A Rich Nation of Poor People

In the first couple of years of the 21st century, something changed drastically and radically in India - and her relations with her populace and environment... India redefined its "tryst with destiny"

On January 26th, the Republic Day of 2001, the then President KR Narayanan refered to the "dilemmas of development" which India must carefully think through. He said:

"Let it not be said by future generations that the Indian Republic has been built on the destruction of green earth and innocent tribals who have been living there for centuries. Let it not be said of India, that this great Republic, in it surry to develop itself, is devastating the mother earth, and uprooting our tribal population.... The developmental path we have adapted is hurting them and threatening their very existence.... While the nation must benefit from the exploitation of these minerals resources, we will have to take into consideration the questions of environmental protection and rights of the tribals..."

Less than 3 years later, on November 1 2003, in a speech to the 19th World Mining Congress, the then President APJ Kalam contradicted the concerns of his predecessor:

""We should work for increasing the productivity from 0.5 tonnes per man year to 5 tonnes per man-year in underground coal mines using long wall mining and from 15 tonnes per man-year to 30 tonnes per man-year in open cast mines.... The fecilitation of project through provision of land, infrastructural development, community development, etc., can be done by the government agencies while the investments in the mines and associated technological inputs can come from the private sector... In addition, the private sector must have freedon to run the mine in a cost-effective manner..."

The implications of this U-turn can be viewed in perspective, if one recalls these statistics from an earlier posting:

If India's forest, mineral bearing areas, regions of tribal habitation and watershed are all mapped together, they will overlay each other on almost the same areas....

The three tribal-dominated states of Orissa, Chattisgarh, and Jharkhand... account for 70% of India's coal reserves, 80% of its high-grade iron ores, 60% of its bauxite and almost all its chromite reserves...

Of the top 50 mineral producing districts in the country, almost half are tribal. The average forest cover in these districts is 28%, much more than the national average of 20.9%... etc.

...and just to add to these, some more facts:

For every 1 per cent that mining contributes to India’s GDP, it displaces 3-4 times more people than all the development projects put together.

Forest land diversion for mining has been going up. So has water use and air pollution in the mining hotspots. An estimated 1.64 lakh hectare of forest land has already been diverted for mining in the country. For instance, the forests in Bardhaman have been decimated by mining. Iron ore mining in India used up 77 million tonne of water in 2005-06, enough to meet the daily water needs of more than 3 million people.

Mining of major minerals generated about 1.84 billion tonne of waste in 2006 - most of which has not been disposed off properly.... every tonne of coal extracted generates 3-4 tonne of wastes. ... Etc.

So how has India redefined its "tryst with destiny"?

We have become a Rich Nation...
...with Poor People, and an increasingly Depleted Environment!!

Fringe Benefits of Failures... and Imagination

I was introduced to Harry Potter & JK Rowling by my then teen-aged daughter - about 5-6 years back - when one day she told me, seriously, that I need to read through the books "only then we can have a meaningful conversation" ;0)... I did!

Last few days, I got this speech delivered by JK Rowling at the Annual Meeting of the Harvard Alumni Association on 5th June 2008 in my mailbox... (for all I know, you may have got it by now), and thought it worth sharing (long speech, worth a read - reminded me of Not "just another brick in the wall":

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President Faust, members of the Harvard Corporation and the Board of Overseers, members of the faculty, proud parents, and, above all, graduates.

The first thing I would like to say is ‘thank you.’ Not only has Harvard given me an extraordinary honour, but the weeks of fear and nausea I’ve experienced at the thought of giving this commencement address have made me lose weight. A win-win situation! Now all I have to do is take deep breaths, squint at the red banners and fool myself into believing I am at the world’s best-educated Harry Potter convention.

Delivering a commencement address is a great responsibility; or so I thought until I cast my mind back to my own graduation. The commencement speaker that day was the distinguished British philosopher Baroness Mary Warnock. Reflecting on her speech has helped me enormously in writing this one, because it turns out that I can’t remember a single word she said. This liberating discovery enables me to proceed without any fear that I might inadvertently influence you to abandon promising careers in business, law or politics for the giddy delights of becoming a gay wizard.

You see? If all you remember in years to come is the ‘gay wizard’ joke, I’ve still come out ahead of Baroness Mary Warnock. Achievable goals: the first step towards personal improvement.

