WHAT I DON’T UNDERSTAND ABOUT BLACK ECONOMY

WHAT I DON’T UNDERSTAND ABOUT BLACK ECONOMY

(OR There’s a hole in my bucket)

Today, in India, the concern about black money/economy is very high. Therefore, I felt it is important for me to try and understand what it means and then try to think of a way of getting rid of it. My understanding of economics is less than satisfactory so I hope to find some answers through reflections.

Business Dictionary defines “black economy” as:

“Usually untraceable, and hence untaxable, business dealings that are not reflected in a country's gross domestic product (GDP) computations.”

So, features of black money would be:

1.            Untraceable (I presume by government)

2.            Untaxable (by government)

3.            Not reflected in GDP (official figures)

So, I conclude from above that black money is basically that money which a government chooses to consider as black. It is necessarily not even criminal activity or corruption per se.

For example, building a house is not a crime per se. Selling or buying it is also not a crime. However, if tax is not paid on any part of the transaction value, that part becomes black money. Thus, any capital gains, registration fee, service tax or sales tax on raw material etc. not paid, such amount would be considered black money. All other economic factors of production viz. land, labour, capital and enterprise involved are real but they are rendered black because taxes are not paid on their possession or use.

But why don’t people want to pay taxes? For this, I must learn the definition of taxes. InvestorWords defines tax as:

“A fee charged ("levied") by a government on a product, income, or activity. If tax is levied directly on personal or corporate income, then it is a direct tax. If tax is levied on the price of a good or service, then it is called an indirect tax. The purpose of taxation is to finance government expenditure. One of the most important uses of taxes is to finance public goods and services.”

Governments levy taxes through a process of legal/administrative force to fund their expenditure. People who slip away are declared makers of black money. The above definition makes me think – if government expenditure were to become zero then tax required would be zero and no one would need to evade any taxes. This would make generation of black money meaningless and impossible by definition.

So, here’s my 1^st realization: There is a direct and positive correlation between black money and government expenditure. Reduce government spend and that will reduce need for taxation and hence generation of black money.

I learned in 9^th standard that prices for goods/services are determined by forces of demand and supply. If I am a sweeper and want to charge Rs 1000 per day to clean a 1000 sq ft house, I will find no clients. So I will lower my price. Maybe, I will start finding sufficient number of clients at Rs 100 per day per household.

Won’t this principle apply to public goods?

If people don’t want to pay the current level of taxes for the bouquet of public goods/services on offer by the government, the obvious way is to reduce the size/composition of that bouquet. This can be achieved through privatization, disinvestment and lesser governance. If good/service is privatized then prices would be determined by market forces. People will buy what they really want and pay what they can afford. There would be no need for government to take on that function and therefore there would be no need to fund it through taxes. The black wealth generated or transferred would convert to white price paid for goods and services. Black money would convert to white “producers’ surplus”.

Therefore, is there a case for removal of all taxes?

My 2^nd realization: There is an inverse correlation between privatization and black money. The higher the level of privatization, the lesser the black money. Similarly, there is a direct correlation between governance and black money. The lesser the governance, the lower is black money.

So far so good. Both my above realisations indicate that government and governance is the root cause of black money. This can be summarized as:

i               Nation has black money

ii              The State is the root cause of black money

iii            To reduce black money, governance should be minimized till the State withers away

Now, I think I am putting myself into a bind. If I conclude that Government/State should wither away, I suspect I will sound too much like a Marxist/Leninist and that certainly isn’t a fashion trend today. But, Friedrich Engles in in Part 3, Chapter 2, of Anti-Dühring wrote:

The interference of the state power in social relations becomes superfluous in one sphere after another, and then ceases of itself. The government of persons is replaced by the administration of things and the direction of the processes of production. The state is not "abolished", it withers away.

Suspending the thought, I try to think of a way to reduce government spending. Why is it necessary for government to run schools, hospitals, even build roads or other infrastructure? It is considered axiomatic that private sector efficiency in these sectors is many times that of public sector efficiency. That government school teachers are poor quality and overpaid. That government hospitals are death trap and doctors ill-trained, ill-equipped and overpaid. That whole of bureaucracy is over paid and inefficient.

In that case, I find no justification for retaining the machinery of the State. Why can’t education, health and infrastructure all be left to private sector where market forces would determine the price of services and compensation to teachers, doctors etc.?

Some people would argue, “But what of the poor?”

And I am dumbstruck. If for decent quality of education for say 1000 children we require school infrastructure of Rs 1,00,00,000 and at 1:25 teacher : student ratio we require 40 teachers of quality and the market price for such teachers is Rs 6,00,000 per annum, why should we settle for a school built with just Rs 10,00,000 and 10 teachers paid Rs 3,00,000 per annum? Why can’t students be charged that fee?

