A $31 Billion Loss Creates the Biggest Tea Party: William Pesek

A $31 Billion Loss Creates the Biggest Tea Party: William Pesek - Bloomberg

By William Pesek Sep 4, 2011

Few people in their right mind would find any good in a $31 billion loss. In India’s case, it may just be the best thing that has happened in a very long time.

Let’s flash forward 20 years to what school kids will learn about recent events. Sure, they may hear about Anna Hazare, the anti-corruption activist whose hunger strike shamed a government. More than anything, they may learn than Hazare was a symbol of the national sense of disgust over an opaque phone- license deal that squandered $31 billion.

While that’s a big figure anywhere, it’s appalling in a nation in which 76 percent of its 1.2 billion people live on less than $2 a day. As public anger soars, history will probably record this loss as the proverbial last straw.

Walking the streets of India’s cities, I can’t help but feel the biggest democracy is seeing its own Tea Party movement. Only unlike America’s, which is fiscally conservative and libertarian in nature, India’s is about the government doing more -- ending the stifling bureaucracy and offering better services. This could just be the Indian turning point for which investors have waited.
“I think a genie has been let out in India that won’t get back into the bottle,” said Jesse Lentchner, Hong Kong-based Asia Pacific chief executive officer for BTIG LLC, a broker dealer. “It all started in 1991, and what we’re seeing now suggests reform is accelerating.”

Free-Market Reforms

Now is also an apt time to look back two decades. It was then that Manmohan Singh brought free-market reforms to India as finance minister. He scrapped red tape and removed the state- enforced restraints on various industries, paving the way for today’s 7.7 percent growth.

Yet as prime minister since 2004, he and his government have dragged their feet on attacking the rampant corruption that leads to too many Indians being mired in poverty. There is a sense that his failure to use the rapid growth of the mid-2000s to upgrade the economy was a huge missed opportunity.

Last year’s humiliating Commonwealth Games in New Delhi should have ended the complacency. The international media were aghast at shoddy construction, work delays, claims of tainted swimming-pool water that some athletes say caused “Delhi belly,” a dengue-fever outbreak and 100-roll packs of toilet paper going for $80.

The phone-permit sale predates the Commonwealth Games, though a steady diet of disclosures emerged in recent months. In November, Telecommunications Minister Andimuthu Raja resigned amid allegations that a 2008 auction of phone licenses was rigged and cost the state tens of billions of dollars. The audacity of the alleged fraud, the dollar amount and the government’s tepid response outraged the nation. With each passing month of inaction by Singh and the president of his Indian National Congress party, Sonia Gandhi, public ire grew.

Fever Pitch

Things began reaching a fever pitch in June, when police used teargas and batons to break up an anti-graft protest in New Delhi and evict yoga guru Swami Ramdev, who had joined the movement. Hazare’s hunger strike got more attention, partly because of the government’s ham-handed response.

Arresting Hazare was just plain nutty. So was Singh, once a highly respected development economist, in attacking anti-graft protests as a danger to India’s democracy. Singh showed that he had missed the point completely. The whole reason for the public anger is that India’s democracy is failing the masses.

The parallels between the Indian and U.S. Tea parties reflect public anger at elites, rather than the substance of their grievances. Most Indians don’t want the government out of their lives -- they want it to do better by them. Indians are less antagonistic toward public spending than their American counterparts and instead demand that it benefit the broader economy.

As in the U.S., India’s version of the Tea Party seemed to come out of nowhere to alter the political landscape in sudden and unpredictable ways. For too many years, politicians pooh- poohed the need to clean up India. In 2010, the nation ranked 87 out of 178 countries in Transparency International’s Corruption Perceptions Index, tied with Albania and Liberia.

Grass-Roots Anger

India needs change, and the grass-roots fury coursing through New Delhi and Mumbai shouldn’t be downplayed. It’s real, it’s raw and it’s set to explode anew if politicians renege on their pledge to tackle graft. On Aug. 27, as both houses of Parliament passed a resolution to do just that, one could sense the electricity in the air.

