Editorial 1
Editorial 2
Watch that man


united we fight

Leaders of the Samata Party and the Janata Dal (United) are making disgraceful spectacles of themselves. Last year was “reunification” time, just before the general elections. One of the chief aims of reunification under the National Democratic Alliance umbrella was creating an impenetrable anti-Rashtriya Janata Dal front before the Bihar assembly elections. And it is this crucial event which has split the reunited parties apart. The war is over shares of seats as much as over the chief ministerial candidate. The most talked about candidates are Mr Nitish Kumar of the Samata Party, who has a Kurmi base and Mr Ram Vilas Paswan of the Janata Dal(U), who is a Dalit leader. Caste equations are the key to winning Bihar, and every other backward classes leader is hoping to ride on the anticipated backlash against the Yadavs. Such a gamble would be perfectly legitimate, only if senior leaders could adjust their electoral demands in order to achieve that very old fashioned goal, the greatest good of the greatest number. The Samata Party has already walked into the trap it has set itself. The Election Commission has refused to accept that a party which fought and won the last elections under the Janata Dal banner should suddenly decide to claim its older identity. One, there are rules and provisions of the Representation of the People Act which are meant to be followed. Politicians have blithely ignored rules for so long that even an experienced leader like Mr George Fernandes thought the game with names — and identities — could pass muster. Two, the rules are an indirect indication of what politicians and parties are expected to do in a healthy polity. The overwhelming importance of the single principle of expediency cannot be the basis of constructive governance. Although this is an old story, the politicians’ complete lack of accountability towards the electorate remains shocking.

The point is not that the Samata Party might find the derecognition of its leaders by the EC convenient in the long run. If it can emerge as a major political force after these elections, it can push around the Bharatiya Janata Party in Bihar. But that does not make the bickering any the more dignified. The spectacle remains that of oscillating loyalties, all over a slice of the cake. The BJP is not too badly off. The falling out between two of its partners is giving it a better chance in northern and central Bihar. Reportedly, the BJP is also quietly beginning to push an OBC chief ministerial candidate of its own. This might be its chance to put the caste side of its own house in order. And Mr Laloo Prasad Yadav, of course, has been given a fighting chance by his erstwhile colleagues.    


Festival fiasco

To call it lacklustre would be an understatement. But it is difficult to whip up passionate indignation at the sad, boring and derelict non-event that the recently concluded International Film Festival of India in Delhi turned out to be. Sad, because the festival — now in its 32nd year — aroused not a tremor of interest in the world’s leading filmmakers, leaving its competition slot with some mediocre rejects from other festivals. Boring, because the Indian Panorama was an experience of barely mitigated tedium, with journalists demanding a “torture allowance” for having to cover it. And derelict, because the event was ignored by national and international celebrities and by New Delhi’s filmgoers. Most screenings — particularly of the foreign films — attracted pathetically scanty numbers. There were hardly any premières since the festival failed to provide an interface with the market. Publicity was grossly mismanaged and the market section closed after its dismal failure last year. Metro-Goldwyn-Meyer refused to send what could have been this year’s finest screening — Ingmar Bergman’s Persona — because the IFFI authorities still owe it money.

This grim scenario makes it obvious that government patronage of films in the form of squandering Rs 2.4 crores on a tradition that has become entirely moribund ought to be questioned fundamentally. Film festivals were glamorous and artistically worthwhile events in the Sixties and Seventies, when serious cinema enjoyed a very different status in the cultural and political consciousness of distinguished European and Asian filmmakers and their audiences. The economics of world, and Indian, cinema has been radically transformed since then. It could be argued that cinema, as part of the current globalized and technologized entertainment industry, has lost its claims to the distinction of “high” art. Even the renowned festivals in Berlin, Venice, Cannes and London no longer get the year’s best work. In India, there is a thriving popular film industry — with its own commercial and technical vitality — that hardly needs government-sponsored festivals for the sustenance of its market. It is more a question of Bollywood condescending to notice the IFFI, than the other way round. Faced with the self-perpetuating vigour of this popular market, questions of “good” or “bad” cinema become somewhat irrelevant. Consequently, “art” films are faced with a crisis, both economic and aesthetic. Failing commercially if they at all manage to get released and unable to get the international market without a foreign co-producer, most of these films seek to appeal through sleekly packaged sentimentalizing of politically correct “issues”. In both cases, the film festival is either redundant or offers no solution to the crisis in standards. Hence, the government could spend the money more usefully on arresting the rapid decline of film institutes all over the country and on building more repertory cinemas; or better still, on patronizing classical music, which now has a much stronger claim to being considered as high art anyway.    

Alan Greenspan, the chairman of the Federal Reserve of the United States, has been nominated for an unprecedented fourth term in his job. The markets have welcomed the news, perhaps with relief that an element of uncertainty which would have come with a new incumbent, has been eliminated. Greenspan has been a remarkable central banker, leading the US’s economy through one of the longest booms ever in its history — with a low inflation. Presiding as he does at the apex of the US’s money machine, he is virtually central banker to the world, 50 per cent of the income of which originates in the US.

His decisions on interest rates set Wall Street aflutter. His words of wisdom, often clothed in sphinx-like central bankese, are lapped up by bankers and businessmen, not to mention market operators. Fed-watching — to be more precise, Greenspan watching — has become a must for those who play the financial markets. In renominating Greenspan, Bill Clinton has once again shown a sure touch, which characterizes his management of the political economy.