Actually, I have wracked my mind and heart for what I ought to say to you today. I have asked myself what I wish I had known at my own graduation, and what important lessons I have learned in the 21 years that has expired between that day and this.

I have come up with two answers. On this wonderful day when we are gathered together to celebrate your academic success, I have decided to talk to you about the benefits of failure. And as you stand on the threshold of what is sometimes called ‘real life’, I want to extol the crucial importance of imagination.

These might seem quixotic or paradoxical choices, but please bear with me.

Looking back at the 21-year-old that I was at graduation, is a slightly uncomfortable experience for the 42-year-old that she has become. Half my lifetime ago, I was striking an uneasy balance between the ambition I had for myself, and what those closest to me expected of me.

I was convinced that the only thing I wanted to do, ever, was to write novels. However, my parents, both of whom came from impoverished backgrounds and neither of whom had been to college, took the view that my overactive imagination was an amusing personal quirk that could never pay a mortgage, or secure a pension.

They had hoped that I would take a vocational degree; I wanted to study English Literature. A compromise was reached that in retrospect satisfied nobody, and I went up to study Modern Languages. Hardly had my parents’ car rounded the corner at the end of the road than I ditched German and scuttled off down the Classics corridor.

I cannot remember telling my parents that I was studying Classics; they might well have found out for the first time on graduation day. Of all subjects on this planet, I think they would have been hard put to name one less useful than Greek mythology when it came to securing the keys to an executive bathroom.

I would like to make it clear, in parenthesis, that I do not blame my parents for their point of view. There is an expiry date on blaming your parents for steering you in the wrong direction; the moment you are old enough to take the wheel, responsibility lies with you. What is more, I cannot criticise my parents for hoping that I would never experience poverty. They had been poor themselves, and I have since been poor, and I quite agree with them that it is not an ennobling experience. Poverty entails fear, and stress, and sometimes depression; it means a thousand petty humiliations and hardships. Climbing out of poverty by your own efforts, that is indeed something on which to pride yourself, but poverty itself is romanticised only by fools.

What I feared most for myself at your age was not poverty, but failure.

At your age, in spite of a distinct lack of motivation at university, where I had spent far too long in the coffee bar writing stories, and far too little time at lectures, I had a knack for passing examinations, and that, for years, had been the measure of success in my life and that of my peers.

I am not dull enough to suppose that because you are young, gifted and well-educated, you have never known hardship or heartbreak. Talent and intelligence never yet inoculated anyone against the caprice of the Fates, and I do not for a moment suppose that everyone here has enjoyed an existence of unruffled privilege and contentment.

However, the fact that you are graduating from Harvard suggests that you are not very well-acquainted with failure. You might be driven by a fear of failure quite as much as a desire for success. Indeed, your conception of failure might not be too far from the average person’s idea of success, so high have you already flown academically.

Ultimately, we all have to decide for ourselves what constitutes failure, but the world is quite eager to give you a set of criteria if you let it. So I think it fair to say that by any conventional measure, a mere seven years after my graduation day, I had failed on an epic scale. An exceptionally short-lived marriage had imploded, and I was jobless, a lone parent, and as poor as it is possible to be in modern Britain, without being homeless. The fears my parents had had for me, and that I had had for myself, had both come to pass, and by every usual standard, I was the biggest failure I knew.

Now, I am not going to stand here and tell you that failure is fun. That period of my life was a dark one, and I had no idea that there was going to be what the press has since represented as a kind of fairy tale resolution. I had no idea how far the tunnel extended, and for a long time, any light at the end of it was a hope rather than a reality.

So why do I talk about the benefits of failure? Simply because failure meant a stripping away of the inessential. I stopped pretending to myself that I was anything other than what I was, and began to direct all my energy into finishing the only work that mattered to me. Had I really succeeded at anything else, I might never have found the determination to succeed in the one arena I believed I truly belonged. I was set free, because my greatest fear had already been realised, and I was still alive, and I still had a daughter whom I adored, and I had an old typewriter and a big idea. And so rock bottom became the solid foundation on which I rebuilt my life.

You might never fail on the scale I did, but some failure in life is inevitable. It is impossible to live without failing at something, unless you live so cautiously that you might as well not have lived at all - in which case, you fail by default.

