noted that wealthy people are more likely to invest their spare cash in financial assets "that causes asset bubbles" where as when the wealth is more evenly spread the chances of growth stimulating and therefore wealth spreading consumption increases. "You attack it with increasing marginal income rates" which is rarely a popular policy, Sorrell said. Azim Premji, chairman of Wipro, a global information technology firm, said inequalities were increasingly visible in his country of India and elsewhere in the developing world, where rapid ad- vances were not spread equally. Zhu Min, a former deputy governor of the People's Bank of China, said the billions of people in the developing world wanted to have the same things the developed world has: "An American life, a big car, pension... But it won't work because we don't have the resources." Would these aspiring billions really agree to make do with less? In a way, but not exactly, Zhu Min told The Associated Press: "We don't want to adopt the Western model. It won't work. It will be necessary to come up with a new model."
Trigger was the downgrade on August 5, 2012, of United States rating from AAA to AA+ by Standard & Poor, (S&P) a private rating agency. The consequence has been that all stock markets in the world recorded massive declines.
The downgrade complemented the turmoil in Europe with the debt problems faced by PIGS (Portugal, Ireland, Greece, Spain). PIGS joined by France and Germany who have their own Euro-dollar problems to cope with.
World Economic History snapshots: impoverishment of the world
India and China accounted for 50% of world GDP for all of the past 2000 years. (Now they account for only 25% of world GDP). The impoverishment was caused by colonial exploitation.
US economy: some history lessons
26.5?cline in GDP (from 1929 to 1933). Unemployment: 24.9% (1933), >20% (1932-35). 85?ll in stock prices; 47?ll in industrial production; 80?ll in home building (1929-33). Double-dip recession of 2011 evokes these memories.
Why is US $ a big deal in global finances?
US $ dominates currency circulation in world economy. $ Forex holdings are held by countries outside USA. US trade deficits and consequent increased supply of US $ to the world meant that over 66% of US $ (1980- 2005) are held outside USA. Two- thirds of US $ (Over $1 trillion) are in circulation outside USA.
Total Forex business: $3.98 trillion (US$ accounts for $
After the formation of OPEC and Petroleum products carry 69 trillion or 42.5%; Euro accounts for 19.5%).
Causes for dominance of US$tel, Kissinger ensured that these petro-dollars were stated in US$ terms and recycled in the world.
Thanks to forex, trade, investment, financial derivatives (puts and calls, credit swaps, participatory notes), petro-dollars, US $ is the dominant currency.
Total Forex reserves: $9.7 trillion (i.e. 16.7% of World GDP 58.26 trillion). Of these reserves, 2/3 are in US $, held and transacted in financial markets.
Keynesian economic model
Keynes was instrumental in introducing the current mainstream economic thought, in the wake of the First and Second World Wars.
He wrote two works:
The Economic Consequences of the Peace (1919)
How to Pay for the War: A radical plan for the Chancellor of the Exchequer (1940)
Keynes wrote in 1919: “If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing.”
He attacked the post World War I deflation policies with A Tract on Monetary Reform in 1923 – an argument that countries should ensure stability of domestic prices, avoiding deflation even at the cost of allowing their currency to depreciate.
Keynes’s predictions of disaster were borne out when the German economy suffered the hyperinflation of 1923, and again by the collapse of the Weimar Republic and the out- break of World War II. Only a fraction of reparations were ever paid.
How to pay for the war (1940)
At the height of the Great Depression, in 1933, Keynes published The Means to Prosperity, which contained specific policy recommendations for tackling unemployment in a global recession, chiefly counter cyclical public spending and contains one of the first mentions of the multiplier effect.
Keynes’ General Theory of Employment, Interest and Money (1936) argues that demand, not supply, is the key variable governing the overall level of economic activity. Without government intervention to increase expenditure, an economy can remain trapped in a low employment equilibrium. Keynes advocated activist economic policy by government to stimulate demand in times of high unemployment for example by spending on public works.
One consequence was the US announcement of Marshall Plan. Key argument was that war effort should be largely financed by higher taxation and especially by compulsory saving (essentially workers loaning money to the government), rather than deficit spending, in order to avoid inflation. Marshall Plan finally ended up in the formation of European Community with Euro dollar as their common currency.