People would say, “Because, you moron – 70% of children wouldn’t be able to afford those private fees.”

So why should they get education?

“Because it will improve their earning capacity and lead to more development. Also, an educated nation is a stronger and better nation.”

But what’s the point of poor quality government education?

“Something is better than nothing.” People would say.

Ok. So why can’t we pay higher taxes and demand better school infrastructure?

“Higher taxes will kill private enterprise, silly fellow!” People would scream.

But we don’t want to replace government so let it kill private enterprise.

“Then how will government survive? Who will pay taxes?”

At this point I would give up. This chicken-and-egg argument applies to practically every sector where government is forced to get involved, for which it is constrained to collect tax, which is resented and people are forced to evade taxes, which in turn leads to generation of black money.

It would seem black money exists because of the State and to destroy black money, the State will have to be destroyed.

This reminds me of a great song whose words go like:

There's a hole in the bucket, dear Liza, dear Liza,
Then mend it, dear Henry, dear Henry, dear Henry,
With what shall I mend it, dear Liza, with what?

With a straw, dear Henry, dear Henry, dear Henry,
The straw is too long, dear Liza, too long,

Then cut it, dear Henry, dear Henry, dear Henry,
With what shall I cut it, dear Liza, dear Liza?
With a knife, dear Henry, dear Henry, dear Henry,
The knife is too dull, dear Liza, dear Liza,
Then sharpen it, dear Henry, dear Henry, dear Henry
On what shall I sharpen it, dear Liza, dear Liza?
On a stone, dear Henry, dear Henry, dear Henry,

The stone is too dry, dear Liza, dear Liza,
The stone is too dry, dear Liza, too dry.

Well wet it, dear Henry, dear Henry, wet it.

With what shall I wet it, dear Liza, dear Liza?
Try water, dear Henry, dear Henry, dear Henry,
In what shall I fetch it, dear Liza, dear Liza?
In a bucket, dear Henry, dear Henry, dear Henry,

There's a hole in my bucket, dear Liza, dear Liza,
There's a hole in my bucket, dear Liza, a hole.

 (You can listen to the song here.)

Turning off the tap doesn't help, as long as there's a hole in the bucket. Now, that’s a thorn in my side. 

FURY WITHIN

FURY WITHIN

Shaktimaan died yesterday. (Iti ashwah - It was a horse). A police horse – from Uttarakhand Police who had served the nation for over a decade. It was a public asset. He was brutalised by protestors during a political protest march.

Commuters – all common men – went berserk in Diva, near Mumbai and started pelting local trains with rocks and stones, causing damage costing the public exchequer millions of rupees.

Parents of students of a school in Kolkata went on rampage after a girl died from bullying by seniors. Men and women of educated, cultured background ransacked the school, tore up documents, smashed computers and furniture and destroyed records.

Mumbai residents lose sanity and burn police vehicles.

Bangalore citizens protesting against EPF amendments run amok and torch public transport buses worth millions.

Lawyers burn public vehicles.

“Something is rotten in the state of Denmark.” Marcellus told Horatio in ‘Hamlet’. I understand that something is rotten in the state of India. There is poverty, famine, malnutrition, disasters, inequality, discrimination......to name just a few maladies of this democratic republic. It causes hurt and pain to people. We get upset, angry, distressed and negative. God knows, there are reasons enough.

God also knows that in every home, there are reasons enough for family members to get upset, angry, distressed and furious some time or the other. Do we go about smashing our own cars, maiming our pet dog, burning our books, tearing up the sofa or hammering to bits our TV sets? Does it make any sense?

But if we, as a people get angry, our first target is “public property” – essentially assets created or bought out of our own money. Is it because somehow we are still stuck in colonial mindset where we consider “government property” as something belonging to an alien, imperial despot? Do we not realise that every rupee in the purse of the ‘National Exchequer’ as the media loves to call the Treasury, comes out of our hard labour and enterprise? If we cripple a railway coach, who eventually suffers if not the public? If we burn down a school, whose children would be left without a place to study? Why beat the shit out of a poor police horse or a sniffer dog?

We like to call our country The Land of Universal Amity; The Birthplace of Non-violence, the Land of Buddha and Gandhi. Really?

Where does that mindless fury come from? Surely not from China or Pakistan. Surely not a result of "Western Influence". Certainly not from our ancient culture, traditions or heritage. Yet, that myopic callousness to public property pervades our psyche.

That’s a thorn in my side.

I'M A MAN (?)

I’M A MAN (?)