Failure gave me an inner security that I had never attained by passing examinations. Failure taught me things about myself that I could have learned no other way. I discovered that I had a strong will, and more discipline than I had suspected; I also found out that I had friends whose value was truly above rubies.

The knowledge that you have emerged wiser and stronger from setbacks means that you are, ever after, secure in your ability to survive. You will never truly know yourself, or the strength of your relationships, until both have been tested by adversity. Such knowledge is a true gift, for all that it is painfully won, and it has been worth more to me than any qualification I ever earned.

Given a time machine or a Time Turner, I would tell my 21-year-old self that personal happiness lies in knowing that life is not a check-list of acquisition or achievement. Your qualifications, your CV, are not your life, though you will meet many people of my age and older who confuse the two. Life is difficult, and complicated, and beyond anyone’s total control, and the humility to know that will enable you to survive its vicissitudes.

You might think that I chose my second theme, the importance of imagination, because of the part it played in rebuilding my life, but that is not wholly so. Though I will defend the value of bedtime stories to my last gasp, I have learned to value imagination in a much broader sense. Imagination is not only the uniquely human capacity to envision that which is not, and therefore the fount of all invention and innovation. In its arguably most transformative and revelatory capacity, it is the power that enables us to empathise with humans whose experiences we have never shared.

One of the greatest formative experiences of my life preceded Harry Potter, though it informed much of what I subsequently wrote in those books. This revelation came in the form of one of my earliest day jobs. Though I was sloping off to write stories during my lunch hours, I paid the rent in my early 20s by working in the research department at Amnesty International’s headquarters in London.

There in my little office I read hastily scribbled letters smuggled out of totalitarian regimes by men and women who were risking imprisonment to inform the outside world of what was happening to them. I saw photographs of those who had disappeared without trace, sent to Amnesty by their desperate families and friends. I read the testimony of torture victims and saw pictures of their injuries. I opened handwritten, eye-witness accounts of summary trials and executions, of kidnappings and rapes.

Many of my co-workers were ex-political prisoners, people who had been displaced from their homes, or fled into exile, because they had the temerity to think independently of their government. Visitors to our office included those who had come to give information, or to try and find out what had happened to those they had been forced to leave behind.

I shall never forget the African torture victim, a young man no older than I was at the time, who had become mentally ill after all he had endured in his homeland. He trembled uncontrollably as he spoke into a video camera about the brutality inflicted upon him. He was a foot taller than I was, and seemed as fragile as a child. I was given the job of escorting him to the Underground Station afterwards, and this man whose life had been shattered by cruelty took my hand with exquisite courtesy, and wished me future happiness.

And as long as I live I shall remember walking along an empty corridor and suddenly hearing, from behind a closed door, a scream of pain and horror such as I have never heard since. The door opened, and the researcher poked out her head and told me to run and make a hot drink for the young man sitting with her. She had just given him the news that in retaliation for his own outspokenness against his country’s regime, his mother had been seized and executed.

Every day of my working week in my early 20s I was reminded how incredibly fortunate I was, to live in a country with a democratically elected government, where legal representation and a public trial were the rights of everyone.

Every day, I saw more evidence about the evils humankind will inflict on their fellow humans, to gain or maintain power. I began to have nightmares, literal nightmares, about some of the things I saw, heard and read.

And yet I also learned more about human goodness at Amnesty International than I had ever known before.

Amnesty mobilises thousands of people who have never been tortured or imprisoned for their beliefs to act on behalf of those who have. The power of human empathy, leading to collective action, saves lives, and frees prisoners. Ordinary people, whose personal well-being and security are assured, join together in huge numbers to save people they do not know, and will never meet. My small participation in that process was one of the most humbling and inspiring experiences of my life.

Unlike any other creature on this planet, humans can learn and understand, without having experienced. They can think themselves into other people’s minds, imagine themselves into other people’s places.

Of course, this is a power, like my brand of fictional magic, that is morally neutral. One might use such an ability to manipulate, or control, just as much as to understand or sympathise.

And many prefer not to exercise their imaginations at all. They choose to remain comfortably within the bounds of their own experience, never troubling to wonder how it would feel to have been born other than they are. They can refuse to hear screams or to peer inside cages; they can close their minds and hearts to any suffering that does not touch them personally; they can refuse to know.

