Philippine Political Dynasties: Learning From How Capitalism Undermines India’s Caste System

Here is an interesting study on how capitalism has contributed to the erosion of the India’s caste system 

From Swaminathan S. Anklesaria Aiyar at the Cato Institute Blog (bold mine)

Karl Marx was wrong about many things but right about one thing: the revolutionary way capitalism attacks and destroys feudalism. As I explain in a new study,  in India, the rise of capitalism since the economic reforms of 1991 has also attacked and eroded casteism, a social hierarchy that placed four castes on top with a fifth caste—dalits—like dirt beneath the feet of others. Dalits, once called untouchables, were traditionally denied any livelihood save virtual serfdom to landowners and the filthiest, most disease-ridden tasks, such as cleaning toilets and handling dead humans and animals. Remarkably, the opening up of the Indian economy has enabled dalits to break out of their traditional low occupations and start businesses. The Dalit Indian Chamber of Commerce and Industry (DICCI) now boasts over 3,000 millionaire members. This revolution is still in its early stages, but is now unstoppable.

Milind Kamble, head of DICCI, says capitalism has been the key to breaking down the old caste system. During the socialist days of India’s command economy, the lucky few with industrial licenses ran virtual monopolies and placed orders for supplies and logistics entirely with members of their own caste. But after the 1991 reforms opened the floodgates of competition, businesses soon discovered that to survive, they had to find the most competitive inputs. What mattered was the price of your supplier, not his caste.

Many tasks earlier done in-house were contracted out for efficiency, and this opened new spaces that could be filled by new entrepreneurs, including dalits. DIOCCI members had a turnover of half a billion dollars in 2014 and aim to double it within five years. Kamble says dalits have ceased to be objects of pity and are becoming objects of envy. They are no longer just job-seekers, they are now job creators.

Even in rural areas, dalits have increasingly moved up the income and social ladders in the last two decades.  One survey in the state of Uttar Pradesh shows the proportion of dalits owning brick houses is up from 38 percent to 94 percent, the proportion running their own businesses is up from 6 percent to 36.7 percent, and the proportion owning cell phones is up from zero to one-third. Some former serfs have now become bosses. A rising proportion have become land-owners, and sometimes hire upper-caste workers. Even more revolutionary, say dalits, is the change in their social status. Once they were virtually bonded laborers, and could not eat or drink with the upper castes. Today the bonded labor system is almost gone, and dalits operate restaurants at which upper castes eat and drink. They remain relatively poor and discriminated against, but economic reform since 1991 has revolutionized their social and economic status.

If capitalism can influence an alteration of culture and politics in India, then why shouldn’t this affect political dynasties that persist to plague the Philippine political economy? 

For all the legislation to contain dynasties, the result has been to increase its presence. This just shows how interventionist politics has driven the economy than vice versa.

Legislation will hardly change this (as most of these will center on increasing the politician’s grip over the local economy. Will those in power vote to undermine their current privileges?)

However, economic freedom will. Grassroot economic freedom can always start with the informal economy.

China’s Stock Market Crisis: Parallels with Wall Street 1929 and Japan’s 1989 Crashes

The Quartz draws parallelism of the current stock market crisis in China to Wall Street’s 1929 and Japan’s 1989 episodes.

The similarities with 1929 by stage (according to Quartz): Booming GDP, Boundless optimism, Property boom-and-bust, easy credit, Epic stock market surge, Margin trading rampage, Investment trusts abound and finally Rescue efforts

The Quartz on the 1929 rescue efforts and China's current response: "Even though the stock market officially crashed in October 1929, it suffered an alarming minor collapse in March of that year too. In both instances, corporate barons stepped in to stabilize the market and prevent margin calls from compounding the selloff. The first instance—when Charles E. Mitchell, head of National City Bank, announced that the bank would loan up to $25 million to the call market—halted the March slide. However, an October effort by a coalition of bankers to prevent a collapse by buying up shares of big companies failed. Both approaches are similar to what the Chinese government has undertaken to stop the mid-June crash from triggering margin calls."

