EconBox

Returning home from university has reunited me to many unfinished books I had left behind in my room. Patrick French’s India: A Portrait is one of them. Yesterday, I decided to read the section I had not previously read on समाज/Samaj (Society). In this segment, French glides over some overarching themes of Indian society – the caste system, the cultural difference between the highly-educated emerging middle classes and the lesser-educated, semi-rural rural folk (captured in a detailed description of Aarushi Talwar’s murder case, how different Indias saw it, how we reacted to it, how it was dealt with – an idea resonating with Arvind Adiga’s acclaimed The White Tiger), and of course, religion and elements of Hindu philosophy.  As promised by the title, French paints a portrait of his subject enough to capture the general observer. It is then left upto the observer to independently explore the complexity of the subject’s facets. Yet, there are some aspects I wish he had expanded or tied in better.

For example, after a chapter titled Outcastes’ Revenge detailing the preservation of caste in Indian society, French moves on to capturing the master-servant relationship (modern middle-class Indian households with poorer domestic help to make-beds, cook, clean and so on), he does not connect the two. It would be interesting to explore the relationship between caste and these pervasive relations in Indian society. Are people in general prone to caste-consciousness when hiring domestic help? Could the ever-increasing demand for domestic help lower caste restrictions? Or could the increase in suspicion about the motives of domestic help make such restrictions more stringent? 

As another example, in the last chapter titled Only in India, French mentions various aspects of Indian philosophy and civilisation – its feat in astronomy and mathematics, and philosophical abstractions such as the non-existence of the beginning or end of time, the non-existence of the duality between the Self and  ब्रमहान (the universe), and the development of the concept of nothingness. 

He traces the successes of various Indians, particularly in the fields of science, and emphasises their inspirations from Hindu philosophy either direct (like one connecting Intel chips to माया – worldly illusions) or implied (as these pioneers come from Indian traditions). But I do wonder, and I wished he had expanded this a bit more, what is the relationship the various sects of society share with our philosophical wealth? Is it only supposed to be accessible to upper-caste Hindus, for example? Should thoughts of such liberation be the highest truths in our religion, how do we view the lower-castes accessing such knowledge? As I grow, I see Hinduism more and more as a religion of freedom and liberation, and so I wonder, how can we prize such thoughts and yet have an enduring power-structure of social division and hierarchy? 

I understand that French’s motive is only to paint the subject to capture enough interest. It is to offer an account and some explanation. He does this well, by vividly representing stories of Indians, selected snapshot historical events, scholarly work, and even his perspective. What he does not do is pose questions to his subject who graciously agreed to pose (which reminds me there is little on India’s tradition of debate). In reading this account of India, it is thus the reader who must ask, such is the nature of the work. 

India. A land full of colour, history, heritage and rich diversity. A complex mural of dichotomies, philosophies, and religions. A place where no generalisation will do. Should you be ever so close to a generalisation about India, you will find an exception to your theory here itself. It’s the most fascinating and frustrating process for a social scientist. 

Last year, I left India to study in Canada. There, I found myself increasingly fascinated by India, even more than before. I asked myself, why did India become such an object of fascination? And was it supposed to be? After all, I am Indian. I was born here. I was brought up here. So why should India captivate me? Should it be so mystical, so exotic, so mesmerising? Is my fascinated view of India a colonial legacy? Educated in the British system with all my technical education in English and now far from home, was I viewing my home from the lens of a foreigner, a romantic enchanted by India’s warmth and promise of spiritual wealth? Is that why my own home was fascinating?  I suspect the rise of Hindutva made me question where I stood. Was I not “mentally fully Indian”, a “sickular”, a colonised mind?

On introspection, I understand that first that my star-struck fascination was only a part of a whole. Romanticising my home is only part of the story, for such an exaggeration of India’s richness did not mean I became oblivious to its social and political problems. In fact, I am aware of these problems, and try to be an active part of the debate. I suspect moving away from home had increased my tendency to look through the romanticising lens, but coming home makes me realise that indeed, I have the critical lens intact as well. 

This article originally appeared in The Internationalist, a magazine exploring economics, politics, and history.

This article was reposted by Bangladeshi war veteran, Didarul Alam, on Bangla newsblog, E-Movement under “Indian Tanya Sharma writes about Bangladesh’s birth history”. 

The Bangladesh Liberation War remains a largely forgotten part of World History, although it directly affects all of South Asia, and is reflective of a morally, politically, and strategically bankrupt American foreign policy.

1971 was undoubtedly a game-changing year for South Asian history. It saw the birth of a democratic nation - Bangladesh, compromised the two-nation theory on which Pakistan was founded, and saw India’s geopolitical rise in the region. Indira Gandhi assumed greater authoritarianism after the war - which cumulated in The Emergency, the dispute over Kashmir worsened, Bangladeshi development hindered because of the loss of intellectuals and infrastructure, and finally, humanity saw some enormous huge human costs inflicted on refugees, survivors, and those who died.

For these reasons, 1971 is remembered in South Asia. The problem is it is remembered in South Asia alone, and even the narrative that we do remember is incomplete. Behind the perceived isolated nature of the war is the important, confidential role of the US. This makes 1971 is a significant albeit forgotten part of World History.

My grandfather, a war veteran who fought the ‘65 and ‘71 wars only remembers the USS Enterprise sailing into the Bay of Bengal. I too, despite having half my history grade depend on the Cold War, never learnt of the US’ conspirator status in Bangladesh. I was only exposed to this when I attended a talk by Princeton Professor Gary J. Bass and spoke to him afterwards. Later, I read his book, The Blood Telegram for a deeper understanding. Professor Bass laboured through White House tapes, MEA directories, paper trails, and interviews to expose the secret grand role of the United States as massacre descended upon the Bangladeshi people.

Background

After 1947, India was partitioned into two parts - Hindu dominated India, and Muslim dominated Pakistan. Pakistan was founded on a two-nation theory - two wings separated by culture, language, race, and 1600-mile long hostile Indian territory but united by the founding principle Pakistan, Islam. In the 24 years West Pakistan and East Pakistan were together, it was clear that former dominated the latter. From military to administration, Punjabis, Pathans and other races in West Pakistan were given preference over the Bengalis. In 1952, when to Bengali students were shot dead for advocating Bengali as a national language of Pakistan. In 1970, when the Bhola cyclone hit East Bangladesh, the natural disaster met the “Pakistani government’s feeble response”.

What happened in 1971?

In 1971, Pakistan held its first democratic elections. The Awami League, an East Pakistan party led by Mujibur Rahman, swept the elections. The League advocated Mujib’s Six Points, which called for greater autonomy for East Pakistan, and the reordering of Pakistan into a more federalist state. The League won twice as many seats as the runners’ up, PPP. However, President Yahya Khan, edged on by runners’ up Zulfikar Ali Bhutto, ignored the elections, and then finally cracked down on protesting Bengalis. This marked the beginning of a bloody Civil War.