(1) Promote public works, reduce unemployment
US and developed economies of the world should pause and learn lessons from history of the last 20 centuries. Impoverishment of colonies by the colonial loot should be recognized. Developed economies owe reparations to the impoverishment developing world which has come out of colonial dominance. One solution: Just as European Community and Eurodollar were formed, an Indian Ocean Community and Mudra as common currency of IOC should be instituted.This will lead to employment generation in ALL economies of the globe.Law of the Sea now expands territorial waters to 200 nautical miles, opening up new zone for economic exploitation. Projects are ready to link Vladivostok and Bangkok through Trans-Asian Highway and Trans-Asian Railway – projects which will provide the multiplier effect made popular in economics by Keynes.
(2) Promote savings
Avoid the temptation to print US dollars. Slow down the US $ money circulation. Institute steps to reduce US and other Developed Countries’ Current Account Deficit by increasing their exports of services for public works’ financing in Developing countries, for e.g. IOC.
US current account deficit (1976 to 2009): $8.5 trillion which becomes forex reserves of nations outside USA.
Promote savings in USA and other Developed Countries.
Promote investment of $ held as cash by corporate.
(3) Ban financial derivatives
Financial instruments such as options, financial derivatives, and participatory notes create a false sense of financial health.They do not provide insurance cover, they only promote the development of excessive greed. To promote greater corporate social responsibility, take lessons from millennia-old Dharma- dhamma institutions which promote social responsibility through sreni dharma (corporate responsibility) (e.g. makamai, a voluntary contribution of a percentage of turnover to social causes).
With an expanding home market many Indian companies tend to focus on domestic growth and looking to expansion in markets where successful Indian establishments has been made earlier, like UAE, and where quite a few Indian NRI HNI’s are strong links to opportunities.
In both US and Europe the markets are slow, to say the least, an FDI from these regions into India have dropped during the last one to one and a half year. The later is because of several factors; the perceived risks related to investing in emerging markets, lower risk investing in known markets and companies, but more interesting and important because there are “better” investment opportunities to be found in Europe and the US. And, from an Indian investors point of view many of these investments can make even more sense.
A company with relatively low valuation, a proven advanced technology being used by world-class customers could in many ways be the perfect acquisition. Or, a brand with a strong position in the local market who has not taken the step into the enormous Indian market due to lack of knowledge, contacts in India or temporarily slim financials.
According to our experience, in Europe, the geographical belt from northern Italy, Switzerland, Germany and Scandinavia are were the most attractive opportunities are. Throwing a glance at Netherlands and the UK might make sense in some cases. In the US there are typically industry specific clusters with different locations depending on industry.
Leveraging a higher margin customer base, moving manufacturing and development to India to further improve margins, bringing the products to the high end market in India and applying the Indian knowledge of down-scaling the product to match the requirements a cost sensitive volume market in Indian and as a next step go global with a superior product with an attractive price-point is a viable and proven strategy. Indian companies are uniquely positioned to implement such a strategy.
What we have seen though is that many Indian owner/promoters and executives tend to go for the cheap acquisitions, technology transfers of joint ventures – losing strategic and long-term advantage, unnecessarily sharing profits and being held back during implementation by foreign partners looking to their local needs and the past. Also, there is an reluctance by many to do, and pay for, the quality upfront research and evaluation work of available strategic options and acquisition opportunities – an initial investment that typically has an amazing return.
As examples – how many researched the Swedish market for green-technology, renewable energy, agriculture equipment, defense technology, medtech, auto-components or IT? – a region with a history of being at the frontier in clean energy, environment, medicine, vehicle manufacturing, telecom equipment…. Who has not heard of ABB, AlfaLaval, Bofors, Gambro, the Nobel price, Volvo, and Ericson. Is it likely to find interesting acquisitions or partners in their supplier base? Where are the clusters of companies, technology and brands related to your industry and business? Why miss out on an opportunity in a life time to leverage 150 years of development in Europe and US and bring it into, to, the future in India?
– R Vaidyanathan (Writer is Founder & Chairman of EXTEND, LLC)
Mobile phones have revolutionised communications beyond recognition. Gone are the days when you waited months to get a landline, and then wondered if it would actually work when you eventually got your hands on it!
Gone are the days when in order to make a call, you had to line up at an STD and hope that the few Rupees you had would suffice for that important call to a loved one overseas. Now with mobile phones and a choice of suppliers - India has seen an explosion in the mobile sector such that in 2011 there are now more than 500 million mobile phones users.
The area where calls have hitherto remained relatively expensive is of course when calling someone over- seas. More importantly, often these calls are dearer when made from your mobile phone. However, recently the concept of prepaid calling cards has been launched by several providers and this allows, via an access number and a pass code, the ability to make relatively cheaper calls overseas directly from your mobile phone.
