Property Rights, Central Banking and Corruption
(India versus China)
Sankarshan Acharya
April 17, 2006

Land ownership, property rights, independence of Reserve Bank of India, and fighting corruption

CFD has offered arguments to our leaders that our neo-colonial Raj is choking India while the Chinese government has granted unprecedented freedom to people.   Can our RBI governor say "India needs private property laws" like his counterpart in China (see the news clip below).

Just think about the fact that until 1994 China did not even have its central bank like our RBI or the American Federal Reserve.  The idea that a nation should have a central bank occurred to humanity in 1930's when the U.S. Congress enacted the Federal Reserve Act, after long debates in the wake of 1907 riotous banking panics and runs.  Policies of the Federal Reserve Board (with 12 Federal Reserve Banks) are now run by a majority vote of 11 governors, who can only be nominated by the President and confirmed by U.S. Congress.  The President or the Congress cannot advise the governors on monetary policies.  Fed is advised only by its own professional staff.  Staff advices are based only on research and contemporary wisdom.  The Congress has created a massive endowment for the Fed to earn its own income.  The Fed returns to the Treasury billions of surplus income that it cannot spend every year.  Fed's budget is made by itself, though monitored and approved by the Congress, as a formality.  Fed is answerable only to the people through Congress.  It has real independence to maintain its neutrality towards politics.  The Fed is America's most powerful entity, de facto.  The White House, Pentagon and Treasury execute their strategies to conform to the wisdom laid out by the Fed.  Why?  The Fed controls "creation" and "distribution" of wealth, not just in USA, but also globally. 

Even China has bestowed enormous independence to its Central Bank Chief.  What have the Indian rulers done?  A sub-assistant in the PMO could perhaps dictate the RBI Chief to print/borrow money to keep the rulers entrenched in power to continue looting public and private wealth for themselves, their kith, kin and cronies.  They now have one of their ilk (an IAS) as the head of RBI so that he can be pulled by one of them.  The current RBI chief was chosen by one of his compatriots, the chief of staff in PMO during the NDA regime.  There was no debate or confirmation process in the Parliament for the appointment.  The RBI Chief remains at the beck and call of the PMO.  This is the sad irony of India.  We want to be the knowledge power by being ignorant and by developing blinkers on our vision.  Our RBI holds the controlling stake in our Imperial Bank of India (rechristened as SBI after independence) to mete unadulterated imperialistic/unbridled capitalism (which has failed and has been abandoned every where) to Indian masses under the guise of socialism!  Our rulers squeeze credit supply in the name of development through schemes like MP-LAD and MLA-LAD that benefit mostly their kith, kin and cronies.   

So our neo-colonial rulers have designed a perfect system to suck up the capital for prosperity of their kith, kin and cronies.  Soon after independence, they also usurped most of the private lands, including that forced through Bhoodan, for control by government by an unfair bribe-ridden settlement process.  They also control all vital necessities like oil (whatever is produced and imported), telecom and air/rail travel facilities.  They have set exorbitant prices for land with registration fees of 8-22% for transfer of land among private parties.  They have set astronomical leasing rents in which few entrepreneurs will survive, if at all.  For example, an entrepreneur has to pay Rs.10 lakhs up-front to get an acre of land on lease and then pay 5% lease rent annually before any investment on capital and equipment to start an enterprise with uncertain electric and water supply.  Why don't the politicians demonstrate how to make profit and create employment under such lease terms?  Well they have!  Most, if not all, public sector enterprises they have created are broke or have defaulted with millions of people poised to lose their "secured" jobs.  Only the bribing "entrepreneurs" get leased land in the name of enterprise to build palatial residences by looting borrowed funds!

Fortunately, our rulers cannot control the international value of rupee or Indian labor wages.  They are thus forced to print rupees for exporters, expatriates and skilled Indians toiling for foreign companies, as the rupee falls due to the stupid system of governance.  The rulers cannot also control unemployment which makes Indians everywhere angry.  In Nepal, people are fighting against a well identified king.  In India, the king is a nebulous neo-colonial raj comprising our rulers (netas) and their advisors (babus).   

