Remembering Rajaji (and the AAP would do well to do so too!)

On his 135th birth anniversary, we pay our respects to Chakravarti Rajagopalachari, whose economic philosophy is one of the key sources of inspiration for the Subhasbadi Swatantriya Dal. With Rajaji, we advocate minimal government intervention in the economy, with a focus on the provision of basic needs. The past five years have shown India that wanton public spending on boondoggles like NREGA and the Food (In)security Bill will only lead to structurally high inflation, which hurts the poor most. We are with the AAP on its fight against corruption, but would caution it against becoming a C-team of the Sonia Congress on economic policy.

Where are Rajiv G's legatees?

(First published in India Today, 20 February 2012, "Upfront" column).
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In the capital markets (and the private sector more generally), it is widely accepted that India’s economic success of the past 20 years was achieved despite the infirmities of the state. Yet, the leadership of the Congress party is intent on deepening a statist agenda.

Congress leaders assume that NREGA contributed to their electoral victory in 2009, and are sure that the Food Security Bill is the ticket to re-election in 2014.

While NREGA is a great tool to spread largesse to political intermediaries (and ensure a modest trickle to the poor), it hugely distorts the rural labour market, makes most labour-intensive industry unviable, and has contributed to the upward pressure on wages and prices that the RBI struggled (and failed) to contain in 2010 and 2011.

At a time when the fiscal deficit over the past 12 months has risen to 5.7% of GDP (a full percentage point higher than promised in the Budget for FY2011/12), the Food Security Bill will cause more permanent damage to the fiscal balance than anything since the muddled implementation of the Fifth Pay Commission recommendations in 1997.

More perniciously, the Bill will effectively kill the operation of the free market in food-grain, severely hurting India’s farmers (who want to be able to export their surplus grain, not be obliged to sell it to the state, which will then attempt to sell it at far below cost to 75% of India’s citizens). Thankfully, Agriculture Minister Pawar is openly opposed to this asinine scheme, which would thoroughly undo the gains of the Green Revolution (1965-1973).

The 1991 reforms (and those of 1999-2003) freed up the organized corporate sector, and unleashed its untapped potential. But the vast unorganized sector (farmers, small vendors, service providers, artisans, etc.) remains subject to a License Raj that allows babudom the freedom to harass and exploit the poor in urban areas – while the Essential Commodities Act constrains farmers from getting remunerative prices for their produce.

India is now in the midst of a once-in-history Demographic Dividend (that began around the year 2000, and will last until 2035). As the dependency ratio steadily declines, the national Savings rate rises, increasing the proportion of National Income that can be invested, thereby boosting productivity (the ultimate guarantor of prosperity). This is the virtuous circle that China (1978-2012), Japan (1950-90) and South Korea (1965-2010) benefited from in the past.

But a liberalized economy able to create jobs is the key to ensuring the rising national savings rates that are central to this virtuous circle. The Arab economies (Egypt, Libya, Syria, Saudi Arabia, etc.) show the dangers of a jobless demographic transition. Unlike India’s or Indonesia’s youth bulge, the Arab one manifests itself in lofty and rising youth-unemployment rates, providing the timber for a revolution of unmet expectations.

The current Congress leadership’s myopic agenda threatens to take India increasingly toward the West Asian (and north African) rather than East Asian economic trajectory.

Ironically, the liberalization of India’s economy actually began under Indira Gandhi in 1980 (albeit haltingly), when she agreed to take a US$5bn loan from the IMF (the Fund’s largest loan ever granted to any country until then). This was repaid before time, but Rajiv Gandhi substantially expanded those reforms in 1985, beginning with a reduction in income-tax rates, lower import duties and modest de-licensing of industry.

In 1991, the Congress election manifesto (drafted at Rajiv Gandhi’s behest) contained a radical program of economic liberalization, most of which was eventually implemented by PV Narasimha Rao’s government.

The 20th anniversary (in July last year) of Narasimha Rao’s economic reforms went uncelebrated by the Congress party, despite the fact that Rao’s finance minister is now our Prime Minister. Ironically, the party led by Rajiv Gandhi’s widow and son is running away from his own legacy.

Instead the Congress continues to embrace the ideological legacy of the Indira policies of 1969-74, which led to economic stagnation and inflation rates of over 20% (that persisted through 1974 and until mid-1975). They inevitably caused a politico-economic crisis that brought Jayaprakash Narayan and Morarji Desai out of political hibernation to head movements in Bihar and Gujarat that gathered nationwide support, eventually ousting Congress from power in March 1977.

Indira was more pragmatic (and pro-business, exhorting “more work, less talk”, etc.) during the Emergency, and in her final term as PM (1980-84), when India’s economy pushed onto a higher-growth trajectory (5.5% annually, rather than the 3.6% average annual growth in 1950-79).

The lesson that Rajiv Gandhi drew from his first five-year term was that a more liberalized economy would generate more growth (and jobs). Belying the export pessimism of the past, India’s exports (of goods and services) have expanded more than 12-fold in the past 20 years. That is partly Rajiv Gandhi’s legacy, just as much as it is Narasimha Rao’s. What a pity that Rajiv’s legacy has been buried by his party, in pursuit of a headlong plunge into statist policies that now threaten the future of India’s economic miracle.

11 years on: Take a better look at the work of a rebounding India

11 years and a month since I wrote this piece (http://www.goodnewsindia.com/Pages/content/inspirational/basu.htm) for the International Herald Tribune (and found it republished in the Asian Age), the economic predictions in it have largely come true. In fact, those predictive insights (that appeared radical 11 years ago) seem rather commonplace now, as India reaps the fruits of her Demographic Dividend. But sadly, the quality of governance (as evident in the shambolic mess in the run-up to the Commonwealth Games in our nation's capital) appears to have clearly worsened. Our increasingly dysfunctional polity, and institutional decay that is spreading to even the pillars of our democratic edifice, threaten the gains accruing from our economic momentum. That will be the theme of my next, longer blog.

