The New Nation - Internet Edition

Restructuring BoI

THE government is reportedly working on restructuring of the Board of Investment to enhance its 'capacity' to attract local and foreign investment. The move was taken earlier this year in the wake of a sharp decline in the number of proposals forwarded to the investment board by local and overseas entrepreneurs. As per BoI statistics, foreign and domestic investment proposals dipped more than 55 per cent in the period between January and November 2007 and lack of investors' confidence was largely blamed for the slump. The investment board that now works under the Chief Adviser's office lacks institutional authority to promote strategic investment. The investment board has meantime prepared its 'citizens'charter' in line with the government's recent initiative to do so for bringing dynamism to various public sector institutions. In the future formation of the board, more private sector people would be inducted to change its public sector bias. Inclusion of private sector people alone, however, will not bring the required solution since dynamism of the private sector and institutional experience of the public sector are required to run the board efficiently. The initiators of the restructuring move believe that either 'individual charisma' or 'role of the Bangladesh's missions abroad' contributed to past successes in having foreign and domestic investments.

A strategic vision and action plan is now under active consideration of the government to give the BoI a new sense of direction. The investment board under the existing structure cannot study why an investor comes or shies away. Also the board cannot carry out most of the functions because the authority to accomplish those are vested in other agencies of the government. A lot of suggestions, sermons and rhetorics are, obviously, there in the charter for restructuring, but hardly there has been any binding obligation for those in the board to follow.

Future of staple food

IT is the staple food of half of humanity but only a handful of countries have large rice surpluses, leaving even some of the biggest producers scrambling to grow enough to feed their own people. Countries like Bangladesh, India, Myanmar, Thailand, Vietnam and Cambodia are all blessed with broad riverine deltas and plains with huge tracts suitable for rice cultivation and allot more than half of their arable land to it, according to the Manila-based International Rice Research Institute.

Just 35 million tonnes is traded in the world market, and because the volumes are so thin they are subject to price shocks. China is the world's largest producer and consumer and also has the highest yields, but is not a key player in the export market. 'China guards its rice reserve levels as a state secret'. China is also extremely concerned that their people have enough to eat, and so they are not going to export until they are sure they have enough. An unlucky confluence of events has pushed spot prices close to 1,000 dollars per tonne.

Adverse weather in Bangladesh, pests and disease in Vietnam and 'political problems' in Myanmar until the 1950s the world's top rice exporter have cut stocks usually available in the international market. Myanmar could be a big swing producer, but has great difficulty buying fertiliser in the world market because of the international trade embargo. While rice is not used to produce ethanol for biofuels, the diversion of other grains for biofuel affects the price and supply of other cereals.

Another Great Depression?

William Rees-Mogg

COULD the world be on the brink of another Great Depression such as the slump of the early Thirties? The managing director of the International Monetary Fund, Dominique Strauss-Kahn, has warned us of the risk. I respect the expertise of IMF forecasting.

Last week the IMF published its World Economic Outlook. It has lowered its previous forecasts of global economic growth, including those for us and America. 'Risks to the global projection are tilted to the down side, especially those related to the possibility of a full-blown credit crunch.'

The report said the dislocation, which began last August, was: 'The largest financial shock since the Great Depression.' This was followed by an address given to ministers in Washington by Strauss-Kahn.

He said there was only limited time to repair the financial system after 'the worst crisis since the Great Depression'. He warned of the threat from 'fire and ice', that is from rising inflation and slumping growth.

In the Seventies, we had to become accustomed to the fact that the oil-price inflation was acting as a brake on the world economy; the word 'stagflation' was coined to describe that combination of rising prices with declining growth. There is ample evidence that stagflation has returned.

Of course, the present crisis is not an exact repeat of the Great Depression. The pattern is not the same. In the late Twenties the mood of the US was highly confident, stock-market prices were high and rising, and so was debt.

Strangely enough, the panic that interrupted this American dream began in London.

A crooked English financier, Clarence Hatry, was trying to merge major UK steel companies, and was issuing stocks to cover the deal. Some of the stocks were fraudulent - the same certificates had been printed twice and given as security to different leading banks. An alert clerk spotted the discrepancy.

On September 20, 1929, the fraud became known and the Hatry empire collapsed. He was jailed for fraud. The Bank of England raised interest rates to protect the London market. American money flowed in to Britain to take advantage of the higher London rates.

There was less money available for brokers' loans in New York. In the week beginning October 21, the New York stock market plunged; it was not to recover its 1929 peak until 15 years later. American industry did not recover its full confidence until after the outbreak of the Second World War in 1939.

The 1929 pattern in New York was one of gross over-confidence, rising prices and rising debt; there was a stock-market boom; that was followed by the panic crash, accompanied by the revelation of several frauds. The panic was the signal for further falls in prices, debt liquidation and deflation. The higher the boom, the steeper and longer is likely to be the recession.

