A V Rajwade: Reagan, CMP and privatisation

WORLD MONEY/ The Left alliance's views on disinvestment are confused

Government is not the solution to our problem. Government is the problem... the best social program is a job" "" Ronald Reagan (1911-2004)

That we are today debating issues like privatisation is itself an indication of how far Reagan and Margaret Thatcher changed the agenda of the political economy. Since the Russian revolution of 1917, socialism in one form or another had held centrestage.

If at one time we imported socialism, Reagan and Thatcher also influenced us over the last quarter-century "" in fact, as The Economist argued recently, liberalisation started with the senior Mrs Gandhi's coming back to power in 1980; well before Rajiv Gandhi or Narasimha Rao.

To be sure, there was another major influence then "" the path taken by mainland China from 1979 onwards. It is an interesting coincidence that Deng in China, Thatcher in the UK and Reagan in the US came to power within a year or two of each other.

Or is it that the weaknesses of state ownership, of union power and the intellectual fascination with socialism manifested themselves so clearly by this time that the three leaders were purely incidental and the change in direction would have happened even without them?

For, a change did take place; in India as also in the west "" so much so that Tony Blair persuaded the Labour Party to delete its commitment to public ownership from its Constitution, and Bill Clinton, the Democrat, was to the right of post-war Republicans like Eisenhower and Nixon. It is remarkable that a second-rate actor, no more than "an amiable dunce" according to his critics, was instrumental in changing the agenda so radically.

Reagan's other parallel with Thatcher was that both had major confrontations with the unions and came out winners. Even this has had an effect on India "" labour relations today are dramatically different from an earlier era, when gheraos were considered a legitimate, indeed virtuous, part of pressure tactics; when the belief was that wages can keep increasing without productivity increases.

But to turn to our Common Minimum Programme (CMP), as a student of financial markets, I am confused on two issues: the CMP will aim at reducing the flow of speculative capital, but claims that foreign institutional investors (FIIs) will be encouraged.

Now, speculation means "buying or selling an asset in the hope of making a profit", which is exactly what FIIs do when they buy shares in the Indian market! My second confusion is about privatisation. The CMP is against privatisation of profit-making units in general, and the navaratnas in particular.

Consider, say, a hotel chain owned by the government, in which a thousand crores have been invested, and it makes a profit of Rs 5 crore. Does the policy mean that this hotel company will not be privatised if somebody offers, say, Rs 500 crore? Assume that the saving in interest on the sum, even at today's ultra-low rates, is Rs 30 crore.

At the given rate of return, the government is actually losing Rs 25 crore a year on keeping the profit-making hotel chain in the public sector! The loss quantification is on the assumption that the sale proceeds will be used either to retire existing debt "" or, more realistically, borrow less to that extent. The economic returns of using the released resources of Rs 500 crore in primary education, rural infrastructure and so on could, of course, be far more.

The argument could be that Rs 5 crore is only today's profit and that by efficient management it could improve. But surely the same logic can also be applied to the loss-making units that the CMP is not averse to privatising?

Surely the issue about privatisation should be the price, given the crying need for investments? The cost of keeping a unit in the public sector is the opportunity cost, financial and economic, of the resources the sale will raise.

But the United Progressive Alliance's (UPA's) supporters from the Left will not see the situation from this angle.

Apart from the philosophical commitment to "public" (that is, neta-babu) ownership, their worry will always be about the job security of the current employees of the unit.

The achievement of the Left and the trade union movement has been that they brought organised labour into the middle class; the tragedy is that they are not willing to look beyond this constituency, and support all subsidies, most of which benefit the urban middle class and the better off-farmers, rather than "the poor".

And these subsidies leave few resources for schools, roads, wells, health centers in rural India and so on. A government of the middle class, by the middle class, for the middle class? Reforms with a "human face"? Or, reforms with a middle class face?

One wonders whether the Left will even support any compromise on Kashmir, knowing fully well that the military confrontation benefits only the western arms suppliers! What a strange coalition we have on economic and foreign policies "" SJM, RSS and CPI(M)!

Email: avrco@vsnl.com