August 15th: Remembering the builders of modern India

By Prasenjit K. Basu

For citizens of India, August 15th provides an annual opportunity to commemorate the sacrifices of those pioneers whose struggle made freedom possible and whose vision laid the foundation of a successful modern nation-state from the rubble of a supine subcontinent wracked by poverty and ignorance.

Two centuries of British rule had left India as the poorest nation on earth, with barely a tenth of her people able to read or write in any language. The imperial creed of Divide & Rule had culminated in a bitter partition of the subcontinent, creating "facts on the ground" of inter-religious conflict far more vicious than anything in India's long history.

Only a few years before Independence, a horrendous famine had killed at least 3 million Indians in 1943 – continuing a grim tradition that went all the way back to 1770, when the first famine resulting from British rule wiped out more than a third of the entire population of British India's eastern dominions.

From such unpromising material, and in the face of the greatest empire in human history, India's pioneers created the basis of a constitutional, federated democracy in which the competing interests of 26 linguistic groups, numerous religions and thousands of castes and sub-nationalities were melded, mediated and accommodated, forging the basis of a durable nation-state that has gradually addressed the economic needs of more than a sixth of humanity.

Above all, we remember Mahatma Gandhi, the extraordinary leader of our independence campaign, who united the masses behind the small elite of exceptionally able leaders who had laid the groundwork of modern nationhood. The Mahatma's unyielding commitment to non-violence was often too difficult for his compatriots to follow unquestioningly. But the moral strength of his message made it impossible for an empire supposedly committed to legality and fair play to combat.

From Champaran and Bardoli, to Dandi and Gowalia Tank (or August Kranti Maidan), the venues of Gandhiji's journey of mobilization are emblazoned in the nation's collective soul.

The poet of our national awakening, Rabindranath Tagore, ironically came to believe that nationalism was a divisive, westernized notion. Instead, his humanism and the lyrical splendour of his poetry, songs, novels and art invite us to aspire toward beauty while committing ourselves to opening the minds and sensibilities of all our fellow beings.

Both Gandhiji and Tagore shared a commitment to making a new India that would widen the horizons and opportunities for all her people. It was a vision nicely encapsulated in Jawaharlal Nehru's exhortation to "wipe every tear from every eye". That is a lofty aspiration that modern India has not quite accomplished. But, 63 years on, India has raised its literacy rate to over 80% (from 14% in 1950), and the life expectancy of the average Indian is approaching 65 years (more than double what it was at Independence).

The British had ensured there would be no engineering and medical schools of note in India. The visionary Madan Mohan Malviya subverted British designs by creating in Benares a university that would turn out engineers who would help to build the new India. Nehru took it further with the creation of the Indian Institutes of Technology (IIT) and Management (IIMs) that have become paragons of excellence in engineering and business-skills that the rest of the world seeks to emulate.

When Jamsetji Tata decided to clear the swamps of rural Bihar (now Jharkhand) to create Tata Steel 103 years ago, the company had to import engineers from America and Germany. Nearly a century later, when LN Mittal was acquiring Arcelor to create the world's largest steel company, his company was vilified in Europe for being "full of Indians".

It was a characterization that the makers of modern India could take quiet pride in, since Mittal's engineers and managers around the world were indeed largely Indian. The pioneering investment in tertiary education has paid rich dividends – unmatched elsewhere in the developing world.

We remember, too, Swami Vivekananda, who electrified the Parliament of Religions in 1893 with his message of love, tolerance and empathy for all humans – and whose robust re-definition of Karma Yoga sowed the seeds of a syncretic nationalism based on forward-looking action, rather than wallowing merely in slavish self-pity.

Young Indians of the next generation like Bhagat Singh, Surya Sen and Chandrasekhar Azad decided that such action required considered use of violence to combat the claws of an empire that eschewed no foul means in holding onto power. They made the ultimate sacrifice for our freedom, holding fast to their ideals even as their young lives were snuffed out.

Their ideals (and those of Nana Saheb, Rani Laxmibai, Bakht Khan and Tantia Tope from 1857) animated Subhas Bose in building an Indian National Army (INA) based in Singapore (and later Rangoon) to fight for India's freedom. Although American air power and monsoon rains defeated the INA's Imphal campaign (after they had taken Kohima and Moirang), the subsequent INA trials in 1946 lit the spark that led to the mutiny of almost the entire Royal Indian Navy (RIN), half the Royal Indian Air Force (RIAF) and two regiments of the British Indian army in February 1946.

With the loyalty of their armed forces tottering for the first time since 1857, Attlee hurriedly announced in late-February 1946 that a Cabinet Mission would go to India to negotiate India's freedom. The sacrifices of the 30,000 Indians from Singapore and Malaya (and 50,000 prisoners of war) who had joined the INA to obtain India's freedom did not go in vain. They too must never be forgotten.

And we remember Vallabhbhai Patel, whose statesmanship and dexterity ensured that the new India was a genuinely federated Republic rather than a congeries of medieval kingships. And we never forget Maulana Abul Kalam Azad, who sought tirelessly to ensure that Muslims and Hindus would struggle shoulder-to-shoulder against the might of empire, and Chakravarty Rajagopalachari, who kept alight the flame of economic reason amid a rising chorus of socialist folly. We commemorate Indira Gandhi, whose perspicacity in foreign relations helped consolidate the gains of nationhood and negotiate the treacherous shoals of superpower rivalry in the decades after India's Himalayan defeat in 1962. And we are grateful for the realism of Narasimha Rao and Atal Behari Vajpayee in liberalizing the Indian economy, and unshackling the enormous potential of Indian entrepreneurship.

The collective legacy of these visionaries has built the edifice of modernity on which the 60-year-old Republic now stands, ready to finally take its rightful place as an emerging leader in the comity of nations. We have not yet redeemed all the pledges of our Independence generation, but are well on the way to fulfilling them not only "very substantially", but "wholly and in full measure" too.