British heavy industry was already in recession in the late Twenties, and Britain therefore had a comparatively mild recession in the early Thirties. America had enjoyed a confident boom in the Twenties, and therefore had a deeper and more prolonged recession.

One can tick off factors that applied to both the Great Depression and to the present crisis. Both have been primarily monetary crises, springing from fluctuations in the availability of funds.

In the late Twenties, American funds went into the stock market; in the early 2000s, both in Britain and the US, the bubble was in housing. Debt levels naturally rose. Banks invented new ways of leveraging investments, thereby earning fees and interest.

In the Twenties, Wall Street banks floated new investment trusts that often invested in each other. This was known as 'pig on pork'. As Tom Lehrer sang: 'We will all go together when we go.' They went.

On the other hand, the Great Depression was primarily a Great Deflation; after the stock market crash, confidence vanished as prices fell; in Strauss-Kahn's terms, the world economy was frozen in ice.

Most people still feared inflation, since they were still close to the German hyperinflation of 1923, but the crisis after 1929 was one of falling prices. Nowadays there is more inflation, particularly in oil and food prices, and also rising inflation spreading in the expanding Asian countries, particularly China.

I find the greatest anxiety among experts is not now the banks, dangerous though the credit crunch has been. Bankers behaved, in too many cases, with recklessness and poor judgment. Yet bank failures have been a recurrent feature in banking history. The greater worries are the prices of oil and food.

In Britain we are now becoming familiar, if not at all comfortable, with the idea of crude oil at more than $100 a barrel, and of heavily taxed petrol at more than £1 a litre. The oil price enters into almost everything - and particularly into the production and distribution of foodstuffs.

In the past 18 months food prices have risen by about half. If the Chinese and Indian middle classes continue to move towards European eating patterns, and if arable land is used to grow biofuels, the prices of grains will rise to a level that cannot be afforded by the poorest.

Food-price inflation leads to starvation, and parts of Africa are already on the verge of famine. In Britain, we must expect prices to continue to move in both directions. Energy prices, subject to political risks and political shortages, may continue to rise; food prices are almost certain to do so.

House prices may follow the American model, where they have fallen by up to 30 per cent. The government will try hard to keep up optimism. Chancellor Alistair Darling's forecasts for 2008 and 2009 are notably more optimistic than those of the IMF.

The key year for the global economy may be 2010. That is also the last year in which Gordon Brown can call a General Election. The growth in 2008 and 2009 is likely to be lower and slower than Darling hopes.

Dealing a blow to social inclusion

Praful Bidwai

THE Indian Supreme Court has struck a blow for affirmative action (AA) in favour of the socially disadvantaged through its judgment on reservations of 27 percent of admissions in Central institutions of higher education for the Other Backward Classes (OBCs), or lower and middle social strata.

The landmark judgment upholds a special (93rd) Amendment to the Constitution under which the Central Educational Institutions (Reservations in Admissions) Act 2006 (CEI Act) was passed. This allows the government to institute OBC quotas in Central universities, elite technology and management schools, and other institutions.

The Supreme Court accepted caste as the fundamental, but not the sole, criterion to determine backwardness. In doing so, it recognised caste as the central axis around which discrimination occurs in Indian society, and called for remedial action. In keeping with Article 30 of the Constitution, it exempted religious-minority institutions from quotas

The 5-member Bench delivered four separate judgments. But there's no ambiguity about the verdict's basic thrust, which is against discrimination, and for equal opportunity. The only contention by the petitioners it accepted is that the so-called Òcreamy layerÓ, or relatively affluent or educated sub-group, among the OBCs be excluded from quotas.

The Court has resoundingly reaffirmed the Constitutional value of inclusion and facilitated the entry of OBCs in institutions of higher learning-and thereby, the professions, in which they're badly underrepresented.

The verdict sets out a clear norm for the future direction of society-because it rejects the idea of equality as the equal treatment of groups who are unequally situated and have unequal access to opportunity.

Instead, it recognises that there are entrenched inequalities in society, based on birth, which produce and reproduce inequalities of status and life-chances at all levels-a situation of cascading iniquities. OBC reservations will facilitate the equality of results/outcomes and make for a society based on caring and sharing.

The upper castes are loath to lose privilege. They resented the CEI Act although it provided for a 54 per cent increase in the capacity of educational institutions and thus preserved their access. But the 'twice-born' wanted to corner the additional capacity too.

