Capitalist Asia, Socialist USA

The common excuse of politicians for the current economic crisis is, due to well-planned regulations, Indian economy is least suffering and has maintained a good GDP growth rate of 5.3%, while most of the other nations are suffering deep negative growth. By such bombastic claims of growth because of the government regulations, Indian government not only eludes the common man, but the current government also makes a political strongpoint for the upcoming general election.
Yet recently, one of the most prominent economists of India Mr. Surjit Bhalla has claimed that this is false comfort based on incorrect calculations. Citing OECD data, he says India actually had negative growth (-11.8%) in Q4 of 2008, not the 5.3% claimed by the government.1
In addition, OECD based report says that in comparison, Indian economy fall with negative growth of 11.8% if we compare the GDP of 2007 for the fourth quarter with the fourth quarter of 2008.
Indian growth is far worse than in the US (-6.2%), UK (-8.4%) or European Union (-8.2%), though better than in Japan (-17.8%) or Korea (-28.8%).
Indian central statistical organization (CSO) calculates the growth rate by comparing the GDP in fourth quarter of previous fiscal year (2007) with the GDP of fourth Quarter in current fiscal year (2008). On the other hand, most of the other countries calculate their GDP growth rate by comparing the previous Quarter (Q3) of the same fiscal year with the current Quarter (Q4), adjusting the calculations and annualizing the GDP growth by multiplying it with four.
Indian government denies this standard procedure of calculation because of the agricultural dependence of Indian economy, arguing that agricultural data are too much volatile and season dependent
Indian economist Swami Nathan Ayer provided a better option of calculations. He simply calculated the change and comparison of non-agricultural growth and agricultural growth separately, and his figure suggested that the non-agricultural growth in Fourth quarter of fiscal year is 3.5% that is much less than what government has announced, also, the collective agricultural and non-agricultural growth of India for the fourth quarter of 2008 is Negative 1.6%.2
Obviously, it is clear that the government figures for GDP are nothing but sort of eluding concept to swing favours of electorate, claiming the government’s ability to tackle the tricky situation of meltdown.
Similarly, China also has registered a growth rate of 6%-7% in the recent quarter and obviously the western governments blames both India and China of manipulating their GDP rates falsely.
Yet the question is does the GDP growth rate matters?
As a matter of fact, GDP growth rate does not signify the potential of India or China to counter the global recession.
Even if we consider that the GDP of both India and China is absolute zero or may be negative, the potential China and India have to come over the current recession period is much more than USA in comparison, and till now, India and China have adopted much better policies than USA.
The main problem with emphasizing GDP is that it only measures aggregate movements of money and cannot measure whether the consumption is efficient or productive. Hence, one of the problems with any stimulus plan is that many policy makers simply look at steps to increase GDP in the short run and ignore the long-run implications — the unseen consequences of policies. For example, building pyramids could indeed boost GDP; however, there is very little economic utility gained from building pyramids and hence in longer turn, such expenses turn out to be burdensome and bad non-productive-assets, causing a new cycle of recession.
The US Keynesian economists often suggest that Americans were funded in part by Asian countries, which, having experienced a calamitous financial crisis in 1997–98, sought to park their savings in safe havens (e.g., US Treasury bonds). As a result, this immense savings distorted the marketplace and caused the ensuing bubble.
In other words, the Asian people saved too much money, lent the United States and other Western governments money at cheap rates, and therefore created an asset bubble. So according to the Western economists, the habit of Asians to save money is the basic reason behind the economic meltdown, and they say that American fell prey to this because of their habits of spending more than what they can earn.
The Keynesians on the other hand, also claims that Asian economies, specially China and India are about to roll down as the production houses and factories of China are closing down because of decreasing exports, outsourcing services are also suffering a lot, and the commercial-construction bubble has also popped up. The stock indices of both China and India have lost all heights people have lost jobs.
The Keynesians obviously claim that in order to survive the downturn, Asian economies should start spending and distributing money to encourage the Asian consumers to spend more and more. Governments should implement a universal car-ownership scheme, build hundreds of aircraft carriers, make new houses, distribute them, and reduce interest rates to zero across the board.
The first thing to be observed is, USA is suffering meltdown because of the extreme habit of spending more and saving nothing or very little. Second thing is, Americans are habitual for taking debts and loans, which often prove out to be the bad assets for the lending banks.