The key Strategic Imperative of our time: A formal Indo-US Strategic Alliance

Periods of power transition among the “great powers” are always periods of great peril for world peace. The period from 1870 to 1914 marked the emergence of two new powers – the US and Germany – whose economic clout began to match (and even surpass) that of the pre-eminent power of the 19th century (Britain), and completely eclipse that of Britain’s erstwhile challenger France (which over-stretched itself under Napoleon, and has been a second-rate power since the Franco-Prussian war of 1870). Britain’s “balancing” role on the continent (of aligning with whoever opposed the ambitions of its leading rival) shifted its focus from balancing France (1800-1870) to balancing Germany (by early in the 20th century).

Eventually, Britain’s attempts at balancing Germany failed (or went too far), provoking two world wars before a new world pecking order could emerge – with the US clearly in the forefront, and Germany subsumed gradually into the broader framework of “Europe” to contain and assuage its ambitions as a great power. The second half of the twentieth century was characterized by the emergence of Russia (ideologically extended into a multi-ethnic empire called the Union of Soviet Socialist Republics, USSR). Although the USSR was no match for the US as an economic power, its ideological attraction to middling powers (like China in the 1950s, India and much of Africa and the Middle East in the 1970s) made it a potent strategic competitor to the US -- which created an elaborate system of alliances (of which NATO was the most prominent and long-lasting, but CENTO, SEATO, etc. covered the rest of the world) to counter the perceived threat from the USSR and its satellites in eastern Europe. Although the world came perilously close to a war between the two superpowers (in 1956, after the Soviet invasion of Hungary and the Suez crisis, in 1962 during the Cuban missile crisis), the competition was confined to a “Cold War”, a state of permanent tension that stopped just short of full-scale war.

It is the positions of the middling powers that are most in peril during such periods of power transition. France and Russia felt most threatened by the emergence of Germany a century ago, and they responded by aligning with Britain (the pre-eminent power of that era, as the USA was perceived to be content in its own sphere of influence in the western hemisphere and the Pacific). The threat from the USSR drove Britain, France, (west) Germany, Italy and Japan to formally align with the USA in the 1950s – and communist China to do so informally by 1979.

All middling powers have essentially two options in response to the emergence of a threatening new great power – either “balancing” or “bandwagoning”, i.e., either to attempt to join an alliance to balance that power, or to join the bandwagon of its allies or followers. Finland was a classic example of a European power that chose to “bandwagon” with the USSR, giving up its independent foreign policy in exchange for non-interference in its internal affairs. Sweden was often accused of verging quite close to “Finlandization” as well (both in its foreign and domestic policy), but Norway chose to balance against the USSR by joining NATO.

After the demise of the USSR in 1991, there was a 17-year period of unrivalled US ascendancy. The 2008 financial crisis has not completely altered that, but it has highlighted the US’ growing dependence on foreign funding of its rising public debt. Talk of a new G-2 is premature, though: the US still spends more on defence than the next 10 largest spenders put together, giving it global military preponderance – with China very far from being any match for the US as a military power. China’s annual military expenditure remains just a tenth of that of the US, the Chinese navy is still building its first aircraft carrier (while the US navy has 12 nuclear-powered aircraft carriers), and China fields barely 20 nuclear missiles capable of reaching the US (all of them susceptible to a pre-emptive strike) while the US has 9000 nuclear warheads (and about 5000 strategic warheads).

The US’s only rival as a nuclear power remains Russia (which, as a single-commodity exporter with a declining population, is far from being even a second-rate economic power of the present and future). Although the US is indeed increasingly dependent on China’s purchases of US Treasury bills/bonds, the dependence in fact runs both ways: only by allowing its own currency (the Renminbi) to appreciate can China move away from rapidly increasing its foreign reserves (about 60% of which will have to be US$-denominated, simply because there is no real alternative as a credible global reserve currency).

No power other than the US has the ability to project power in more than one military theater at once in today’s world – partly because no other nation’s navy and air-force are remotely as well-equipped and effective as the US one. But no other power is currently involved in two wars – as the US is, in Afghanistan and Iraq.

The experience of the wars of the twentieth century (cold and hot) shows that the bystanders typically gain economically at the expense of the combatants. Thus Germany and Japan emerged as the economic winners from the Cold War, just as the US (which only entered the First World War halfway through it, in late-1916) emerged as the big economic winner from that war. The longer the Afghan and Iraq wars persist, the more the gaping economic gulf between the US and China will begin to close – and the more meaningful it will be to talk about a new Group of Two powers determining the course of world events.

While it is still too early to talk of a bipolar world (either in economic or military/strategic terms), China is clearly now THE rapidly-emerging global power. After three decades of annual economic growth 3-4 percentage points faster than India’s, China’s per capita national income is about three times India’s. The gap in annual economic growth continued even during the 2003-08 period (the five years of fastest economic growth in India’s history), although the gap in economic growth narrowed marginally to 2.5-3% annually.

China is already the largest trading partner for virtually every Asian economy, having just achieved that status with India in the past year as well. China has large bilateral trade deficits with Taiwan, Japan and Korea. The bilateral trade deficits serve a useful political purpose: since these economies are beneficiaries of the China market, their foreign-policy stance toward China becomes increasingly conciliatory. The ASEAN nations now have a small bilateral trade deficit with China (a reversal from the surpluses of the previous five years), but they too look upon China as a vital market for their products (and as a processing and assembly base for components manufactured in ASEAN). Consequently, many of the ASEAN nations (especially Burma, Malaysia and Cambodia) have pursued a “bandwagoning” strategy toward China, acting broadly in consonance with China’s wishes on most foreign policy questions. China prefers to have the ASEAN economic community expanded into the ASEAN+3 (with Korea, Japan and China), rather than the proposed East Asia Summit (which would include India, Australia and New Zealand). Steadfast support from Singapore and Thailand has kept the momentum of the East Asia Summit going, but pressure from China and its allies has ensured that the ASEAN+3 framework progresses much more rapidly.

