Traffic in New Delhi, India, February 13, 2010 (Kalpana Chatterjee)

India’s central bank last week cut its growth forecasts for 2012 and moved to increase liquidity in an effort to contain a nearly 7.5 percent inflation rate. It specifically cited the government’s “policy and administrative uncertainty” as one of the reasons for India’s weakened economy.

The bank lamented “the absence of credible fiscal consolidation” and urged efforts to “induce investment that will help alleviate supply constraints in food and infrastructure.”

India has made it easier for foreigners to invest directly in domestic firms but structural industrial and labor market reforms, which are critical if the country of 1.2 billion is to live up to its economic potential, are unlikely to be enacted in the short term by the center left administration in New Delhi.

Neither of India’s two major political parties has so far been willing to risk losing votes from people who dependent on government for their livelihoods by reining in a pervasive bureaucracy that is rife with corruption. Ridden by scandals, Prime Minister Manmohan Singh’s government lacks the credibility to push ahead with reforms which the former finance minister himself pioneered in the 1990s.

Starting a business in India takes up to two hundreds days if one is to complete the excessive licensing requirements and can cost more than sixteen times the average annual income. That is, unless an entrepreneur has the financial resources to bribe officials and streamline the process.

Corruption is a major impediment to growth in itself. Property rights are not effectively protected nor enforced. Judicial procedures tend to be protracted and can be subject to political pressure.

The economic liberalization of India has lifted hundreds of millions out of poverty and allowed the country to attract international business and investment. The process has stalled at a time when China, India’s largest competitor for access to food, hydrocarbon, mineral and water resources abroad, is expanding its reach across the Indian Ocean.

Even as it enjoys an informed workforce that speaks English, laborers in China are better educated on average than their Indian counterparts. They are also more productive. China enjoys an almost complete industrial supremacy over its competitor. It produces nearly half of the world’s steel, ten times India’s output, while Chinese infrastructure receives three times the investment that India’s does.

There is mounting apprehension in India about the other Asian giant’s rise but also a huge disparity between the upper middle class’ recognition of what needs to be done to boost India’s competitiveness on the one hand and the everyday struggles of the nation’s poor on the other. The World Bank last year estimated that 32 percent of India’s population lives in poverty. Two-thirds of its people depend on rural employment for a living.

The agricultural economy nevertheless faces considerable challenges which the government has largely failed to address. There aren’t good roads to allow farmers to take their products to market but there is ample regulation of foodstuffs to discourage expansion.

Irrigation systems are poorly maintained when fossil aquifers are rapidly depleting. India’s food production is stagnating yet the country is projected to add almost half a billion people before 2050. Climate change further raises the specter of diminished river flows if Himalayan glaciers melt.

There is no question that India cannot afford a “Hindu rate of growth” anymore. If it is to meet the challenges of the twenty-first century, it must work to stamp out corruption, lift the regulatory burden that stifles innovation and growth and invest in its road and water infrastructure instead, else it may not be able to feed its people in the long term.

Prime Minister David Cameron speaks at a Conservative Party conference in Cardiff, March 6, 2011

British prime minister David Cameron set out a vision of a “socially responsible and genuinely popular capitalism” on Thursday. In a London speech, he argued that Britain wouldn’t build a better economy by turning its back on the free market. “We’ll do it by making sure that the market is fair as well as free,” he said.

Cameron’s address came mere days after opposition leader Ed Miliband advocated more aggressive consumer protection in an interview with The Daily Telegraph. He said, “People’s living standards are squeezed as never before” as a result of the government’s austerity policies.

Miliband’s Labour Party has somewhat distanced itself from the Third Way centrism of former prime minister Tony Blair but argues that it still champions the interests of the middle class.

In a policy speech last year, Miliband lambasted “predatory” business practices and “wealth strippers” which he claimed were ripping ordinary people off. They were “squeezed by runaway rewards at the top,” he lamented, while British society was “too often rewarding not the right people with the right values but the wrong people with the wrong values.”

The statements were generally interpreted as a return to past Labour strategy when it was in opposition to the “nasty” Tory party of Margaret Thatcher and her adherents who believed in smaller government and free enterprise.

