The deficit experiment: mid-term results are in

In October 2010, I wrote of divergent approaches to the economic crisis being followed in the United States and in the UK. Well, the mid-term results are in with the UK officially slipping back into recession.
It seems such a simple principle: in a slump raise spending, not taxes. Cut back on spending and raise taxes once the slump is decisively behind you. Yet, both in the UK and Europe, governments have chosen to focus on deficits, dooming prospects for growth, and scrambling deficit reduction targets as a consequence. It's inexplicable behaviour. I'm waiting for an investigation titled Chronicle of a Recession Foretold.

Arundhati Roy, colonialism and the spectre of Marx

A number of respondents to my remarks on Arundhati Roy's Capitalism: A Ghost Story (see previous post) have accused me of not seeing the forest for the trees. No matter this or that error or mistaken detail, they say, her larger, abstract argument is valid. NGOs and charitable foundations have agendas (Hate using that word since, pedantically, agenda is plural of agendum, but 'NGOs have agenda' will come across as a typo. I have sworn, however, never to use criteria as a singular noun.) that are commonly determined by sponsors who are commonly anonymous and commonly fronts for governments.
I have no problem accepting the thesis outlined above, and neither, I believe, will anybody else reading it. It is verifiably, demonstrably true, but it is not what Arundhati Roy is claiming. She tries to knit a grand conspiracy in which governments, businesses and NGOs efficiently combine to serve the cause of Capital and Empire. The small errors in her argument are important because it is through these that she tries to weave in the ends of the fabric, and tugging at them causes the entire pattern to fall apart.
There were a couple of sentences from Roy's article that stuck in my mind, and I want to return to them as a starting point for a discussion about colonialism, postcolonial ideas and Marxism:

The era of the Privatisation of Everything has made the Indian economy one of the fastest growing in the world. However, like any good old-fashioned colony, one of its main exports is its minerals. India’s new mega-corporations—Tatas, Jindals, Essar, Reliance, Sterlite—are those who have managed to muscle their way to the head of the spigot that is spewing money extracted from deep inside the earth.

Are minerals among India's main exports? The mining sector contributes only between 2 and 3% of GDP, so it's hardly central to the economy. Not quite what sugar was to the Caribbean or oil is to West Asia. We exported 128,000 crore rupees worth of minerals in 2009-10, and our total exports that year amounted to 845,000 crore rupees. OK, you say, that's a substantial percentage of total exports, but there's a catch. The biggest item in that export list is of diamonds, at 85,000 crore rupees. We also imported uncut diamonds worth 75,000 crore, and the same were then exported after being cut and polished. So, the export of minerals actually mined in India was a paltry 43,000 crore rupees, of which 28,000 crore rupees was iron ore. The second largest mineral export was granite at 5,000 crore rupees.
We imported 525,000 crore rupees worth of minerals in the same year, of which crude took a massive slice. But even leaving petroleum aside, India was comfortably a net importer of minerals, with coal and copper being our biggest buys. Now, does that still resemble "any good old-fashioned colony"?
Meanwhile, in the latest recorded year, India exported 290,000 crore rupees worth of software services, equaling nearly seven times our minerals exports (minus those re-exported diamonds) of 43,000 crore rupees. So much for us being a colony exploited for its raw materials. Not that today's major commodity exporters are akin to colonies in any case. Do Qatar, Russia, Australia, South Africa and Argentina seem like colonies to an impartial observer?

Roy hints at a widely accepted story about the economics of colonialism, a story told by my school history books and one seemingly accepted by Left, Right and Centre in Indian politics. It goes like this: India was a land famed for its artisans and manufacturing skills. The British discouraged indigenous Indian manufacturing and turned this country into a supplier of raw materials and a market for British finished goods. The textile industry is the paradigmatic example of this process: India's long-standing position as a world leader was undermined by imperial restrictions on sales, cotton was shipped from India to Lancashire and other British factory towns, and finished cloth produced in those places sold back to India.

Karl Marx was among the first to understand and condemn the process then underway. he wrote:
It was the British intruder who broke up the Indian hand-loom and destroyed the spinning-wheel. England began with driving the Indian cottons from the European market; it then introduced twist into Hindostan, and in the end inundated the very mother country of cotton with cottons. From 1818 to 1836 the export of twist from Great Britain to India rose in the proportion of 1 to 5,200. In 1824 the export of British muslins to India hardly amounted to 1,000,000 yards, while in 1837 it surpassed 64,000,000 of yards. But at the same time the population of Dacca decreased from 150,000 inhabitants to 20,000. This decline of Indian towns celebrated for their fabrics was by no means the worst consequence. British steam and science uprooted, over the whole surface of Hindostan, the union between agriculture and manufacturing industry.

Unlikely though it might seem, the writer of the Communist Manifesto was, between 1852 and 1863, the European correspondent of the New-York Tribune. His colleague Engels also contributed occasionally to the American rag. The passage quoted above, and most of Marx's other writing about India, appeared in columns written for the Tribune, which occasionally reveal a witty side to a man generally viewed as formidably stern (It's the facial hair does it):
That there is in India a permanent financial deficit, a regular over-supply of wars, and no supply at all of public works, an abominable system of taxation, and a no less abominable state of justice and law, that these five items constitute, as it were, the five points of the East Indian Charter, was settled beyond all doubt in the debates of 1853, as it had been in the debates of 1833, and in the debates of 1813, and in all former debates on India. The only thing never found out, was the party responsible for all this.
There exists, unquestionably, a Governor-General of India, holding the supreme power, but that Governor is governed in his turn by a home government. Who is that home government? Is it the Indian Minister, disguised under the modest title of President of the Board of Control, or is it the twenty-four Directors of the East India Company? On the threshold of the Indian religion we find a divine trinity, and thus we find a profane trinity on the threshold of the Indian Government.