The military deliberately targeted Hindus (seen as an anti-nationalist force in a country founded on the basis of religion) intellectuals, Awami Leaguers, etc,. Between March and December, ten million refugees had crossed over into Indian territory. This threatened economic, and political stability in the peripheral Indian states. Moreover, India, an already poor country, required US$1 billion for the upkeep of the refugees, but received little support from the international community. Using the moral pretext of what became R2P during the 1990s - Responsibility to Protect - India went to war with Pakistan to liberate Bangladesh for internal, and strategic reasons.

Backstage

As these events unravelled for the world to see, an even more dramatic and tragic play went on behind the scenes. The US was keen to end the Vietnam War and to exploit the Sino-Soviet Split for a negotiating chip with the USSR in Kissinger’s famous Triangular Diplomacy. For this, it needed a channel to China. General Yahya’s channel to Beijing seemed most agreeable to Nixon and Kissinger, despite channels in Paris and Romania. While these channels existed, they were more prone to Soviet scrutiny, and further away from Beijing than was the Islamabad channel. Kissinger valued secrecy and geographical proximity to China. This was a disincentive to pressure Yahya to stop the blatant human rights’ violations in East Pakistan.

US Consul-General in Dhaka, Archer Blood, wrote critical telegrams to the White House with strong words - the most daring being The Blood Telegram. Blood rejected American policy using the dissent cable, losing his entire career. Many others in the State Department, including the US Ambassador to India, Kenneth Keating, disapproved of American inaction.

Statecraft requires one to make difficult decisions, but these decisions should be made after assessing complete information, and being as objective and removed as possible. Nixon-Kissinger seem to justify their inaction in the Pakistani Civil War because they needed a China Opening through Islamabad. Upsetting Yahya would’ve meant the end of that opening. This is not true. Yahya was primarily dependent on US economic and military aid. A private disapproval of his policy in East Pakistan could’ve gone far. What made Nixon-Kissinger support Yahya with their silence was not statecraft, but emotion.

Tapes clearly reveal Nixon’s personal camaraderie for Yahya. Nixon, on his pre-Presidential visits to India and Pakistan, had found Nehru and Indira Gandhi to be pompous and proud, and Yahya to be kind. (“Pakistan is a country I would like to do everything for”, Nixon said on his return) Personal preferences coloured his entire foreign policy. Kissinger was too influenced by this, and eager to please the Chinese. He divulged confidential information to the Chinese during the peak of the Indo-Pak 1971 War, explicitly indicating that they get militarily involved. So bent were the two on cracking down on India because of personal hate and its links with the USSR that they were willing to risk Soviet-American summits, and even considered “lobbying” in “those nuclear weapons”. Legally prohibited from selling weapons to Pakistan, Kissinger and Nixon urged Jordan and Iran to transfer US military equipment to Pakistan (promising recuperation the following year). Warned by the Pentagon and the State Department that this was against the law, Nixon and Kissinger went ahead anyway.

Why is this history important?

The answer is lies in reclaiming our global narrative. Kissinger has built a stellar reputation of himself as a champion of realpolitik. This research shows otherwise. Kissinger was willing to fuel a regional war beyond proportions asking for direct Chinese intervention (which could possibly involve the Soviets, and thus the Americans). He entirely missed the critical lesson from Cuban Missile Crisis: the flawed nature of brinkmanship in a nuclear world, which could only end in humiliation or suicide. Yet, Nixon and Kissinger pride in this strategy: “At least we come off as men”. The truth about how they actually conducted policy has been veneered by their writing of history and marketing of their achievements - which overshadow not just the “morally bankrupt”, but also the strategically and politically bankrupt policy debacle in Bangladesh ‘71.

Another answer is that such history exposes institutional gaps. The American political system prides itself in its democratic character. However, Bass clearly shows that foreign policy can be concentrated at the top, as in the context of 1971. All State Department and Pentagon advisors were shunned by the Nixon and Kissinger. Not only that, the duo put itself above the law and broke it unapologetically - the President did so again two years later. This runs contrary to the most fundamental value of a democratic society: legal egalitarianism. This prompts the question: should there be more checks and balances in place for leaders?

To be fair, the Congress, the State Department, and the Pentagon were indeed able to slow down the execution of Nixon and Kissinger’s plans. But still, they were not able to reverse the policy. While it is true that the President is almost the Supreme authority and his authority can not be superseded, unless a supermajority in the senate decides against his policy,  after what point can the administration overtake his authority? Should it? Another question is: what should be done when the President breaks the law? Such history makes us ask whether we can order a system where two men don’t control foreign policy.

Accountability

This argument naturally progresses to accountability. Professor Bass writes: "If an apology from Kissinger is too much to expect, it would be an act of decency for the US government to recognise a special American responsibility to make amends to the Bangladeshi people".

While part of the purpose to explore 1971 is to raise questions of accountability, how can “American responsibility” be put to practice? And given the world’s state of affairs, should it?

The US has a long list of global issues in its plate: Chinese economic and political threat, Afghan reconstruction, The Syrian Civil War, the rise of ISIS, and more recently, the instability in Yemen. All of these issues impact American interests in some way or the other: security, geopolitical, etc. With this dismal global picture, how can the US be expected to look back at the 1971 War, and then formulate policies to “make amends to the Bangladeshi people”?

Alternatively, today the US and Bangladesh enjoy good relations. American companies are the largest foreign direct investors in Bangladesh, the US is also the single largest market for Bangladeshi exports, and the US is viewed favourably by 76% of Bangladeshis. These facts, as the US embarks on its Pivot to Asia policy, provide more opportunities for the US to work in closer cooperation with Bangladesh.

Modern history tells of a bitter relationship between the two, but the changed political and economic panorama of the world since 1991 has pushed the US and India to one side. Although the mutually beneficial alliance has a long way to go, here I have analysed the potential factors that can make-or-break the relationship. Can favourable factors like shared geo-politic goals, an established intermediary bridge, and reciprocal economic benefit overcome the occasional tensions between the two nations of the “free-world”, who take great pride in their democratic, multiethnic, and multilingual traditions?

The NY Times article linked (also available several times below) was published on the same day as the discussion, and motivated parts of it. Recommended. 

Yesterday, I attended a talk at UChicago’s Centre in New Delhi conducted by authors Vu Tran and Raj Kamal Jha about Why we tell stories: Finding your voice, the importance of plot, the choice of place in fiction. The discussion covered many facets of literature: writers’ dilemma of choosing between a complicated portrayal of life as it is, and its simplification; the meaning of writing about home; and the beauty of fiction - inspired from reality, yet coloured by a hint of hope, idealism, or despair: the colour of the author’s perception, a fragment of his or her mind.