Cameron on Thursday argued that the government was implementing “less but better regulation” and said “of course there is a role for government, for regulation and intervention” but “the real solution” to Britain’s economic woes “is more enterprise, competition and innovation.”

We are the party that understands how to make capitalism work; the party that has constantly defended our open economy against the economics of socialism.

David Cameron’s case for capitalism is less convincing than Thatcher’s and is informed more by pragmatism than ideology. He argues that the government has to cut because it faces a debt crisis. Labour points out that the spending policies haven’t contributed to higher growth.

Indeed they haven’t. The British chancellor announced last November that growth in 2012 will be weaker than the government previously anticipated. Whereas 2.5 percent expansion was projected in March 2011, the figure will probably come in under 1 percent this year.

Borrowing, therefore, will be higher—more than £120 billion this fiscal year and next which is nearly 5 percent of gross domestic product. Public spending, despite the “heartless” cuts Labour so condemns, has only increased under the coalition government.

Britain’s debt is roughly 62 percent of GDP or nearly £1 trillion but that doesn’t include the state’s huge pension liabilities. When factored in, according to the Treasury, the actual debt equals 173 percent of GDP

Last year, accountants at PricewaterhouseCoopers estimated that “Britain would have to make across the board budget cuts of 5 percent a year to come close to cutting the deficit in half by 2014.” They even assumed a slight economic upturn that’s unlikely to materialize due to Britain’s high energy costs and the spiraling debt crisis in Europe.

Cameron, for all his praise of the free market, isn’t making tremendous progressing in getting the government out of the way of job creators. The state still consumes more than half of economic output in Britain while the “cuts” (which aren’t real cuts but decreases in spending projections) barely meet the requirements set by private sector accountants to achieve a balanced budget.

British Labour Party leader Ed Miliband (Reuters)

Britain’s Labour Party leader Ed Miliband is struggling to connect with voters. His performances as opposition leader in parliament have been disappointing and despite mounting unease with the ruling coalition’s austerity agenda, his socialists are barely more popular today than they were during last year’s election.

Even if almost 70 percent of Britons believes that slowing budget cuts would boost growth according to a recent poll, less than 30 percent thinks Labour would do a better job than the government. The reason is simple—74 percent of respondents in another poll last week said that there should be no increase in borrowing to reduce the deficit. That included a majority of Labour voters.

It’s not just that British voters mistrust Labour on the economy. It’s that they don’t trust Labour’s leader. If ever they were willing to give “Red Ed” a chance to prove that he was more than a puppet for party activist and union leaders, he wasted it with his “predators and producers” speech at October’s party conference. There, he attempted to draw a line between honest “wealth producers” on the one hand and “asset strippers” on the other who were “squeezing” people at the bottom, indeed, ripping them off.

This sort of pre-Thatcherite rhetoric doesn’t tend to go well with a nation that’s instinctively laissez-faire. Yet the Labour Party loves it. When Miliband announced, “I’m not Tony Blair,” it was met with thunderous applause from party faithful before he could utter than he wasn’t Gordon Brown, his immediate predecessor as leader, either.

While David Cameron’s conservatives have moved to the center, the socialists have taken a hard turn leftward and many of them hardly recognize it. Coupled with Miliband’s feeble leadership style, it makes for dismal polling numbers. Just 3 percent of voters agree that he is a “natural leader,” half believe that he has no positive qualities whatsoever.

However, “there is something more profoundly wrong with Labour’s present condition than the personalities at the top of the party,” writes The Telegraph‘s Janet Daley, “although,” she believes, “the fact that they are at the top is not unconnected to this malaise.”

The party once again belongs to its hard core adherents. It has apparently given up on—or lost any understanding of—the wider electorate that once gave it a succession of general election victories.

As with committed political activist in any party, Labour’s are convinced that the other side isn’t just wrong but evil. That puts centrists off but Daley points out another predicament the opposition faces in appealing to its core constituency—working class voters.

