1 When capitalists cared (The New York Times) In the rancorous debate over how to get the sluggish economy moving, we have forgotten the wisdom of Henry Ford. In 1914, not long after the Ford Motor Company came out with the Model T, Ford made the startling announcement that he would pay his workers the unheard-of wage of $5 a day. Not only was it a matter of social justice, Ford wrote, but paying high wages was also smart business. When wages are low, uncertainty dogs the marketplace and growth is weak. But when pay is high and steady, Ford asserted, business is more secure because workers earn enough to become good customers. They can afford to buy Model Ts.
This is not to suggest that Ford single-handedly created the American middle class. But he was one of the first business leaders to articulate what economists call “the virtuous circle of growth”: well-paid workers generating consumer demand that in turn promotes business expansion and hiring.
Riding the dynamics of the virtuous circle, America enjoyed its best period of sustained growth in the decades after World War II, from 1945 to 1973, even though income tax rates were far higher than today. It created not only unprecedented middle-class prosperity but also far greater economic equality than today.
Today the prevailing cut-to-the-bone business ethos means that a company like Caterpillar demands a wage freeze and lower health benefits from its workers, while posting record profits. Globalization, including the rise of Asia, and technological innovation can’t explain all or even most of today’s gaping inequality; if they did, we would see in other advanced economies the same hyper-concentration of wealth and the same stagnation of middle-class wages as in the US. But we don’t.
2 Ireland’s fall etched on its ghost houses (The New York Times) If Ireland’s rise was one of the most spectacular in Europe, its fall was one of the most precipitous, with a boom in the 1990s leading to a housing bubble in the 2000s that burst spectacularly when the banks fueling it threatened to collapse. In 2008, the government made an emergency decision to guarantee the banks’ debts, thus condemning the country to brutal austerity that has left it impoverished and weighed down by debt of its own.
Priory Hall in Dublin is only the worst example. More than 2,000 developments begun during that period have turned into “ghost estates,”unfinished or vacant housing projects with 10 or more units that were meant to create communities but are now quietly rotting. Others, built under a system that allowed developers to “self-certify” — meaning that they could unilaterally declare, with only minimal government oversight, that their properties complied with building codes — are now falling apart, even while residents live there.
But Priory Hall stands apart because of the outrageousness of its inhabitants’ plight. Temporarily staying in housing provided by the Dublin City Council, its residents are still required to keep up mortgage payments on their deteriorating apartments. Meanwhile, the council, which was ordered by a court to take responsibility for the tenants and has already spent more than $2 million housing them, has gone back to court to avoid paying any more.
3 Moody’s lowers EU rating to negative (BBC) Moody's has lowered its outlook for the European Union's AAA credit rating to "negative" and warned that the bloc's rating could be downgraded. It said the move reflected the negative outlook for ratings of EU's key budget contributors. Earlier this year, Moody's put ratings of Germany, France, Netherlands, and the UK on a negative outlook. It said that these nations were all exposed to the region's debt crisis, hurting their creditworthiness.
The ratings agency said that if the AAA-rated member states were to default on their debt obligations, there were likely to be defaults on the loans that back the EU's debt and the bloc's cash reserve was also likely be stressed. "Hence, it is reasonable to assume that the EU's creditworthiness should move in line with the creditworthiness of its strongest key member states," the agency said. Germany, France, Netherlands and the UK, together account for around 45% of the EU's budget revenue.
4 Four formations in Indian politics (MJ Akbar in Khaleej Times) There are four distinct formations in Indian politics: the Congress, the Alternative Congress [defined primarily by its inability to accept family rule as a permanent factor within the party], the BJP and the Left. The Alternative Congress constitutes those who have been once in the Congress or the Socialist Party, and whose policy outlines are as fluid as those of the Congress, shifting from quasi-socialist to World Bank-reformist depending on need or environment. Its high point came in 1977, when, in the avatar of Janata Party, it led the Union government in Delhi.
It was entirely consistent that the Janata Prime Minister was a blue-blooded Congressman, Morarji Desai, and its party president was a stalwart who had shifted from a socialist start to Mrs Indira Gandhi’s Congress before he rebelled. If the various entities that exist as sub-Congress parties went back to the parent, Congress would be able to restore single-party rule in the country. But this will not happen as long as Congress is traumatised into believing that a Rahul Gandhi or a Priyanka Gandhi is a better option for PM than Sharad Pawar or a Nitish Kumar.
BJP, as the principal force within the NDA, has understood that primacy does not mean supremacy. It is quite happy to play second fiddle in Bihar, leaving charge of the orchestra to Nitish Kumar. If the BJP wants to come to power in a contemporary election it must deliberately lower the potential of its growth rate to levels that do not threaten its existing partners. Temperamentally, the Congress is less suited to compromise, either with foe or friend, but once again the desire to be in office today far outweighs the prospects of coming to power tomorrow.
The next general elections will answer a vital question: will the Indian voter elect a Parliament that can only offer a weak PM? At a regional level a pattern has emerged. So far, a national pattern has not been so coherent. But change does not always send a preview. We must be prepared for surprise.
5 Mogan Stanley cuts India forecast (The Wall Street Journal) Morgan Stanley Monday slashed its growth forecast for India to 5.1% from 5.8% for this fiscal year through March 2013, and warned that there is a high risk of an even deeper growth shock if the government fails to get its act together and take steps to revive investment. It also lowered its forecast for next fiscal year to 6.1% from 6.6%. "In the event of continued inaction from the government, we see very high risk of a potential 'deeper macro stress' scenario," Morgan Stanley analysts Chetan Ahya and Upasana Chachra said in a research note. This could mean that economic growth may slow to 4.3% this fiscal year, the rupee could sharply weaken further and the banking system could come under severe stress resulting in more loans going bad, the note added.
The comments reflect the worsening conditions in Asia's third-largest economy, which grew at its slowest pace in nearly a decade last fiscal year. Domestic investments and demand slumped, hurt by a tight monetary policy as well as falling demand for Indian exports. Also, a shortage of rainfall this year has damped expectations of the upcoming rice harvest in October, raising worries that inflation could intensify while growth could slow more. Several key reforms have been in limbo due to a lack of political consensus and worries of a voter backlash ahead of elections in several states starting this year, as well as federal polls in 2014.
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