So what is so new and clever about this innovation you may ask? Well, OE got in touch with the inventor and patent holder from London and asked some questions about the technology, as well as talking to the person who will lead on this opportunity in India.
Mr Mark Stewart, Owner of 'Speakeasy Communications Ltd' is based in the UK. We asked him:
OE: Mark you seem to have come up with an interesting innovation in mobile communication - how did this idea come to you?
MS: Well the thought of using a Calling Card to make international calls from a Mobile was at best clumsy, but also inconvenient. Having to
MS: Technically it should work in all countries. At present we are already active in 12 coun- tries including the UK, Norway, Sweden, Spain, Germany, Ireland, Holland, Switzerland, and Austria. In addition we are testing and at a pre- launch stage in Cyprus, Russia, Australia, New Zealand, Hong Kong, and China.
Our Speakeasy Mobile Chip is compliant with the international SIM stan- dard ISO 7816 so it will work with any 2.5G or 3G networks, and indeed any GSM or 3G mobile hand- sets including all types of Smart phones.
OE: What are the key benefits to the user?
MS: Our customers keep their existing Mobile number and provider - Yes that is right, it means you do not need to change anything. You just dial the number in the normal way or from the 'Contacts' stored on your Mobile. All international calls are carried by the Speakeasy network at lower cost. Users also have access to their online account via our dedicated website where they can check the cur- rent call rates, their usage and also 'Top Up' as and when necessary. We have also ensured that cus- tomers can Top Up by using scratch cards if that is their preference dial an access number, scratch off a PIN number and then key the actual phone number you wished to dial meant that you had to remember and dial in some cases as many as 40 dig- its!
It occurred to me if one could auto- mate this manual task as much as possible - then it would become a great aid to all users. Borne was the idea of our 'Slim SIM' which now contains a piece of special software that determines the numbers being dialled by the user. As soon as an internation- al number is dialled, it automatically diverts the call to our low cost network (prepaid) and there you have it a successful low cost international call directly from your mobile.
OE: How many countries are already using this technology?
MS: Entire globe.
OE: Do you find that some mobile operators don't quite like what you are doing?
MS: We are offering a clever and robust technology that is totally legal and technically works like a calling card, but acts like a normal call. It automates the process of dialling an access number followed by the pass code which traditionally has been a source of many complaints. Generally users end up having to dial some 30 + numbers in order to make an interna- tional call - in our system, they just dial their international number as normal, and our 'Slim SIM' takes over and does all the hard work.
We are therefore only offering an alternative to that which is already available in the market, but much easier to use and manage. If the mobile operators have no issues with existing methods, surely they can't object to, or feel aggrieved about a technology that makes the life of a user a little bit more comfortable.
OE: So you now wish to introduce this technology to India?
MS: Yes certainly. Kapil Dudakia represents Speakeasy in India. He is a person with many talents in bringing projects and innovations to market with like minded partners. We look for- ward to realising the potential of this opportunity in India over the coming months and years.
What is 'Speakeasy Mobile'?
Speakeasy Mobile is the revolu- tionary new Mobile service that empowers its customers to use their Mobile the way they want to so making massive savings without compromis- ing quality or complicating use. No matter which Mobile phone operator Speakeasy Mobile customers choose to use, Speakeasy Mobile is always a complimentary service.
What is the Speakeasy Mobile technology?
Speakeasy Mobile is a service based on the revolutionary and Patented Speakeasy Mobile SIM Device. Essentially the Speakeasy Mobile SIM device is a 128Kb memo- ry chip that can store 64 numbers, the user mobile number, a dial plan and all the information necessary to inter- act with the local Mobile network and the phone is use.
We were able to design the Speakeasy Mobile SIM Device to be wafer thin and so it can be placed on top of your existing SIM to fit snuggly back into the phone. We then took the opportunity to chat to Kapil Dudakia, who is well known not only to OE but also many in the NRI/PIO network:
OE: Kapil you are of course well known in many circles both in the UK as well as in India. What was it that first attracted you to this company 'Speakeasy Communications Ltd' and the technology they are promot- ing?
KD: When I first met Mark some months back and he demonstrated the 'Slim SIM' Speak Easy technology and how it works in practice. I have to say to you, I was utterly taken aback. My exact words were, 'Mark, this is a clever and an elegant solution.' My background is that I graduated in Electronic and Electrical Engineering and as such, when I analysed the solu- tion being offered - it was simple, clean, efficient, effective and above all it worked. What an elegant solution.
OE: OK, so it's clear you liked the product. But how did you get involved with the company?