Marx saw, as early as 1853, an emerging contradiction within Britain with respect to India. The extract below is long, but worth reading carefully, for it contains an analysis that has eluded most post-colonialists, and resulted in a skewed view not only of imperialism but of the relationship between Empire and Capital.
During the whole course of the 18th century the treasures transported from India to England were gained much less by comparatively insignificant commerce, than by the direct exploitation of that country, and by the colossal fortunes there extorted and transmitted to England. After the opening of the trade in 1813 the commerce with India more than trebled in a very short time. But this was not all. The whole character of the trade was changed. Till 1813 India had been chiefly an exporting country, while it now became an importing one; and in such a quick progression, that already in 1823 the rate of exchange, which had generally been 2/6 per rupee, sunk down to 2/ per rupee. India, the great workshop of cotton manufacture for the world, since immemorial times, became now inundated with English twists and cotton stuffs. After its own produce had been excluded from England, or only admitted on the most cruel terms, British manufactures were poured into it at a small and merely nominal duty, to the ruin of the native cotton fabrics once so celebrated. In 1780 the value of British produce and manufactures amounted only to £386;152, the bullion exported during the same year to £15,041, the total value of exports during 1780 being £12,648,616, so that the India trade amounted to only 1-32 of the entire foreign trade. In 1850 the total exports to India from Great Britain and Ireland were £8,024,000, of which cotton goods alone amounted to £5,220,000, so that it reached more than 1/8 of the whole export, and more than 1/4 of the foreign cotton trade. But the cotton manufacture also employed now 1/8 of the population of Britain, and contributed 1/12th of the whole national revenue. After each commercial crisis the East Indian trade grew of more paramount importance for the British cotton manufacturers, and the East India Continent became actually their best market. At the same rate at which the cotton manufactures became of vital interest for the whole social frame of Great Britain, East India became of vital interest for the British cotton manufacture.
Till then the interests of the moneyocracy which had converted India into its landed estates, of the oligarchy who had conquered it by their armies, and of the millocracy who had inundated it with their fabrics, had gone hand in hand. But the more the industrial interest became dependent on the Indian market, the more it fell the necessity of creating fresh productive powers in India, after having ruined her native industry. You cannot continue to inundate a country with your manufactures, unless you enable it to give you some produce in return. The industrial interest found that their trade declined instead of increasing. For the four years ending with 1846, the imports to India from Great Britain were to the amount of 261 million rupees; for the four years ending 1850 they were only 253 millions, while the exports for the former period 274 millions of rupees, and for the latter period 254 millions. They found out that the power of consuming their goods was contracted in India to the lowest possible point, that the consumption of their manufactures by the British West Indies, was of the value of about 14s. per head of the population per annum, by Chile, of 9s. 3d., by Brazil, of 6s. 5d., by Cuba, of 6s. 2d., by Peru, of 5s. 7d., by Central America, of 10d., while it amounted in India only to about 9d... Besides, they found that in all attempts to apply capital to India they met with impediments and chicanery on the part of the India authorities. Thus India became the battle-field in the contest of the industrial interest on the one side, and of the moneyocracy and oligarchy on the other. The manufacturers, conscious of their ascendancy in England, ask now for the annihilation of these antagonistic powers in India, for the destruction of the whole ancient fabric of Indian government, and for the final eclipse of the East India Company.

It's so obvious in retrospect, but till I read this passage in my late teens, I had swallowed the official story about the Raj lock, stock and barrel. If a nation's citizens are progressively impoverished, and the nation becomes merely a place to grow or dig out raw material to be exported for manufacture elsewhere, that nation and its citizens cannot simultaneously provide a flourishing market for finished goods.

You cannot continue to inundate a country with your manufactures, unless you enable it to give you some produce in return.

Roy's vision of neo-imperialism, articulated in an article written a decade ago, mirrors the fallacy Indian history books perpetuate about the Raj:
Across the world as the 'free market' brazenly protects Western markets and forces developing countries to lift their trade barriers, the poor are getting poorer and the rich richer.

I have confronted this idea from a different perspective in an earlier blog post, but in the present context I want to underline the inherent contradiction within it, which Karl Marx's 159 year-old newspaper column exposes: if the poor keep getting poorer, lifting trade barriers is useless, since people on the other side of the divide will be incapable of buying any goods from those nasty Western neo-imperialists.

