Thursday, November 18, 2010

An Essay On the Emergence of India

During his recent trip to India, President Obama said that India “it not simply emerging. Indian has emerged”.

I concur in principle. But I am not the president of the United States and my assertions will not be accepted as proof. So, I am writing a short essay to explain my concurrence.

In the simple sentence India has emerged, we have no problem with India. The reference is clear and universally understood. But the “has emerged” part is vague because it is obviously metaphorical; as a large country, India was never hidden or submerged. I must then explain: i) what does emerge mean in the context or, to put it differently, in what sense can a large country “emerge”; and ii) what is the evidence that India in practice has accomplished the task, or fulfilled the requirements, of emerging.

Recall that capital takes social relations as it finds them and then, over time, turns them into capitalistic, i.e., transaction based, relations. The transformation is alternatively heralded as “improvement”, “reform”, “modernization”, “progress” and “development” – all words with positive connotations because the yardsticks of judgment are shaped by, and thus favor, capital-based relations.

Take modern. The word is nothing but a reflection and measure of the extent of the intrusion of capital into social relations, a point that Chaplin noticed and relayed in Modern Times. The more the intrusion, the more modern a society is said to be.

To make this point clearer, look at Cavallini’s 1290 painting, The Last Judgment.

Now compare it with Holbein’s 1533 painting, The Ambassadors.

The span between the two works is a mere 240 years. Cavallini’s work, furthermore, belongs to the Renaissance period which immediately preceded modernity. Yet, a sea change has taken place between the two. The Last Judgment looks “old” to us, with an unmistakable undertone of otherworldliness.

The Ambassadors, by contrast, is contemporary and modern. The two men confidently gazing at us could be models posing for a fashion journal in New York City.

The difference, as I previously remarked, is in the transformation of European society from the feudal to capitalist system. The Ambassadors are surrounded by a collection of valuable, traded commodities with the means of navigation symbolizing overseas trade. To capture all that, Holbein is forced to use the oil medium in the same way that modern advertisers use color picture: to accentuate the colors and fineness of the men’s wealth, including their wardrobe. Their pose and gaze is the pose and gaze of successful men of affairs, something that we see everyday in the business section of newspapers. That is why The Ambassadors looks modern to us.

Emergence has the same genealogy. The more capital-based relations intrude into the social fabric of a country, the more “emerged” it becomes. When even the far away villages are conquered in this way, the country can be said to have fully emerged.

Before taking up the case India, though, let us read this short passage from Vol. 3:
This confusing of moral, legal and financial is a common error among those looking at the appearances only. Here is the economic columnist of the New York Times [Paul Krugman] injecting morality into the subject of default: “Advanced countries – the status to which Argentina aspires – regard default on debt as a moral sin.”

In truth, “advanced countries” hold no such view. In the U.S., corporations use bankruptcy for a variety of strategic and tactical reasons – most commonly when they plan to renege on their pension liabilities. More fundamentally, in the Anglo Saxon jurisprudence, there is no inherently immoral or forbidden concept, of the kind one finds in religion. The foundation of this jurisprudence is the commercial consideration of the early stages of capitalism in England.

The “moral aspects” of default about which columnists and scholars of law are in the habit of sounding off are the indignation of the owners of capital at the prospect of losing their money. Because their views and interests set the social and cultural agenda, this view is gradually codified through casuistry and given a moral and ethical cover – and sold to the public as such.

Default is an incident in finance. Starting from the primitive societies in which “recalcitrant debtors … could be put to death and even hewn in pieces by their creditors or sold as slave beyond the Tiber” we arrive at Shylock at the dawn of capitalism who demands a pound of flesh in lieu of his money. His demand, nota bene, is legal, written into an enforceable contract. More humanitarian imprisoning of delinquent borrowers then follows, a “remedy” still in practice in many societies. As commerce develops, usury is recognized as impediment to business and outlawed. But the usurer continues to exist in the margins of the society, supplying the “weak credit” with funds and using various loopholes of the law to enforce payment.

As financial markets grow in size and sophistication, they take on the subject of default – itself a subset of credit risk – peel its social shell and turn it into a tradable commodity. The process begins with the most receptive and “logical” markets such as corporate bonds, where the relative value of credit and the possibility of default are an integral part of pricing; “cost of default” has long been a staple of this market: “Mr. Goldman [a fixed income strategist] says that a corporate bond’s interest rate spread over the government bond curve is the cost of issuer’s option to default.” Shaming, like jailing and maiming, is still used as a way of reducing defaults.

When I was writing these lines in 2005, microfinancing – lending a few hundred dollars to poor peasants to turn them into successful entrepreneurs – had captured the imagination of social reformers as the practical side of Mother Teresa’s dispensing of love to the poor. Its promoter, Muhammad Yunus, received the Nobel Peace Prize in 2006.

I was struck by the shamelessness and the absurdity of the idea. In the Inferno, the sinners’ physical deformities correspond to the kind of sin they have committed. I imagined that had there been a paradise with the same logic of reward, Mother Teresa and Muhammad Yunus would be present there, one with a large bleeding heart, the other with an oversized penis, both overlooking the wretchedness of the earth.

Five years later, the verdict is in, as reported in today’s New York Times:
Initially the work of nonprofit groups, the tiny loans to the poor known as microcredit once seemed a promising path out of poverty for millions. In recent years, foundations, venture capitalists and the World Bank have used India as a petri dish for similar for-profit “social enterprises” that seek to make money while filling a social need. Like-minded industries have sprung up in Africa, Latin America and other parts of Asia.

But microfinance in pursuit of profits has led some microcredit companies around the world to extend loans to poor villagers at exorbitant interest rates and without enough regard for their ability to repay. Some companies have more than doubled their revenues annually.

Now some Indian officials fear that microfinance could become India’s version of the United States’ subprime mortgage debacle, in which the seemingly noble idea of extending home ownership to low-income households threatened to collapse the global banking system because of a reckless, grow-at-any-cost strategy. Responding to public anger over abuses in the microcredit industry — and growing reports of suicides among people unable to pay mounting debts — legislators in the state of Andhra Pradesh last month passed a stringent new law restricting how the companies can lend and collect money.

Government officials in the state say they had little choice but to act, and point to women like Durgamma Dappu, a widowed laborer from this impoverished village who took a loan from a private microfinance company because she wanted to build a house.

She had never had a bank account or earned a regular salary but was given a $200 loan anyway, which she struggled to repay. So she took another from a different company, then another, until she was nearly $2,000 in debt. In September she fled her village, leaving her family little choice but to forfeit her tiny plot of land, and her dreams.

“These institutions are using quite coercive methods to collect,” said V. Vasant Kumar, the state’s minister for rural development. “They aren’t looking at sustainability or ensuring the money is going to income-generating activities. They are just making money.”

Reddy Subrahmanyam, a senior official who helped write the Andhra Pradesh legislation, accuses microfinance companies of making “hyperprofits off the poor,” and said the industry had become no better than the widely despised village loan sharks it was intended to replace.

“The money lender lives in the community,” he said. “At least you can burn down his house. With these companies, it is loot and scoot.”
The last point is crucial. There was always a village usurer. But however hateful he was, he lived in the community and was a part of it. It was inconceivable for him to force a widower to flee the village. He would gain nothing from it.

With the bankers and venture capitalists as usurers – they charge 30% per annum – the indebted widower must flee. There are grand designs for her village.

Has India emerged, then? I must say that it has, in principle. But we have not heard the last of this story yet.