China's President Hu Jintao told President Bush (NYT article below) that fighting political corruption, rural unrest, a widening wealth gap and severe pollution consumes nearly all his time.  Our rulers see nothing wrong in releasing one of the most wanted criminals, Quattrocchi, with Rs.21 crores of public wealth by defying constitution and Supreme Court, or in selling off national foreign policy for oil vouchers from a globally relegated foreign leader.

With best regards,

Sankarshan Acharya

Citizens for Development and Pro-Prosperity.Com
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China Needs Private Property Laws, Central Bank Says (Update2)

Rob Delaney in Beijing at  robdelaney@bloomberg.net.

April 15 (Bloomberg) -- China needs laws that guarantee private property rights, to attract enough international investment to control unemployment and to help Chinese companies withstand foreign competition, the central bank said.

The government should speed up passage of antitrust legislation, reduce its holdings in domestic companies and stop interfering in sales to private investors, said People's Bank of China Vice Governor Wu Xiaoling in a speech at a mergers and acquisition conference organized by the government in Beijing.

``The uncertainty of private property rights increases risks,'' said Kenneth Davies, senior economist at the Organization for Economic Cooperation and Development's directorate for financial and enterprise affairs.

China wants corporate mergers to help accelerate the reform of domestic companies as the government lowers restrictions to foreign competition, in accordance with pledges made to join the World Trade Organization. Such investment may offer an alternative to the closure of inefficient, state-owned firms, which risks increasing the country's jobless rate.

Unemployment in the world's fastest-growing major economy will worsen in the second and third quarters of the year as more people lose their jobs and more workers enter the labor market, the National Development and Reform Commission said on April 7.

Legal Clarity Lacking

A lack of legal clarity on the ownership of assets in China makes it difficult to know what acquisitions are legal and to estimate tax liabilities, Davies said in an interview at the conference.

China ranks 29th among 30 countries represented by the OECD in mergers and acquisitions as a proportion of total investment, Davies said. Statistics aren't accurate enough to estimate the total value of such activity in China, he said.

``We need the legislative framework to give a clear interpretation of private property rights,'' Wu said. ``We don't have a very good environment'' for mergers and acquisitions.

Legal uncertainty keeps too many institutional investors out of China's merger and acquisition market, leaving it too reliant on domestic commercial banks to provide the financing, Wu said.

``Our merger and acquisition market basically depends on the banks instead of the capital market, and they shouldn't take on this risk,'' Wu said.

Chinese lenders, with $4.6 trillion of assets, are striving to clean up their balance sheets, cut non-performing loans, and improve risk management and corporate governance before the end of the year, when foreign banks will be allowed unfettered access to the $1.83 trillion household savings market in Asia's second-largest economy.


To contact the reporter for this story:
Rob Delaney in Beijing at  robdelaney@bloomberg.net.

In Candor From China, Efforts to Ease Anxiety
By JOSEPH KAHN
Published (New York Times): April 17, 2006

BEIJING, April 16 — China and the United States have engaged in public disputes about trade, human rights, military spending and energy security, but for just a moment late last year, their leaders put briefing books aside and agreed to talk privately.

With an aura of candor described as unusual for Chinese leaders, President Hu Jintao told President Bush that fighting political corruption, rural unrest, a widening wealth gap and severe pollution consumes nearly all his time. He said domestic problems left China with neither the will nor the means to challenge America's dominance in world affairs, according to two Bush administration officials who were told about the session.

The overture — described as having improved Mr. Hu's ties with Mr. Bush despite the Chinese leader's generally aloof style — is part of a Chinese effort to reduce, or at least to deflect, American anxiety about the country's growing economic, political and military power.

When Mr. Hu travels to Washington this week for his first White House visit as China's top leader, the question will be whether the improved chemistry between the heads of the world's richest nation and its fastest rising rival can enhance a relationship that seems to be stuck somewhere between tentative stability and stormy tension.

"At the top level, the two have become frank and pragmatic in discussing the major issues between them," said Michael Green, the former director of Asian affairs at the National Security Council who is now at Georgetown University. "But China is also trying to expand its influence in the world at the expense of the U.S., which is not something we are going to give them a pass on."