Language and Voice

Towards the end, the discussion tended towards the role of language in literature. Afterall, voice uses the medium of language to be heard. While voice is the purpose, language is the instrument.

An issue raised was: why Indian Literature in English often lacks quality, or what Professor Vu Tran identified as interiority. While there is no doubt that India has produced some literary giants, it is equally true that mainstream Indian literature in English is often confused, distant, and exterior. As an audience member put it, it’s “Indian writing without India”.

Mr. Jha explained the first: English is still budding in India. Second-tier Indian cities are now picking pace with English teaching more than ever before. We now have innumerable families returning from overseas who use English at home, and there is greater inter-state, and international communication which requires command over the English language.

As English speakers in India increase, and economic and political confidence inspires more writers in India, we will have an even better quality and range of subjects in Indian literature in the English language. This could bridge the gap between interiority and distance in writing.

Losing literary heritage in Indian Languages?

While I am hopeful about the quality of Indian literature in English improving, I want to point out that many Indian stories of superior quality, interiority, and range exist in Indian languages. English writers in India are primarily based in urban hubs, and so as one member pointed out, rural India’s stories go unheard in this type of “Indian literature”. This is just an example of the range of literature we are missing out on simply because it does not currently exist in English, and is unexplored in local languages.  

Why the latter? This is because of our shameful culture of debasement of our regional languages. Logically, Indian languages can most accurately convey Indian stories, because after all Indian stories take birth from them. Yet, our stories are translated even before they are penned down, and it’s what is lost in this process that results in the lack of interiority in the writing. If we can create a culture that equally respects all languages, we can experience the richness of our local literary heritage along with the budding riches of Indian literature in English.

The duality we need to reconcile

To be able to create a holistic culture where all languages, and by extension voices, can thrive, we need to first understand the duality between local languages and English, and what this represents.

In India, learning, reading, or using Hindi is explicitly viewed as a sign of inferiority. English, on the hand, is associated with power, education, and higher social “class”. This plays right into the duality visible across our national landscape: rural, urban; poor, rich; regional language, English.

A new approach to view this as a duality between the internal and external should be employed. Our local languages provide us with culture, our voice, and help us understand ourselves better, while English helps us communicate with many others around the country and globe, and perform in the world materially. This approach gives importance to both the opposing elements, and thus, a reconciliation can be reached.

An example of this reconciliation

Reading Singapore’s Former Prime Minister Lee Kuan Yew’s memoir, From Third World Country to First, I was particularly touched by LKY’s personal motivations behind Singapore’s language policy. Educated in the English education system (like I), LKY found that neither was he in touch with his Singaporean roots and his Chinese cultural heritage, nor was he completely integrable into English society. This, he called “deculturalisation”.

To complete himself internally and “culturise” himself, LKY, up until he was admitted to the ICU recently, took Mandarin classes. He journeyed to find his voice - in his language. The Mandarin language brought Chinese culture and philosophy to him: Confucian values of filial piety, Taoist emphasis on balance and harmony, and Chinese emphasis on social order and discipline. LKY ingrained these cultural values as he progressed through Mandarin.

So profound was the impact on LKY of this process that today, Singapore’s education system requires that young Singaporeans learn their native languages (Malays learn Malay, Tamils learn Tamil, and ethnic Chinese learn Mandarin) along with English. This way, Singaporeans can connect with their cultural heritages yet integrate themselves into the global economic, and political grid. This balanced approach makes a people doubly powerful.

Singapore’s successful policy is a powerful answer to all those who think that simply because English is important for economic advancement, societies are justified to debase, forget, and belittle the riches of their native languages.

As societies get increasingly inter-connected, interdependent, and globalised, we will come in increasing contact with this problem. Given these circumstances, we need to create complete individuals, because if we do not, we risk falling into a cultural limbo.

So do Indian Languages have a chance?

The questions on the table are: will regional literature and cultural heritage get lost, will we finally accept our regional roots and develop comment-rich cultures in our regional languages, will we be able to unearth the voices of rural, obscure, “local” parts of India and weave them together with the more urban, Indian-English culture?

In my opinion the answer is yes. As greater economic activity inspires confidence in our nation, as our young country struggles to find its voice, we will be able to integrate and find a balanced solution, as our civilisation has always done in the past. 

Building on this, after the talk, I met an erudite UChicago Professor, Dr. Gary Tubb, who teaches Sanskrit and is a connoisseur of Indian philosophy. While Mr. Jha pointed that as many people gain confidence to write, Indian literature in English will become richer, Professor Tubb etched this point even further: as we become a more confident society, not only will confidence to write in English increase, but also the confidence to write, and importantly, read in Hindi will increase - making the usage of Hindi for said purposes acceptable. As growing India comes to terms with its identity, the balance will eventually strike.

Having said that, economic and policy incentives will be crucial in this process. In the linked New York Times article, the eloquent (in Hindi) young woman who studied Sanskrit had dismally fewer prospects compared to the youth who barely spoke English but attended an “English” college. This needs to change.

We need to systematically encourage exploration of our foundational languages. This can be done by instituting more cultural centres, and promoting greater sensitisation in schools about regional and classical Indian languages. Instead of imposing Hindi on children around the country, why don’t we promote the Singaporean way: read your native and English? This way we can create a safe environment for all individuals to embrace their cultural heritage, and move forward economically.

Personal remarks

Since mid-2012, I’ve been on a journey where I’ve begun accepting and exploring Hindi to define myself better, to fill my internal cultural vacuum. I’ve taken small steps: like switching my Facebook to Hindi, watching cricket in Hindi, reading Hindi essays, reading Dainik Jagran, and learning to type in Hindi.

“I do not agree with what you have to say, but I'll defend to the death your right to say it.” - Voltaire

On Monday this week, my copy of One Part Woman arrived. The past two days I’ve found myself lost in the streets of Tiruchengode, the characters and their thoughts, and the connections between elusive symbols Perumal Murugan embedded in the novella. 

But this post is not a book review. I only wish it were. But it’s about why I read One Part Woman? Why now?

For my Constitution

This month, Hindu extremists began violent demonstrations against Perumal Murugan’s One Part Woman. The story, which is about a childless couple set a hundred years ago in rural Tamil Nadu, refers to a festival in which constraints on sexual unions between men and women are relaxed. 

This practice was made-up to suit the setting, and time of the novel, when IVF centers did not exist and presumably, such unions were the only realistic options for childless couples. This was, however, “against Indian culture” as declared by “credible” Hindu extremist groups. 

Reports indicate that the local authorities cared little. They simply asked him to convene for an “agreement” meeting, where they enjoined him to “step down”. Shortly after, Murugan issued a statement announcing the “death of a writer”. He had been silenced.