Asians and in particular Indians do not believe in taking loans and often try to avoid increasing any toxic asset, Indian banks also maintain proper check up for their ability to repulse the bas loans, they require 20–30% down payments on houses, and two-thirds of all loans are funded by deposits. As a result, despite huge fiscal deficits of Indian government (which are nothing huge in comparison with deficits of US government) Indian citizens are not suffering too much national debts, also most of them saves at least 50% of their earnings which proves out to be good resource for investment later on and avoid the chances of bad assets and non-payable loans.
Indian situation is way better than American in following ways—
1) Unlike Americans, Indians acknowledge that a venture can fail, and it is responsibility of the entrepreneur if they fail.
U.S government believes that if some entrepreneur fails, whole economy will go down, and hence, entrepreneurs have no right to fail, government bails them out.
On the other hand, although Indian government also seek a way to provide sympathy and to an extent a sort of protection also for the entrepreneurs and businessmen, yet Indian government have avoided providing any direct bailout package for any of the suffering enterprises. The Kingfishers and Jet Airlines did not get any economic stimulus from the government nor the government tried to sacrifice Indian tax-payers money to secure Satyam co. after the fiasco. Government have provided help in both cases indirectly to some extent, yet in comparison, Indian situation is more capitalistic and liberalized than US bailout philosophy.
2) While US have opted to turn its path from privatization to nationalization, India and China have paced up their privatization programs. The IPO of China railways are under consideration of privatization and Indian railway ministry also have plans to partly privatize railways. Obviously, both China and India are going more and more liberalized and capitalist, reducing the control of government on production units systematically.
3) Indian and Chinese GDP are not dependent on loans and household debts, in case of USA, the unpaid loans and debt is the major reason for the bad assets.
4) Although neither India nor China recognizes property rights in proper manner and are at early stages of capitalism, yet the land reforms by China and India have better the situation. This includes granting land-use rights to peasants, empowering them to lease or transfer land to others, that is, proper property rights for the farmers. Gradually, this phenomenon will establish the importance and inalienability of property rights in legal system.
5) Asian economies are opening capital markets, lowering real-estate taxes and abolishing others like the stamp tax on home purchases. Thus, providing more freedom and reducing government interventionism in the market and exchanges.3
6) India has privatized all of the big national banks and insurance agencies including LIC India co. China is obviously one step further to India, China government privatized the Agricultural bank of China recently.
7) The major point of difference is, in place of prompting up the housing bubble, both Indian and Chinese governments have restricted themselves only to reducing taxes and repo rates, as a matter of fact, this is capitalist step. On the other hand, the Fed and US government are trying their best to prevent price deflation by burdening the American tax-payers with huge fiscal deficits of hundreds of billions in form of mortgage backed securities.
8) Both India and China have suffered job losses. In 2008, at least 67,000 factories across China have closed down and hundreds of thousands of migrant workers have moved back to family farms. Obviously, the process is painful, yet Chinese government is not bailing out any of the factories, rather the failed companies and factories are encouraged to opt for bankruptcy to cut off the non-productive-units.
That is the proper capitalistic way. USA on the other hand have opted to cover the failed institutes, companies and factories by providing them bail out and hence adopted the socialistic frame.
9) Despite all warnings about deflation of currency, Indian and Chinese governments so-far have avoided any plan to induce currency in form of mortgage backed securities, or foreign debts and loans, not the governments have induced any sort of increased taxes on citizens. As a matter of fact, the Indian government is actually enjoying the downturn of inflation rates as fall of prices is obviously in favor of the citizens; furthermore, it increases the spending and consumption too.4
As the prices are falling, the huge number of people who lost their jobs and hence their purchasing power, are able to maintain their consumptions to a healthy limit, on the other hand, those who have not been affected by the downturn have got opportunities on behalf of fall of prices. Obviously, this will boost up the economic front of India. In addition, such increased spending will not affect the basic importance of the habit of savings by Asians because these spending will be natural and not enforced by government interventions.
Overall, it can be said that in present context, economies like India and China are more capitalistic and openly favoring free market than the Western economies.
Recently, India and China jointly appealed USA to maintain the standards of free market5 , obviously, in these changed premises, it is the east and not the best that may provide a new wave of liberalization, justice to the individual and hope for freedom.
Let us hope the changed situation bring out the betterment.

