Opinion Connections,causes,consequences

Three lessons for the FM in unlooked-for effects

February 4, 2010 12:59 AM IST First published on: Feb 4, 2010 at 12:59 AM IST

A misquote by a climate scientist; a misjudgement by Obama’s political pundits; a (mis)-auction by India’s cricket oligarchs — three distinct and totally unrelated recent occurrences are bound by one underlying nuance: the wall separating the worlds of politics,environment,culture,finance,sports and so on are now so porous that actions taken in one area will almost always have an impact in other areas. In our connected world the flutter of a butterfly’s wings in one part of the world can indeed trigger a hurricane somewhere else. This column also intends in a very indirect way to urge the Finance Minister that,as he draws up his budget proposals, to contemplates not just the consequences of the financial arithmetic on next year’s economic growth but also on broader efforts to steer India down the path of sustainable development.

That the IPCC erred in including the alleged comments of an Indian scientist on the melting of the Himalayan glaciers without rigorous scientific assessment or peer group review is beyond question. Dr Pachauri has publicly acknowledged this error. That this mistake should cast doubt on the credibility of the totality of the IPCC research on the dangers of global warming is ridiculous. There are over a thousand scientists that have signed their reputations on to the conclusions of the IPCC reports. If anything the error simply reinforces the point that the IPCC has repeatedly made:

climate science is inherently uncertain — the reports identify 54 areas of uncertainty — and there is therefore a continuing need for scientific research. The problem is that this error has given climate change detractors a further peg on which to hang their scepticism. Copenhagen gave them an onrush of adrenaline. These latest controversies have provided a further kick.

All this would not matter were it not that global warming is a reality and that these detractors are complicating an already difficult transition to a post-Kyoto world. The conclusion of a legally binding agreement on emission targets could be further delayed; the delineation of an emission reductions pathway could prove more difficult,and the creation of conditions for industry investment in low-carbon technologies and cleaner energy could get further mired in debate. The probability of containing GHG concentrations in the atmosphere to below the tipping point could,in short,be reduced.

Then look at Obama’s decision to impose wide restrictions on banks,mere days after the Democrats were battered in the Senate elections in Massachusetts,a decision clearly motivated by politics. Mid-term Congressional elections are less than a year away and Main Street is appalled by the apparent greed of Wall Street. The public needed to be appeased. Obama announced that “deposit taking banks” would be prevented from “own(ing),investing,sponsoring hedge funds,private equity funds,or proprietary trading operations” that were unrelated to “serving their customers”. He disallowed them in effect from trading on their balance sheets for their own profit. The problem with this somewhat peremptory and politically-driven announcement is that it is neither “workable,desirable or relevant,” to quote Martin Wolf of the Financial Times. It is not possible,Wolf writes,“to draw and more importantly police a line between the legitimate activities of the banks and those unrelated to serving their customers”.

It is one thing to draw up regulations but quite another to implement them. This is especially so in situations where the effectiveness of implementation depends on definitional precision. For in the absence of such precision there is usually a spawning of ‘shadow’ institutions that operate outside the ambit of regulatory reach. Obama’s decision may well thus severely clip the wings of banks like Goldman Sachs and JP Morgan but it is not likely to reduce the vulnerability of financial institutions to systemic risk. The obverse could well in fact be the case. The regulations could weaken the foundations of financial and credit markets and that then could generate a residue of wider economic problems. India’s experience with the license raj offers a salutary case study on the consequences of fuzzy regulation.

Finally’ the decision by cricket’s oligarchs to ‘ignore’ the Pakistani cricketers in the recent IPL auction will have ramifications well beyond the sporting arena. The IPL owners may have good reasons for their decision although it could not have been related to lack of talent. Some of the Pakistani cricketers on the block were unquestionably world class. But whatever those reasons,the consequences of their decision has setback the efforts to improve Indo-Pak relations. Hitherto the public on both sides of the border have welcomed the interfaces that cricket has enabled. They are of course inconveniences created by history and geopolitics but the hope,indeed trust,has been that these inconveniences will be overcome when cricket is involved. This hope has now been shaken. This has as much to do with the decision to boycott as with the actors behind the decision. The perception that private citizens,viz Indian business,have ‘insulted’ the icons of Pakistan’s cricket has weakened the one relatively stable plank on which Indo-Pak relations has rested — the public desire to not let politics intrude upon sports. This ‘misauction’ may soon move off the Indo-Pak agenda but the wedge that it has driven between the two publics will be difficult to remove.

The Finance Minister will present the budget later this month. It will undoubtedly be a sophisticated statement of Government accounts,taxes and duties interspersed with schemes for the poor and laced possibly with vernacular quotes. The focus will be on the immediate — understandably. Taking a cue from the above occurrences however I would hope that the FM’s statement will be made within a frame,which while acknowledging the urgency of particularist demands,will recognise the importance of broader and longer-term interests.

The writer is chairman of the Shell Group of Companies in India. The views expressed here are personal