I might be tempted to envy people who can live that way, except that I do not think they have any fewer nightmares than I do. Choosing to live in narrow spaces can lead to a form of mental agoraphobia, and that brings its own terrors. I think the wilfully unimaginative see more monsters. They are often more afraid.

What is more, those who choose not to empathise may enable real monsters. For without ever committing an act of outright evil ourselves, we collude with it, through our own apathy.

One of the many things I learned at the end of that Classics corridor down which I ventured at the age of 18, in search of something I could not then define, was this, written by the Greek author Plutarch: What we achieve inwardly will change outer reality.

That is an astonishing statement and yet proven a thousand times every day of our lives. It expresses, in part, our inescapable connection with the outside world, the fact that we touch other people’s lives simply by existing.

But how much more are you, Harvard graduates of 2008, likely to touch other people’s lives? Your intelligence, your capacity for hard work, the education you have earned and received, give you unique status, and unique responsibilities. Even your nationality sets you apart. The great majority of you belong to the world’s only remaining superpower. The way you vote, the way you live, the way you protest, the pressure you bring to bear on your government, has an impact way beyond your borders. That is your privilege, and your burden.

If you choose to use your status and influence to raise your voice on behalf of those who have no voice; if you choose to identify not only with the powerful, but with the powerless; if you retain the ability to imagine yourself into the lives of those who do not have your advantages, then it will not only be your proud families who celebrate your existence, but thousands and millions of people whose reality you have helped transform for the better. We do not need magic to change the world, we carry all the power we need inside ourselves already: we have the power to imagine better.

I am nearly finished. I have one last hope for you, which is something that I already had at 21. The friends with whom I sat on graduation day have been my friends for life. They are my children’s godparents, the people to whom I’ve been able to turn in times of trouble, friends who have been kind enough not to sue me when I’ve used their names for Death Eaters. At our graduation we were bound by enormous affection, by our shared experience of a time that could never come again, and, of course, by the knowledge that we held certain photographic evidence that would be exceptionally valuable if any of us ran for Prime Minister.

So today, I can wish you nothing better than similar friendships. And tomorrow, I hope that even if you remember not a single word of mine, you remember those of Seneca, another of those old Romans I met when I fled down the Classics corridor, in retreat from career ladders, in search of ancient wisdom: As is a tale, so is life: not how long it is, but how good it is, is what matters.

I wish you all very good lives.
Thank you very much.

The Un-Making of the Bollywood Movie "Swades"...

Do you remember the fairy-tale like movie “Swades”?... about the NRI Mohan Bhargava (played by Shahrukh Khan) who returns to India, accidentally lands up in a remote village (with no electricity, plenty of illiteracy, and backwardness), and uses his engineering and organizing skills to help the villagers build a micro-hydel plant to bring electricity to the village…

Well, it wasn’t an imaginary story, though it was almost like a fairy-tale. The movie was loosely inspired by the NRI couple, Ravi Kuchimanchi and Aravinda Pillalamarri, who, in 1998, decided to return to India and work in the development sector. Ravi, a doctorate in particle Physics from University of Maryland, had founded the Association for India’s Development (AID) in 1991 – which now has about 50 chapters across the world; Aravinda, was a senior volunteer in AID.

Their story was documented by Rajni Bakshi in her book “Bapu Kuti”, and when Ashtosh Gowarikar read it, it became the theme for the movie… What Ravi and Aravinda had helped/ participated-in creating was an actual project… and which is still remembered as a model of decentralized people-friendly sustainable development – The Bilgaon Micro-Hydel Project.