What happened was shocking to say the least. It is also unconstitutional. Article 19 (2) of the Indian Constitution clearly states that expression “cannot be suppressed on account of threat of demonstration and processions or threats of violence”.  “Victimized” protestors defamed Murugan, launched a spate of death threats and diatribes against him, and held a total shut down Tiruchengode against him falls in this category. The local authorities failed their constitutional, “obligatory” duty of “protecting the freedom of expression.”

I won’t stand by as our artists, security, and law-order situation becomes subjected to the whims of Hindu extremists. I refuse to give them this power. That’s why I read One Part Woman.

For Freedom of Speech

It is no surprise that extremists all over the world are scared of thoughts and speech. Perumal Murugan is no exception. 

Hindu extremists may very well disagree with what Murugan portrays; HOWEVER, to enforce their position they should present incisive commentaries, books, documentaries, or any other form logical argument. They are “free” to do that. But not to snatch away a man’s right to write with violence. 

These insatiable “messiahs of culture” will demand more conformity, more orthodoxy and more restricted thinking. Authorities are mistaken if they think they will stop at Murugan.

In the past few days, numerous book readings of One Part Woman and online petitions have surfaced. I stand too. I won’t let extremists define what’s acceptable and what’s not. I won’t have my rights held hostage to their violent fits. That’s why I read One Part Woman.

For art’s sake

It is no co-incidence that ISRO's MOM, the Make In India campaign and Prime Minister Mr. Modi's visit to the US are making headlines all within a week's time. 

Last week, on the 24th of September, thousands of spectators watched the ISRO’s MOM successfully enter the Martian Orbit, becoming the 5th probe on the red planet.

Photos of cheering scientists at ISRO celebrating with Prime Minister Modi, who dressed in a thoughtful red-jacket apt for the occasion, went viral on the Internet, along with snapshots of twitter exchanges between NASA’s Mars Mission and ISRO’s MOM.

The highlight of the success however was this: the $70 million price tag. That’s all it cost, making MOM the cheapest expedition to Mars, making it cheaper than Gravity, the 2013 sci-fi that cost $100 million. In fact it was this price tag that Modi made a point to reinforce at the Madison Square yesterday.

ISRO’s success does not come in isolation. In fact, ISRO’s golden hour coincides with the inescapable launch of the Make In India movement and Mr. Modi’s much hyped US trip like the Sun and the moon do when they make the Ring of Fire during the Lunar Eclipse.

The incidents are all parts of the grander scheme of things – which is to restore investor confidence in the Indian economy.

MOM has symbolic significance in that it highlights the low-cost production capabilities in India, something, which again, Mr. Modi was quick to point at his arousing address in New York last evening. The symbolism extends to show that technical know-how, efficiency and success that Indian products can deliver is worthy of not just global attention but also investment.

Hailed by the Chinese as the “Pride of Asia”, MOM is also arguably an attempted subtle reminder of Indian strength, towering above China’s failed mission to Mars last year, in a time when such a showcase is arguably needed the most as tangible tension hovers over Asia, caused primarily by an assertive Chinese foreign policy and indifferent American stance. However, asserting subtle signs of power in a Cold War style space rivalry to a potential threatening neighbour state are secondary to the bigger goal underscored in the essay previously – restoring investor confidence.

The Make in India campaign, launched last week as well, sought to show the government’s commitment to pursuing this very aim. The impressive website, the convenient mobile application, the massive attention given by business leaders all over the world and of course, Mr. Modi’s impassioned speech – the cumulative effect of the campaign launch cannot be ignored. By making accessibility not only to the Indian product market but also factor market a priority with promises of “red carpet, not red tape” for business all over the world, Mr. Modi underlines the needs of the economy – investment, human development, jobs.

Finally, Mr. Modi’s visit to the US is perfectly timed to coincide with these happenings. Not only is the US the largest investor in the world but also Indians in the States are the richest ethnic group. Having successfully identified this and the patriotism and ambition for India most NRI’s share, Mr. Modi seems hopeful to tap this potential for investment. Stressing on the centenary of Mahatma Gandhi’s return to India in 2015, Mr. Modi pushed the energies of the NRI’s and Indian Americans, certainly a spectacular target given that the group organized the $1.5 million reception event for the Indian Prime Minister by pooling in their money, spectating the event in Madison Square to come “repay your loans to the motherland”. The motive being announcing the merging of the POI and OCI cards and the provision of lifetime visas for such cardholders is congruent with the greater goal of attracting economic activity to India: Mr. Modi hopes to strengthen the way American Indians identify themselves and ultimately, benefit India with their wealth, perhaps even to ignite the possibility of a reversal of the brain drain that has severely affected the Indian economy in the past. 

On Thursday, 17th of July 2014, about 300 innocent civilians, including children, on the MH 17 airliner were shot down. A surface to air missile was used to down the airliner, which was flying at 33,000 feet altitude. The aircraft was shot down in Ukrainian airspace, in the eastern region controlled by the pro-Russian separatists, 50 kilometers from the Russian border. The incident is uncannily familiar with the shooting down of the KAL 007 in 1983, when a South Korean civilian aircraft was shot down by the Soviets as it accidentally drifted into the USSR’s airspace. The incident certainly will have, and is having, consequences for the international community, world politics and economy. 

First off, the political consequences are quickly overshadowing other impacts. Ukraine, historically tied to the Russia, has been in severe pressure from the East since the time the balance of national power tipped into the favour of those protesting against the pro-Russian and oppressive regime of President Yanukovych. The new government in Kiev, established after the ousting the former President, has faced innumerable challenges such as the invasion of Crimea (legitimised by a “referendum”) by Russia, violence in the Eastern regions, declaration of autonomous states such as the Donetsk People's Republic and terrorism in eastern Ukraine to discourage voting for the recent national elections in Ukraine. The pro-Russian separatists have become brave and braver with time as the international community has responded with words no one listens to and inadequate action (such as some sanctions) against Russia. Indeed the separatists pushed their bar up higher on Thursday when they used sophisticated machinery with suitable training, primarily owned by only governments and state actors around the world. This clearly indicates that Russia had a huge role in facilitating this action, clearly mentioned by President Obama in his address a few minutes ago (or worse, maybe it was Russia itself). President Obama also explained that were Putin to now order heavy equipment to not be transferred across the porous Russo-Ukrainian border, more disasters of escalating violence can be avoided. 

Russia obviously has put itself in an apparent mess here. Its prestige in Europe is likely to go down further, but keeping in mind the shocking events that have been aided by the Kremlin, it is hard to imagine Putin caring even a tad bit about the Russia's repute in the western community at all. His recent visit to the BRICS summit in Brazil and the largest gas deal ever signed in the world between Beijing and Moscow previously this year confirm that Putin sees the future of Russia with Beijing and the BRICS, not the West. Luckily for Putin, no Chinese citizens were present on the flight, given the possibility that China may not have let the aviation crisis pass (despite its little concern for human rights) after the MH370 went missing earlier this year.