Fukushima and after

I remember sitting on steps near the Elephanta Caves during a school trip and gazing across the water at the Trombay research facility where India’s nuclear programme was born. The nation’s first reactor, a gift from the French, was framed against a thickly forested hill, but no matter how graceful its dome looked -- and it did look serenely elegant -- the name Apsara seemed a bad fit. I had recently seen the Jane Fonda / Jack Lemmon starrer, The China Syndrome, about the near meltdown at Three Mile Island, and felt keenly how catastrophic Trombay could prove for the millions who lived close by.
One of the reasons I approved strongly of the civil nuclear agreement between the United States and India was its mandate of international monitoring. While Left and Right bewailed our supposed loss of sovereignty, I figured the more inspectors we had the less likely a Chernobyl-style disaster would be, and hoped the relatively minor leaks that have been reported now and again would be curbed. In the final agreement, India separated defense facilities from civilian power plants, and Trombay, the primary production centre of plutonium used in India’s atomic weapons, was placed in the first category. Which meant no external inspectors would get a look inside, and it would be a prime target for bombing in case of any war.
A year ago, Fukushima happened, and every nation in the world that had nuclear power in its mix of electricity generation, or was considering adding it, did a rethink. Germany appears to be giving up on nuclear power entirely, and other nations are cutting down. In India, there’s a strong protest against the Russian-built Koodankulam plant in Tamil Nadu which is ready to start operations, and the proposed Jaitapur plant to be built by Areva SA of France in Maharashtra.
I understand why protests have been concentrated in Koodankulam and Jaitapur: the fear of the unknown weighs on the minds of those in the region, while the same isn’t the case among people who have lived for years close to existing nuclear reactors, Trombay included. The protests, insofar as they focus on the issue of safety, are deeply misguided. It stands to reason that state-of-the-art nuclear plants will be safer than old ones. Many have suggested that the proposed Jaitapur facility relies on ‘untested’ technology, but it will have been very well tested by the time it is completed, since a number of similar plants will have gone critical in other countries by then. If activists are truly worried about nuclear safety, they ought to demand the decommissioning of old power plants, for an accident is far more likely to happen there than in Koodankulam or Jaitapur.
A few environmentalists supported nuclear energy in the past, but most viewed it negatively, and whatever ambivalence any of them felt has been eradicated in the past year. Their major grouse is, of course, that nuclear plants and spent fuel storage facilities are potential epicenters of utterly horrifying accidents. Their safety record, though, is pretty good, all things considered. Even Fukushima ended up costing just two or three lives. We’ve had nuclear tech for seventy years, and in that time there’s only been one accident anywhere in the world that claimed a substantial number of casualties. When the tsunami of 2004 hit the Tamil Nadu coast, parts of the Kalpakkam nuclear power plant were flooded. The Emergency Control Centre built for such an eventuality remained shut through the crisis. But, despite this predictably pathetic response, the reactor itself stayed stable. Which is why anti-nuclear activists raised no alarm in Tamil Nadu after 2004 the way they have done over the past twelve months.
The reason a few environmentalists favoured nuclear power in the past was because it's pretty clean energy, especially compared to the alternative: coal-fired plants. Coal burning doesn't kill people as dramatically or decisively as nuclear radiation, but cancer hotspots near thermal power plants have been observed around the globe, suggesting that many thousands of deaths can be put down to pollution from coal burning.
Indian Greens, unfortunately, live in a dream world where they pretend to themselves that we can find an alternate development model that does not require increasing electricity output, or else that sufficient power can be generated from the wind and the sun (even the former isn’t particularly clean). To understand what will happen as a consequence of closing down our nuclear programme, one can look at Germany. Easily the world’s most ecologically sensitive large nation, it has decided to phase out nuclear power by 2022, but hasn’t increased its renewable energy targets to compensate. Germany aims to have 35% of the nation’s electricity coming from renewables by 2020, which is very ambitious. The new gap created by the shortfall in nuclear supply will have to be filled by squeezing an extra 10 GWh from burning fossil fuels, mainly coal. That's what environmentalists need to face head-on when they make arguments against nuclear energy.
The Indian government’s response to the Koodankulam protests, meanwhile, has been typically ham-handed. It has blamed American-funded NGOs; expelled a German for financing anti-nuclear demonstrations, though the poor chap barely had enough money to house and feed himself; and labelled activists anti-national instead of mounting a positive education campaign to counter the democratic agitation. It's difficult to take sides when one has a demagogic administration on one side and an irrational protest movement on the other.

My Business Standard article on the India Art Fair

For some reason I agreed to write a piece on the India Art Fair right in the middle of a frenzied week of getting the Skoda Prize show ready at the Lalit Kala Akademi, and trying to catch a bunch of interesting exhibitions, talks and performances. The article is on the Business Standard website already, and I've taken the opportunity to boast yet again about my prescience in predicting the crash and its medium term consequences for the Indian art market.

The myth of creating consensus

Every time a row erupts in Parliament, there are MPs and medipersons who accuse the government of 'failing to evolve a consensus on the issue'. Chetan Bhagat's take in today's Times of India on foreign investment in retail is typical. Titled Shopping for Consensus, the argument advanced in the article has three facets. First, that FDI in retail is a smokescreen to occlude more important issues like the Lokpal bill. Second, allowing Tesco and Walmart to open supermarkets in India is a good thing in itself. Third, that "the government, with humility, should involve everyone in Parliament to get a general policy consensus on FDI, not just for retail, but all sectors, across all industries."

In other words, talk sweetly to Prakash Karat and he will hit the Like button of WalMart's Facebook page. Bhagat ignores the simple truth that there exist in every parliament ideological divisions which cannot be bridged. Electoral democracy would be pretty useless if that wasn't the case, since we'd have a choice between Tweedledum and Tweedledee.
Moreover, even when two parties have economic policies that are as similar as Tweedledum and Tweedledee, which has been the case with the Congress and BJP over the last two decades, the party in opposition will fight policies tooth and nail that it would support as head of a ruling coalition. And it will not budge despite all the discussion and consensus building in the world. This happened with the civil nuclear deal and is happening again in the present dispute. What has changed is that Parliament is growing dysfunctional, with increasingly frequent disruptions and forced adjournments.

David Ben Gurion said that for every two Jews there are three opinions. This is equally true of Indians. Doesn't it describe all communities? To a degree, yes, but I suspect that in the case of our largest neighbour, "Two Chinese, one opinion" is likelier. Evolving consensus in India is an impossible task. Nehru fought for years to get the Hindu Code Bill passed; and he couldn't manage anything close to unanimity even within his own party in that time. In recent months, the BJP has been uncooperative in introducing non-controversial, non-ideological changes, such as a nation-wide Goods and Services Tax. What's the likelihood, then, that the main opposition party will accept government policy in a matter where there are votes to gain by the bushelful?

Foreign investment, trade, Amitav Ghosh and Arundhati Roy

Amitav Ghosh's blog entry for November 5 was a review of Churning the Earth: The Making of Global India by Aseem Shrivastava and Ashish Kothari. The book makes out a case against foreign investment which Ghosh accepts, with a few caveats:

"I don’t for a moment doubt that Aseem and Ashish are broadly correct in their diagnoses and prognostications – yet I do think that they paint a picture that is, in some respects, too monochrome in its darkness. Take the Information Technology sector of the Indian economy for example: this is a non-polluting, knowledge-based industry; the compensation is usually fair and the working conditions are generally safe. This sector has been a godsend for hundreds of thousands of young people and it has served to decentralize economic power in India, moving it away from its traditional locations to other towns and cities. It is also a fact that the people who run this industry are on the whole much more thoughtful and socially conscious than other industrialists. I see nothing to bemoan in the success of this sector, limited though it may be: on the contrary I think it offers much cause for celebration."