KD: Mark informed me of the countries that had already taken up the offer of using this technology. I noticed that India was not on that list. Let's face it - India is a serious market where increasingly many more people will want to make international calls either for business, or to their family and friends overseas. The ability to make a relatively low cost internation- al call directly from your mobile, and to do so easily I felt was a perfect solu- tion for India.
OE: Can you just take me through the process of how it works from the users' perspective?
MS: OK - at present you have several options.
Option 1: Call from an ISD (either private or public) and pay the going rate. This does however mean that either you have your own ISD line, or you have to go to a public booth to make that call.
Option 2: Purchase a prepaid calling card. What you then have to do is first dial an access number (can be around 10 digits long), then you have to type in your account details (typical- ly 12 digits long) followed by the actu- al international number you wish to dial (generally around 14 digits). Tedious comes to mind.
Option 3: The 'Speakeasy' method. Just dial your international number and allow the system to do the rest. Elegant solution.
What can I say; I would choose option 3 every time.
OE: What are your plans for India?
KD: Shortly I will be embarking on a quest to find a suitable in India that has the capacity and reach to take on board the exclusive rights to the tech- nology for the whole country. Of course this means they need to be able to purchase the one off licence fee and enter into an agreement to purchase and sell a certain minimum number of Speakeasy SIMs on a monthly/yearly basis.
Companies for example who have already got access to a great distribu- tion network which they can tap into with little effort. A company that knows how to market such products and one that will also give a great serv- ice to their clients. I will be looking for a very proactive partner who really wants to secure this opportunity, and are willing to go that extra mile in get- ting it. As they say, my door is open and therefore if any one of your esteemed readers feels they are in this category - contact me.
OE Comment:
Mobile communications is moving at a rapid pace in India. It has revolu- tionised the very concept of communi- cations. In fact for the vast majority it has allowed them to literally bypass the Internet since they have created their own social networks using SMS using their cells. We have no doubt that the next few years will bring forth a combination of technologies that will greatly enhance user experience, as well as functionality to aid the individ- ual and the business community.
Clever and innovative products continue to be invented by experts, and no doubt some of these will great- ly enhance our daily experience. At OE we look forward to the continued development of various technologies since they have the power and capaci- ty to unleash the genius that is so manifest in our nation.
Risis is not restricted to the US dollar but has affected all financial institutions of the world. Trigger was the downgrade on August 5, 2012, of United States rating from AAA to AA+ by Standard & Poor, (S&P) a private rating agency. The consequence has been that all stock markets in the world recorded massive declines. The downgrade complemented the turmoil in Europe with the debt problems faced by PIGS (Portugal, Ireland, Greece, Spain). PIGS joined by France and Germany who have their own Euro-dollar problems to cope with.
World Economic History snapshots: impoverishment of the world
India and China accounted for 50% of world GDP for all of the past 2000 years. (Now they account for only 25% of world GDP). The impoverishment was caused by colonial exploitation.
US economy: some history lessons
26.5 Decline in GDP (from 1929 to 1933).
Unemployment: 24.9% (1933), >20% (1932-35) 85% in stock prices; 47% in industrial production; 80% in home building (1929-33)
Double-dip recession of 2011 evokes these memories.
Why is US $ a big deal in global finances?
US $ dominates currency circulation in world economy.
$ Forex holdings are held by countries outside USA.
US trade deficits and consequent increased supply of US $ to the world meant that over 66% of US $ (1980- 2005) are held outside USA. Two- thirds of US $ (Over $1 trillion) are in circulation outside USA.
Total Forex business: $3.98 trillion (US$ accounts for $1.69 trillion or 42.5%; Euro accounts for 19.5%).
Causes for dominance of US$
After the formation of OPEC and Petroleum products cartel, Kissinger ensured that these petro-dollars were stated in US$ terms and recycled in the world.
Thanks to forex, trade, investment, financial derivatives (puts and calls, credit swaps, participatory notes), petro-dollars, US $ is the dominant currency.
Total Forex reserves: $9.7 trillion (i.e. 16.7% of World GDP 58.26 tril- lion). Of these reserves, 2/3 are in US $, held and transacted in financial markets.
Keynesian economic model
Keynes was instrumental in introducing the current mainstream eco- nomic thought, in the wake of the First and Second World Wars.
He wrote two works:
The Economic Consequences of the Peace (1919)
How to Pay for the War: A radical plan for the Chancellor of the Exchequer (1940)
Economic consequences of peace (1919)
Keynes wrote in 1919: "If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing."