Those who have been watching the gyrations of Wall Street will remember the fatal fall of October 1987 when Greenspan, first sworn in as chairman, faced his greatest challenge. The stock markets were in a deep downward spiral, as a result of the decision of programme traders to unwind trade — meaning they were selling the shares they held. The Dow Jones fell by 22.6 per cent in a day, a fall worse than what happened in the crash of 1929. Memories of that crash, which led to the great depression and global recession of the Thirties, were the first to come to the surface.

Security firms in New York — some of them household names — were in a deep freeze. They stood to lose massively as their securities declined. They would bring down with them the banks, their creditors — if and when they collapsed. There would have been a repeat of the dark days of 1929.

Greenspan was to address the American Bankers’ Association on that black Monday. The White House despatched a Gulfstream Aircraft to fetch the Federal Reserve chairman. Once in Washington, the chairman got cracking and came out with an unusually — and uncharacteristically — laconic statement, “The Federal Reserve, consistent with its responsibilities as the nation’s central bank affirmed today its readiness to serve as a source of liquidity to support the economic and financial systems.” No legalese here, no punditry, just two dozen words that restored confidence.

Greenspan was ably aided by the president of the New York Federal Reserve Bank, Gerald Corrigan, who used all his persuasive powers and his standing to get the major banks to put funds into the securities firms. He spoke later of his resolve to see that the nation’s financial plumbing was not clogged. The markets revived, as the world stood watching with bated breath and unstinted admiration for the new chairman.

Since then, Greenspan has come a long way. He has become a cult figure, revered by most Americans. Although observers differ as to what proportion of the credit should go to the chairman, most concede that his skilful handling had helped to steady the economy when strong headwinds blew. He has seen the US economy and thus the world through the Mexico crisis, the Asian maelstrom, the Russian debacle and many others. He has been an exemplar among central bankers. He has had his differences with secretaries of the treasury, ranging from James Baker and Robert Rubin, but he has kept them from coming to the boil.

There have also been members of the US congress and senate, who bayed for his blood from time to time, especially when he tightened the screws on interest rates. But he had sailed through it all and emerged a victor.

The secret of Greenspan’s triumph lies in his freedom from doctrine. There was a time when US economists of different persuasions swore by what they called the “natural rate of unemployment” consistent with no inflation: NAIRU or non-accelerating inflation rate of unemployment. They had calculated this to be about five to six per cent. Whenever unemployment fell below this level, economists feared inflation, which meant the Federal Reserve had to tighten monetary policy.

Over the last few years, the US economy had shown that the NAIRU makes no sense. Unemployment was touching a figure as low as four per cent and inflation was still low. It is to the credit of Greenspan that he quickly articulated a new doctrine — there was a new paradigm at work, the US economy had achieved a higher level of productivity, thanks to computers and Infotech. The old rules no longer prevailed.

I am simplifying a bit. But the successful central banker that Greenspan is, he did not crucify the US economy on the doctrine of NAIRU. There is an apocryphal quote attributed to him. To an interlocutor asking about how M(3) was behaving, he said: “I do not know about M(2), M(3) or M(4). I had always thought they refer to some kind of rifles.”

Another crisis that tested Greenspan’s trouble shooting skills was when the hedge firm, Long Term Capital Markets of New York, went under, following the Russian crisis. A number of securities firms and bankers had heavily invested in LTCM, which was itself a highly leveraged fund. It had borrowed billions of dollars, while its own equity was only around three billion dollars.

When its assets collapsed, following its wrong bets, its losses threatened to wipe out a number of major firms in US finance and the rest of the world. Greenspan mounted a massive rescue operation, which succeeded. True, he was accused of indulging in the same crony capitalism for which the US condemned other economies. Greenspan’s defence must have been that all that he did was not to save a few cronies in New York, but to prevent a global meltdown. Opinions differ on this issue. But everyone concedes that the rescue operation was conducted in a masterly manner — the public funds were not put at risk while the financial system was saved.

One of the gaffes of Greenspan — which may still turn out to be correct — was when about two years ago, he expressed his unhappiness about the irrational exuberance of markets. He could not understand — neither can many others — how Wall Street was defying conventional laws of finance.

Share values were going to stratospheric levels, in total disregard of price earning ratios and fundamentals. Companies in the infotech areas were being quoted at very high valuations, in spite of current and prospective losses. Greenspan was right to blow the whistle. He wanted to warn investors that the bubble can burst. He had to throw a spanner into the works. But that was temporary. Wall Street coolly ignored the sane warning and is still on top.

The fact that Clinton saw it appropriate to ask Greenspan to preside over the Federal Reserve shows his confidence. It also testifies to the complexity of the task that faces Greenspan. The dizzier the heights the Dow Jones ascends, the greater is the danger when it falls. The world awaits with trepidation for what the wizard of the Temple of Money has to offer.

One thing is certain; if a crisis does come about, there cannot be any better hand at the controls than Greenspan. Obviously, it is nobody’s case that the present chairman is irreplaceable. A number of observers have stressed the need to build the institution and to shake off the cult of personality. In spite of all this, the world does breathe easier now that Greenspan is there. Such is the power of the legend that is Greenspan.

The author is former governor, Reserve Bank of India    


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