It's common knowledge that the IT sector derives its revenues almost exclusively from exports, the bulk of them coming from the United States. There's been a lot of grumbling in the US about American jobs being offshored, and many politicians on the Left favour a more protectionist system. Most Congressmen and Senators, though, feel the US must remain a broadly open market if it is to be an evangelist for lower trade barriers around the globe. There will, however, be a breaking point at some stage. It is naive to believe our IT exports will be allowed to grow indefinitely even as we retain strict barriers to imports and investment. The future of Indian information technology is dependent on a continuous process of lifting trade and investment barriers within India.

This is a connection that opponents of foreign investment in retail fail to make. Aside from the benefits and impairments that follow as a direct result of Tesco and Walmart opening supermarkets in India (and there will doubtless be impairments; those who claim kirana stores will be totally unharmed should study the battle between Tesco and small retailers in Thailand), the move is a logical step in a process that offers India gains in areas unrelated to retail.

While Amitav Ghosh sees some positives in India's experience of liberalisation, Arundhati Roy is a far more strident critic of the process, and more closely allied to Shrivastava and Kothari's monochrome black palette. Back in 2006, in a talk titled Bombay in the Age of Globalisation that was part of a conference at the Tate Modern in London, the recording of which you can listen to here, I took on a passage from Roy's book The Algebra of Infinite Justice :

"In the early days of Indian liberalisation, I was convinced that it was a sell-out to neo-imperialists. Though I do not retain that belief, there are many who do. Arundhati Roy, one of the most eloquent speakers against the twin processes of liberalisation and globalisation, has written it has resulted in 'a kind of barbaric dispossession that has few parallels in world history.' She follows this up in the same essay with the statement: 'Across the world as the free market brazenly protects western markets and forces developing countries to lift their trade barriers, the poor are getting poorer and the rich richer.' Here are the statistics for the balance of trade between India and the US [PowerPoint Slide].
Trade Surplus in favour of India:
2001: 5.98 billion dollars
2002: 7.71 billion dollars
2003: 8.07 billion dollars
2004: 9.46 billion dollars
2005: 10.81 billion dollars
As you can see, India has been running a surplus, and this has grown from 5.98 billion dollars in the year 2001 to 10.81 billion dollars in 2005. A strange outcome if western markets are as protected and third world markets as open as Roy contends. But I suppose one should never let mere facts come in the way of a good theory. The book of hers I quote from was, by the way, published by Viking Penguin, which is owned by Pearson PLC, an 8 billion dollar multinational conglomerate."

Is there any country where the phrase 'do as I say, not as I do' is applicable more frequently than in India?

Vodafone: it gets worse

I call Vodafone's Bombay Nodal Office about my recharge problem. A five minute wait, while a recorded message assures me my call is important. Then, a gentleman named Sushil comes on.
Me: Hello, I recharged for 1000 rupees and got only 7 rupees talktime plus a 3G data plan I don’t want.
Sushil: We have not received payment from you.
Me: But I got a message from Vodafone confirming the recharge.
Sushil: Could you check your bank account to see if any money has been deducted?
Me: OK, hold on. (I quickly sign on to my Netbanking account) Yes, 1000 rupees was deducted yesterday.
Sushil: I request you to send us a scan of the bank statement.
Me: I’ll do no such thing. I’m confirming that the money’s been deducted and I have a message saying you have received the money. I can forward that text if you want.
Sushil: It’s OK. Somebody will get in touch with you within 24 hours to solve your problem.

A few hours later I get a call from a Vodafone customer care executive. I explain the issue.
Executive: Sir, the 1000 rupee recharge comes with the 3G dataplan.
Me: But there was no information about that on the ATM screen when I recharged. I don’t want 3G and I don’t want any dataplan. I just want my talktime.
Executive: Sorry sir, but the 1000 rupee recharge comes with the data plan.
Me: I’ve recharged for years from the ATM, occasionally 1000 rupees at a time. If there was a change you should have informed customers about it. You send so many text messages otherwise, why not for this.
Executive: I’ll get back to you, sir.

He doesn’t get back. The next morning, I call the Nodal Officer’s number again. This time there’s a fifteen minute wait, after which Sushil comes on line. We have a long back and forth during which he keeps telling me I have no option but to accept the data plan. Frustrated, I ask for his senior.
Me: What’s your full name Sushil.
Sushil: Sushil Dhuriya.
Me: Put me through to your boss, Sushil Dhuriya.
Sushil: I can’t do that.
Me: The Vodafone website says there’s a Nodal Officer to whom complaints can be addressed. Her name is Zillah Vaz.
Sushil: The Nodal Officer does not deal with individual complaints.
Me: So if I want to complain that you have failed to solve my problem, there’s nobody I can talk to?
Sushil: No.

Apparently, Vodafone India plans to make money from 3G by forcing data plans down the throats of customers without their consent. I’m ready to jump to a different service provider, but I need to get my grand’s worth of talk first.

Meanwhile, some guys at the company have read my blog and are posting messages saying they want to help. I filled in the form as requested, now they want an alternative number because mine wasn't on when they called. Well, I switched it off because I attended a lecture yesterday afternoon. They obviously just tried at one time and then gave up.

Vodafone India: how bad can customer service get?