Here is the fairy tale of the Bilgaon Project:

For 55-years since Independence, people of Bilgaon, a tribal village in Maharashtra located on a tributary of Narmada river, Udai, had never seen electricity. There was also hardly any possibility that this region with 12 hamlets (about 180 families) – scattered over a distance of 4km - would ever get connected to the national grid, which passed them by about 12km away. The power-lines from India’s mega-hydel project, the Sardar Sarovar Dam, being built on Narmada river, clearly avoided the tribal villages…

In many ways Bilgaon represented almost 40-50% villages in India: The nearest all weather road was about 60km away, and a seasonal muddy road connected it to the nearest outpost about 18km away. What they did have was a 9-meter high waterfall on the river Udai which could be tapped for electricity…

The work on what came to be known as The Bilgaon Project started in May-2002 and on January 14, 2003, a 15KW generator lighted up every single house in Bilgaon and the ashramshala - the boarding school which housed 300 children. More than a technological marvel (in fact, such projects have existed elsewhere in the world), it was a marvel of localized, collective and sustainable action:

It was a remarkable piece of collaboration: Rolled-out under the aegis of Narmada Bachao Andolan (NBA), the project blueprint was designed by two young engineers barely 3 years out of college, Anil Kumar and C G Madhusoodanan – Anil and Madhu for the villagers - from Kerala’s Peoples School of Energy (PSE); it was implemented by Mumbai-based Sarvodaya Friendship Center; the special turbine was designed by a professor from Indian Instt. of Science (IISc), Bangalore, and four chapters of AID had provided the funding for Rs 12lacs.

the project was owned by the Bilgaon Navanirman Samiti, in which every household had a representation. The entire structure – the check dam, canal, tank, powerhouse - was built through the 2000-mandays of shramdaan (voluntary labour) by the village inhabitants.

the electricity was equitably distributed and charged for: Rs 10/month for a bulb, and Rs 30/month for a TV (Bilgaon had 5 TVs).

since the villagers now had electricity, their “energy bills” (kerosene for lighting the lanterns) came down from around Rs150/family/month to around Rs 20-30.

lighting of the ashramshala, also meant that now children could study at night

besides lighting, during the day, the electricity also provided for drawing water for drinking and irrigation, for running a grinding and oil-extracting unit, and for recreation center.

the money collected for electricity went for operation and maintenance of the unit, which was done by employing the inhabitants of the village.
Etc…

What Bilgaon Project had also managed to prove was:

- that the development of people can be achieved by participation and ownership of people - and not through schemes which are framed miles away by those who have no stakes in their lives;

- that for a country, where large portion of populace is scattered across unreachable terrain, a localized model of development makes more sense – and not the large mega-projects which displace them;

- that development need not necessarily sacrifice people “for the larger good”.

…So successful was the Bilgaon project that it became a benchmark for sustainable development.The villagers’ called it “People’s Power”; the Rural Development Minister of Maharashtra, RR Patil, inaugurated it; in November that year, Maharashtra Govt’s Energy Development Association proposed to replicate it in five surrounding villages (though, of course, nothing happened;); it was widely quoted in media…

One could have almost presumed the last line to be “…and they happily lived ever after….”

The fairy-tale ends here!!!
…and the reality starts…

3-1/2 years later, The Bilgaon Project got hit by contemporary India’s development paradigm.

The August 10, 2006 issue of The Hindu, published its obituary:

”BILGAON MICROHYDEL PROJECT WASHED AWAY

MUMBAI: The Bilgaon microhydel project in Nandurbar district, which inspired the Bollywood film ”Swades,” has been washed away due to the backwater effect of the Sardar Sarovar dam… Incessant rains in the Narmada Valley and rising water levels have flooded many villages in Maharashtra along the Narmada.

…The micro-hydel power project was acknowledged as a model of decentralised development, initiated by the people, using natural resources…. The energy produced used to provide electricity for every house in the village as well as a boarding school or ashramshala (with 300 students).”

Bilgaon, after all, was just one of the 250 tribal villages, which are destined to get submerged… in the tides of history of modern resurgent India…


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Photo-credits: Frontline & AID India

How Foreign Aid brings Sushi Bars to Failed States...

I was talking with a friend who works with one of the big international consultancy firms. He was working on a large “privatization”/ “public-private partnership” project in one of the SAARC countries….

“This must be quite an exciting job”, I said. “I mean, you are giving advice to the big businesses on their projects.”

He smiled wryly, “Not really!... there is a lot of CCP (cut-copy-paste) from the net in our reports.”

“But obviously, businessmen are not dumb. They will not pay you if you merely do what b-school students do for their term projects.”

“Of course, they are shrewd people”, he said. “…that is why they pay us.”