  1. The Negative GDP growth rate of India, Times of India []
  2. The Negative GDP growth rate of India, Times of India []
  3. Economic Crisis and stimulus by Government, Reason for Liberty []
  4. Falling prices is the cure of Deflation, Reason for Liberty []
  5. China, India and call for Free Market, Reason for Liberty []

9 comments for “Capitalist Asia, Socialist USA

  1. March 26, 2009 at 7:56 am

    Very good post.  I definitely agree with the trends you mentioned.  It is pretty ironic to think that a country that prides itself on being that example for capitalism is starting to reverse that trend.  Hopefully our ties with the east will help ensure that the US holds on to its capitalist roots.

  2. rachita
    March 26, 2009 at 12:13 pm

    I was planning to go to US for higher studies… :P

  3. March 27, 2009 at 9:10 pm

    Lies, damned lies and statistics.  If true, India is not the only government that plays with the numbers.  In the US and many other developed countries the official unemployment rate is calculated by a formula that seriously under-states the reality.  Most people understand this and do not accept the numbers.

  4. April 11, 2009 at 9:05 pm

    Too many fallacies in your post.

    Satyam – fraud case. Why would the government assist corporate thieves? You didn’t see Enron or Arthur Andersen being bailed out.

    1) How does the “US government believe that if some entrepreneur fails, the whole economy will do down”? If you are making reference to the TARP, the AIG cash shot, or the automotive sector bailout, these weren’t singular entrepreneurs, but pillars of the US, and in some cases, the global economy. What happens if one of the pillars in your home collapses?
    2) The US is not embarking on a nationalisation drive out of choice. With a trillion dollar bailout, it is protecting its investment. It intends to divest in due course of time.
    3) Your GDP argument is so far out that I won’t even bother commenting on it.
    4) India’s land reforms have a long way to go. Fragmented holdings, dismal productivity and diminishing agricultural yields will bear testimony to that fact.
    5) Stamp Duty on expensive homes wouldn’t be a bad idea, if we use examples from the First World, such as Australia, where first home buyers who buy dwellings for less than AUD 500K receive stamp duty exemptions, whilst over 500K, you cough up the stamp duty. The government needs revenue. It can’t be in a deficit bubble forever. TAX expensive purchases, and investment real estate purchases!
    6) India still has a large number of sick government financial institutions, who wouldn’t last a day as private sector entities.

    Finally, Keynesian economics doesn’t suggest interest rates need to go down to zero to resolve the current crisis – they merely suggest a downward adjustment to the cash rate would be appropriate. Near-zero rates pose the dilemma of quantitative easing…

  5. renegade_division
    April 13, 2009 at 9:11 pm

    @Cow-tse-tong said:

    Why would the government assist corporate thieves? You didn’t see Enron or Arthur Andersen being bailed out.

    So what is the difference according to you in bailing out corporate thieves and failed business ventures??(of course the precondition to bailout a corporate thief’s company is change of the leadership).

    1) How does the “US government believe that if some entrepreneur fails, the whole economy will do down”? If you are making reference to the TARP, the AIG cash shot, or the automotive sector bailout, these weren’t singular entrepreneurs, but pillars of the US, and in some cases, the global economy. What happens if one of the pillars in your home collapses?

    They are businesses, FAILED BUSINESSES, donno what you think is the definition of Capitalism is, but you sure don’t dump Capital into a massive pit where its all lost. The whole point of Profit and Loss calculations(something socialists do not perform), is to tell us where should the Capital go because that’s where its being most productive.