He attacked the post World War I deflation policies with A Tract on Monetary Reform in 1923 - an argument that countries should ensure stability of domestic prices, avoiding deflation even at the cost of allowing their currency to depreciate.
Keynes's predictions of disaster were borne out when the German economy suffered the hyperinflation of 1923, and again by the collapse of the Weimar Republic and the out- break of World War II. Only a fraction of reparations were ever paid.
How to pay for the war (1940)
At the height of the Great Depression, in 1933, Keynes published The Means to Prosperity, which contained specific policy recommendations for tackling unemployment in a global recession, chiefly counter cyclical public spending and contains one of the first mentions of the multiplier effect.
Keynes' General Theory of Employment, Interest and Money (1936) argues that demand, not sup- ply, is the key variable governing the overall level of economic activity. Without government intervention to increase expenditure, an economy can remain trapped in a low employment equilibrium. Keynes advocated activist economic policy by government to stimulate demand in times of high unemployment for example by spending on public works.
One consequence was the US announcement of Marshall Plan
Key argument was that war effort should be largely financed by higher taxation and especially by compulsory saving (essentially workers loaning money to the government), rather than deficit spending, in order to avoid inflation. Marshall Plan finally ended up in the formation of European Community with Euro dollar as their common currency.
How to overcome the present economic mess?
(1) Promote public works, reduce unemployment
US and developed economies of the world should pause and learn lessons from history of the last 20 centuries. Impoverishment of colonies by the colonial loot should be recognized. Developed economies owe reparations to the impoverishment developing world which has come out of colonial dominance. One solution: Just as European Community and Eurodollar were formed, an Indian Ocean Community and Mudra as common currency of IOC should be instituted.This will lead to employment generation in ALL economies of the globe.Law of the Sea now expands territorial waters to 200 nautical miles, opening up new zone for economic exploitation. Projects are ready to link Vladivostok and Bangkok through Trans-Asian Highway and Trans-Asian Railway - projects which will provide the multi- plier effect made popular in economics by Keynes.
(2) Promote savings
Avoid the temptation to print US dollars. Slow down the US $ money circulation. Institute steps to reduce US and other Developed Countries' Current Account Deficit by increasing their exports of services for public works' financing in Developing countries, for e.g. IOC.
US current account deficit (1976 to 2009): $8.5 trillion which becomes forex reserves of nations outside USA.
Promote savings in USA and other Developed Countries.
Promote investment of $ held as cash by corporate.
(3) Ban financial derivatives
Financial instruments such as options, financial derivatives, and participatory notes create a false sense of financial health.They do not provide insurance cover, they only promote the development of excessive greed. To promote greater corporate social responsibility, take lessons from millennia old Dharma-dhamma institutions which promote social responsibility through sreni dharma (corporate responsibility) (e.g. makamai, a voluntary contribution of a percent- age of turnover to social causes).
It’s presidential inauguration time in Washington. Not for the person who will helm the federal government that comes in six months but instead for Dr. Jim Yong Kim, the man taking the reins of an organization even more lumbering, and far less accountable: the World Bank.
And according to dozens of interviews over the past few weeks, atop hundreds more over the past five years, plus a review of thousands of pages of internal documents- problems have gotten worse, not better, at the World Bank despite more than a decade of reform attempts. Kim, the Dartmouth College president tapped by President Obama to lead the bank, stands little chance of fixing things, say insiders, unless he is prepared to completely revamp the cur- rent system. “The inmates are running the asylum,” says a former director.
Part of the problem is philosophical: No one, starting with outgoing president Robert Zoellick, has laid out an articulated vision for what the World Bank’s role is in the 21st century. For example, economic superpower China remains one of the bank’s largest and most valued clients, even as it doles out development money to other countries and bullies the bank from aggressively investigating corruption.
Part of the problem is structural: Internal reports, reviewed by FORBES, show, for example, that even after Zoellick implemented a budget freeze some officials operated an off-budget system that defies cost control, while others used revolving doors to game the system to make fortunes for them- selves or enhance their positions within the bank. Why not track all the cash? Good luck: Bank sources cite up to $2 billion that may have gone unaccounted for recently amid computer glitches.