Interacting with MTNL always makes my blood pressure rise. But Vodafone has proved that a privately held MNC can do a worse job of customer service than a public sector undertaking. So bad is Vodafone's service, in fact, that it has shaken me out of my slumber and got me blogging again.
First stage: I travel to Thailand. The international roaming function does not work, so I can neither make nor receive calls during my stay. I don't mind that overmuch, since it's not a work trip. A while after I return, a message arrives saying 99 rupees have been deducted from my account for International Roaming. In other words, IR gets switched on automatically when I travel abroad, though it does not work. Then I keep getting charged each month unless I deactivate a function I have no idea was ever activated. The news about the IR-related deduction arrives, as do all Vodafone messages, at 4.30 am. Maybe the company believes disturbing customers' sleep helps keep them loyal.
Last evening, I recharge my Prepaid account for a thousand rupees at the ATM. I get a message telling me my recharge has given me talk time of 7.04 rupees. A second message says my Data Pack is active. I have not applied for any Data Pack, but I presume that's what has gobbled up most of the recharge money.
This morning's 4.30 am SMS says International Roaming has been stopped because of insufficient funds in my account. Had the proper amount from my recharge been credited, I'd have lost a chunk of it because I'd forgotten to deactivate IR. Small mercies.
Once I'm fully awake, I try getting to the bottom of the Data Pack mess. Vodafone provides three Customer Care numbers: 198 and 111 can only be called from a Vodafone Mobile phone, while +91 9820098200 works from any mobile or landline. 111 is a chargeable call, and 198 is toll free. The two serve exactly the same purpose, but most customers are used to 111 from the old days, and have that number saved on their phones. Nice trick.
I call the three numbers in turn and, in each case, am provided a series of options by an electronic voice. None of the options relates to my problem. Not only is there no way to lodge a complaint, but there's also no way to get past the electronic messages to speak to an actual human being.
Here's where MTNL does better than Vodafone. 198 on MTNL is a number dedicated to complaints, and one which gives you a docket number at the end of your call. Vodafone's website states, "You can contact our Nodal Officer with the complaint docket number (the unique complaint number you get when you register your complaint at Vodafone Care) anytime from Monday to Friday, between 9:30 am and 6:00 pm." The problem is, you will never get a docket number, because Vodafone Care does not allow you to actually complain about anything.

When Vodafone was Orange / Hutch, if one didn't choose any of the nine options offered by the recorded message on the customer service number, the call would be transferred to a customer service executive. That no longer happens. India might be the call center capital of the world, but, after Vodafone bought a stake in what used to be Orange / Hutch, they've downgraded customer service functionality. And it was never very good anyway. In fact, one of my Time Out columns focused on its shortcomings. Naresh, Time Out's editor at the time, printed the piece even though the magazine was (and is) published by the Ruias, who owned Orange / Hutch and hold a large stake in Vodafone. I wrote, in that column, "I’ve concluded that customer service in India is a simulacrum. It does everything it is supposed to do except serve customers. It’s a bird which looks like a duck, swims like a duck, quacks like a duck, but is not a duck."
Vodafone's Customer Care has refined the simulacrum further, taking it to a new level of sophistication.

The Indian art market's double dip

ArtTactic, a research and analysis firm, states in its latest report on India: "The Indian Modern and Contemporary art market continues the negative trend as other global art markets are on the rise. For the Summer sales, the auction houses attempted to respond to the disappointing results in March 2011 and had lowered the estimates to try to re-ignite buyer interst (sic)."

Saffronart's auction earlier this month was lacklustre. Over half the lots did sell above their higher estimate, but that was because, as the ArtTactic quote above suggests, those estimates were very modest. The June 15-16 sale achieved only one truly spectacular result: a Tyeb Mehta Kali that was acquired for a little over 1.3 million dollars, over three times its higher estimate, accounting for more than 30% of the 65-lot auction's entire value.

There's been a substantial rejig in the standings of the auction houses since the meltdown. Osian's has been worst hit, and has almost disappeared from the auction radar. Sotheby's has lost ground to Christie's, which is perceived as more dynamic and driven. Sotheby's was dealt a further blow when its long-time consultant, Dadiba Pundole, left and launched his own auction house, conducting a brilliantly successful sale of twenty paintings from Jamshed Bhabha's collection bequeathed to the National Centre for Performing Arts. Dadiba says the break from Sotheby's was unrelated to the setting up of Pundole's. The NCPA sale was offered to him after he ended the Sotheby's association, and an auction was the easiest way of liquidating the stock. I believe him, just as I believe Brad Pitt only began his affair with Angelina Jolie after splitting with Jennifer Aniston.

The slump in the Indian market is receiving international attention. Last week, the Independent's John Elliot published a good piece about the situation. The question is: why should Indian art sales be doing so badly when our economy is so much stronger than most others around the world? Surely one would expect exactly the opposite to be happening, namely that the downtrend would continue in places like Europe and the US facing anaemic recoveries or a return to recession.

The answer lies in a column I published in Time Out in late 2006. I've quoted it before on this blog when the first prediction it made came true, and I'm quoting it again now that the second one has as well.

"... as the autumn auction season kicks off and the records start tumbling, I will hazard this prediction: if the market keeps its present course, it’s heading for a crash sometime in the next two years. It’s going too fast to negotiate twists in the road which are bound to appear up ahead.
People like my friend with the Badri Narayan are pricing genuine collectors out of the market. The turnover of paintings is frighteningly high: it’s not unheard of for a single canvas to be sold half a dozen times within a year. Auction houses have turned advocates rather than neutral sellers. Even Christie’s and Sotheby’s are featuring raw artists and accepting fresh-minted works consigned by galleries, in contravention of normal international practice. The boom that began with established masters has spread to artists with no proven track record or historical merit. Gallery owners, who should be turning off the tap of speculation by carefully vetting clients, have little power to set conditions. They have to suck up to popular artists in order to get a few works out of them. The artists, meanwhile, many of whom have known privation in the not-too-distant past, are keen to make their pile as quickly as possible by selling to the highest bidder.
Despite these unhealthy symptoms, the experts have convinced themselves the party will go on forever. They, like everybody else, are having too much fun to think hard about tomorrow.
The rise in art prices has been congruent with a global boom, and the crash is also likely to be triggered by global factors, as yet unknowable. Once the tipping point arrives, developments intrinsic to India will take over and probably make the correction deep and painful. Since few buyers are purchasing for love, people holding stock will want to cut their losses immediately, feeding supply even as demand fades. There is the additional dimension of mushrooming art funds to consider. These funds usually operate for stipulated periods, and will have to unload their wares even in a declining market, exacerbating the slide."