    Another thing is, do not forget that when you bail one company out, you are doing it on the expense of other companies which did not require bailouts. That my friend is called socialism, except in Socialism they do these things to unproductive people.

    In socialism if a bunch of people do not have houses then they are provided houses on the expense of others. In Capitalism(at least your definition of Capitalism) all they need to do is to go to the BIGGEST PILLER of the mortgage industry, take Loans which they cannot pay back, and then default on their loans, and THEN the govt is going to make everybody else pay for those loans, because those pillars are too big to fail.

    2) The US is not embarking on a nationalisation drive out of choice. With a trillion dollar bailout, it is protecting its investment. It intends to divest in due course of time.

    That’s like saying (and with a very crude example) you wear a condom because you wanna play safe and don’t wanna catch disease while you rape other women.
    The question is not why nationalization, rather WHY the TRILLION DOLLAR BAILOUT?? Federal Reserve-Bush-Obama have initiated on the process of creating the Next bubble(zero percent interest rates), I mean its so fucking late that nothing can be done to stop the next bubble from forming. Even if the banks are Nationalized, there will be another series of “too-big-to-fail” companies which will fail in the next bust. And then we will walk through Nationalized Car manufacturing, Nationalized Healthcare, Nationalized Banking, Nationalized Animal Healthcare, Nationalized Education, and I wonder how long will it take where America be having more Nationalized sectors than India.

    @Cow-tse-tong said:

    Why would the government assist corporate thieves? You didn’t see Enron or Arthur Andersen being bailed out.

    So what is the difference according to you in bailing out corporate thieves and failed business ventures??(of course the precondition to bailout a corporate thief’s company is change of the leadership).

    1) How does the “US government believe that if some entrepreneur fails, the whole economy will do down”? If you are making reference to the TARP, the AIG cash shot, or the automotive sector bailout, these weren’t singular entrepreneurs, but pillars of the US, and in some cases, the global economy. What happens if one of the pillars in your home collapses?

    They are businesses, FAILED BUSINESSES, donno what you think is the definition of Capitalism is, but you sure don’t dump Capital into a massive pit where its all lost. The whole point of Profit and Loss calculations(something socialists do not perform), is to tell us where should the Capital go because that’s where its being most productive.

    Another thing is, do not forget that when you bail one company out, you are doing it on the expense of other companies which did not require bailouts. That my friend is called socialism, except in Socialism they do these things to unproductive people.

    In socialism if a bunch of people do not have houses then they are provided houses on the expense of others. In Capitalism(at least your definition of Capitalism) all they need to do is to go to the BIGGEST PILLER of the mortgage industry, take Loans which they cannot pay back, and then default on their loans, and THEN the govt is going to make everybody else pay for those loans, because those pillars are too big to fail.

    2) The US is not embarking on a nationalisation drive out of choice. With a trillion dollar bailout, it is protecting its investment. It intends to divest in due course of time.

    That’s like saying (and with a very crude example) you wear a condom because you wanna play safe and don’t wanna catch disease while you rape other women.
    The question is not why nationalization, rather WHY the TRILLION DOLLAR BAILOUT?? Federal Reserve-Bush-Obama have initiated on the process of creating the Next bubble(zero percent interest rates), I mean its so fucking late that nothing can be done to stop the next bubble from forming. Even if the banks are Nationalized, there will be another series of “too-big-to-fail” companies which will fail in the next bust. And then we will walk through Nationalized Car manufacturing, Nationalized Healthcare, Nationalized Banking, Nationalized Animal Healthcare, Nationalized Education, and I wonder how long will it take where America be having more Nationalized sectors than India.

    GDP is the single most important economic indicator that drives policy and a key measure of production. A declining GDP is indicative of receding production levels. I’d be worried if there were two consecutive quarters of contracting GDP as this would be indicative of a recession.