Frustratingly for an administration that has tended to paint the world with broad brush strokes — Mr. Bush in his second inaugural address promised to confront "every ruler and every nation" that resisted the tide of freedom and democracy — the relationship with authoritarian China tends to resist breakthroughs.

Unlike the "Ping-Pong diplomacy" that led to Richard Nixon's historic handshake with Mao in 1972, officials in the two countries seem fatigued by incremental talks on the main issues that divide them. These include controlling nuclear proliferation in Iran and North Korea, China's support for several resource-rich dictatorships that are hostile to the United States, its gaping trade surplus and poor human rights record, and the always delicate question of American backing for Taiwan, which Beijing claims as its sovereign territory.

The two countries have, arguably, become each other's biggest long-term threat. But both sides also strive to avoid confrontation. Their political, diplomatic and economic ties are too intertwined for either side to pursue unilateral solutions.

"The responsible elite in China has no intention of picking a fight with the U.S.," said Jin Canrong, an expert on the United States at People's University in Beijing. "But no one has much hope that the two countries can develop deep feelings of trust, either."

Few expect that Mr. Hu will dispel that unease during his four-day visit. But this Chinese leader is seen as having come around to the idea that China's overall foreign policy objectives depend on a benign relationship with Washington. Chinese officials say he is eager to have his maiden trip to the United States perceived as a success.

Mr. Hu, 64, emerged from the inner depths of the Communist Party to assume the top leadership positions in 2002. He remains a colorless conservative even by China's buttoned-down standards. He governs sternly and secretly, almost never grants interviews, and has overseen an unrelenting crackdown on journalists, lawyers, and religious leaders who defy one-party rule.

Unlike his predecessor, Jiang Zemin, who was regarded as pro-American in the Chinese political context, Mr. Hu initially worked harder to cultivate close ties to France, Germany, Russia and Southeast Asian countries. Last year he also ordered a "smokeless war" against "liberal elements" in Chinese society that he believes are openly or covertly supported by the United States, according to several officials and journalists told about his internal remarks.

American officials said that in the yearlong negotiations over Mr. Hu's trip, the Chinese side focused mainly on pomp and protocol, down to the television camera angles on the South Lawn of the White House. The two sides argued for months over whether Mr. Hu's trip constituted a formal state visit, until they agreed to disagree.

The Bush administration, wary of empty summitry, decided to call it a "working visit." Mr. Bush and Mr. Hu will have lunch at the White House, but no state dinner. Beijing still insists it is a state visit, an honor all of Mr. Hu's predecessors received on their first trip to the White House.

"Hu has two priorities — to make sure relations with the U.S. are not a big problem, and to make sure he doesn't lose face," said a senior Chinese academic who asked not to quoted by name when talking about the Chinese leader. "Of the two, I think the second one is more important to him."

But Mr. Hu's earlier assurance to Mr. Bush that China's domestic problems were what preoccupied him most were clearly part of a new effort to address, if not necessarily resolve, those core tensions.

In a burst of checkbook diplomacy earlier this month, Mr. Hu dispatched China's largest-ever buying delegation to the United States, which committed to purchase $16.2 billion in American aircraft, agricultural products, auto parts, telecommunications gear and computer software. A negotiating team led by Wu Yi, China's vice prime minister, also agreed to undertake a broader crackdown on piracy of American copyrights and trademarks, reopen the Chinese market to American beef, and allow more foreign firms to compete for government contracts.

Mr. Hu plans to visit Microsoft and dine with its chairman, Bill Gates, in Seattle on Tuesday. Human rights and media watchdog groups have pressed Mr. Gates to raise concerns about China's online censorship and arrest of cyber-dissidents when they meet. Mr. Hu will also tour Boeing's aircraft factory there before continuing on to Washington on Thursday and delivering a speech at Yale on Friday.

On the sidelines in Seattle, Mr. Hu has also invited a small group of American statesmen and scholars to discuss bilateral relations with him privately, an event that the two countries agreed to keep off the official agenda to encourage candor, participants said.

The session was organized by Zheng Bijian, a former head of the Communist Party's main training academy for party cadres, who coined the term "peaceful rise." The concept of peaceful rise, though only informally endorsed by Mr. Hu, is intended to show that China believes that it can emerge as a great power without following the violent path blazed by the United States, Japan, Germany, Britain, France and Russia before it.

