Opinion Who are the real cronies?

Closer at home in India,the refrain is the same. Corruption is everywhere,and who gets blamed for it — the capitalists! How did this corruption come about?

According to a recent judgment by two Supreme Court justices,crony capitalism in India was all due to the introduction of economic reforms in India in the early 1990s. Coincidentally,the finance minister responsible for the reforms then,Dr Manmohan Singh,has been the prime minister of India for the last seven years. And what have these seven years witnessed? Rampant crony statism. Yes,I realise that you were looking for the 10-letter word capitalism,but the buck has to stop sometime,somewhere.

There are three big corruption scams in India; well,there are several,but these three are likely the biggest. And coincidentally,all three big-time scams have occurred under the watchful eye of India’s oldest political party,the Congress.

The first was the Bofors scam,which involved the government’s purchase of a gun from Swedish capitalists — surely,the best and most sincere kind,even if they are in the armaments business. Where the bribe money went has still not been discovered,but no one doubts that it went to politicians.

In October 2010,politicians in charge of the Commonwealth Games (yes,India is so full of dumb capitalists that we need the state,that is,the politicians,to administer,manage,control,and run matches and tournaments) made sure that there was a lot of public money misspent or not spent at all,but accounted as spent. Close on its heels,the government-administered 2G scam led to losses to the state of somewhere close to $10 billion. And yes,mining licences given to one’s favourites were also administered by the Karnataka chief minister. Now how many of these crony deals have to do with capitalism,and how many with the lack of capitalism?

At least capitalist markets have checks and balances — who is there to question the lies and corruption of the politicians? The answer — another large bureaucracy,in the form of a politically correct Lokpal bill. What guarantees that it will not be corrupt (like all large bureaucracies — the greater the absolute power,the greater the corruption)? Does anything ever become simpler in India? It can’t,because cronyism relishes complexity,and markets like transparency.

So who is the culprit? Will the real crony please stand up?

The real lie,and the real tragedy,is that state-administered,state-directed,in-the-name-of-the-poor programmes are the croniest of all. Not surprising,because the best way to sell corruption is if it is disguised with a human face. This administration,this government,and the ruling party,yes the Congress,have been involved in spreading the anti-market lie disguised as gospel.

Examples abound. Just to name three — the public distribution system of foodgrains,the employment guarantee scheme,and the government pricing of foodgrains. All three assume that capitalism,markets do not work in the most basic of human endeavours. Labour markets do not work — so we need controls. Food cannot be marketed by the private sector — so we need the government to procure,price,market,and export food.

What nails the government lie is the open recognition by government experts that the public distribution system (PDS) of foodgrains is an ongoing corrupt system before which all other corruption (including 2G) pales. After recognising this lie,and this corruption,Sonia Gandhi’s National Advisory Council recommends the “right to food”.

And how will the right to food become a reality? By expanding the longest-running corruption-prone system in India — the PDS. If this were not enough,the NAC recognises that food for work programmes have been massively corrupt. How do you reduce this corruption? By expanding such programmes. And then they make fun of Americans,who stated in a parallel context that they had to destroy a Vietnamese village in order to save it.

It gets worse. In the name of winning votes,the Congress’s motto is that we have to destroy the economy in order to win elections,sorry,to save it. The specialists within the Congress — the ones with the real hearts for the poor — devise crony ways to win votes. Their leaders believe that they will win the next general election because where else will the poor go?

Especially after they have engineered to have excessively high food inflation in India for four successive years — that helps with the farmers’ vote at the time of elections.

And who is to deny that it did bring them handsome rewards in May 2009? Procurement prices for 16 crops (wheat,rice,sugar,cotton,etc) rose by an average of 25 per cent in 2008,just in time for the 2009 elections. Average procurement price increases in the subsequent three years? 10,6.7 per cent and 10 per cent again in 2011! The procurement price of wheat was raised by 9.8 per cent the same day that the RBI governor,Dr Subbarao,was futilely raising interest rates to combat inflation. Why such brazenly corrupt behaviour by the Congress? Elections in UP and Punjab are scheduled to take place in the next five months.

The writer is an economist and chairman of Oxus Investments,an emerging market advisory and fund management firm