    I am sorry dude, but GDP is nothing but a bunch of random number added together. Mock us all you can on your blog, citing what an abomination we are in the name of Holy Economics and the prophecies of Keynes(sorry dude but that’s all you sound like, “HOW DARE THEY INUSLT ECONOMICS THEORIES?” on your blog).
    Though right when you are willing to talk some logic, explain me how come the GDP of a country rises during a War, when actually resources are pulled out of productive places and deployed for unproductive destruction.
    Then explain me how come post war GDP drops are not considered as recession, how come in 1945-47 the GDP of USA saw one of the largest GDP drops in the years, YET there weren’t any people dying on streets, more productive resources were only created.

    The government needs revenue. It can’t be in a deficit bubble forever. TAX expensive purchases, and investment real estate purchases!

    I hope that suggestion was for America, coz in India we have something called the BLACK MARKET. Like out of 10,000 people who would be in reach of this tax, 50 people might actually pay that tax, and that too because they are the cricketers and bollywood stars. Everybody else would talk advantage of the black market and walk around the “regulation”.

  6. August 1, 2009 at 11:23 pm

    Capitalism died in the 19th century – due to more than 250 slave rebellions across the Caribbean, USA and South America. Haiti, was the first Black Free Slave Republic – which broke the back of the slavery, and capitalism.

    The second reason why Capitalism died was that there were no more colonies left for the West to colonize.

    The third reason is that there were no native populations for the West to enslave, colonize or kill in the twentieth century.

    The (undefined and escapist) political system – which you seem to be ‘espousing’, that has never existed on Mother Earth till date (by your own admission) is NOT Capitalism. Capitalism existed.

    Give it some other name to start with – and flog it for all it is worth.

    It took a lot of efforts to kill that Capitalist Beast – and it needs a stake to be driven through its heart – so that it never comes alive again – like Dracula.

    This figment of your (infertile) imagination, please dont call it Capitalism. It hurts.

  7. tripathi
    May 7, 2011 at 11:18 pm

    Are the prices falling in india?.. I don’t know.

  8. April 13, 2009 at 2:30 am

    1) How does the “US government believe that if some entrepreneur fails, the whole economy will do down”? If you are making reference to the TARP, the AIG cash shot, or the automotive sector bailout, these weren’t singular entrepreneurs, but pillars of the US, and in some cases, the global economy. What happens if one of the pillars in your home collapses?

    That’s more superstitious than anything else. the automotive sectora you are boasting off are ready to file for bankruptcy even now after the failure of bailout packages.
    About AIG, the thing is, if a pillar is faulty, you cannot safeguard the structure by piles of straw, and that is what bailout is.

    2) The US is not embarking on a nationalisation drive out of choice. With a trillion dollar bailout, it is protecting its investment. It intends to divest in due course of time.
    Protecting its investment? how? by looting the americans? second thing is, it is not U.S, but U.S government which is looting.

    3) Your GDP argument is so far out that I won’t even bother commenting on it.
    That saved a lot of time.
    4) India’s land reforms have a long way to go. Fragmented holdings, dismal productivity and diminishing agricultural yields will bear testimony to that fact.

    Ohh and what is the degree of perfection about land reforms and who decides it? some Keynesian idiot?
    Agricultural yields are INCREASING since always, you have fully outrageous ill-informations about Indian agricultural sector if you think its declining.
    5) Stamp Duty on expensive homes wouldn’t be a bad idea, if we use examples from the First World, such as Australia, where first home buyers who buy dwellings for less than AUD 500K receive stamp duty exemptions, whilst over 500K, you cough up the stamp duty. The government needs revenue. It can’t be in a deficit bubble forever. TAX expensive purchases, and investment real estate purchases!
    Looters can never help anybody, you are just trying to support the robinhoods. And government always remains in deficit. You may try to mention the periods when US or Indian government were not in deficit. The heights of deficits keeps changing though. Its heighest for US in current scenario. The Fiscal deficit is burden on common man, government always remains free to keep taking loans and debts and wasting it on useless lots.
    6) India still has a large number of sick government financial institutions, who wouldn’t last a day as private sector entities.
    Yes and thats the wastage. Government be it Indian or US or Australian always perforates wastage.

    Overall, the article is about a reality, and that is, U.S is on negative row on economic liberty front, and India is on positive move.
    Nobody is saying that India is capitalist enough to be called liberated.

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