For the US, every crisis of such magnitude is a huge challenge to the once iron-fist loving superpower, eager to flex political muscle in the world wherever an opportunity to do so existed up until only a decade ago. However, in contrast, now the US’ response appears to be lukewarm with every such international crisis that occurs. President Obama’s work against American military engagement around the world may have many cost cutting benefits; however, a major negative impact of a cautious American foreign policy is that countries such as Russia (and Israel) think they can get their way with almost any scale of violation of human rights. The President’s address today came across as weak, contrasting starkly with Reagan’s moving address to the nation after the KAL 007 incident. To be fair, though, the US lacks the economic muscle it once had, cannot blame Russia for the disaster in straight terms (the US and Russia are not in an official Cold War and information about the crash remains incomplete) as the complex situation today involves non-state military actors, and has proposed a solution of independent investigation, which seems to be a sensible solution in many respects. 

For the European community, the incident clearly illustrates the threat it faces from the Ukrainian situation. It is a reminder to not treat the eastern European crisis in isolation, as if it were separate from Europe. The community, however, lacks the means to have much of an impact due its various internal problems and dependency on Russia for gas. It is thus forced to rely on NATO muscle flexing and praying. The Baltic States today are an excellent example of this. 

For the international community, the crash is a huge loss. A symbol of irrational violence and disregard for human rights, the disaster not only took the lives of many children and broke many families, but also killed a delegation of about 100 researchers in the field of HIV AIDS. These delegates were heading to an international conference in Melbourne to discuss possible solutions to the onerous virus that claims thousands of lives partly in developed and majorly in developing nations. Apart from this loss is the tough challenge. The UN Security Council is under pressure yet again; however, its ineffectiveness is naked in the eyes of most given the lack of action in respect to the Ukrainian issue when it was nascent, but also the escalation of the Israeli campaign on Gaza this week, the nearing of the 3-year anniversary of Syria's Civil War, and China’s persistent bullying of other Asian neighbours over islands in the shared seas.  

The economic consequences of this incident in conjunction with the ongoing inhumane Israeli campaign on Gaza, is a loss of confidence in markets. While earlier in the year some risk loving investors invested in the Russian economy (an RT source reported this so trust this at your own risk), in hope that it would recover, the strengthening of sanctions against Russia is likely to reduce investment in Russia, and naturally, trade. The Russian economy has already seen a slow in economic growth in the last year, and sanctions carry the hope of severely affecting it further; however, due to time lags, the effects of the sanctions can only be analysed after at least a 6 month time period. Also, as noted before, Putin has alternative business partners now, particularly the Chinese.

Hilary Clinton, on an interview, voiced for Europe to show its increased willingness to develop alternatives to gas to threaten the under-diversified gas based Russian economy; however, this too is a time consuming process. In fact, many European nations already do strongly use alternative energy, for example France (nuclear). How much more are they expected to do at a short notice? Nevertheless, economic action must be strong. Having said that, economic hostility cannot continue for a long period either, or else there is risk of decaying relationships further (something not welcome in the current balance of power as the world undergoes various political changes, including China’s increasing political clout, China now struggling to co-exist at par with the USA, in America’s unipolar world).

Nutshell: In our attempt to cut off Russia due its extremely unjustifiable actions, we cannot compromise trade indefinitely as trade for all is the way to progress and peace in the long run.

Apart from the macroeconomic effects, other microeconomic effects are also visible. Stock markets in Malaysia, Netherlands and Australia closed at lows due to the dismal spirit in these nations due to the aviation disaster tantamount to catastrophe for these countries. Malaysian Airlines in particular has seen an 11% fall in share value in the last 24 hours, which is expected to fall further. The firm has faced its second major aviation crisis in the last 4 months and many are speculating that it won’t make it past a year. The government may have to bail the firm out. Although dramatically slashing prices has kept the flights relatively full up to now, the airlines is not able to cover its costs because of this and the fact that routes to Australia have seen a huge fall in bookings. On other routes, after the MH 17 clash, many people have even cancelled their bookings with the airlines. Although realistically the chances of being shot down are extremely low, low confidence and loss aversion compel such consumer behaviour.

However, despite the fact that an airliner crash has shook world markets, induced alterations in global trade, is having consequences for world politics and economy, these factors depend largely on speculation and possibilities. The only absolute truth that lies in front of us is the debris of the airliner and dead bodies, scattered around over a 5-kilometre radius region, memorials held worldwide for the dead, the tears of broken families, photographs flashed on TV of happy people who lost their dreams and ambitions in an instant in what could have even be just an “accident”.

Note: Not a formal essay. Just (economic) musings of a recovering sick person. 

Being sick for the past two days has given me quite a lot of time to myself to think about certain things. This is God’s painful interpretation of giving a puny mortal an introspective vacation.

First off, I saw the principle of loss aversion in full action. Daniel Kahneman, who proposed the theory, explained it in terms of gains and risks - that if you made a gain, such as getting a free can of Sprite (praise the Lords), it won’t give you as much happiness as the dismay of losing a can of Sprite you bought. This principle bases human behaviour, and our tendency to avert risks (not doing things that could potentially make us lose the can). 

Now in my world, “gains” are measured in the units of work done. And so, being sick for me is that dismal state of losing that can of Sprite. On Saturday, when we had a Maths class, I rushed to it with fever and a running nose, because I was compelled to not “avert” the “loss” in “gain” (units of work). The satisfaction I got from the class is not nearly close to the immense state of worry I would have been had I not attended the four hour calculus lesson.

Secondly, I saw the relevance of the principal-agent problem in my “medical condition”. The principal-agent problem advocates that the “problem” essentially arises when the principal (in this case my parents) has to take decisions on behalf of the agent (me). Had my father not been a doctor or did my parents not fully understood the importance of correct treatment, that problem may have creeped into my little episode of sickness. It occurred to me that many children, and patients in general, must suffer so much if the principal (payers of their healthcare treatment) weigh their own vested interests (for example saving money by employing some inexpensive and ineffective treatment because they do not value the merits of healthcare as much) as more important than the interest of the patient (in most cases to get better as soon as possible). {In short: I love dad.}

But apart from contemplating on applying economic and psychological principles to ma vie malade, I have been thinking about something else - my views on the controversial generic drug production in our country.

Let me explain. 

Last night, my body burned with fever, my throat and nose choked with nasal inflammation and blockade, and in that moment, I knew I’d do just about anything to alleviate the pain. Speaking in economic terms, in that moment, price elasticity for medicine (or anything that’d make me better) was absolutely price inelastic. 

Now in my case, I had access to medicine and the principal-agent problem was non existent, but for many thousands of people, mostly in poor parts of Asia, Africa and Latin America, it is these basic necessities that are non existent. 