Until recently, Japan was steadfastly pursuing a policy of equi-distance between China and India, with a subtle tilt toward India gradually emerging in the past decade. In fact, the long-ruling Liberal Democratic Party (LDP), especially under PMs Koizumi and Abe (and less so Aso and Fukuda) had explicitly built bridges to India – attempting to pursue a classic “balancing” approach in Asia (akin to Britain’s strategy a century ago in Europe). Although the newly-elected Democratic Party of Japan (DPJ) government of PM Yukio Hatoyama is yet to elaborate the details of its stance, PM Hatoyama emphasized the pre-eminence of ties with its immediate neighbours (China and Korea) in a signed newspaper article just after being elected – and followed it up with visits to those two countries, ostensibly to discuss North Korea but in reality to also forge an East Asian economic community (or at least deepen economic linkages between the three north-east Asian neighbours).

India appeared to be outside PM Hatoyama’s line of vision altogether – although at the ASEAN meetings in October, the DPJ-led Japanese delegation renewed its support for the East Asia Summit (EAS) approach (i.e., including Australia and India in the trade bloc) rather than the ASEAN+3 approach favored by China. The DPJ’s support for the EAS, however, appeared to be much more driven by its warm ties to Australia rather than to any links between the new Japanese administration and India. In fact, four months after the DPJ’s electoral victory, the old LDP talk of an “alliance of Asia-Pacific democracies” (encompassing the US, India, Australia and Japan) has been put firmly on the back-burner as Japan resumes its pre-Koizumi courtship of China (with the full panoply of ritual apologies for perceived historical slights demanded by China). The DPJ’s “shadow shogun”, Ichiro Ozawa, is after all the former leader of the LDP’s old Tanaka faction – which began Japan’s courtship of communist China in the 1970s.

PM Hatoyama’s trip to India at the end of December 2009 again underscored the world’s perception of how best to deal with India: give Indian leaders “face”, because symbolism rather than substance is what Indian politicians crave. Hatoyama’s visit was labeled the “first state visit” of his term as Prime Minister (meaning, presumably, that the alacrity with which he visited Korea and China for tripartite meetings, and Singapore for the APEC conclave, were merely courtesy trips). While making the appropriate noises about the Delhi-Mumbai industrial corridor, the substance of the visit boiled down to Japan asking India to sign the Comprehensive Test Ban Treaty before any civilian nuclear cooperation would be possible with the Hatoyama/DPJ administration.

Subsequent to the APEC summit, US Pres. Obama’s joint declaration with Chinese communist party chief Hu Jintao spoke gratuitously of the need for those two powers to act jointly to improve relations between India and Pakistan. The reaction in the Indian press was a bit over-wrought (since such diplomatic declarations rarely translate into actions on the ground, unless each party to the dispute is willing to allow outside intervention).

However, the Sino-US joint declaration did highlight again that India is not “top of the mind” among the Obama administration’s foreign policy concerns. Secretary of State Clinton’s first foreign-policy tour covered China, Korea, Japan and Indonesia (but pointedly left out India), just as Obama’s first tour of Asia covered Japan, Singapore, Korea and China. India was instead accorded the symbolism and rhetoric of being granted an official state visit (repeatedly emphasized as being the first of the Obama administration), being dubbed a “natural ally” and one of the US’ “defining relationships of this century”. On Afghanistan, however, US decisions (and press reportage) continue to be driven by Pakistani perceptions – with India’s allies (Pres. Hamid Karzai, defeated presidential rival Abdullah Abdullah, Gen. Rashid Dostum of Mazar-e-Sharif, Vice President Fahim of the Panjsheri group, and Herat’s Ismail Khan) all dubbed “warlords” or “corrupt”, while Pakistan’s allies (the oxymoronic “moderate Taliban”) are accorded the elusive status of credible future interlocutors. Ever solicitous of China’s concerns, however, Pres. Obama went out of his way to snub the Dalai Lama (as none of his predecessors had done over the past two decades) when the Tibetan spiritual leader visited the US.

Despite the emollient words Prime Minister Manmohan Singh heard in Washington during his state visit, India remains a “strategic partner” of the US, while Pakistan is a “major non-NATO ally”, and the strategic relationship between the US and China is of longer standing. Having signed a landmark civil nuclear agreement with the US, India is still merely a “natural ally” (ie, a rhetorical one) but very far from being a formal ally.

As a 1962-like situation begins to emerge in Arunachal Pradesh (where Chinese troops surged through 47 years ago) and the Aksai Chin border in Ladakh, India is again completely alone. After a careful wooing of the KMT – the communist party’s civil war adversaries who escaped to and ruled Taiwan from 1949 to 1996 – during its decade out of power, official relations between China and Taiwan are now the warmest they have been since 1949. With its chief adversarial obsession no longer needing as much attention, communist China has turned its gaze toward its other pesky rival in the south-west, India. Although its leadership frequently resorted to Marxist-Leninist-Maoist rhetoric (especially in the first three decades after the 1949 revolution), the communist regime clearly saw itself as succeeding to the Mandate of Heaven – and, therefore, to defending the most extreme of imperial claims made by the Qing dynasty (that ruled from 1644 to 1911) and any of its imperial predecessors.

In that imperial vision, all Asian nations (starting with Japan, Korea and Vietnam) have been seen as supplicants to the imperial court (in Beijing since the Mongol Yuan dynasty established its capital there in the 11th century). As China’s economic clout grows, all Asian nations (other than India) are implicitly ready to kowtow to China – or, at a minimum, do nothing to obstruct China’s major strategic and economic interests (including formally protesting about the under-valued renminbi, which hurts all other Asian nations’ competitiveness, but has brought not a squeak of protest from Asia in the past decade). China knows that the only Asian nation that will not follow a “bandwagoning” approach to it is India. It was to counter the long-term threat potentially posed by India that China made Ayub Khan’s Pakistan a military ally in 1963 – a relationship that has stood the test of time now for nearly five decades.

Even Mao recognized that the Indic and Sinitic civilizations have competed across the rest of Asia through the last two millennia. Since neither civilisational-state had indigenous ruling dynasties for much of the past 1500 years, their cultural competition had benign outcomes across Asia (with Sinitic influence prevailing in north-east Asia, Indic ones in south-east Asia). But with modern nation-states replacing the civilisational-states in the 1940s, Mao (and his successors) recognized that overt competition with India was inevitable – and China’s leaders have acted accordingly to gain a lead in that competition since the 1950s. In 1962, following the catastrophic famine that cost at least 30 million Manchurian and Han Chinese lives, China attacked India to administer a salutary lesson: that China (even when facing domestic distress) was Asia’s pre-eminent power.