What’s even more interesting has been the likeness of Japan’s 1989 stock market crash. The resemblance seems deeper considering these factors: investment-led growth model, state dominance, the perils of the “land standard” and Crumbling corporate profits 

In short, China’s current model signifies a marriage of two worst worlds which led to an economic crisis where a stock market crash served as a trigger.

But what stirred my interest is how the article differentiated Japan 1989 version with the US 1929 counterpart

Again from Quartz: (bold mine)

Japan made a different mistake

Japan avoided a depression after its stock crash—and the property market collapse that followed—by furiously expanding money supply and by ramping up government stimulus to replace vanished demand. So why is it still struggling to escape from its “Lost Decades”?

Bureaucrats and bankers believed that with enough time and loose money, they could grow out from under the debt burden.

(Hoshi and Kashyap.)

But Japan had too much debt for that approach to work. Loose money only went to keep broke companies alive—a phenomenon called “zombies”—instead of funding productive investment that might spur the economy. The chart below shows the percentage of bank customers whose loans were being rolled over. By the late 1990s, around 30% were being kept alive by this subsidized credit:

 

("Zombie Lending and Depressed Restructuring in Japan," Caballero et al.)

On top of that, by investing so heavily in industry, Japan built itself the capacity to churn out far more goods than anyone actually wanted to buy. The trouble isn’t just that money could have been spent better building the means to make things people truly wanted. It takes a long time for a factory to need replacing. With enough industrial capacity to last it for many years—even decades—Japan had few other options in which to profitably invest. Fiscal stimulus couldn’t make Japanese industry more productive, therefore. So as Japan waited a decade for growth to kick in once again, its debt pile mushroomed even more.

The lesson Japan failed to master is that too much debt makes it near-impossible to grow—and that the only way to get rid of that burden is therefore to recognize losses.

Whereas in the Great Depression, lots of companies and banks went bust, in 1990s Japan, hardly any did. America’s bankruptcy epidemic destroyed huge sums of wealth and, as a result, damaged the economy. But it also cleared away debt problems, preparing the country to borrow, invest, and grow again. While the Great Depression lasted just shy of a decade, Japan’s debt woes haunt it to this day, more than 25 years after its stock crash. Much of it’s simply shifted onto the Japanese government’s balance sheet. The threat of deflation still looms.

I have written about this here and here. All those bailouts and market interventions to prevent market clearing have only spurred two lost decades and today’s desperation through Abenomics

Lessons from the above

-governments’ response has always focused on the short term popular fixes. Yet short term actions lead to unforeseen long term consequences

-no crisis is similar. While the root will always be DEBT, the manifestations will be different. That’s because of the distinct character of the political, economic and financial structures. In China’s case, current episode merges the worst traits of both Wall Street’s 1929 and Japan 1989 crisis.

While China may not be in a full crisis mode yet, all these bailouts including the $483 billion stock market subsidies are signs that the crisis is just around the corner.

-finally the Chinese government seems to have hardly learned from history.

This validates German philosopher’s Georg Wilhelm Friedrich Hegel prescient observation: What experience and history teach is this — that nations and governments have never learned anything from history, or acted upon any lessons they might have drawn from it. Lectures on the Philosophy of History Vol 1 of 3 (1832)

 

Phisix 7,600, Falling Peso and The $483 Billion Xi Jinping Put

In this issue

Phisix 7,600, Falling Peso and The $483 Billion Xi Jinping Put

China’s Stock Market Crisis: The $483 Billion Xi Jinping Put

-Doubling Down on the  Fading Effects of Earlier Measures

Phisix: Bulls Recapture 7,600 as Peso Falls and as Signs of Liquidity Stress Deepens

-Liquidity and the PSEi

-Phisix 7,600: Divergences Re-emerge

-More Signs of Liquidity Issues: Flattening Yield Curve and Falling Peso

-Falling Currency: Indonesia’s Economic Troubles as Paradigm

-SMC Vulnerable To A Weak Peso

-Bubble Mentality: Survey Reveals 30% of Philippine Residents Believe in Unicorns (Developed Economy Status)

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China’s Stock Market Crisis: The $483 Billion Xi Jinping Put

I recently predicted that the degree of urgency of China’s stock market crash would prompt the Chinese government via its central bank, the People’s Bank of China (PBoC), to conduct their version of Abenomics^[1].