The two predictions I made were, first, there would be a crash triggered by global factors. Second, and more important, the Indian art market would be worse affected by the crash than global markets because of the dominance of art funds and speculators. In nominal terms, the Indian economy is about 15% larger than it was 12 months ago. Art sales, on the other hand, have actually fallen in value in that period.

I concluded the column thus: "I’m actually looking forward to that time, so I can visit galleries and look at art without the surrounding noise, maybe even buy a painting I like now and again. They may stop serving Black Label at openings, but I don’t like whisky much anyway."

This, too has, happened. I enjoy openings and exhibitions much more now that they're less lavish, less connected to society pages and sticker prices.

Is Jeff Koons going cheap?

A news item about the Sotheby's sale of contemporary art last week read, "Jeff Koons' "Pink Panther" disappointed on Tuesday night at Sotheby's, falling about 15% short of its lowball estimate and selling for $16,882,500". You know you're living in a weird world when a porcelain figure of a Hollywood star embracing a cartoon character sells for over 16 million dollars, and yet disappoints the seller.



Pink Panther, created in 1988, first sold at auction in 1999, when it was acquired by the media tycoon Peter Brant for 1.8 million dollars. That was a record for Jeff Koons at the time, and you'd think a 900% mark-up in the 12 years since would seem impressive. Apparently not.

The man who shelled out nearly 17 million for the sculpture was an anonymous Asian telephone bidder.

Jobs, Zuckerberg and biopics

Mark Zuckerberg might have felt aggrieved after watching The Social Network, tipped to win a few Oscars tomorrow, but he should consider himself lucky he didn't get the treatment meted out to Steve Jobs in the made for TV movie Pirates of Silicon Valley. Zuckerberg comes across as a creep in a few scenes of The Social Network, but he's always shown to have a vision for big things. The people he works with -- the Winkelvoss twins, Edward Saverin, and Sean Parker -- all help up to a point after which Zuckerberg outgrows them. He might betray or demean these people, but there's never any doubt that he's doing so at a point when they have become a hindrance to Facebook's growth.
Noah Wylie's Steve Jobs, on the other hand, is not only much nastier than Jesse Eisenberg's Zuckerberg, he shows little trace of the visionary we all know Jobs to be. He refuses to acknowledge parentage of his daughter Lisa, allowing her to be raised in poverty while he makes millions from the Apple IPO. He takes LSD and dances and chants with the local Hare Krishnas. He insults a prospective employee by placing his bare feet on the table while conducting an interview and asking him insulting questions about his sexual history.
Jobs and Bill Gates are the pirates of the movie's title. Jobs steals the mouse and graphical user interface from Xerox; Gates buys DOS cheap from a programmer and sells it to IBM as his own work; he then steals the Mac operating system and makes it the basis of Windows. Jobs is so focussed on IBM as Big Brother, that he fails to see the emerging threat from Microsoft, the Big Brother of the future. The only guy portrayed with any sympathy in the movie, the only protagonist who actually builds anything, is Apple's co-founder Steve Wozniak.

Soon after the movie was broadcast, Jobs invited Wylie to a Mac event, trying to draw some of the sting from the movie's critique.


Zuckerberg followed in this tradition, appearing with Eisenberg on an episode of Saturday Night Live.




Steve Wozniak has an entire section of his website devoted to answering questions about Pirates of Silicon Valley. One of the points he makes interests me because it seems to reveal why Steve Jobs returned to make Apple a success once more, while Wozniak did little beyond his amazing early achievements. Asked about why Microsoft was given access to the Mac system, he explains that Microsoft made the best application software, and then goes on:
We did all realize by this time that the difference in computers, the thing that made some more special, was the software. Macintoshes and PC's had similarly capable hardware. But the Macintosh had the special OS and apps that worked that way. That was the reason why people bought Macintoshes. But, even though we openly said this, we ran Apple as a hardware company, because that's where the big revenues were. We were a software company pretending we were a hardware company.
We built factories and ordered parts and hired sales teams and set up distribution and sold our products. We had to handle surplusses that weren't sellable as well. We put out a huge investment. Let's say that the annual profits were $1B. Pretend that we spent $4B and brought in $5B. Not bad for a computer company. But you can look back and see that these profits were all due to people wanting the Mac OS. The way that screen looked and worked, with you instead of against you. You could just look and see how to do things, rather than remember it all (this was back a ways in time!). The only way people could buy this OS was to buy our hardware. So it was easy on paper to tell a convincing story that we were a great hardware company. And our $5B revenues put us well up on the Fortune 500 list of companies. It guaranteed Apple very high respect in big business circles.
But what if we'd just sold the OS to anybody who wanted to make hardware to run it. What if we'd even given up our hardware business. Let's say we licensed our OS. Assume that we'd have brought in the $1B it was worth (you could argue less but you could also argue more) every year. We'd only be a $1B company instead of a $5B company. Not as worthy, right? I'd like to suggest that this would have been better for our shareholders. The company wouldn't have had to take the huge investment risk, wouldn't have to set up factories that might be disposed of when things turned on us, wouldn't have had to melt down tons of unsellable hardware, wouldn't have been caught with lots of unused parts, wouldn't have had to hire and manage so many employees. We just could have sat back with a good programming team and collected on the Macintosh OS. We'd have been more like Microsoft. But this wouldn't have made us as big a company as selling hardware.
It seems that if we'd looked ahead at the importance of software, we'd have seen the mistake in this.

