Saturday, November 19, 2011

The Culture of Entitlement

If you are not well, you rest, you reduce your intake and take antibiotics. You don't go around gorging on more food, take steroids and pump more iron. Well.. the age-old therapy for the excesses of an economic crisis is well laid out by the likes of IMF. Cut expenditure, raise taxes, raise interest rates, let the economy cool down, deleverage or at least promise all this and you stand a chance of a bail-out. 

I am sure IMF's prescriptions are good. Unfortunately, these are only for non-systemic and isolated crises. And yes, particularly in the third world or the second. The rules as usual change for the rulers or the first world. The West (well, southern parts pls excuse especially south of tropic of cancer) is the best. The privileged can and do stretch the concepts of private profit vs public loss...If too-big-to-fail doesn't work, then why not make it a country vs global crisis. 

Talk of austerity and you have riots. After all, aren't they entitled! Isn't it their birthright to be bailed out else will they not put others at risk? Imagine a referendum to decide 50% or 100% bailout. Imagine a country with (till recently) high credit rating talking of bail-outs. And talking of ratings, why is a relatively high credit rating an entitlement of the West? And why is some country like China not a AAA if it can bailout EU ?       

Not peculiarly enough, this is as much a Global issue (US vs. RoW) or a Continental issue (PIIGS vs. Germany) as it can be a single country issue (well, India as an example!) Any group or sect is entitled as long as it can collectively manage the numbers..numbers to command something...anything of some importance. The emphasis is on the collective. For, it is the collective behind which you can safely mask your interests. Or inefficiencies. 

However, can such a culture persist beyond a point? Eventually, price of anything will have to catch up to the intrinsic value, either from above or below. How long can an inefficiency be masked? Especially in matters such as leadership deficit. 

Take our economic situation. For some reason, the politico-economic bosses seem to have decided that it is India's entitlement to have very high growth, and consequently high revenues and high capital inflows. The quantum of Govt expenditure had not only kept up but stayed there despite any slowdown elsewhere. And amidst high inflation (some economists hold that the main reason for the food inflation is the Govt spending) that necessarily keeps interest rates high. And if the growth is slowing down, our elastic revenues require conscious control on expenditures. However, almost as a rule (another manifestation of the entitlement culture), Govt expenditures never come down. The only way for a downward adjustment in fiscal deficit percentage would be through the GDP base to grow. How else does one explain the seemingly casual indifference to the huge fiscal issues in a Govt with such economic stalwarts. 

Here is where we need to be careful. Since we are not high enough on the pecking order, the global market pricing mechanism can punish us severely  and show our true place in the history. The gross under performance of Indian Equities, Bonds and Rupee simultaneously may be sounding the knell for the India story or it is the opportunity of the decade. While we hope that it is the latter, it sure is becoming increasingly difficult to stay optimistic.


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KRG said...

thanks for the thumbs up

AAR VEE said...

Hi KRG ,

Wishing a Very Happy and Prosperous New Year !!!