Sadly, the last part is cultural: The bank, those inside and outside it say, is so obsessed with reputational risk that it reflexively covers up anything that could appear negative, rather than address it. Whistle-blower witch hunts undermine the one sure way to root out problems at a Washington headquarters dominated by fearful yes-men and yes-women, who-wary of a quick expulsion back to their own countries- rarely offer their true opinions. Zoellick declined to speak with FORBES for this piece, though that’s not surprising. I’ve covered the bank for the past five years and have been ritually denied access to anyone in a mid-to- top-level post. The blockade ended just before FORBES went to press, when the bank conducted a carefully monitored conference call with two staffers who run the global “Open Data” initiative. The bank’s media relations spokesman was permitted to be quoted by name. That this is considered openness epitomizes the problems that Kim now inherits.
Like most out-of-control bureaucracies, the World Bank started with lofty and idealistic goals. Facing a planet in ruins near the end of World War II, it was created along with the International Monetary Fund at a conference of leading Western economists trying to find ways to address the economic instabilities that they believed led to war and to guarantee it would never happen again.
Having successfully helped rebuild Europe and Japan, the World Bank eventually expanded into a truly global agency, notably in the 1970s under the leadership of Robert McNamara, who took on the goal of a poverty free planet in his search for redemption after his role in the Vietnam War. Donor nations fund the bank with billions of dollars annually, which it then doles out to fight poverty worldwide.
In terms of its governance, the World Bank has always operated under a gentleman’s agreement that allows the U.S.-its largest shareholder with 16% of the vote-to pick its president, while the other 187 member-governments flow into a 25-member board. The process for its funding, grants and loans is absurdly complicated, but in essence it combines capital from its donor -countries, plus self generated income through the sale of bonds. While often confused with the IMF, which provides financial stability to governments, the World Bank’s role is at least supposed to be only development projects-like building dams, roads, schools, even fish farms-although it has muddied those boundaries over the last 20 years. Unlike the IMF, the bank deals with both the public and private sectors, and as the number of projects and amounts of money have escalated, so has the mischief, corruption and cover-ups, since no agency has the power to audit them.
In 2005 George W. Bush tapped Paul Wolfowitz as president to clean the place up. To his credit, Wolfowitz made rooting out corruption his primary mission. But the former Pentagon official also came in like an occupying power. According to internal documents obtained by FORBES, the board and Wolfowitz engaged in a game of trench warfare so vicious that the minutes of some board meetings had to be sanitized to keep the world from knowing what was really going on.
Perhaps Wolfowitz’s heavy-handed style would have eventually paid dividends. He did, after all, declare war on the bureaucracy. But he also fell prey to the insular culture, giving his girlfriend at the bank special considerations that undercut his credibility and led to his resignation.
So in came Zoellick. He had a stellar resume, serving as the U.S. trade representative, an assistant Treasury secretary and deputy secretary of state. Joining the bank in 2007 he immediately calmed the waters. Facing a global food crisis, followed by a financial crisis, he shoveled loans out the door at record levels to help keep the world’s poorest from being buried alive. He then turned around and sought-and last year received-healthy financial increases from the bank’s member countries. When arriving at the bank he was flabbergasted at the glass ceiling for women-despite 20 years of studies and internal promises to change it. Within five years he could boast that half of his top managers were female. Zoellick was also shocked to learn that the bank sold its old data and surveys in its 8,000 “datasets” going back 50 years. He ordered it to be given out for free and made available to all-except for the sensitive stuff under what he calls the Open Data program.
These moves, however, all fell at the margins. The bank’s core problems grew unabated. Zoellick appeared to continue Wolfowitz’s corruption battle, boosting the budget and the number of investigators in the bank’s corruption- fighting arm-which led to the bagging and debarring of a record number of companies for corruption and bribery, including Germany’s Siemens and Britain’s Macmillan Publishers.
But numerous managers and vice presidents that I spoke with inside the bank say that corruption continues unabated. Five years ago a commission led by Paul Volcker drilled into the bank and called it a massive problem. He recommended restructuring the bank’s corruption-fighting unit, including moving the leadership into a more powerful notch in the bureaucracy. Zoellick adopted everything in the Volcker plan, but there are big questions today whether it’s having a deep impact.
“Certainly the World Bank in its official attitude has changed,” Volcker tells FORBES. “Now I can’t tell you how much that’s penetrated into the field staff … or the people who make the loans.”
Last year a little-known internal bank review was done on the effectiveness of the bank’s corruption-fighting efforts. At first, according to the report’s lead author, Navin Giri-shankar, Zoellick’s team asked the evaluator based inside a semi-independent bank unit-not to review the Volcker restructuring until they had more time themselves to see how it was working. The investigators agreed, focusing instead on the end results that ultimately matter, anyway the “quality of the bank’s operations,” particularly in countries that suffer heavily from corruption and poor governance.
