Your confidence in the free markets remains consistent in this book too. No change of mind after the global financial crisis?
That is precisely the point. Markets need to be regulated appropriately --- neither no regulation nor excessive regulation. My argument is that there is politics in play and here the politics went crazy. Why did the US suddenly discover priority sector lending which led to the subprime crisis? Was it that wage revision was difficult and people with high school certificates looking for high quality jobs not available, credit was the easy option?
The other point you raise in this book is the incentive structure that you’ve broadened...
Managements were being given incentives to take risks. All conglomerates thought they would be bailed out — and to a large extent they were right. They were taking risks. Now, is it that they were not ignorant or they just wanted to take the gamble? I think it’s is a combination of both. They were somewhere ignorant and they also wanted to take risks.
So, what’s the solution?
Breaking up banks into smaller banks is not the answer. We need market discipline. Pricing should reflect the problems, the risks. You need to have pay subject to losses. That is, if your strategy does not work out, if your positions start failing, the bets are off. Long term pay should be contingent to long term performance.
Coming to India, you mention land as a serious hurdle to growth.
In some place where you are trying to acquire land, it is actually the tribals who own the plots. These people have benefited the least from the growth process. Their literacy rates are even lower than the Dalits’. Here, the Maoists are the only ones who have been paying attention.
So, it’s something like, ‘This is all I’ve got, and if I give it up, all will be lost’?
Absolutely. Our track record has not been confidence inspiring. All rehabilitation scheme promises tend not to be delivered on time. A hydroelectric project displaced a lot of people. They are still displaced and there has been very little done for them. So, from their side, there is complete lack of credibility.
What’s the way out?
Set up a generous inclusion scheme. Overpay rather than underpay. This is where corruption creates a problem and resentment among people. We need a more transparent acquisition process. If land is acquired in a manner that is not seen to be legitimate by the public, we could go the Russia way. Property rights have to be backed politically. The public must see it as legitimate.