For now, China’s military leadership is well aware that India is a considerably weaker power, militarily and economically. So continual pin-pricks on Arunachal Pradesh and the Ladakh border will continue, and India will gradually lose a few square miles of territory every year, but China will see no necessity for major military engagement with India. As long as the gap between China’s GDP and India’s remains as wide as it now is (3:1 in China’s favour), the challenge from India is inconsequential. But, if India’s demographic advantages (a declining dependency ratio until 2030, while China’s will be rising rapidly after 2015) begin to translate into a narrowing of the economic gap with India, China will become much more likely to re-establish its military dominance over India (as it did in 1962).

If India is to avoid reflexive bandwagoning – acquiescing in Chinese economic policies inimical to India’s interests (in Copenhagen, for instance, and on the renminbi), hushing-up encroachments by China into India’s territory, and conniving at increased Chinese influence over Burma, Sri Lanka and Nepal (to complement China’s long-standing alliance with Pakistan) – India needs to abandon her futile commitment to the failed policy of Non-Alignment. It served little purpose in 1962 (when NAM said nary a word in India’s support), 1965 or 1971 – and is even more useless now that the Cold War’s end has reduced the “Third World’s” ability to play off one superpower against the other.

The George W Bush Administration well recognized that there was an almost complete consonance of interests between the US and India. Those perceptions (and especially Secretary of State Condoleeza Rice’s strategic vision) made it unnecessary for India to formalize an alliance with the US then, since the Bush crowd clearly treated India as a genuine ally. Ironically, the Democrats have always had a more difficult relationship with India – under Kennedy, Carter, Clinton and now Obama – after Nehru failed to respond to FDR’s persistent espousal of the interests of a united and free India throughout World War II. In the absence of a formal alliance, the Democrats see no reason to accommodate India’s concerns on Afghanistan (where the Pakistan military rather than its democratic leadership now contributes most to US policies), climate change, terrorism, nuclear apartheid, or any other significant global issue.

Most importantly, the absence of an alliance means the US has no obligation to support India when our vital strategic interests are under threat. A weaker power is most vulnerable when a seemingly “natural” alliance gives way to one based on symbols rather than substance. China has been quick to capitalize on the reduced closeness to India of the Obama administration (relative to the Bush one), and the negative consequences of this situation to India will only grow over time.

All global powers – especially rising ones that are under threat from even faster-rising ones – have traditionally needed allies to bolster their defences and preclude attacks by those powers that threatened them. Thus China itself effectively aligned itself with the US after 1979 (on all issues except Taiwan), thereby bolstering its defenses against the USSR (with which it had long-standing disputes over its northern border, but suffered from a deep disparity in terms of nuclear capability and industrial capacity). The relationship helped China enormously -- not only by inducing massive capital inflows that propelled the Chinese economy (and reversed the China-Soviet industrial gap quite thoroughly!), but also by enabling China’s long-standing disputes with the ASEAN nations to morph into friendship (and some implicit alliances), including an ASEAN-China FTA that came into effect at the start of 2010, and for the US to quietly tolerate China’s proliferation of nuclear technology to its “rogue” allies (like North Korea and Pakistan).

A formal India-US Strategic Alliance will also greatly reduce the need for constant vigilance and ever-higher military spending (including procurements from dodgy sources rather than from the world’s pre-eminent military power), and allow India’s leadership to instead concentrate on pursuing the goals of rapid and inclusive economic growth (as China achieved so spectacularly in the first decade after the establishment of its strategic alliance with the US). Just as there was a consonance of interests between the US and China over Indochina (post-war Vietnam, post-Khmer Rouge Cambodia and Laos), there is now a similar consonance of interests between the US and India over Afghanistan. With the US set to reduce its troop presence in Afghanistan after July 2011, India will need to fill the socio-economic and humanitarian vacuum. Failing to do so will greatly increase the long-term threat to India from Taliban-inspired terrorism. Having long opposed outside (i.e., US) involvement in the Indian Ocean, India now sees US involvement as a relatively benign alternative to the Chinese navy’s growing blue-water ambitions in India’s oceans and sea-lanes.

Just as China’s alliance with the US imposed some obligations (leading to China voting with the US on most major global issues throughout the 1980s), so too will India need to accommodate the US if it signs up to a formal Strategic Alliance. Ironically, though, India has already started accommodating the US in this way (on Iran, climate change and most other major global issues) without receiving the reciprocal strategic commitments from the US. The only way to ensure that the relationship becomes a mutually-beneficial one (and one that imposes obligations on the US too, regardless of which party is in power there) is for India to do what China did under Deng Xiaoping in 1979 – become a formal Strategic Ally of the US. India’s long-standing closeness to “rogue” regimes like Iran (and, at a pinch, Russia) might then also be effectively parlayed into mediating a US-Iran (or US-Russia) détente that would further bolster India’s long-term strategic interests. Without an Indo-US Strategic Alliance, India is alone facing an increasingly powerful northern neighbour bent on eroding India’s territory, reducing India’s international independence – and representing a potential long-term military threat against which India has scant effective deterrents. The time for pusillanimity on this most vital strategic need of our times is long past.


(This blog was first posted on a now-defunct website called IndiaBanao in early-2009; it was updated with 2009 events before being posted here).

The Feel-Good Factor, Issues and the 2009 election outcome

Dr. Manmohan Singh deserves our congratulations for becoming the first incumbent Prime Minister to be re-elected after completing a full five-year term since Nehru in 1962. (Indira Gandhi was re-elected in 1971, but she called an election one year early in 1971 to seek a mandate for abridging the Right to Property enshrined in the constitution). In fact, for the first time since the 1984 “sympathy vote” election, anti-incumbency played no role in determining outcomes in most of India’s states. I would attribute the declining importance of anti-incumbency to the fact that India is one of the few parts of the global economy that has not seen either a significant diminution in household wealth or any reduction in household incomes/employment in the past year -- having experienced the fastest 5-year period of economic growth in our history during the previous five years (2002-07).

