Jul 29, 2014

Surjit Bhalla's flawed economics stands exposed. If you still want to read him, do it at your own peril.

I admire mainline economists. They have the ability to pick up the facts that suits their analysis. More often than not I find their analysis, when sometimes I try to read such articles, is not only motivated by their ideological thinking, but also statistically backed. And since many in this country are in awe of mainline economist especially those who do the rounds of almost every TV channel, they either don't understand the flawed analysis or are afraid to stand up.

Well-known economists Jagdish Bhagwati is one of them. Sometimes back he had made a comment in The Economist, which had prompted me to write a rejoinder. My response, which is still available on the IndiaTogether news portal (Hold economists responsible too. IndiaTogether April 4, 2005 http://indiatogether.org/subsidies-op-ed), was widely appreciated and circulated. I know the stature Jagdish Bhagwati holds but it is important to puncture their incorrect hypothesis.

Over the years, this neoliberal breed of economists has only got bolder. They now come out with outlandish statements often bordering stupidity, illogical comments and theories which have little or no relevance to the existing realities. In fact, most of what the mainline Indian economists have been parroting has already been discarded by the western economists. And that makes me wonder whether India's mainline economist care to read what is being written now to keep themselves abreast or are simply basking in the glory of the TV glamour.

Take the following articles by some western economists which runs counter to what is being repeatedly said in India. But you will see such analysis will never be incorporated in the public discourse. Nor will the TV anchors make corrections when economists/analysts parrot the same old line. The reason: Journalists don't read.

1) Dani Rodrik has bust the myth that the wealthy and the Corporates do not need the governments. Let the markets operate freely and their wealth will grow. This is rubbish. In this well argued article (A class of its ownhttp://bit.ly/VXjoQr), Dani says: 'The reality is that the stability and openness of the markets that produce their wealth have never depended more on government action'.

2) There is hardly a day when you don't find the economists and business writers drawing attention to the virtues of FDI in retail. They moan the failure of the government not to invite Big Retail into India. They invariably go on repeating the same faulty statistics to justify Big Retail's entry into India. I sometimes wonder why don't these economists even scan the international newspapers to know how the Big Retail is faring in the US/EU. Here is what The Guardian wrote the other day (The death of the American mall. June 19, 2014. http://bit.ly/UPFiF1). If Bid Retail is failing in the US why are we keen to bring a failed economic model to India?

3) Developing countries are poor because they export raw material. They should add value-added products. This is the general understanding. But read Ricardo Hausmann of the Harvard University (The Real raw Material of Wealth. July 26, 2014. http://bit.ly/UxgYXO) and you are jolted from your sleep. But you will never see Indian mainline economists discussing such analysis. Nor will the policy makers try to understand and understand the argument. They don't have to, because they go on parroting what has been taught to them. "Some ideas are worse than wrong,' he says. How true.

4) For decades, Indian economists have blindly followed the garden path shown by World Bank/IMF. Whether they accept or not, almost every major policy decision in the past 10 years was dictated by the World Bank. A leaked report of the World Bank now puts at rest how damaging and environmentally destructive its policies have been (Leaked World Bank policies 'environmentally disastrous.' July 25, 2014. The Guardian http://bit.ly/1omTcK2).

5) At a time when WTO is facing a standoff, Indian economists are shouting at the top of their voice to force India to withdraw its objections on ignoring the food security concerns. Trade is being linked to more growth. Adair Turner of the UK's Financial Policy Committee of the House of Lords refutes this common refrain. He says: more trade does not lead to more growth. (The trade delusion. July 18, 2014. http://bit.ly/1pAJdNJ).

These are just a few examples.

This brings me to economist Surjit Bhalla's article in the Indian Express (A 'principled' Congress stance at the WTO? July 29, 2014 ). This article exposes his flawed economic thinking. The article in fact borders on absurdity. In his article he presents a chart where he is comparing the international prices of rice and wheat with what the procurement prices Indian farmers are paid. Accordingly, for 2012-14 his chart shows Indian farmers were paid a high price exceeding global prices by 64.4% in rice and 62.9% for wheat. He doesn't even know that wheat and rice production is heavily subsidised in US/EU, and also comes with export subsidies. I tweeted to him, and he responded by saying that international prices are worked out uniformly. I then tweeted him back saying: 'If you don't know, read first. Don't go on defending your wrong analysis.' I attached one of my blog posts that tells you how EU utilises cereal subsidies to dump it in developing/LDC countries. http://devinder-sharma.blogspot.in/2010/03/eu-utilises-domestic-cereal-subsidies.html

Take a look at the $ 35.5 billion subsidies that US has paid to its wheat farmers between 1995-2012. (http://farm.ewg.org/progdetail.php?fips=00000&progcode=wheat). Surjit Bhalla's analysis therefore falls flat on the flawed data that he has produced in justification.  
If you see the enclosed chart, international prices are taken as an average over three years of the FOB price, which in other words is the landing price. There is no mechanism that separates domestic and export subsidies before the FOB is calculated or determined by the trade. Subsidies paid to wheat growers (including the export subsidies) actually enable North America and Europe to dump wheat in the international markets. The price comparison with the procurement prices paid to wheat farmers therefore is completely wrong. In any case, the best comparison should be with the FOB prices that India offers when it exports wheat. The impression that Surjit Bhalla is mischievously trying to convey is that Indian farmers are the highest paid in the world. If what he says is true then shouldn't we would have seen US farmers asking for the price that Indian farmers get? Shouldn't we see an exodus of American farmers keen to migrate to India?   
Economists like Surjit Bhalla have been churning out such biased and incorrect analysis to manufacture consent. As I said earlier, these kind of economists first draw their conclusion and then look for data which can support their flawed hypothesis. Well, if you still want to read them you do it at your own peril.   

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