"There is a real effort at salesmanship going on," said one former Bush administration official invited to participate in the private session. "He wants to come across as charming and attentive to American concerns."

Optimists on both sides say the attempts to build confidence amount to more than a propaganda campaign. China, they say, has become a "status quo" power, committed to maintaining the international order forged primarily by the United States in the postwar period.

Global commerce and a peaceful diplomatic environment in East Asia have contributed enormously to China's rapid economic growth in the past quarter century, which depends on foreign investment, open markets, secure borders and generally nonideological ties with its neighbors.

Many Chinese scholars say Beijing may not tolerate American hegemony in foreign affairs indefinitely. But most also say that Beijing has too much at stake in the current world order to try upsetting it in the foreseeable future.

"We have no incentive to wreck the global system established by the U.S.," said Wang Xiaodong, a prolific writer and pundit who has argued that the country should not bow to American pressure. "The reason is, simply, that it is a game we can win."

On the American side, the trend is also toward more integration. Deputy Secretary of State Robert B. Zoellick, who last fall called China a "stakeholder" in the international system, has promoted high-level strategic dialogue between the countries, which China has eagerly embraced.

But there are many pessimists as well. They see the risks of conflict mounting unless the Communist Party gives up its monopoly on power. Mr. Hu's accommodation of the United States is viewed as temporizing, giving China time to gather strength and spread its influence unhindered.

People who worry about China's intention point in particular to its rapid military buildup as a sign of its increased financial wherewithal and nascent strategic ambitions that will inevitably challenge America's dominance in the Pacific.

Beijing's efforts to secure supplies of oil, natural gas and other commodities in countries that have rocky relations with Washington, including Sudan, Iran and Venezuela, have also raised suspicions that it is using its buying power to create a circle of friends hostile to American interests.

Economically, China is widely accused of keeping the value of its currency, the yuan, artificially cheap to encourage export-fueled growth and attract foreign manufacturers. Last year it enjoyed a record $203 billion bilateral trade surplus with the United States.

While Chinese officials say they intend to shift to an economic model that favors domestic consumer-led growth and will gradually let the yuan appreciate closer to its market value, both the Bush administration and some members of Congress say this is not happening fast enough to head off a possible rupture in economic ties.

Randall G. Shriver, a former Bush administration deputy assistant secretary of state for East Asia and the Pacific who is now with Armitage International, a consulting firm in Washington, said Chinese actions on the economic, military and diplomatic front signaled a willingness to undermine American foreign policy goals.

"I'm not convinced that they want to challenge us across the board," Mr. Shriver said. "But there is a general notion that they want to accumulate influence, which will necessarily diminish U.S. power."

He added, "The game is on."

Ground reality
[On Property Rights in India]

http://www.hindustantimes.in/news/181_1956897,00120001.htm


Barun Mitra

March 23, 2007

Much has been written about the tragedy of Singur and Nandigram in West Bengal. Yet not much light has been shed on the real significance of the protests by farmers on land acquisition. Brand Buddhadeb has suffered a serious blow much beyond West Bengal. But, more importantly, an undercurrent of awareness is spreading through the grassroots of society on an almost unheralded issue — the protection of property rights.

Political and social activists have been hurling arguments to score points against rivals. If one side stresses on the need for industrialisation, the other calls for inclusive growth. The self-proclaimed champions of the poor are hobnobbing with big businesses, while the Opposition spectrum, from the fringe Left to the far Right, want to be seen to be siding with the rural poor. And business leaders, who have been enjoying the freedom to mobilise capital, want investment opportunities to be sugar-coated with a range of privileges and subsidies, including tax breaks and land at low costs.

Sixteen years after India began dismantling the licence and permit raj, it is clear that reforms have improved the economic environment for entrepreneurs. Yet, the issue of land acquisition in the name of promoting industrialisation or special economic zones (SEZs), shows how deeply entrenched the sense of political patronage continues to be in the influential sections of Indian society.

Nothing else can explain the desire of so many Indian business houses to ask the government to procure land for their projects. Since these businessmen have been the biggest beneficiary of liberalisation of the capital market, one could have expected them to demand a similar liberalisation of the land market in the country.