Competence in governance and economic performance appears finally to be paying dividends. For the first time in 25 years, incumbent parties emerged with the majority of seats in most of the large states (including the UPA-ruled states of Delhi, Rajasthan, Andhra Pradesh, Tamil Nadu and Assam, the NDA-ruled states of Karnataka, Gujarat, Madhya Pradesh, Himachal Pradesh, Bihar and Chattisgarh, and the Third Front-ruled Orissa and Tripura). Naveen Patnaik’s experiment (gamble?) paid off – although his victory in the state assembly was narrower than the seeming clarity of the outcome for him in the Lok Sabha election. The residual presence of anti-incumbency decimated the Left Front in West Bengal and Kerala, and there was an anti-incumbent outcome in the smaller states of Uttarakhand (NDA-ruled) and Jharkhand (UPA-ruled, but with unstable coalitions); otherwise, anti-incumbency played little role in the 2009 election.

Most urban observers accept that Dr. Singh was a “weak” prime minister – in that all his cabinet appointments were ultimately decided by 10 Janpath, thus limiting his ability to lead the cabinet. But this factor clearly did not resonate with voters. The mechanics of top-level decision-making rarely have an impact on individual voters’ lives, and so had little resonance with the electorate. On the substance, there was little doubt that Dr. Singh did demonstrate genuine leadership on one issue – the India-US nuclear deal – on which he first persuaded 10 Janpath (by threatening quietly to resign in November 2007), then a reluctant parliamentary party, the whole of the Lok Sabha (by means fair or foul) and finally the 42-nation Nuclear Suppliers’ Group (NSG, set up in 1974 to deter our nation’s nuclear ambitions) to endorse the deal despite China’s attempts to scuttle NSG assent.

Surprisingly, the Opposition did not attempt to capitalize on the sharp increase in food prices over the past half-decade (and continuing high food inflation even this year), the emptying of our fiscal coffers as the Fiscal Responsibility and Budget Management (FRBM) Act was flagrantly contravened by the UPA, the repeated failures of security under the foppish Shivraj Patil (who was appointed Home Minister in 2004 precisely because he had lost his Lok Sabha seat from Latur -- and was thus not a serious rival to the emergence of the prince -- rather than because of any innate ability), and the growing threat to our national security as China encircles us strategically in Nepal and across the Maoist belt through the centre of India while strengthening its 45-year-old alliance with Pakistan and building deeper links with Sri Lanka.

While a significant part of the electorate comprises party loyalists, and basic trends in many states can be predicted in advance, ultimately electoral outcomes in India are determined by the quality of the campaign, and the ability of parties to focus on issues (and a vision) that resonate with voters. The Congress-I has, in the last two General Elections (2004 and 2009), regained ground it had lost in the years since 1991 by running superb campaigns based on the same theme -- “Congress ke haath, Aam Aadmi ke saath” – and variants of it. In the 2009 election, the three Congress parties (Cong-I, Trinamool Congress, Nationalist Congress Party) together won 233 seats – one more than the 232 that the Congress-I (which then included both Mamata Banerjee and Sharad Pawar) won in 1991. The Congress-I had been reduced to 197 seats in 1989, and was able to win no more than 145 seats in any election between 1991 and 2004 – but the 2009 election marks a genuine resurgence in the Congress vote.

The Congress-I delivered on most of its electoral promises from 2004, with the gradual widening of the National Rural Employment Guarantee Act (NREGA) to all districts, and the waiver of farm loans to small/marginal farmers last year – both popular measures that were financed by the stronger government revenues generated by five years of accelerated economic growth. But, as the outcome in Bihar, Orissa, Gujarat, Madhya Pradesh, Chattisgarh, etc. demonstrates, that alone would not have sufficed to deliver victory had the Opposition been able to mount a campaign that resonated with voters across the country, and especially with swing voters in urban centres like Delhi, Mumbai, Kolkata and Chennai – all of which the NDA lost resoundingly for the second consecutive election (which is especially noteworthy as the BJP’s urban base is traditionally thought to be particularly strong).

With a substantially stronger mandate (260 seats on its own, just 12 short of an absolute majority), the UPA now has the capacity to undertake significant economic reform. The economy cruised during the first four years of its last term – partly on account of the efficiencies generated by substantive economic reform (Privatization, recalibration of the Telecom sector, the Securitization act, Power sector reform) under the previous (1999-2004) NDA regime. But the global economy remains in the grip of its worst recession in half a century, and India can no longer grow through fiscal stimulus alone – as it has in the past 9 months, with the fiscal deficit widening from 1.9% of GDP (on a 12-month rolling-sum basis) in June 2008 to an estimated 6.5% by March 2009.

Unless the UPA lays out an agenda for accelerated economic reform – insurance, pensions, retail being areas of likely progress – it will be confronted with a more sluggish economy that makes it impossible to effectively finance its social-welfare agenda without a further fiscal blow-out. But with the Left no longer an Albatross around his neck, Dr. Singh will be empowered to pursue his reformist agenda with renewed vigour – which may be evident early on with the appointment of a reformer like Montek Ahluwalia as Minister of Finance, and someone like Shashi Tharoor as Foreign Minister. One marker of Dr. Singh’s enhanced stature (or lack thereof) will be the number of appointments of genuinely competent individuals (rather than Gandhi-family acolytes) to key ministries.

Some voices within the Congress-I are already attributing the electoral success to Rahul Gandhi rather than the Prime Minister in whose name the Congress-I and UPA sought the electorate’s mandate. Rahul’s electoral gamble of going-it-alone did indeed pay off quite handsomely in Uttar Pradesh and Uttarakhand, but failed even more spectacularly in Bihar and Jharkhand. Had Rahul Gandhi been the UPA/Cong-I candidate for Prime Minister, the outcome might well have been quite different. In fact, the Congress-I continues to be oblivious to the fact that the two seminal policy changes under Congress rule that altered the prospects of modern India most decisively in the past half century – the economic reforms of 1991, and the Indo-US nuclear deal of 2008 – were both accomplished by non-members of the Gandhi family (and perhaps despite it).