The Chinese government through her central bank, the People’s Bank of China (PBoC) may take a page out of Bank of Japan’s Abenomics to conduct direct (or indirect) stock market interventions via a QE.

This seems to have been fulfilled last week.

The initial effects of the Chinese government’s motley assembled measures of credit easing, credit infusion, information control and censorship, price and capital controls to rescue the embattled Chinese stock market seem to have faded last week. The three day 12+% buying rampage suddenly transformed into a two session of nearly 5% in losses.

Since selling have now become stringently regulated, Chinese authorities seem to think that stocks can only go up eternally. Hence the two day losses incited the political leadership to announce a fantastic stock market support program backed by the PBoC.

From the Bloomberg^[2] (bold mine): China has created what amounts to a state-run margin trader with $483 billion of firepower, its latest effort to end a stock-market rout thatthreatens to drag down economic growth and erode confidence in President Xi Jinping’s government. China Securities Finance Corp. can access as much as 3 trillion yuan of borrowed funds from sources including the central bank and commercial lenders, according to people familiar with the matter. The money may be used to buy shares and provide liquidity to brokerages, the people said, asking not to be named because the information wasn’t public. While it’s unclear how much CSF will ultimately deploy into China’s $6.6 trillion equity market, the financing is up to 25 times bigger than the support fund started by Chinese brokerages earlier this month.

And part of this massive stock market backstop emanates from a combined Rmb1.3tn ($209bn) of banking loans from 17 banks that includes the 5 largest state owned banks— Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications —which has provided more than Rmb100bn, according to the Financial Times.

China’s $483 billion of stock market support through China Securities Finance Corp. doesn’t seem to even include buybacks and other equity rescue activities by state owned enterprises and from other non-brokerage perhaps local government owned entities.

While different in form or technicalities in implementation, the Chinese government’s half a trillion stock market subsidies almost compares with the 80 trillion yen (US$ 670 billion) stock market support by the Bank of Japan.

Combined with the debt for bond swap now totaling 2 trillion yuan ($ 322 billion), aside from various stimulus measures instituted in 2014 ($ 81 billion in bank injections, $24.6 bonds for railways,$16 billion loans to small enterprises and to agriculture and $300 billion for low income housing under the pledged supplementary lending program and more), the Chinese government’s bailouts appear to have already vastly exceeded the 4 trillion yuan ($586 billion) stimulus of 2008.

And such massive debt financed stock market and economy comes as “Outstanding loans for companies and households stood at a record 207 percent of gross domestic product at the end of June, up from 125 percent in 2008” according to the Bloomberg

And as systemic debt continues to swell, the US credit rating agency S&P issued a warning last week on the prospects of rising defaults on Chinese corporate bonds (as well as US bonds). China’s corporate debt represents 160% of GDP.

Experts who diminish the impact of China stock market imbroglio say that only 90 million of gamblers and a few thousands of listed companies have been involved, yet why the half a trillion billion stock market bailout?

Doubling Down on the  Fading Effects of Earlier Measures

Could it be perhaps that the Chinese government shuddered when they realized that crashing stocks has showed signs of filtering into the property sector where stock market losses have prompted many to liquidate and or even cancel recent property purchases? 

So far the side effects from the stock market crash on the real economy have been mainly about sentiment. But what if sentiment segues into issues of liquidity, equity valuations and debt?

What happens when markets realize that the government’s price controls and interventions may also lead to conflict over valuations?  For instance, how will banks and their clients agree on how and what to value billions of equity derivatives especially for those issues that have been suspended?  

What if the injunction for major investors to sell and or a clampdown on short selling would translate to the need to raise cash? Given that stock market exit has become a politically restricted activity, what should stop people from diverting their selling activities from the stock market into other non-stock market household or corporate assets such as properties and or even commodities?

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