The bank’s corruption fighters are too focused on specific development projects and not enough on the budgets of poor countries, where bank funds more than $50 billion since 2008 are commingled with a country’s income and may not be used for its intended purpose. These funds go down a rabbit hole and are almost impossible to track.
It was a bold report that shook the bank, and Zoellick’s team worked hard to discredit it. “In the beginning they wanted to push us toward examining countries where they felt there would be successes,” says Girishankar, considered one of the best analysts inside the agency. “Then the sampling was questioned, as were the findings that the bank is not consistent in fighting corruption and improving governments across countries.”
A similar report that the bank buried, attacked and then ignored was done by another respected internal investigator, Anis Dani. This report found a “dramatic dip” in the quality- meaning effectiveness, impact and results-of bank projects over the past five years, says Dani. He also found a seemingly premeditated effort to remove the only whistle blower function within the bank that dealt with all its projects, called the “Quality Assurance Group.” Zoellick’s team dissolved it in 2010, and while the bank maintains that it is working on replacing it with something else, Dani calls that claim “hogwash.”
The study, presented to the board in February of this year, was objected to by the bank’s senior managers, who preemptively produced their own Power Point presentation that found a lot of the same problems that Dani did. (That report has never been released.)
None of these apparent attempts to blunt unwelcome news comes as a surprise to Carman L. Lapointe, who has worked as the UN’s chief internal watch- dog since 2010. Before that Lapointe was the auditor general of the World Bank, where her team issued 60 internal reports per year on what was really going on inside the agency. “Carman’s reports were-how can I put it-a bit can-did,” laughs a bank vice president who supported her. But it led to Lapointe being gently walked out the bank’s door in late 2009. “We were pretty blunt with what had to be said, and that’s not what those at the top of the bank want to read,” Lapointe tells FORBES. “The bank’s management didn’t want to hear the tough messages. They are very reluctant to be held to account.” The bank wouldn’t comment on that, although Lapointe says she confronted Zoellick before leaving, and he told her he’d been blindsided by his own top managers.
At the most fundamental level the World Bank has a mandate problem. Economist Adam Lerrick, a longtime critic of the organization, argues that it lost its bearings lending to middle- income countries “that don’t need the money,” like the BRIC countries Brazil, Russia, India and China-rather than sticking with development projects in the world’s poorest and most fragile states.
The bank argues that it makes money from lending to the BRICs, which allows it to lend still more money to the poorest nations. In a 2006 study, however, Lerrick drilled down into the bank’s books and found real annual losses of $100 million to $500 million per year on its loans although accounting maneuvers painted a rosier picture of the financials. It’s hard to believe the situation has improved in the wake of the financial crisis.
“The World Bank should be in the development business, not the lending business,” says Lerrick. “Its scarce donor-backed funds should be channeled to countries that do not have access to private-sector capital.” Volcker has previously likened the bank’s we-must-lend attitude, ominously, to Fannie Mae.
Nowhere is the problem clearer than with China, the world’s second largest economy and the World Bank’s second largest customer behind Mexico, having borrowed more than $30 billion over the past few decades. When China in 2007 threatened to stop borrowing from the bank unless the agency toned down its new corruption fighting plan according to a secret internal bank memo, obtained by FORBES the bank’s top managers went into a panic and quietly caved. “The bank is desperate to keep its best clients,” explains Lerrick. A decision was made inside the bank announced on its website but wrapped in diplomatic jargon that they would benchmark each country individually on corruption, rather than against one global standard. The practical result was an easing of the rules for the biggest violators, such as China.
Zoellick, who prides himself on his relations with China’s leaders, did nothing to alter it. Indeed, in the report issued last year by Girishankar, he con- firmed that this was happening. “There are several countries, including those with very big geopolitical influence and a strong voice on the bank board, where the bank had to find a way to deal with it,” he says.
It gets worse:Hardly a month now passes without an announcement that the World Bank is lending China a ton of low interest money say $300 million to clean up a polluted lake-only to watch China turn around a few days later and announce a similar sized zero-interest loan, or grant, to a poor sub Saharan nation, winning extra global clout. Meanwhile, inside the bank’s Washington headquarters, China is increasingly assertive on the board level, while bank managers kowtow to China. Case in point: In the China office at the bank in Washington, one staffer’s job, according to a recently retired senior bank official, is to closely examine every World Bank document the bank creates that mentions Taiwan to make sure that it uses language China approves of. If it doesn’t, the language is altered.