The petitioners sanctimoniously cited the misery of out-of-school children, the necessity of universal elementary education, and above all, merit. The implicit assumption is that the low castes don't deserve higher education; they must be satisfied with primary schooling and the menial or clerical jobs this can yield. Society has no obligation to open up new opportunities. This violates the principle of inclusion. The petitioners also argued that caste can't be a criterion of backwardness because the Constitution mandates the creation of a casteless, classless society. The Constitution does outlaw untouchability, and seek to abolish caste-based discrimination. Yet, caste cannot be abolished by legal fiat, but only through social reform. What the law can do is bring disadvantaged groups to the forefront of civil life However, as Chief Justice K. Balakrishnan clarified in his judgment, the identification of Backward Classes Òis not done solely based on caste. Other parameters are followed too, including Òpoverty, social backwardness, economic backwardness.

The judges were even more forceful in rejecting the petitioners' argument that the CEI Act was intended to be a Òvote-catching mechanism.

The main dissenting judgment was delivered by Justice Dalveer Bhandari, who ruled that an OBC would cease to be Òbackward when s/he graduates, and the 93rd Amendment would become invalid if extended to private institutions. His verdict is at a tangent. The others maintained silence on quotas in private institutions, which weren't specifically challenged.

Logically, under the 93rd Amendment, reservations should be extended to private educational institutions too. It's here that 80 per cent of all seats in the engineering and medical courses are located. That's where seats are sold to the relatively affluent for Òcapitation feesÓ and donations. And that's where the struggle for a fair distribution of national resources lies. The government apparently wants to do this in phases, and must be strongly supported. If there's a legal challenge to such extension, it must be resoundingly defeated.

The judgment should help raise the level of debate on ÒmeritÓ in hierarchical societies. The merit argument is especially suspect in societies which allow inheritance of private property, and privilege related to birth, which largely determine one's social position. Inheritance means that the affluent are at a vastly higher starting-point in relation to the disadvantaged. Merit makes sense only when it measures the distance between the starting-point and the end-point. Most upper-caste people enjoy unfair advantage over OBCs primarily because of their starting-point.

The single Òobjective testÓ usually employed in competitive exams is a disputable criterion of merit. One's score in it often depends upon familiarity with the type of questions asked and time management, not comprehension. Merit can only have a limited place in a public-oriented policy of recruitment. Gender, ethnic-regional balance, and diversity are also relevant.

A person born in a highly educated upper-caste family will have a totally different universe of knowledge, social contacts and elite acceptability-and information about availability of study courses, colleges, tutorial institutions, career options, etc. S/he can always call ÒUncleÓ so-and-so in the professions for tips.

Typically, such advantage outweighs even differences of wealth/income. Past discrimination produces inequality of opportunity even when there's no discrimination or exclusion at present. The critical question is how to level the playing field.

Affirmative action is the solution. It includes voluntary targets for recruitment of disadvantaged groups, special counselling and training, non-quantitative diversity promotion, etc. Reservations, admittedly, are a rather blunt instrument, but politically almost the only one available in India.

The quota verdict vindicates the UPA government's promise of social inclusion. It should also draw major lessons from it. The CEI Act was part of an initiative to defy the pressure of market forces and ÒnormalÓ processes of social discrimination, and put politics in command.

This is of a piece with its other progressive measures like the National Rural Employment Guarantee Act, which too bypass ÒnormalÓ processes to promote democratic inclusion. The UPA should take forward the politics-in-command agenda.

Running out of planet

Paul Krugman

NINE years ago The Economist ran a big story on oil, which was then selling for $10 a barrel. The magazine warned that this might not last. Instead, it suggested, oil might well fall to $5 a barrel.

In any case, The Economist asserted, the world faced "the prospect of cheap, plentiful oil for the foreseeable future."

Last week, oil hit $117.

It's not just oil that has defied the complacency of a few years back. Food prices have also soared, as have the prices of basic metals. And the global surge in commodity prices is reviving a question we haven't heard much since the 1970s: Will limited supplies of natural resources pose an obstacle to future world economic growth?

How you answer this question depends largely on what you believe is driving the rise in resource prices. Broadly speaking, there are three competing views.

The first is that it's mainly speculation - that investors, looking for high returns at a time of low interest rates, have piled into commodity futures, driving up prices. On this view, someday soon the bubble will burst and high resource prices will go the way of Pets.com.

The second view is that soaring resource prices do, in fact, have a basis in fundamentals but that given time we'll drill more wells, plant more acres, and increased supply will push prices right back down again.

The third view is that the era of cheap resources is over for good.

There are some very smart people - not least, George Soros - who believe that we're in a commodities bubble. My problem with this view, however, is this: Where are the inventories?

Normally, speculation drives up commodity prices by promoting hoarding. Yet there's no sign of resource hoarding in the data: Inventories of food and metals are at or near historic lows, while oil inventories are only normal.

The best argument for the second view, that the resource crunch is real but temporary, is the strong resemblance between what we're seeing now and the resource crisis of the 1970s.

What Americans mostly remember about the 1970s are soaring oil prices and lines at gas stations. But there was also a severe global food crisis, which caused a lot of pain at the supermarket checkout line.