The Indian policy on drug production is designed to help these millions in a small way. Party to the TRIPS agreement (a WTO agreement on Intellectual Property Rights), we have amended the Indian Patent Act (1970) in such a way that we do grant patents to mammoth pharmaceutical firms innovating drugs like they’d expect us to. In fact, we encourage the generic (low cost and high volume) production of these drugs by Indian firms such as Cooper Pharma who use reverse engineering processes to do so. Not only does the industry generate employment (there are about 350,000 workers in the industry), but also the industry’s nature makes India the 3rd largest in the world in terms of volume (not value). Logically, what follows is that we are also the largest exporters of these generic drugs to some of the poorest people in the world. 

The world patent regime, dominated by big pharmaceutical firms, is clearly skewed in the favour of the producers and not the consumers. This not-so-market behaviour comes from the inherent power these firms have because of the absolute price inelastic demand from patients, and the immense size of these firms. Arguably, the pharmaceutical sector has an extreme concentration of monopolistic characteristics. While extremely favourable to these firms, this is a clear existence of market failure. The regime greatly favours the rich countries, who clearly capitalise on the inventions of the past. How so? Well, the pharmaceutical industry has not only been accused of abusing its monopolistic power, but also of indulging in a process called “ever-greening”, in which these firms make minor developments to already patented products to extend their patents in order to ensure even longer periods of assured profits. Thus, wealth and patents in the industry are extremely unevenly distributed. 80% of the patents are held in only 6 countries. (USA, Switzerland etc) And while these firms clamour about the need for these patents for further research, most spend about 2/3 of their profits on litigation. 

I am not saying that these firms are “bad”. Corporate investment and research in medicine would’ve rarely reached the heights it has today had community service, and not profit, been the motive of these large firms. Of course exceptions like Jonas Salk, the man who invented the polio vaccine and said “Would you patent the sun?” when asked why he hadn’t patented his brainchild, exist. (Salk was working in a state funded laboratory, so the primary interest was towards the community anyway).

Immense progress was made in medicine after the 20th century breakthrough, penicillin. However, most progress in the 20th century picked the “low hanging fruit”. Investigation for diseases and cures is extremely difficult now as the degree of complexity of research is much more. To carry out such pathbreaking research as is demanded today, these firms need profits to reinvest in R&D. These firms need to be big monopolies so that they can use economies of scale for massive R&D projects. 

However, a balance needs to be struck. Drugs must reach where they are needed, regardless of purchasing power. And that must happen not so much to promote philanthropy in our markets, no, but for the basic protection of the sanctity of the market system itself. Perfect markets provide for the consumer, not fail this way. Unfortunately, the pharmaceutical industry is far from the model market lovers would like. Big monopolistic firms, exclusive healthcare due to high prices, and market failure. 

The main problem here is not that these firms are not providing for the poor, that is not their duty, but that they are being helped by existing systems and governments - who are also averting any responsibility. The problem is that the market failure is so stark that without the models of generic drug production followed by India, Brazil and China, the poorest in the world would continue to die of common diseases. 

Healthcare is a primary discriminator between the rich and the poor. With so much talk about the increasing gap in inequality - be it in the American President’s addresses, on the WEF, or on websites, newspapers and blogs - we need to rectify this gap in healthcare. Inclusive healthcare is the first step to an egalitarian world. Barack Obama has realised this and the Obamacare policy, which has started this year, seeks to provide healthcare for all Americans. This is not a “communist” “anti-business” way of looking at things: it is pro-market, as the market puts the consumer first, not the business. Healthcare is the prerogative of every human being, and rich or not, every one is a consumer.   

The Indian Policy, which stands up against the ever greening of drugs and issues patents with a lot of discretion (unlike the the FDA, USA, where an intensive lobbying culture has taken root), is needed. These models of newly industrialised countries are actually helping in creating a balanced global model. While huge pharmaceutical firms develop drugs in the 6 countries hugely favoured by the patent regime, countries such as India, China and Brazil, with generic production, disperse the drug in the world. The fact of the matter is that despite their complaints, pharmaceutical firms still make money in these “poor” markets, as product discrimination is a reality, so they aren’t truly losing out although they may claim so. 

The other day, I was speaking to an student at our school, who's an Egyptian national. We discussed and debated Egypt's history and politics and subsequently, it's future. Son of a commercial diplomat, Ahmed was quick to point out that it was increasingly difficult for his father to make Indian investors consider investing in, let alone convince them to do so, in Egypt. On similar lines a recollection was made by a classmate, who's grandfather was an importer for Egyptian carpets and had to shift his business alliance to Belgian carpet traders because of Egypt's chaos. India and Egypt have had a thriving economic past and India is one of Egypt's main export partners, accounting for 7% of its exports. Of late, international trade is not the only front on which Egypt is suffering losses. 

The situation is dire. From 2011 onwards, the Arab Spring fever has risen, peaked, and died in Egypt. With large groups of General (now Mr.) Sisi's supporters praising and hailing the military ruler, it is becoming increasingly clear that Egypt is coming full circle. 60 years of military rule, a brief pause for democracy and back again. Political repression is solidifying. Egypt has always been ranked highly in the list of countries most unsafe for journalists and entertainers (Bassem Youssef, a popular figure was sued for mocking (then) President Morsi during his "democratic reign") but now Egypt is increasingly reinforcing that position (many arrests for journalists have been issued in the country in the last 6 months). Coupled with the issuing of the death sentence of hundreds of people in a trial that lasted less than half an hour, serious doubts about free expression in Egypt have emerged. These factors are not merely political. Indeed, they have a dramatic impact on welfare. Egypt's happiness index has fallen to levels lower than Greece's during peak period of Greece's sovereign debt crisis. No choices. No welfare. No good economics. 

The core of the problem seems to be Egyptian obsession with military dictators. Perhaps this is a legacy of the ancient Egyptian civilisation in which the Pharaoh was the pillar on which society rested. Another argument however, is that Egypt's love for the military is attributed to the fact that the military is the only large well developed institution that is capable of functioning properly in the country. In fact many people are strongly hoping for a "strong man" to take things in his hands. And yet another argument is that the public is no one to choose. Significantly, the military owns a staggering 40% of GDP; this equals enormous sums of productive assets and property and invariably puts the military in charge. The military is Egypt's largest business; its monopoly is established and so it is inherently in power. 

This fact is demonstrated by Robert Springborg, an academic on Egypt: "...car assembly, we're talking of clothing, we're talking of construction of roads, highways, bridges. We're talking of pots and pans, we're talking of kitchen appliances. You know, if you buy an appliance there's a good chance that it's manufactured by the military. If you ... don't have natural gas piped into your house and you have to have a gas bottle, the gas bottle will have been manufactured by the military. Some of the foodstuffs that you will be eating will have been grown and/or processed by the military." The confluence of politics (the military) and economics thus, is strongest and extremely inseparable in Egypt. 