It happened last Sunday – 31stJanuary.

She was travelling in a car with friends. A mob stopped the car. She and her friends were dragged out and beaten. Her top was torn off and she was paraded topless. She sobbed and pleaded. Bystanders stood watching, doing nothing to stop the men. She tried to board a local bus. Passengers of the bus pushed her off. Finally, someone with a bit of humanity still left inside him took off his shirt and covered the girl up.

No – this did not happen in badlands of UP. No – the men who ripped off the girl’s top were not part of gangs of Wasseypur. And no – it wasn’t my daughter ... or yours. Thank God.

It happened in a city that boasts of its “cosmopolitan” culture and “obvious influence” of ex-pat community of highly educated IT professionals. This happened in a city which is far luckier than scores of other cities of India – a city on international travel lists. A progressive, modern city of India. A city where a woman should feel safe in public space.

I hope it makes us all reflect and shudder at what awaits a woman in those countless cities and towns and villages tucked away in the heart of darkness.

(Not a photo of the episode referred in this blog but equally disturbing image)

A mob is a violent, mindless creature. I understand that. It is born of conjugation of individual angry minds and that collective progeny is a monster that would be unrecognisable by the very individuals whose minds created it. I understand that. The girl’s shirt was ripped off in anger. I understand that.

Or do I?

When I feel angry at an incident, I may want to throw a stone at a passing bus which knocked down a local boy. But I won’t do that because I am alone. However, if there are 50 other men standing with me, feeling the same anger, I might be the first to pick up and throw the stone.

But if I knew that my father or mother or anyone dear to me was travelling in that bus, I would never throw that stone – no matter how angry I felt about the bus knocking down a pedestrian. I would also try to stop others from doing so.

So what happened in the incident we all read about?

Some man would have reached out for the girl. I am trying to think what I would have felt in her place as another man grabbed my waist, or hand or other body parts. Yet another inserted his fingers inside my top. His hands would have touched my skin, clawed my flesh. And then he would have pulled hard enough for the fabric to tear. I would be whimpering, trying to fight back but would have been overpowered. I would have called out for help – and seen inscrutable faces looking back at my humiliation.

And when my top tore open did it make the men smile? Did I see the gleam of voyeuristic possibilities in their eyes? And then when the torn fabric was thrown away, and my breasts exposed to public view, I would have felt shame, rage, helplessness. I would have rued being a woman. I would have uncontrollable tears streaming down my cheeks. Maybe I would have heard a grunt...a snigger from the men. Maybe a paw would have scraped against my exposed skin. I would have tried to cover my breasts with my hands. Maybe someone kept pulling them away. I would have heard the deathly silence of the bystanders. I would have run to a passing bus hoping to find refuge there. I would’ve seen some women in the bus too.

But when I was pushed away and thrown out of the bus – what hopelessness would I have felt? In that moment, would I have felt pride in being a woman?

Which man does not understand that ripping away a woman’s top is not the same thing as ripping away a man’s shirt? That pushing around a topless woman in public view is not the same as doing that to a man? Which man would stand and watch his mother, sister, daughter, wife or female friend being subjected to that? And yet, the men in that mob did it to a woman.

As a man I feel ashamed. Has thousands of years of civilisation, “sanskriti” and “sanskara” left me with this?

What tortured minds of fathers and mothers would have raised those men who could strip a woman in public because they were angry at someone else? What relatives, neighbours and friends would have socialised with those men who could slap around and parade a half naked woman in public view? What teachers and mentors would have taught those men and women in the bus who looked at a hapless, denuded woman crying for help and brutally threw her off the bus – refusing to grant her shelter? What God of those men stood by and let them do what they did?

What did our National Poet mean when he wrote:

Where the mind is without fear and the head is held high 

Where knowledge is free 

Where the world has not been broken up into fragments 

By narrow domestic walls 

Where words come out from the depth of truth 

Where tireless striving stretches its arms towards perfection 

Where the clear stream of reason has not lost its way 

Into the dreary desert sand of dead habit 

Where the mind is led forward by thee 

Into ever-widening thought and action 

Into that heaven of freedom, my Father, let my country awake 

When will my daughter...my niece...your daughter, sister or niece feel safe in our country?

Even the much maligned Manusmriti says at one place:

यत्र नार्यस् तु पूज्यन्ते रमन्ते तत्र देवताः।
यत्र एतास् तु न पूज्यन्ते सर्वास् तत्र अफलाः क्रियाः ॥

Which when translated means:

"Wherever women are given their due respect, even the deities like to reside, and where they are not respected, all action remains unfruitful."

When will we be able to teach our sons that? When will men become men?

That’s a thorn in my side.