The two legs of Labour’s activist base, militant unionism and salon leftism, “may be incompatible on many fronts,” she writes, “but what they have in common is an inexhaustible contempt for the opinions of ordinary people, or more specifically, that cohort of people which determines the outcome of elections.”

The disdain of Labour’s leadership was particularly visible during August’s mob violence in London and other English cities. While conservatives chastised the contemptible behavior of the rioters, Miliband urged Britons to try to understand these poor, desolate youth who, supposedly, were only protesting their deplorable situation, entirely brought on by the coalition’s reckless spending cuts.

This blatant disconnect between Labour and voters has forced the party back into ideological gridlock. As Daley puts it, the socialist mindset seems to be, “if people do not agree with us, we must try harder to make them see the light.” This belief that the British public can be bullied into accepting that its own moral instincts are unsound is foremost what’s keeping Labour from rising in the polls.

Europe’s debt crisis isn’t coming to an end until its political class recognizes that a recession is unavoidable. Such high levels of debt as were amassed in the years preceding the downturn require a contraction and painful bank deleveraging process to restore a modicum of economic sanity in the eurozone.

That means that banks which loaned endlessly to bankrupt countries like Greece and Italy have to write off part of their outstanding loans and it requires that especially public sector workers in the peripheral countries of the single currency area accept pay and pension cuts. Neither is quite willing to take their losses yet. The fantasy that they won’t have to is unfortunately perpetuated by Europe’s leaders every time they convene and promise to pull out the “bazooka” to shoot a hole in the financial uncertainty and end the crisis overnight.

The road ahead will be tough. Short of printing money and inflating the debt, the only way out of Europe’s crisis is strict fiscal consolidation (otherwise known as spending no more than you take in) and the prospect of sustainable growth.

To that end, at least some banks that are sitting on their money because they know what’s coming will have to collapse. If they’ve invested billions in worthless peripheral sovereign bonds, they deserve the same fate any other business does that makes a lousy investment decision—failure.

Moreover, countries like Greece and to a lesser degree Italy and Spain, will have to enact major economic reforms to boost their competitiveness. They will have to cut wages, reduce pension obligations, eliminate burdensome labor laws as well as totally superfluous restrictions on production and trade that do more to hurt their economies than protect their industries.

That means that these countries have to break the power of the unions which is an unpopular thing to do in places that have enjoyed economic expansion for roughly two decades not in spite of but because they became part of Europe’s single market and reduced trade restrictions.

National politicians never praised the benefits of European Union membership. Across southern Europe, they met entry criteria to the letter or they cooked the books but they never embraced trade liberalization and economic integration as a path to prosperity because in the short term, it made jobs redundant and voters angry.

Now they blame Germany for insisting that they enter the age of globalization, modernize their economies in a matter of years where it took the Germans two decades and rein in their pervasive welfare states. In reality, they have only themselves to blame and it’s going to get much harder for them in the years to come if they don’t do what’s good for them now.

That’s what Democrats are fighting for—the preservation of the welfare state in which all Americans, including the poorest among them, are able to own a home, afford college education for their children, health insurance for their families and to retire in dignity.

It’s a vision of a country where income is redistributed to the advantage of the “less fortunate” (because wealth distribution in a free society, in progressives’ view, is arbitrary, not just) and where government has a heavy hand in production and trade to “protect” workers from greedy and callous businessmen whom the president urged to “bring jobs back to the United States not just because it’s good for business, but because it’s good for the country that made their business and their personal success possible.”

For a president running for reelection, Obama’s “we’re all in this together” rhetoric will appeal to the very people who stand to lose if the American welfare state is dismantled.

According to Obama, it’s Republicans who “want to return to the same practices that got us into this mess.”

In fact, they want to go back to the same policies that stacked the deck against middle class Americans for way too many years. And their philosophy is simple: We are better off when everybody is left to fend for themselves and play by their own rules.

People left to “fend for themselves,” the horror!

There are a lot of Republicans who will argue that they’re not as selfish and libertarian as the president makes them out to be; that in fact they do want to help people who are in need but believe it’s best for individual citizens to organize charity than have the government force it upon them. Which is fine but the dividing line is indeed one of government’s role in society—either President Obama’s welfare state where Washington tries to make sure that all Americans have a “fair chance” or the small government conservative model of traditional Republicanism where citizens are responsible for their own well being. That’s the choice Americans face in the 2012 election.