Seeing me slightly confused, he went on to elaborate candidly, “You know, this is actually quite simple. We are part of the package. Our client is getting a huge aid from the international funding agency for this project. One pre-requisite to get that aid is that they take us as the consultant. So, it really does not make much difference to them, as long as we are on the roll… it is a win-win partnership.”

It took some time for this “win-win” logic to sink in… till my “reality-check” mechanism made one more attempt…

“hey, hold on! Isn’t it the Government – not your private-sector client - who is getting this foreign aid?... wouldn’t it be for the government to decide on the consultant, and not the private partner?”

He laughed. “oh, both are the same. The aid comes through the government”, then he became serious. ”Let me try to explain. See, the “foreign aid” is not actually a “free” aid. It comes in a package of “Grant” and “Loan” – on average, the free “Grant” is about 1/3rd of the Aid. The other 2/3rd comes as a loan, and has “conditions” attached to it… the “conditions” are what we are part of. If the government needs that aid, then it has to accept us… in a way, the “aid” is given on the condition that it flows back to the donors - or one of their chosen ones.”

He paused for some time and then continued, ”Frankly, I am much too low in the hierarchy, so don’t know how it works, but this dynamics of foreign “aid” is same whether it is about the privatization projects we take up in SAARC countries, or in Africa – or any other disaster-hit needy country, e.g., China/Mynammar now – or during Tsunami earlier.”

“Frankly, I feel bad about all this,” he said. “But well, this is a job, isn’t it?”….


…Which made me remember this Washington Post article which Yawar had sent me recently – about How Japanese Sushi Bar reached the War Ravaged Liberia.

Some excerpts:
“Monrovia, Liberia: The second sushi bar to open in ragged postwar Liberia did not settle for having its chefs wear simple T-shirts, or for serving $25 worth of sliced fish on plain white plates.

Instead, the Barracuda Bar -- the new favorite hangout of ambassadors, UN officials and legions of aid workers whose shiny white SUVs jam the parking lot most nights - opted to dress its staff in Japanese-style robes and red bandannas….
As this impoverished country climbs its way back from 13 years of civil war with the tiniest of steps, a boom is underway in the industries that cater to the rarified tastes of thousands of mostly European and U.S. expatriates who have come to help since peace arrived in 2003. The increasingly visible splendors available to this relatively wealthy group have left some Liberians wondering whether the foreigners are here to serve the nation or themselves.

…A UN-maintained list from 2005, the most recent available, catalogued more than 600 nongovernmental organizations, donor groups and agencies of the world body working in Liberia. Their missions included tending to nearly every facet of national life: food, health, education, forestry, farming, religion and rebuilding the electrical grid, water systems and roads.Yet whatever the accomplishments of these groups, Liberians say the benefits of this massive international investment are far more obvious in the parts of town inhabited by the foreigners themselves. The number of swimming pools is burgeoning. Casinos are opening. Beach-side bars are springing up and sprucing up.

At the Abi-Jaoudi supermarket, ground coffee can be bought from Dunkin' Donuts, Starbucks and Seattle's Best. There are eight types of Chi-Chi's salsa and 90 types of cereal, including six varieties of Special K. Pop-Tart lovers have 16 options; if they can't decide between strawberry and blueberry, they can get a 'Splitz' Pop-Tart, with both.”

A bag of these expensive imports can easily exceed the monthly salary of a Liberian lucky enough to have a job. A dinner for two at either of the sushi bars is much more - especially if the meal is augmented with a few $8 caipirinhas or mojitos, as is possible at the Living Room, Monrovia's original, and somewhat less fancy, sushi spot.

(According to) Eliane Van De Velde, 35, a Belgian public information officer for the U.N. mission here, now on maternity leave,… “It's completely insane. The whole city doesn't have electricity. There's not a water plant. And it has two sushi bars, air-conditioned sushi bars. You wouldn't think you were in an African country.”…”

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As one would have guessed, Liberia is not a stand-alone exception. In the present-day world, there is an ever-present and pervasive need for such “pre-emptive reconstruction” efforts, consciously and continuously created by either pre-emptive wars or economic reforms – or both…

Some Related Posts:
1. Preemptive Reconstruction: The New Capitalist Doctrine

2. A Lesson in War Capitalism

3. Wharton Study: IMF/WB Bad for Infrastructural "Reforms"

4. Economic Hit Man: Globalisation as Neo-Colonialism

5. SAP ("Structural Adjustment Program") - the Un(?)intended Consequences

De-regulated Markets Cannot Self-Regulate!