The Nehru family has given us abject defeat in the 1962 war, the near-destruction of the economy in the 1970s (when bank nationalization, inflation, FERA, MRTP, etc. nearly crippled industry, and led directly to the Emergency), the crises in Punjab (traceable to Indira’s propping up of Bhindranwale as a counter-weight to the Akali Dal), Assam and Kashmir (largely because of Indira’s ill-treatment of Farooq Abdullah in the early-1980s and the alleged rigging of the Kashmir assembly election of 1987). Yet, the fact that the electorate remains convinced that “Congress ke haath” is “Aam Aadmi ke saath” (and the Congress-I remains wedded to being led by the scions of the Nehru family) demonstrates both the ineptness of the Opposition’s response, and the effectiveness of the branding machine that the Congress-I has been for the Family since its creation in 1978. Rebuilding the old Janata coalition of 1977 has to be the natural course if the anti-monarchists of India are to ever be able to stop the inexorable tide towards the crowning of a new prince from the Family within a couple of years.

A broader coalition that appeals across India is the only way to seriously challenge a quintessentially centrist party that continues to prosper from an organization that was built to turn back Imperialism but was eventually turned into a machine for the electoral advancement of one family’s rule. Those of us who recognize that democracy is India’s greatest long-term strength, also know (and lament) that the dynastic principle is the greatest challenge to building the institutions that will enable Democracy to deliver the economic Transformation that the people of India deserve. The party that has, after ruling the country for 51 of the last 62 years, still left India with more poor people than any other nation on earth, with more than half our people still without basic sanitation, with literacy rates that lag Indonesia and Africa, surely must be held to account more effectively for its manifest failures over those long decades.
Nonetheless, for India’s long-term future, it is a solidly positive development that a National party with instincts that are centrist and unifying has gained at the expense of the many fissiparous forces that seek to divide our country into regional, ethnic, caste and other silos. For those of us who are dissatisfied with what that party has delivered over 51 years of national rule, the task is now to think about how best to develop alternatives that will be able to credibly challenge that “Grand Old Party” (and its Family monopoly), push that party to deliver more than crumbs (such as 100 days of non-productive employment to the rural poor, rather than a genuine extension of health, education, sanitation and housing benefits to all) during the next five years, and continue focusing on the effective delivery of improved services and prosperity in the non-Congress states so that genuine alternatives continue to emerge, and compete for the electorate’s favour at the next General Election with a substantive program of proven change for the better.

Democracy and Capitalism: Reinforcing the complementary foundations of modern India

(first published on the now-defunct website, IndiaBanao!, on 2nd December 2008)

Democracy and Capitalism must reinforce each other in creating the bedrock of a robust Indian State. This might seem a trite truism, but our national commitment to Capitalism has been half-hearted at the best of times, while our commitment to Democracy is periodically questioned despite having been collectively reaffirmed after the traumatic challenge of the 1975-77 Emergency.

In fact, Capitalism and Democracy should be seen as complementary values that are strengthened only if both are robust. The global financial system now faces its most serious crisis of confidence in 80 years, partly because US democracy failed to play its role as an effective watch-dog and regulator of its capitalism. But the truly notable feature is that capitalism has delivered growing prosperity to a swelling proportion of the world without a systemic crisis during the intervening eight decades.

Only for a fifth of that 80-year period has India fully partaken of the fruits of that prosperity, while China has done so for about a third of that time. Those that embraced capitalism (and democracy) earlier – the US, Japan, Germany, and western Europe – were able to catch up with and surpass the originator of laisser-faire capitalism, Britain, by 1945. Even in pioneering Britain, however, capitalism and democracy had reinforced each other from the outset – in distinct contrast with Britain’s non-white colonies, where capitalism coexisted with autocracy, and so never developed the checks and balances that alone can allow capitalism to truly flower and deliver benefits to the broadest swathe of the populace.

Why capitalism’s foundations in India are shaky

From independence onwards, capitalism in India has been on shaky ground ideologically. History had a lot to do with this: having been colonized by one of the world’s first joint-stock companies (the British East India Co., which came to India ostensibly to trade but quickly built up huge armies and bureaucracies in order to reign over the country), our founding fathers had an ambivalent attitude, at best, to capitalism.

Over time, the Fabian Socialism of Nehru gained the ideological upper-hand over the pro-capitalist sentiments of such stalwarts of the right-wing of Congress as Sardar Patel and Rajaji. The ideological polarization globally at the end of World War II appeared to leave our leaders with two stark choices – either to pursue the Anglo-Saxon model of capitalism (then leavened by substantial public intervention in the heyday of Keynes in Britain and the New Deal in the US), or copy the model of the other victor of that war, the Soviet Union. In a rather muddled desire to pursue a “middle way”, Nehru welded a fundamentally Anglo-Saxon constitutional structure onto an essentially-Soviet model of economic planning with the “commanding heights” controlled by the government.

It should have been obvious that the constitutional arrangements would prove thoroughly incompatible with the economic objectives. The Independence generation was imbued with idealism and a sense of service, but they assumed away the importance of self-interest. While the constitution made the right to property a fundamental right (and the system of property rights is of course a bedrock of democratic capitalism), the Indian state kept chipping away at that right over time -- through land reforms in the 1950s that de-legitimized the property rights of agrarian landholders, and through bank nationalization in 1969 that made capital-allocation a hand-maiden of an intrusive state. An already-impoverished nation saw the gradual erosion of any motive for private capital to be harnessed for national development – as the State increasingly sought to “pre-empt” meager national savings for purposes of its choosing.

The ills of the resulting license-raj are too well-known to need recounting. Companies needed licenses to expand capacity, and even change their product mix – and a labyrinthine edifice of corruption emerged to regulate that process. The system rewarded rent-seeking rather than value-creation – and only a mighty balance of payments crisis (precipitated by the combination of a surge in oil prices and the loss in remittances from Kuwait and Iraq, plus the collapse of the Soviet ally that used to buy a fifth of India’s then-meagre exports) finally led Narasimha Rao to embrace an economic metamorphosis.