When Zoellick took office five years ago, he instituted, he says, a flat budget on the agency-which, to outside eyes, remains at roughly $2 billion annually for administrative overhead. He did it because he felt it would instill discipline on the global staff and honestly felt they could do more with less. Unfortunately, FORBES has learned, the staff simply did an end-run around the president.
“No one believed we had a flat budget except him,” laughs a senior vice president. “We’re spending trust funds like there’s no tomorrow. So where is the flat budget? Everyone just got money from bank owners in a different capacity.”
“Trust funds” are the World Bank’s dirty little secret, their version of Congressional earmarks. There are hundreds of them, funded by dozens of countries and dedicated to virtually every poverty type project you can think of. And they have been growing so phenomenally that they now provide $600 million annually, or 30% of the bank’s total administrative budget.
Many donor countries do this because they don’t want their money sitting in a general bank fund that the bank can use for anything it wants. But since they have various arms of the bank administering these funds, there’s even less oversight than there would have been otherwise. And while those trust funds are generally not supposed to go toward administrative overhead, they often do anyway, say bank insiders, which many countries are unaware of. FORBES has turned up examples- such as with Italy-in which arms of the bank have been charging headquarters and individual countries for the same salaries and expenses, helping to enrich bureaucratic fiefdoms.
FORBES has also discovered a whole layer of bank officials who have learned how to game the system or expand their influence through its constantly revolving doors. It’s not unlike the way that U.S. officials retire and then go to work for the contractors they associated with while in government service. As just one example, “Lead Education Specialist” Luis Crouch helps manage the billion-dollar Global Partnership for Education, run out of the bank’s headquarters. Crouch is a revolving door within a revolving door- over the past ten years he has shuttled back and forth between the bank and Research Triangle Institute, a nonprofit that sells education tests to the bank and USAID, according to a USAID consultant familiar with the deals who says Crouch consistently favors RTI. Asked about his apparent conflicts of interest, Crouch declines to comment, while bank spokesmen also decline.
With such off-book shenanigans going on, perhaps it’s not shocking that last December more than $2 billion suddenly started appearing, disappearing and reappearing across the online budget accounts (and computer screens) of bank units around the world, according to staffers responsible for those budgets. In some accounts they showed huge deficits where none had been, while in others there were sudden surpluses. This was popping up in unrelated units across the bank’s computer networks-and driving every- one crazy trying to figure out what was happening. One insider likened it to the game whack-a-mole-only with hundreds of millions of dollars shooting up in different spots and vanishing from others. One possibility could be that it was massive hacking-an incessant problem at the bank. Another explanation is that it was simply “Computers Gone Wild”- perhaps the IT network on its own playing a game. Others suspect the explanation may be more nefarious. One thing for sure: It eroded confidence in the World Bank’s controls.
Zoellick’s hands-off management style didn’t help, either. He delegated most day-to-day functions to a deputy, Caroline Anstey, as well as delegating to her and two others the chairing of most board meetings-which is normally the function of bank presidents. The board meets twice a week, and yet Zoellick shows up maybe once a month. At the beginning they groveled for his attention, until he started going behind their backs to get information directly from their bosses (the finance ministers of their countries).
Indeed, Zoellick fashioned himself more in the role of a statesman than a bank CEO. He is rumored to be eyeing a senior job in a Romney Administration. Given this, bank insiders say that Zoellick’s goal with bigger career perch- es in mind-has been to simply manage the agency in a way that there is no noise or blame that could be affixed to him.
That meant not taking big risks. In late 2008 Zoellick tapped former Mexican president Ernesto Zedillo to chair an independent commission to study the issue of giving smaller and poorer countries a bigger seat at the World Bank governance table. That report was sent to Zoellick when it was completed last year, who promptly gave it to the board-but not before adding a cover letter saying it doesn’t necessarily represent his views. “Why did he have to do that?” Zedillo asks FORBES. “It was very obvious it was an independent report. He didn’t have to say that. He was not the author of the report at all. I think he’s afraid some country members will jump to his neck, blaming him for the report. They can blame me if they don’t like it.”
One of the Zedillo commission’s biggest conclusions is that “the board should be a real board and not an executive board,” says Zedillo. “The board should handle strategic matters and oversee seriously the activities of the bank. Right now it has a conflict of -interest.
“You cannot be the overseer and also the approves of the operations,” he adds with a laugh. “But that’s been a practice since the bank was established. … Do they really think the World Bank will be relevant in 10 to 15 to 20 years if you keep it the way it is now? The answer is no.”
– Bob Prouty, Forbes
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