Looking at sales and profit charts (scroll to bottom of linked page) for Apple, we see an astonishing pattern: revenues went up steadily between 1981 to 1995, from a mere 335 million to a massive 11 billion. This indicates Apple had a great run for a decade after Steve Jobs was sacked in 1985. After 1995, though revenues declined precipitously, no doubt affected by the success of Windows 95. Again, this would seem to bear out Wozniak's analysis of Apple as a software company pretending to be a hardware firm. When Steve Jobs returned as CEO in 1997, sales were at 7 billion. Despite the success of the iMac, they kept going down till 2002, at which point they were at 5 billion annually. That's when an incredible resurgence began, helped by the Mac OS X, iPod, Apple Stores, iTunes, iPhone and iPad. Still, they only crossed the previous high sales mark in 2005, with sales of 13 billion. The chart then goes like this: 2006, 19 billion; 2007, 24 billion; 2008, 37 billion; 2009, 42 billion; and 2010, an incredible 65 billion dollars.
It was like something being torn down almost completely and rebuilt. The rebuilding was based on Apple's famed combination of well-designed hardware and intuitive software, which was finally affordable to a mass client base. Instead of Apple becoming more like Microsoft, Microsoft was left scrambling to become more like Apple. I don't know when Steve Wozniak wrote that comment about Apple essentially being a software company, but it must be evident to him now that a software company would never have been able to produce the devices that have made Apple the largest tech company in the world. Great engineer though he may be, it's clear Wozniak is no visionary. I wish Pirates of Silicon Valley had given some play to the creative side of Steve Jobs; the film would've been much better for it, and in some ways preempted The Social Network.

The deficit experiment

David Cameron is no softy, that much is clear. The kind of cuts to services he envisages go beyond what any government has attempted without being pressured by creditors. So now we have an interesting experiment being set up: in the United States, the Obama administration has chosen to live with deficits for the medium term, and wait for revenues to rise once the economy begins to grow again. The UK has taken a very different direction. Five years down the line, we will know which approach worked best.
However, I doubt if any rigid positions will budge as a result of this transcontinental experiment. After all, my friends who are enthusiastic about free markets refuse to blame lax regulation and excessive speculation for the meltdown of 2008, despite all the evidence that those two in combination triggered the financial crisis. They blame, instead two quasi-government housing loan agencies, Fannie Mae and Freddie Mac, both of which were in existence for decades before the crash, and pursuing the same policies through that entire period, which saw a number of real estate booms and busts.

Two sidelights:
The party that stands to lose the most as a result of Cameron's first budget and future economic plans is the junior partner in the ruling coalition. The Lib Dems are going to have a really tough time next time round with what's probably going to be a polarised electorate.

It's been funny to see France half-paralysed by protests against a proposed raising of the retirement age to 62, while Brits appear to have meekly accepted retirement at 66.

A Recipe for Famine

My Yahoo! column on free enterprise and food security can be read here.

The image is of a 1944 drawing from Chittaprosad's Famine series. The work was featured in Saffronart's December 2001 auction, and is reproduced without permission.

MakeMyTrip's long journey

When I worked for Chaitime between the dotcom boom and bust, we had a fabulously located office in the Eros theatre building, Churchgate. The venture capital firm backing Chaitime, eVentures, had also put about 2 million dollars in a travel site called MakeMyTrip (MMT), headed by Deep Kalra. MMT used a small part of the leased Churchgate space. Chaitime soon collapsed, but MMT soldiered on, with Deep Kalra taking a stake himself and finding willing investors like Softbank Asia Infrastructure Fund (SAIF) after eVentures pulled out. The focus of the company gradually changed from targetting PIOs to serving the local Indian market.
At its launch, the plan for MMT must have envisioned a public offering in 2001. The IPO finally fructified in 2010, after something like 50 million dollars had been poured into the site. MMT has yet to turn a profit, but at the end of its first day of trading on the Nasdaq its share price had jumped 90%, leaving the company valued at 800 million dollars. We can expect a slew of new issues from Indian travel sites following this huge success.
Rediff.com, the one Indian site that was actually listed during the boom, has also yet to claw out of the red, and is currently valued at between 50 and 60 million dollars.
For what it's worth, my favourite website for online bookings is Cleartrip. I gave up on MakeMyTrip because it sent me lots of sms spam, often at odd hours.

Headline of the Day

'Only 45% of the population earns less than Rs. 20 a day'. That is Rajesh Shukla in today's Times of India. The full article is here.

For those who don't understand the Indian currency, 20 rupees is somewhat less than half a US dollar.

So apparently we should be really happy that only 45% of India earns less than half a dollar a day.

Apple surpasses Microsoft

A little over two months ago, when Bill Gates was toppled from his perch as the world's richest man, I suggested he'd be more upset when Microsoft was dethroned as the most valuable tech company in the world by Apple or Google. At that time, Apple's market capitalisation was about 20% lower than Microsoft's and Google was a further 7 or 8 percent adrift.
The switch happened yesterday. Apple overtook Microsoft on a day when the share price of both companies fell, but Microsoft's fell further. At the trading session's close, Apple's cap was a little over 222 billion dollars, and that of Microsoft around 219 billion.
To put things in perspective, a little over a decade ago, when Steve Ballmer took over as CEO of Microsoft and Steve Jobs returned to Apple, Apple had a market cap of $16 billion to Microsoft's $556 billion.
The company Bill Gates founded has been going through some turmoil, with a number of senior management figures leaving the company, and it seems unlikely its share price will recover sharply in the near future. Google, meanwhile, is having a lot of success with its Android mobile phone system, which could propel it to the number 2 spot sometime in the next twelve months.