If businesses cannot legitimately acquire the necessary land for their purposes, then it is the land market that needs to be reformed. Instead, they have sought to eliminate the land market completely by asking the government to act as the middleman and perpetuate the land mafia.

Similarly, the opinion among social activists range from those who want land to perpetually remain under agriculture or forests, to others who focus more on an adequate rehabilitation and compensation package. Despite their concern for the poor, most of them fail to realise that property rights is not a luxury of the rich, but a necessity for the poor. The rich can survive in most societies, irrespective of their legal rights, because with their wealth they can buy protection from the powers that be. It is the poor who are left most vulnerable if they are denied the right, because they have no other recourse, except to become political pawns.

Economist Hernando de Soto, among others, has shown that the poor are trapped in poverty primarily because of their inability to capitalise on their assets, including land.

Today, Indian businesses can raise capital freely at home and abroad, they can buy and sell assets, engage in mega mergers and acquisitions. Yet, most Indian farmers hardly enjoy the freedom to buy, sell, lease or rent land. In most parts of India, farm land is regulated under land ceiling and land usage laws. In addition, laws make it difficult to even change crop patterns, and restrict the movement of agricultural produce.

The astronomical rise of real estate prices in urban India is also a reflection of the rigidities that have hobbled our cities. Rent control, land ceiling and zoning, coupled with weak legal avenues for the enforcement of contracts, have all made land in urban India artificially scarce. All — the land mafia, politicians, bureaucrats and businesses — have benefited, except the land owner himself.

Indians have been slowly, but steadily, surrendering the most fundamental of rights — the right to property — from almost the very inception of the Republic. Jawaharlal Nehru began the process with the creation of the Ninth Schedule in 1951, in an attempt to put land acquisition beyond the purview of judicial review. With her populist nationalisation, Indira Gandhi greatly diluted the scope of property rights protections. The first non-Congress government took one more step. In 1978, it amended the Constitution such that property rights no longer remained a fundamental right. Except a few brave voices, hardly anyone mourned the demise of the individual’s right to property.

The law is quite distinct from legislation. It is easy to write legislation that violates the spirit of the law as commonly understood. So the State passed legislations undermining basic principles of law in the name of helping the poor. First, land was sought to be confiscated from big landlords and redistributed to the poor. And now, the same land is being forcefully acquired through the use of eminent domain from the poor to be given over to large private investors.

Once a fundamental legal principle, that of property rights, is sacrificed, ‘might’ becomes right, and people are left vulnerable to the coercive power of the State. Since the communists in West Bengal lay their first claim to legitimacy on rural land distribution in the name of the landless, it is not surprising that they are now caught between a rock and a hard place as they try to facilitate land acquisition for the sake of industrialisation.

Yet, in the past two decades, there has been a steady and growing demand for greater recognition of private property rights in one form or another. Twenty years ago, at the height of the agitation against the Narmada dam, the issue was polarised between whether to build the dam, and the quality of the rehabilitation package for the people who lost their property. In the last few years, the tribal rights debate brought to the fore the issue of securing property rights for forest dwellers.

The violence over land acquisition in Orissa’s Kalinganagar two years ago, and the recent tragedy in Nandigram in West Bengal, mark more milestones on the  long road to property rights. A couple of months ago, ministers in the West Bengal government asserted that under the land acquisition laws, consent of the landowner was not required. They would then go on to highlight the compensation and rehabilitation packages. The law remains the same, but the protests in Singur and Nandigram have forced the state government to announce that no land will be acquired without consent.

A similar sentiment at the grassroots in urban India, following the demolitions and sealing drives is forcing the political establishment to recognise the potential political cost of the violation of property rights.

A momentum seems to be building from the grassroots. Property rights could be an issue that unites Bharat and India, the poor and the rich alike. The time seems ripe for a people’s campaign for the restoration of the right to property as a fundamental right. This would empower the people and unleash the much-needed second generation reforms by including all sections of society into the growth path. The tragedy at Nandigram will not be wasted if the country joins hands for a campaign to restore property rights.

Barun Mitra is the director of Liberty Institute, an independent think tank in Delhi.