In retrospect, the commodity boom of 1972-75 was probably the result of rapid world economic growth that outpaced supplies, combined with the effects of bad weather and Middle Eastern conflict. Eventually, the bad luck came to an end, new land was placed under cultivation, new sources of oil were found in the Gulf of Mexico and the North Sea, and resources got cheap again.

But this time may be different: concerns about what happens when an ever-growing world economy pushes up against the limits of a finite planet ring truer now than they did in the 1970s. For one thing, I don't expect growth in China to slow sharply anytime soon. That's a big contrast with what happened in the 1970s, when growth in Japan and Europe, the emerging economies of the time, downshifted - and thereby took a lot of pressure off the world's resources.

Meanwhile, resources are getting harder to find. Big oil discoveries, in particular, have become few and far between.

And the bad weather hitting agricultural production this time is starting to look more fundamental and permanent than El Niño and La Niña, which disrupted crops 35 years ago. Australia, in particular, is now in the 10th year of a drought that looks more and more like a long-term manifestation of climate change.

Even if it turns out that we're really at or near peak world oil production, that doesn't mean that one day we'll say, "Oh my God! We just ran out of oil!" and watch civilisation collapse into "Mad Max" anarchy.

But rich countries will face steady pressure on their economies from rising resource prices, making it harder to raise their standard of living. And some poor countries will find themselves living dangerously close to the edge - or over it.

Don't look now, but the good times may have just stopped rolling.

International Herald Tribune

Give peace and Jimmy Carter a chance

Claude Salhani

FORMER US President Jimmy Carter has taken much flack from Israel and its supporters for meeting with Hamas officials during his Middle East tour this week. Israeli Prime Minister Ehud Olmert was unable to find a few minutes to allow for a courtesy call.

In an editorial titled 'Our debt to Jimmy Carter,' Israel's Haaretz newspaper writes: "Ehud Olmert, who has not managed to achieve any peace agreement during his public life, and who even tried to undermine negotiations in the past, "could not find the time" to meet the American president who is a signatory to the peace agreement with Egypt." By now, 60 years into the Arab-Israeli dispute, and a half-dozen wars later, most people would come to realise that there can be no military solution to the crisis. Only a negotiated settlement will put an end to the decades of fighting and bloodshed.

And yet many are quick on the draw, ready to shoot down a man courageous enough to go where others have not dared venture.

For the sake of those who have forgotten their history, or perhaps chosen to forget it, it's always worth reminding that it was Carter, who as president of the United States laid the cornerstone to peace in the Middle East when he brought together Egypt's President Anwar Sadat and Israel's Prime Minister Menahem Begin at the presidential retreat at Camp David and extracted a peace treaty from Egypt and Israel; a peace treaty - imperfect as it might be - has put an end to the state of belligerency between the two countries, and which is still in effect today. And had Egypt not paved the way and entered into a peace treaty with Israel, Jordan would have never been able to follow suit, becoming the second Arab country to recognise Israel and exchange diplomatic relations with the Jewish state.

In fact, had it not been for Jimmy Carter's initiative to push for peace between the Arabs and Israelis, this week's visit by Israel's Foreign Minister Tippi Livni to the Gulf state of Qatar would have never been possible. Just as a peace treaty and exchange of diplomatic relations with Mauritania, the third Arab country to officially recognise Israel, would have never been possible.

Much as former President Carter is disliked in Israel for the manner in which he views the Arab-Israeli dispute, it is important to stress the fact that both Arabs and Israelis owe much to a man who has devoted a great deal of time and energy to promote peace in a region that has been plagued by never-ending strife and violence.

Many Israelis have disliked Carter since he published his book "Palestine: Peace not Apartheid."

Again Haaretz: "Israel is not ready for such comparisons, even though the situation begs it." A country which has a network of segregated roads on which Arabs may not travel, the Israeli daily points out, along with the lack of freedom of movement, Israel's control over Palestinian lands and their confiscation, and especially the continued settlement activity, which contravenes all promises Israel made and signed, a matter that cannot be accepted. It is also worth noting that one is forced to negotiate with one's enemies when seeking peace. Throughout the six decades of conflict in the Middle East violence has only bred more violence and has never been the solution to the problem. A quick scan through the history books will prove the point. The June 1967 Six-Day War gave birth to the Palestinian resistance movement. The 1982 Israeli invasion of Lebanon propelled the creation of Hezbollah. And the continuing unrest in the West Bank and Gaza gave rise to Hamas.

Clearly, the longer the crisis continues to simmer, the more complex it becomes. Hard as it may be to comprehend or accept Jimmy Carter's initiative, to engage Hamas in talks should be encouraged, if not welcomed. War has never been the answer, let's give peace - and Jimmy Carter - a chance.