Opinion Back to the future

Events across the world show public disenchantment with the outcome of free markets,open borders and political leadership

May 7, 2012 02:11 AM IST First published on: May 7, 2012 at 02:11 AM IST

Events across the world show public disenchantment with the outcome of free markets,open borders and political leadership

“Back to the Future”? The recommendation to expropriate the assets of the Spanish oil company,Repsol,in Argentina; the proposed budget amendment by our finance minister to tax retroactively; the growing public support for left- and right-wing chauvinism in America and Europe,Occupy Wall Street — these and other recent developments compel reflection as to whether the existential verities of the post-communist era,and the stimulus for an entire library with catchy titles — “the end of history”,“the end of ideology”,“the end of geography” — might be but blips on the historical radar chart. They ask whether the collapse of the Berlin Wall in 1989,followed by the triumph of democratic capitalism,was not,as has been presumed,a major turning point,but simply a break in the millennium-old narrative of nationalism,ascriptive “clannism” and individual self-interest. The thought arises that perhaps the forces of liberalisation,technology and globalisation may not be strong enough to withstand the countervailing pressures of populism,nationalism and regulation.

Big questions,but so are the events that bring them to mind. Who would have thought,for instance,that in a connected world constrained by the discipline of the market,governments would unsheathe the sword of expropriation; that the spirit,if not the letter,of contractual sanctity would be given such short shrift; that politics of extremism would once again strike an electoral chord; and that the consequences of the “invisible hand of the market” would spark worldwide public protest. And yet,that is precisely what we are seeing all around us today.

President Cristina Fernandez of Argentina has long been a populist firebrand imposing tariff barriers,interfering in private sector activities and bypassing state institutions. But she outdid even herself a few weeks back by proposing the nationalisation of 51 per cent of the former state oil company belonging to the Spanish company Repsol. Repsol had earlier bought YPF through a transparent process approved by former President Nestor Kirchner. It is not clear what prompted Fernandez to take such a radical step. Some papers report that she was upset at Repsol’s relative failure to increase production,others that it was in reaction to the company’s high dividend policy. A minority reported that it was an act of vengeance against the Eskenazi family,who have a 25.5 per cent stake in YPF. The Eskenazis were close friends of Fernandez’s husband but fell out with her. Whatever the reason,her decision has resurrected memories of the days when left-oriented governments used the instrument of nationalisation to re-assert sovereignty over national resources. At that time,however,this instrument had moral force. More recently,and especially with the shift in the balance of power away from MNCs,governments have not needed to use the blunderbuss of expropriation to achieve their objectives of control and revenue maximisation. They have been able to secure their objectives through the more “subtle” and less censorious means of negotiation and fiscal tightening. Thus,for instance,did President Vladimir Putin of Russia stamp Gazprom’s supremacy over the foreign MNCs. Thus have OPEC members ensured that the preponderant share of oil revenues goes to them. Fernandez has upended this wisdom and reintroduced an instrument that had long been assumed to have lost its edge.

Less dramatic but with a comparably backward reflection is our FM’s decision to amend the income tax act with retroactive impact. Pranab Mukherjee has made great effort to explain his rationale,but this has cut no ice with the international investor. They are concerned because it portends a lack of respect for contractual sanctity. This was a concern that had pervaded corporate boardrooms years back,but then receded as it became increasingly clear that,in a connected world with frictionless flows of capital,the penalty for disregarding legal commitments would be severe. And yet,our FM did what he did. The “why” is not clear. Perhaps because of the pressures of revenue. Perhaps to assert executive power — the Supreme Court had earlier struck down the government’s argument that Vodafone was liable — perhaps it was a combination of both,but overlaid by individual prejudice. Whatever the reason,his action has got people wondering whether the future might look like the past when contracts were observed in the breach.

Politics has also slipped its liberal,democratic and globalist moorings. The far-right and far-left candidates polled more votes than either of the two mainstream candidates in the first round of the French presidential elections. François Hollande is headed into a general election because the far-right coalition partner has withdrawn its support in protest inter alia against immigration. The centre-right executive in Czechoslovakia is reeling in the face of public protests against corruption and austerity. The governments in Greece,Spain,Italy and Ireland were turfed out last year; the ultra conservative Tea Party continues to redefine the Republican platform and Occupy Wall Street has the potential to further roil America. These disparate political,social and economic markers have one thing in common. They all reflect public disenchantment with the outcome of free markets,open borders and political leadership. People are agitated about the concentration of wealth,immigration and the mire of public corruption. They are not nostalgic about the days of “command and control”,but they are asking whether the construction of a new,albeit different,“wall” might not better serve their individual interests.

Lincoln Steffens,an iconoclast journalist,returned from Communist Russia in the late 1920s and said,“I have seen the future and it works”. He has been proved wrong. Francis Fukuyama witnessed the breakup of the Soviet Union and wrote The End of History. His purpose was to declaim the triumph of liberal capitalism. He too got it wrong. The future is still up for grabs. No one really knows what will work,but if thesis does lead to antithesis,which then converges into a synthesis,then we may well be looking into a future of “regulatory capitalism”.

The writer is chairman of the Shell Group in India. Views are personal