“We’re seeing history in the making here,” Adi Godrej, the billionaire chairman of Godrej Consumer Products Ltd., told me in Mumbai. “Whatever happens from here, our economy will be better off for it.” Added Krishnamurthi Venkataramanan, head of engineering and constructions projects at Larsen & Toubro Ltd. in Mumbai: “Indians have had enough, and these protests mean the government can no longer ignore corruption.”

Observers are free to quibble with the details. Some worry about creating a massive new bureaucracy that merely centralizes corruption. Others claim it’s better to enforce graft laws already on the books. There’s also concern that this is all window dressing. Once the crowds disperse, nothing will change in Asia’s third-biggest economy.

They are missing the point. Indians are fed up with how prosperity is eluding so many of them. They are disheartened to see China racing ahead while they walk past shantytowns and child beggars every day. And now India’s brand of Tea Party movement has had a taste of success. If you think this genie is going back in the bottle, you’re dreaming.

(William Pesek is a Bloomberg View columnist. The opinions expressed are his own.)

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It'd be very good for the world if growth started to show up at the table of the poors...

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The Economist this week has an interesting take on the topic:

Politics in emerging markets
The new middle classes rise up
Marx’s revolutionary bourgeoisie finds its voice again

THE past four years have seen a sharp contrast between recession-hit rich countries and buoyant emerging giants. This year the rich countries’ economic woes have spilled over to their politics, too: European governments are bogged down in the euro crisis while America brought upon itself a sovereign-debt downgrade. But the woe is not all on one side. Despite their economic achievements, the likes of China, India, Indonesia and Brazil—to say nothing of the Middle East—are suffering discontent almost as profound as the malaise in the West. [...]

In rich countries the humbling of governments has been largely a result of economic slowdown, combined with problems in controlling public finances. Emerging markets, in contrast, have kept growth going, while public spending is (mostly) under control. The explanation for their political woes must lie elsewhere. The most plausible one is that India and China—and possibly other emerging markets, too—are experiencing the early stirrings of political demands by the growing ranks of their middle classes.

According to Martin Ravallion of the World Bank, the middle classes (defined as people earning between $2 and $13 a day) trebled in number between 1990 and 2005 in developing Asia to 1.5 billion; they rose from 277m in Latin America to 362m over the same period; and in sub-Saharan Africa from 117m to 197m. Newer estimates from the Asian and African Development Banks, using a definition of $2-20 a day, confirm the picture (see chart 1). They show that the middle classes (which, on their definitions, include many only just out of poverty) accounted for a third of Africa’s population in 2008, three-quarters of Latin America’s and almost 90% of China’s.

Polling evidence says middle-class values are distinctive. In a survey of 13 emerging markets by the Pew Global Attitudes Project in Washington, DC, the middle classes consistently give more weight to free speech and fair elections than do the poor, who are more concerned than the middle class about freedom from poverty (see chart 2). These differences hardly come as a shock. But they still matter because they mean that as the middle class grows, abstract ideas about governance come to play a bigger role in politics. [...]

... anti-corruption protests could easily morph into something wider. It used to be said that the emerging middle classes would not be politically active. Now they are “just” objecting to corruption. Both arguments underestimate the consequences of the middle- class rise. As Marx said, “historically, [the bourgeoisie] played a most revolutionary part” in Europe. In emerging markets, that revolution now looks closer.

Perhaps the "Arab Spring" and the current Israeli Tentafada are also signs that many people there are hurdling the poverty barrier to reach into the middle class - and beginning to ask, very emphatically, "please sir, may I have some more?"

Althbough once again "middle class" is spuriously, although in this case explicitly, defioned as anyone who's not dead poor. At which point it becomers a much less exciting prospect. Speaks more to the fetishization of the term "middle class" than it does to any changes in the middle class.