To establish its monopoly in trade and become the most functional institution in Egypt, the military used its 60 years of rule were to curb the healthy development of private businesses and other democratic institutions. This is good for the generals, but not for the economy. We can see why, by tracing recent Egyptian history from the time the army took over Egypt in 1952.

In the 1950's Egypt was politically, the leader of the Arab world; economically, abundant in natural resources and socially, the energetic zeal of a newly independent people. However, developed under socialist military hero, Gamal Abdel Nasser's obsession with war and annihilation of Israel pushed Egypt to increase uneconomic war and military efforts. A centralised economy ruled by the military elite, Egypt also saw the inadequate commitment to the development of its tourism, agricultural petrochemical industry. This underinvestment may not have occurred had the economy been freer of military control.

However, the military's unchallenged rule over economic resources was not the only problem. There was another one. Right after Nasser's reign, Egypt took a 180 degree turn with the installation of Anwar Sadat as Head of State. An antithesis of Nasser, Sadat sought peaceful existence with Israel and some degree of economic reform. His assassination compelled his successor, Mubarak to take yet another 180 degree turn in Egyptian policy. Centralised socialism was reestablished. This was the "other problem" military dictatorship had given rise to: oscillation between economic and political spectrums. Given these mixed signals and lack of evolution in political and economic policy, which were governed on account of the mindset or mood of the new supreme leader, Egypt was locked. Mixed signals did not allow the economy to grow. 

These two problems: one of Egypt's constant swinging between extremities and the military's unscrutinised large "economic empire" have halted Egypt's growth. 

The economic stature Egypt could have enjoyed had there a more democratic political and economic system in place can be seen by the growth of countries which had started out on an equal platform as Egypt. Kuwait, another Arab state and an economic equivalent of Egypt in the 1950's slowly institutionalised some level of democracy and choice into its system. Today a constitutional monarchy, Kuwait capitalised its oil industry and has reached some significant levels development. Its HDI of 0.79 is a high one, it is one of the richest countries in the world today in terms of GDP per capita, and social reforms are slowly but successfully making way. Similarly, Egypt's peer in 1954, South Korea, whose GDP per capita was equal to Egypt's in 1954, too has taken an incredible leap, solidified its position as a developed nation, is a member to the rich-country-club, the OECD, and has the 2nd highest standard of living in all of Asia. 

These comparisons can of course be challenged on the basis of culture, geographical location and factor endowments, but the highlight of the argument is that although countries like Kuwait and South Korea do not have complete democracy, a common denominator is that they are not controlled under one military man. There is some autonomy and that boosts political and economic sovereignty in these countries, something that was and is lacking severely in Egypt. 

Given the already slow pace of development in Egypt, the final blow to the Egyptian economy came in 2011. Political stability is a prerequisite for economic development, but peace in Egypt was shattered completely with the arrival of the Arab Spring. Overall economic growth too was crashing. (It is now at a meagre 2% which is more or less like a recession in a developing country). In an Economist article, which claimed the economy was "going to the dogs", it was highlighted that investor confidence had waned to the extent that over 4500 closed down in Egypt. This did not help the already high unemployment rate. The tourism industry, the highest foreign exchange earner for Egypt also crashed (and still has not picked up). Shortages at home, from diesel for domestic use to (in some cases) even bread, had to be fulfilled with imports. Thus foreign reserves, which under Mubarak were $36 billion were reduced to $17 billion. The Egyptian pound fell flat, and the depreciation stimulated imported inflation. Both public debt (already at 83% of GDP in 2011) and external debt (80% of GDP in 2013) creeped up. Investor and consumer confidence both dipped further. 

The economy is still shaken up and is not expected to return to pre-2010 levels anytime before 2015. According to a senior credit officer at Moody’s, political instability has made the banks’ operating environment difficult. Egypt's outlook for foreign investment, tourism and consumer confidence is weak, leading to slow credit creation and low business generation. Egypt's Caa1 rating (which means poor standing and investments subject to very high credit risk) doesn't help the situation. 

After the 2011 revolution, problems of transition were to occur (such as the supply side shock and dramatic fall in output). But these were perpetuated, not solved, under the Brotherhood's rule. Egypt's tragedy was that the its first government turned out to be an inept one, rendered inept either by sheer inability or overwhelmed by the economic crisis it faced. What Egypt needed then was a proactive government that would have sought to effectively restore economic balance. This did not happen. 

This, to a large extent, eroded confidence from not just Morsi, but sadly, from the idea of democracy itself. However, what was needed then was not a military coup to ousted Morsi, but confidence in the system of democracy. Democracy is engineered to naturally show the ineffective the exit door, and the same should've happened to Morsi's adminstration. Unfortunately, the military elite in Egypt were not so kind to the idea. 

Economic progress goes hand in hand with greater choices for individuals. If political and social choices are to be restricted in Egypt, can Egypt really evolve economically? Maybe the Chinese model for growth would like to dispute that, but Egypt is not run by technocrats. It has lost 60 precious years in which many countries it equalled have left it behind. Will this cycle be repeated? The answer is most likely a yes. 

For 60 years now, nothing has been out of the grasp of the military: the Suez Canal, Fiat Cars, petroleum refineries. The military's large stake in all of Egypt's economic activities coupled with the over reliance of the nation's economic and political on the mood of one person are Egypt's big problems. 

Any economic reform is likely to be in the favour of generals not the people. The short term-ism of the generals also crashes with the long term development of the economy. Even now, for example, the military elite, seem to have no plans to decrease the over dependence on the Suez Canal for foreign exchange earnings, on the copious amounts of Saudi and Gulf aid and loan flowing into the country, or to encourage capital investment into the country for long term growth. 

So what can be expected now that the opportunity that democracy offered has vanished? In the context of the economy: some stability and some modest growth. But only at the expense of justice, freedom and choice. Had Egypt successfully embraced and given democracy and freer market a chance, much more could've been achieved economically and politically.

This was a golden chance missed in impatience. 

----

Sources: 

http://www.npr.org/blogs/money/2011/02/10/133501837/why-egypts-military-cares-about-home-appliances

http://www.businessweek.com/articles/2014-03-13/in-egypt-the-military-means-big-business

http://www.economist.com/news/middle-east-and-africa/21574533-unless-president-muhammad-morsi-broadens-his-government-egypts-economy-looks

http://www.aljazeera.com/news/middleeast/

http://www.dailynewsegypt.com/2014/02/25/moodys-says-egypt-banking-sector-outlook-still-negative/#sthash.Umfv1V4Z.dpuf

http://www.nasdaq.com/investing/glossary/c/caa1#ixzz2yE6zFTCu

http://www.tradingeconomics.com/egypt/government-debt-to-gdp

http://www.indexmundi.com/g/g.aspx?c=eg&v=143

http://www.dailynewsegypt.com/2014/04/02/egyptian-foreign-reserves-edge-march-central-bank-head/

Very few people can say that their legacy is a safer, freer and better world. Mikhail Gorbachev is one of those few people. Hailed abroad for his peaceful efforts, and resented by many Russians who revel in the vanished glory of the USSR, Gorbachev’s approval is debatable. Mikhail Gorbachev, who turned 82 yesterday, is a story: a story of a man who couldn’t control the forces, of Glasnost and Perestroika, he had himself unleashed. 