The White House deemed it “unfortunate that a small group of senators obstructed his nomination, putting political interests above the best interests of the American people,” but from this blogger’s perspective, it’s exactly the interests of the American people they had at heart.

This was the man who professed any health care plan “that is just, equitable, civilized and humane, must redistribute wealth from the richer among us to the poorer and the less fortunate.” Good health care, he stressed, “is by definition redistributional.”

So he loved Britain’s collectivized health care system which he described as “not just a national treasure” but “a global treasure” that should serve as a model for the “bloated” American health insurance market. The United States, he added, were trapped in “the darkness of private enterprise” whereas the British model was “generous, hopeful, confident, joyous, and just.”

Which is odd given that Britain’s ombudsman determined this year that the very system was “inhumane” and failed to meet “even the most basic standards of care.”

But wait, it gets worse. Berwick lamented the fact that “the chronically ill and those toward the end of their lives are accounting for potentially 80 percent of the total health care bill out there.” He foresaw the need for what he called “a very difficult democratic conversation,” adding: “The decision is not whether or not we will ration care. The decision is whether we will ration with our eyes open.”

Suddenly, Sarah Palin’s “death panels” didn’t seem so preposterous when Berwick’s nomination was announced. This man shouldn’t be anywhere near making health care decisions for anyone. Good riddance indeed!

In her treatise of the 1960s student uprising at the University of California, philosopher Ayn Rand recognized that the protesters there weren’t necessarily driven by a particular ideology either, rather by a desire to “take over.”

In “The Cashing-in: The Student Rebellion,” published in Capitalism: The Unknown Ideal (1966), Rand pointed out that the number one complaint among the “rebels” at Berkeley was that their universities had grown “too big” just as the nation’s banks today are deemed too powerful.

As if they had mushroomed overnight, the “bigness” of the universities is suddenly decried by the consensus as a national problem and blamed for the “unrest” of the students, whose motives are hailed as youthful “idealism.”

Excepts the students had no ideals, according to Rand. They had hardly been taught to think. They were the products of a modern philosophy that negated reason and told young adults that there was nothing certain in life. They came out of school into the world with the following sediments in their brains—”existence is an uncharted, unknowable jungle, fear and uncertainty are man’s permanent state, skepticism is the mark of maturity, cynicism is the mark of realism, and, above all, the hallmark of an intellectual is the denial of the intellect.”

Thus a young girl at Berkeley could tell an interviewer that she has learned that “there are no absolute rules,” before uttering that “we make rules for ourselves.” Sound familiar?

They rallied against “the system” and had to change everything, now. Their hoodlum tactics were answered with vague, apologetic concessions and evasive platitudes from “the establishment” which had taught its children that they were impotent and helpless yet had to rebel against everything they knew.

Whereas the majority of student activists probably were—and are—ignorant of the cause they were serving, their manipulators had very clear goals. They set out to convince the rest of society that mass civil disobedience was a proper and valid tool of political action; that there was a difference between violence and force and that the latter was an acceptable form of social action; that there was no difference between action and ideas. “They claimed that freedom of speech means freedom of action and that no clear line of demarcation can be drawn between them.”

Notice the enthusiasm of today’s “radical chic” who herald the Occupy Wall Street movement as a proper leftist counterpart to the Tea Party, a populist right wing revolt against government overreached that emerged in protest to President Barack Obama’s health care reform effort in 2009.

The “organizers” in the 1960s did not create the conditions for Berkeley to happen though, nor did they educate the hordes of embittered, aimless, neurotic teenagers who stamped their foots shrieking, “I want it now!”

[B]ut they do know how to attack through the sores which their opponents insist on evading. They are professional ideologues and it is not difficult for them to move into an intellectual vacuum.

Rand knew that the real battle was being waged in the classrooms. She understood that the battle was one of opposing ideas—between one that recognizes reality and one that doesn’t; one that accepts reason and one that rejects it; one that respects private property and one that abolishes it. All the particular issues, whether it’s “free speech” in the 1960s or collective bargaining rights and bank reform today, stem from these basic principles.