Diamonds are not forever

I received a disturbing letter from the Warden of Rhodes House yesterday. "To be blunt: the Rhodes Scholarships need your financial support," it read (bold type in the original). Anybody who needs my financial support, I thought, is in grave trouble indeed. Luckily for the trust, the letter went out to all former Scholars, many of whom are better equipped to help.
The question is: how did the Rhodes Trust come to this pass? After all, the bequest of Cecil Rhodes had sufficed to fund scholarships to Oxford University for a hundred years, surviving stock market crashes, stagflation and world wars. I glanced at the Trust's accounts, which indicated it had lost a third of its capital in the 2008 meltdown.
The problem has its roots, I believe, in the formation in 2003 of the Rhodes-Mandela Foundation. The idea was that, since the benefactor Cecil Rhodes was a nasty imperialist who had become one of the world's richest men by exploiting the diamonds and gold of southern Africa, the trust owed a special debt to that region. A total sum of 10 million pounds was promised by the Rhodes Trustees to the Rhodes-Mandela Foundation, to be paid over 10 years and matched by an equal amount raised from other sources.
This gift added, annually, about 20% to the trust's expenses, at a time when university fees were rising sharply for non-EU students. The trustees, under the leadership of William Waldegrave, felt the need to increase revenues to compensate. They switched, in 2004, to 'total return' investing, which, from what I can understand, means shifting from fixed-income bonds, and companies that pay substantial dividends (typically, firms in mature, slow-growth industries), to high-growth assets. High growth, of course, comes with high risk. The 'total return' strategy was dandy for three years, struggled for a year after that, and hit a wall in 2008. As far as I can tell, the Rhodes Trust sold most of its holdings near the bottom of the market, and was sitting on cash through the recovery that kicked in after March 2009.
So now they're asking for bequests and donations. They've rejigged the board of trustees, inducting, among others, Narayana Murthy. But William Waldegrave is still Chairman, something I find astonishing. He's a former Tory minister, and Vice Chairman of the Investment Banking Department and Chairman of the European Financial Institutions Group at UBS Investment Bank. No wonder the Trust almost went broke under his watch, that CV reads to me like a recipe for disaster.

Saffronart expands into property sales

The first time I read the Christie's magazine I was impressed by the art on offer, but even more so by the properties listed for sale: Tuscan villas, Bavarian mansions, French vineyards, English country homes, some of them centuries old. It was such a refreshing change from the Indian scenario, which consisted mainly of ugly apartments exchanging hands in shadowy transactions.
I'm very glad, therefore, that Saffronart is expanding its portfolio to include high-end properties. The auction house has already established a foothold in jewelery sales, and this latest diversification should strengthen it further.
Minal and Dinesh Vazirani have built Saffronart with a professionalism and passion that kept it going through the dotcom bust as well as the recent financial meltdown. I wish them all the best with their latest venture. And if any readers of this blog have a million dollars lying around, you might consider acquiring the properties shown here.
Well, OK, a million bucks will only get you the cheapest ones.

Decline of the IPL

The recent auctions of new teams and raising of salary caps marks the beginning of the end of the Indian Premier League. All the revenues imaginable are being squeezed from the jamboree: endorsements on every square inch of clothing; television commercials beamed not just between overs but between balls; and aggressive merchandising of team shirts. Despite this, all but two of the eight teams have suffered losses during the initial years of the IPL's existence.
Now, the Sahara group has bid 370 million dollars for the Pune franchise, and a consortium named Rendezvous World Sport 333 million dollars for Kochi. This means the two will pay the Board of Control for Cricket in India four or five times as much each year as the other franchisees. Nobody has been able to figure out how these businesses propose to turn a profit given the way IPL finances are split. You can read detailed analyses of the issue here and here.
The Sahara people, having made a fortune at the bottom of the pyramid, appear bent on squandering it at the top, having lost money on their airline, television company and, probably, luxury township projects. For those who bought franchises in the first round, this is probably the best time to sell and walk out with a handsome profit.
What irks me about the IPL is its lack of quality. Each team is composed of, maybe, three good foreign players and three good Indian ones; a couple of journeymen; and two or three guys who are just there to make up the numbers. This was exposed during the Champions League, when not a single IPL team reached the semi-finals despite having home advantage. With two more teams to contend with, local talent is going to be stretched even thinner. How long before the public realises that excitement is no substitute for excellence?

Slim pickings for Gates

Forbes magazine has released its latest billionaires list. Bill Gates, for the first time in recent memory, has been superseded at the top of the charts. The new richest man in the world is Carlos Slim, a Mexican of Lebanese extraction whose original surname was Salim.


Gates has slipped a notch partly because he's given away billions. The other reason is that the company he founded, Microsoft, has spent a decade in the doldrums. Exactly ten years ago, on March 10, 2000, the Nasdaq reached a peak of 5132 intraday, 5048 closing. That Friday, investors in technology stocks went home happy, as they'd done most evenings for a number of years. They woke on Monday to a different world. The Nasdaq opened 4% down, a sign the tech bubble had finally burst. The index hasn't come anywhere close to its previous peak in the subsequent decade.



The trigger for the fall is unclear, but one cause was investors' fear that Microsoft was about to be declared a monopoly. That happened on April 3, when Judge Thomas Jackson suggested the firm be broken into two.



Microsoft lost over half its value between December 1999 and May 2000, much less, it has to be said, than many other tech companies. The problem is that the company never recovered, and spent all of the noughties hovering in a range between 20 and 30 dollars per share. Considering the number of products launched in that period: the Xbox, Windows Vista and the Zune MP3 player to name a few, the steadiness of the Microsoft chart is remarkable.
When companies like Apple and Google began to create more noise than Microsoft, Gates was dismissive, confident his firm, which at the time was ten times the size of the insurgents, could muscle them out before they became serious competitors. While Microsoft flatlined, though, Apple and Google soared.




Both now have a market cap of around 200 billion dollars, compared to Microsoft's 250 billion; it seems only a matter of time before one or the other passes Microsoft to become the most valuable tech company in the world. Something tells me Bill Gates will be more upset when that happens than he is by the latest Forbes rankings.