Finally, there seems to be some mainstream acknowledgement that, underlying the ideology of deregulated markets, the world has been Living in a Global Casino [hat-tip: Prof Gaddeswarup]..

A couple of weeks back, a set of European political figures sent this Open Letter to the present President of the European Commission, José Manuel Barroso.

They included:
- 2 former European Commission Presidents (Jacques Delors and Jacques Santer)
- 2 former French Prime Ministers (Lionel Jospin and Michel Rocard)
- 1 former German Chancellor (Helmut Schmidt), and
- 1 former Danish Prime Minister (Poul Nyrup Rasmussen)

some excerpts:

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Dear President,

Financial markets can not govern us!

The current financial crisis is no accident. It was not, as some top people in finance and politics now claim, impossible to predict. For lucid individuals the bell rang years ago. This crisis is a failure of poorly, or unregulated markets, and shows us, once more, that the financial market is not capable of self-regulation. It also reminds us of worrisome escalating income discrepancies in our societies, and raises serious questions about our ability to engage developing nations in a credible dialogue about global challenges.

Financial markets have become increasingly opaque and, identifying those who bear and evaluate the risk is frequently more than a formidable task. The size of the lightly or not-at-all regulated “shadow banking sector”, has constantly increased in the last twenty years. Major banks have been involved in a game of “origination and distribution” of highly complex financial products and in pretty questionable packaging and selling of debt tied to high risk mortgages. Inadequate incentive schemes, short-termism and blatant conflicts of interest have enhanced speculative trading.

Dubious mortgage credits, wrongly based on the idea that never-ending housing price increases would pay for debt repayment, are only the symptom of a broader crisis in financial governance and business practices. The top three rating agencies in the world rated odd securities as relatively risk-free. One investment bank earned billions of USD by speculating downwards on subprime securities while selling them to its clients, epitomizing the loss of business ethics!

We were warned of the dangers... Poul Volcker too has warned against this crisis in the making years ago. Paul Krugman warned against the threats posed by the expanding non-regulated financial entities about a decade ago.... In 2003 Warren Buffett called derivatives “financial weapons of mass destruction”. A Bank of England report on financial stability highlighted the dangerous distance between lenders and the consequences of their decisions.

The problem is a model of economic and business governance based on underregulation, inadequate supervision and an undersupply of public goods.

This financial crisis shows all too clearly that the financial industry is incapable of self-regulation. There is a need to improve the supervision and regulatory frameworks for banks... a need to revise the regulatory frameworks for investment vehicles... financial instruments (like CDOs) has to be regulated... the level of leverage should not be unconstrained. Last but not least, incentive schemes have to be corrected so that reckless risk-taking be not stimulated at the expense of prudence.

About the consequences of all this crisis in the real economy, it seems that the world economic expertise is shy! Practically all institutions devoted to forecasts are lowering their evaluations of growth for the developed countries in 2008 and 2009.... Rising income inequality has gone in tandem with an ever growing financial sector. It is true that technological progress has contributed significantly to rising income differentials by favouring highly skilled labour. However, misguided policies have had their major role too in this respect. Financial assets now represent 15 times the total Gross Domestic Product (GDP) of all countries. The accumulated debt of households, financial and non financial companies and of the American public authorities amounts to more than three times the US GDP, twice the level in 1929.

The financial world has accumulated a massive amount of fictitious capital, with very little improvement for humanity and the environment. This financial crisis has thrown some light on the alarming income differentials which have increased in recent decades. Ironically, for many CEOs salaries and bonuses reached incredibly high levels while the performances of their companies stagnated, or even went down.

There is a huge ethical issue here.

Free markets cannot ignore social morals... Profit seeking is the essence of a market economy. But when everything is for sale, social cohesion melts and the system breaks down....

...The spectacular rises in energy and food prices compound the effects of the financial turmoil and are ominous for what lies ahead. Quite tellingly, hedge funds have been involved in driving up the price of basic staples. It is the citizens of the poorest countries that will be most affected. We risk unprecedented destitution, proliferation of failed states, migration and more armed conflicts.

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