Rand also knew that the defenders of collectivism retreat quickly when they encounter a confident, intellectual adversary. “Their case rests on appealing to human confusion, ignorance, dishonesty, cowardice, despair.” The opposing side has the weapons of morality and reason on its side. “The collectivists dropped them, because they had no right to carry them. Pick them up,” she wrote; “you have.”

Labour Party leader Ed Miliband attends an investment conference when he was energy secretary, February 22, 2010

Ed Miliband’s disappointing policy speech at a Labour conference in Liverpool last week was reflective of the political predicament that Britain’s largest opposition party finds itself in.

Thrown out of power overwhelmingly in last year’s parliamentary election, the Labour Party has struggled to regain traction in the polls. The ruling Conservatives, by contrast, have retained their electoral support as has Prime Minister David Cameron who, Labour’s vilifications notwithstanding, is a moderate right of center leader who appeals to a large part of the British electorate.

Although they haven’t yet won majority support and depend on the third party liberals in government, the Tories are perceived as more moderate and reliable than they were roughly ten years ago when New Labour, under Tony Blair’s leadership, appealed to college educated young urban professionals and middle class voters who were drawn to the Liberal Democrats in the last election.

Miliband’s failure to bring these people back into the Labour Party was clear at last week’s conference when his statement, “I’m not Tony Blair,” was received with wild cheers before he could point out that he wasn’t Gordon Brown, his immediate predecessor as party leader, either.

Indeed, Miliband has taken the party to the left, away from Blairite Third Way politics and back to the trade unionism and class warfare that used to define it. In his speech, he lambasted “predatory” businesses which, he suggested, should be taxed heavier than “producers.” He complained that ordinary people were being “ripped off” by heartless energy companies and that their living standards were “squeezed by runaway rewards at the top.”

There is dissatisfaction in Britain that Miliband can speak to. Many Britons may agree that their economy and their society are “too often rewarding not the right people with the right values but the wrong people with the wrong values.” But they don’t necessarily trust the Labour Party to mend that imbalance.

When Miliband asked his conference whether they were “on the side of the wealth creators or the asset strippers?” what many voters heard was old school class politics that did not at all transcend the traditional party divides. Yet Miliband claims to represent “new politics” and he says the Conservatives are really “the same old Tory party” when they have in fact become far more critical of their once laissez-faire economic views.

Chancellor George Osborne promised his conference on Sunday that he would “intervene where the market doesn’t work.” If both parties will, the Conservatives are regarded as frugal managers of the economy at least whose objective is to generate growth whereas Labour is perceived as spendthrift and trying to protect existing jobs, especially in the public sector, when new jobs are needed.

Osborne said that he was “optimistic for the future” and claimed that austerity was the way toward “a better Britain.” The Conservatives seem to know where they want to take the country and it’s foreward. Miliband’s Labour Party is living in the past.

Prime Minister Lars Løkke Rasmussen of Denmark, leader of the country's liberal party, May 6, 2010

Denmark’s ruling coalition of conservatives and liberals is likely to be unseated in elections this week as the opposition social democrats hope to secure a parliamentary majority of center left parties. After a decade of right wing government, the Scandinavian country is expecting a change although major reforms could be complicated by coalition politics.

According to recent opinion polls, Prime Minister Lars Løkke Rasmussen’s liberal Venstre, a pro-business party that champions smaller government, would lose maybe no more than a single point in support down from 26 percent of the vote in 2007. His conservative coalition partners could be decimated however.

Denmark’s conservatives and liberals were able to govern with the parliamentary consent of the far right Danish People’s Party, an anti-immigration platform that has consistently polled at around 11 to 14 percent of the vote. Unlike the other two major parties on the right, the populists are wary of entitlement reform and liberalization and draw considerable support from pensioners.

Although unemployment is below the European average at 4 percent, Denmark’s economy contracted by almost 5 percent in the wake of the financial crisis, forcing the governing parties to consider welfare reforms as they simultaneously cut taxes.