What was Perestroika, what was its significance and why did it fail? Or did it fail at all?

In the 1970’s, it was clear that the Soviets reached nuclear arms parity with the Americans. What was also clear was that the state that had sought to, for decades, to build a Marxist-Leninist model using Stalinist totalitarianism, was stagnating. The USSR was marred by over-centralization. But could over-centralization really be a problem for the world’s (then) largest machine tools, oil, steel and natural gas?

It was. The Soviet state was an antithesis of the Hayekian economic school of thought.  Hayek advocated that markets must be set completely free. An underlying argument for this was (is) that economies are extremely complex and cannot be steered by people – people, who know very little even about the extent of the complexity of an economy; that government directives channel human capital in jobs, thus incurring an opportunity cost of that human capital in jobs (even research, discoveries, entrepreneurial work) the person may have undertaken. The underlying thought was: free markets, free people, and the right products – that is self-determination not only in the political sense of the word, but also in the economic. Contrastingly, the Soviet state had established, over the years, an economy where, directed by the Gosplan, ill-suited workers went to ill-suited jobs to produce ill-suited products.

While this was the state of the micro level economy, at the macro level, decisions made by the few at the top of the party led to a severe misallocation of resources. One of the most visible examples of this was the excessive expenditure on the nuclear arms race. This produced a situation where consumer and capital goods were secondary to nuclear and conventional arms. Over centralization also meant that no dynamism was present in the economy. In the 1970’s, when the West suffered the brunt of an oil supply shock, the USSR, incurred an increase in its windfall national income; however, this was used to build more arms – arms which had, arguably, even lost their (economic) purpose.

“[W]e were arming ourselves like addicts,” Arbatov recalled, “without any apparent political need.”And oil fueled the addiction. – John Lewis Gaddis

Thus, these two decades – 1970’s and 1980’s – represented stagnation in the economy. Mikhail Gorbachev, who was an agricultural economist, and passionate about fixing the problems he saw, immediately set a tone for reform of the Soviet system. With Gorbachev’s coming to power, the world learnt some words of Russian, most significantly, Perestroika – restructuring.

It was clear that more market oriented policies and decentralization were needed in the economy. Invariably, this would lead to higher income inequalities, more volatile prices; this was in itself the primary challenge that Perestroika faced. It had to grapple against a matured Soviet culture that valued ideology most, and had rigid ideas about how to run an economy based on this ideology. It was no surprise then, that the ambitious Shatalin (Gorbachev’s economic advisor) 500-day plan, which proposed a move towards a market economy, was repudiated.

However, the plans that were passed did not particularly succeed – cumulating to the collapse of the USSR in 1991. 

Firstly, Gorbachev did not intend to change the system, but modify it. This, arguably, was a flawed approach for an economy that had numerous mal-investments. Over the years, the state directed resources, and as advocated by the Hayekian economic school, this meant years of mal-investments and scope for a lot more economic correction than mere “modification”. 

The Enterprise Law and the Price Reform can be discussed to see what went wrong. As mentioned before, these reforms were not aimed at replacing the existing systems but to merely alter them, although the change required was vast. The well-intentioned Enterprise Law sought to give more autonomy to the industries. 80% of the produce for big industries would be set out for allocation by central planning authorities and the remaining output was the firm’s responsibility to sell. However, without the existence of a developed market; the state’s monopoly as a buyer of output and supplier of input; and the general lack of entrepreneurial spirit after years of Soviet style economic policy, firms were uncertain about selling. So, the Enterprise Law failed.

Alternatively, price reform was a curious case. Although price liberalization was considered, it was decided that Soviet people would rather wait in queues than pay a higher price. This way of thinking only considered the monetary cost, not the imposition of a cost on people’s welfare and the opportunity cost of time. And naturally, it impeded the role of prices – to ration goods efficiently. Queues were so a stark part of Soviet life. If rumours of price liberalisation were heard, there would be an even higher surge in demand (thus longer queues) as people would expect inflation. So queues for even the most basic goods as bread became a part of life.

These models show us how wary the process of Perestroika was. It was certain that change was needed – but how exactly was this supposed to be done with so many (then) unforeseen challenges?

What Perestroika significantly seemed to have overlooked was the need to integrate the Soviet economy in the world. Deng Xiaoping in China had done just that to revive the Chinese economy. As Tim Harford argued (with a humorous undertone as usual) in his book The Undercover Economist, “if you would like to be rich, then it is a good idea to forge close links with the rest of the world.” This was missing from Perestroika – there just wasn’t enough emphasis on globalization.

Most analysts comment that Perestroika was a policy that vibrated with much rhetoric but lacked teeth. While Gorbachev promised better standards of living, the economy actually deteriorated.

“Perestroika failed in large part because it was not tried. Gorbachev between 1985 and 1991 announced at least ten radical plans for economic restructuring, not a single one was ever implemented.” Argued Peter J. Boettke, author of Why Perestroika Failed. Gorbachev looked at many proposals, but never found the “perfect” one: at least nothing perfect enough to implement in full swing. John Lewis Gaddis argued, in the context of the Soviet economy, that unlike Deng and Mrs. Thatcher, who had a vision and an “action plan” for their respective countries’ economies, Gorbachev had the vision but lacked the action plan. Hesitant to confront hardliner communists and opposition, which had become severe after the unleashing of Glasnost, and not fully understanding the capitalist market system, Gorbachev was at a disadvantage.

In conclusion, for the faults of the Perestroika to produce results in enough time, Gorbachev alone is not responsible. On a broader outlook, the time, resources and knowledge Mikhail Gorbachev had to set a 70-year flawed economic system straight were just too little. 

Although the economic assessment of the Perestroika may be unfavourable, Gorbachev’s praiseworthy achievements cannot be overlooked: the political liberation of the peoples of the USSR, East Europe, and Germany; the end of the Cold War; starting the nuclear disarmament process. Truly, Gorbachev was one of the most memorable statesmen of the 20th century. With a (very well deserved) Nobel Peace Prize, he was indeed the first Russian to set his people free, after Alexander II emancipated the serfs.

Happy (belated) birthday, Mr. Gorbachev! 

Sources: 

http://www.econlib.org/library/Enc1/Perestroika.html

http://www.historyorb.com/russia/perestroika.php