The government’s borrowing conforms to European treaty norms with 2.7 percent deficit spending but to achieve balance in the long term, Copenhagen has to reduce expenditures.

Raising more revenue was not an option for Venstre. Instead, it enacted a reduction in the top income tax rate from 59 to 51.5 percent in January of last year. Overall tax revenue amounts to 49 percent of gross domestic product nevertheless—an extremely high figure even among northern European countries.

Negative growth and its implications for fiscal policy exposed the rift that had always existed between two governing parties and their allies in the People’s Party. They may be far to the right on immigration and security issues; their national conservatism borders on a protectionist economic stance which conservatives nor liberals can embrace. The People’s Party’s staunch support for existing welfare programs moreover made it nigh impossible for the ruling parties to implement meaningful reforms.

The social democrats of Helle Thorning-Schmidt, who represented her party in the European Parliament before assuming its leadership in 2005, have progressively increased their support in opinion polls since the start of this year, climbing from 25.5 percent of the vote in January—which equaled their performance in 2007′s election—to 28 percent this summer. In coalition with smaller socialist and Green parties on the left, the party that has spearheaded the opposition for precisely a decade could well return to government and deliver Denmark’s first female prime minister this year.

An obstacle could be the social liberals in the Radikale Venstre who are considered left of center on social and immigration policy but otherwise in favor of the market driven economic policies of the main Venstre party. If they will not enter a coalition that is dominated by socialists, they may be persuaded to support the new government without joining it—fulfilling the very role that the People’s Party they so despise has for ten years.

Writing for Foreign Affairs, Matthias Matthijs observes that the London riots are “set against the backdrop of Britain’s ongoing fiscal and sovereign debt crisis and the coalition government’s politics of austerity. They illustrate the critical connection between class politics and fiscal retrenchment,” he suggests.

The problem with [slashing public expenditure] is the unequal burden that such cuts put on various parts of the United Kingdom’s income distribution.

Whereas the country’s top earners can afford alternatives to state largesse and thus do not feel the weight of fiscal austerity, fiscal retrenchment hurts those at the bottom who directly rely on government services such as welfare, public education and transportation.

Nowhere throughout his article does Matthijs bother to mount an intellectual defense of the welfare state that has so obviously failed in Britain. Nowhere does he suggest how the country might otherwise emerge from fiscal ruin if not by spending cuts that “hurt” the poor. Nor does he offer any evidence for his preposterous claim that somehow, budget policy compelled the dissatisfied youth of London to riot and plunder.

Time‘s Tony Karon similarly blames a retrenchment of the state for the unrest without backing up his claim. He believes that “an Austerity Intifada is sweeping Europe” because “neoliberal economic policies have funneled most of the wealth created in recent decades to a small, already wealthy elite, while shrinking the middle class.”

Whether they respond with disciplined protest or nihilism and criminality, millions of young people in Europe today see playing by the rules of the socioeconomic and political status quo as offering them no decent future.

Karon even comes close to apologizing for the widespread looting, noting that demonstrators “accuse the Western world’s bankers of doing the same to the state, demanding bailouts to save them from the consequences of their catastrophic mistakes.” Right. They did it too!

Both authors completely ignore what’s at the root of London’s riots which is an utter lack of self-esteem that the very welfarism that they insist be perpetuated has fostered over decades.

Prime Minister David Cameron hinted at this on Wednesday when he pointed out that “people [were] allowed to feel that the world owes them something” in the desolate neighborhoods that have recently been stricken with violence. The conservative leader added that a country has a “moral problem” when a “sick” part of its society believes that it has only rights and no responsibilities.

He’s right. The British rioters aren’t guided by any particular ideology or well defined frustration. Their anger has nothing to do with austerity measures that haven’t even come into effect yet! Their anxiety reflects an entitlement mentality that is under threat. They and their parents were told by generations of politicians that they had a “right” to welfare provisions paid for by the productive segments of society and now that promise is falling apart. They were never taught to take care of themselves and soon, they might be forced to.

It’s tough adjusting to reality. But that’s not an excuse to take it out on your neighbors who always did just try to make a living.