The apparatus of the license-raj, and the elaborate system of protection from imports (a peak import duty of 350%, plus outright bans on the import of 3000 consumer goods), were dismantled within a decade of the advent of the reform era in 1991. But the mental apparatus of “socialism” never quite left our political class – a substantial majority of which remains wedded to the “public sector”, of government-owned banks and lumbering, inefficient government-owned companies producing everything from bread and milk to steel, aluminium, electronic products and heavy machinery.

Fortunately, during his brief tenure as “Disinvestment” Minister, Arun Shourie was able to demonstrate that every single public-sector company that he privatized was able to perform substantially better – both in terms of profitability (which benefited both the new shareholders, and the government as a minority shareholder) and in terms of worker-productivity and job-security, the combination of which delivered substantially better rewards to workers as well as owners, and ultimately to the nation (in the guise of better-functioning companies that were no longer a drain on the taxpayer, as they had been prior to privatization).

But merely the logic and rationality of raw evidence is never sufficient to convince our political class, and five years have since elapsed without an iota of progress on the path to privatization that Shourie had so clearly laid out. Politicians (and bureaucrats) have too much invested in the entitlements of the public sector (free seats on planes, trains; cars and drivers, and all the other petty services that government companies provide for ministers and babus, apart from the appurtenances of corruption). So our politicians continue to spout elaborate “ideological” justifications for the persistence of government ownership.

Had our founding fathers been a little more willing to consider other models, they may not have been so blinded by confusion. In Asia, Japan had demonstrated that a mixed-economy with a capitalist orientation could in fact deliver prosperity to a backward nation within a generation (although this was somewhat obscured by the ravages of war by 1945). Japan dismantled its own feudal structures in 1868-70, but compensated the old aristocracy in the form of government bonds (some of which were quickly devalued by high inflation in the subsequent decade) and stocks in the new government enterprises that kick-started Japan’s industrialization. Over time, these fungible stocks and bonds helped turn the old feudal caste of samurais and daimyos into the merchants of the sogo-sosha trading houses that came to dominate Asian commerce by the 1930s, and resumed doing so by 1955.

Unlike in Nehru’s India, Japan never abandoned the market-based allocation of resources and factors of production. Severe Soviet coercion could not adequately allocate capital, labour and resources – so it was hardly going to be possible for Nehru and Mahalanobis to do so in a non-coercive democratic era. Instead, India’s “socialism” led to the ossification of caste and class, the stultification of enterprise, and very modest economic growth between 1947 and 1980 (3.7% real GDP growth annually, albeit substantially better than under British rule, which saw 0.7% annual growth from 1900 to 1947). The reason we need to keep “reforming” parts of the economy even now is because the dead-weight of Soviet-style government-directed resource-allocation still afflicts important nooks and crannies of our system.

Demographics, and substantially-free resource allocation, have moved us to a much-faster growth path (6.7% annually for the past 10 years). But we still need to free up the vast public sector – NALCO, BHEL, NHPC, NTPC, SAIL, etc. plus SBI, LIC, UTI, etc. – that continues to distort the free market. Only then can the full promise of democratic capitalism be realized. Ironically, what Japan did in the 1880-1910 period – gradually shift most of its publicly-owned companies to private ownership – supposedly-communist China has done in the past two decades. Whether it is cars, steel, petrochemicals, semiconductors or consumer electronics, former state-owned companies are now in the vanguard of China’s capitalist transformation – and their embrace of capitalism is largely responsible for the consistently faster economic growth China has achieved than India. Ironically, democratic India’s tentative steps in the direction of unfettered industrial capitalism were nipped in the bud five years ago. In the agriculture sector, capitalism has never fully been allowed to exist, and our pension and provident fund systems remain in woeful need of private-sector efficiency in order to prepare us for the ageing of our population in thirty years time.

Reinforcing democracy as a handmaiden of capitalism

Unlike today’s Japan, however, China is not a democracy. Instead, China has achieved economic progress via a developmental state a la Japan and Germany before the Second World War – with the iron hand of autocracy committed to delivering steady prosperity that stifles the need for dissent. South Korea, Taiwan, Chile and Indonesia – among others – have demonstrated that this model ultimately faces a crisis of legitimacy when state-directed capitalism creates a large-enough middle class, or when a threshold level of per-capita income is achieved. Korea and Taiwan reached this limit in the late-1980s, Indonesia in 1998 – and China is about five years away from the threshold per-capita income levels of Korea and Taiwan in 1990.

India will never face the gigantic crisis of legitimacy that felled Suharto, Pinochet, or the successors of Park Chung-hee (Chun Doo-hwan) and Chiang Kai-shek (his son Chiang Ching-kuo). The daily aggravations of relatively slow democratic governance are infinitely preferable to the massive upheavals (thousands of deaths, massive repression, economic crises lasting several years) that usually accompany the fall of long-standing dictatorships. Smooth political transitions are a precious gift of our successful democracy that we should be very grateful for (and proud of).

Democracy confers other benefits in the long term, including creativity and enterprise far beyond what autocracies like China can achieve. In China (as in Japan before WWII), large formerly state-owned enterprises are typically at the vanguard of the economy – but rarely are they real fonts of entrepreneurship. In post-1991 India, by contrast, entrepreneurship has had a true flowering: not only did companies like Infosys, Wipro, Satyam, Suzlon, Biocon, etc., emerge from minuscule beginnings, but many of the grand old companies of India remade themselves from rent-seeking entities of the License era into enterprising risk-takers ready to take on massively heightened competition at home and also remake themselves into global players within specific niches.

Thus the Tata group made Tata Steel (which used to be dwarfed by SAIL in the Indian market) into the fifth largest steel manufacturer in the world (through acquisitions made possible by spectacular cost savings in the Indian operation, their expansion to Asia through Natsteel, and the eventual purchase of Corus), grew TCS into a world-class software producer, and Tata Motor into a successful maker of small cars and medium-size trucks (some of them made in Korea) as well as owner of a couple of luxury marques known around the world. The AV Birla group became a global player in key commodities like aluminium, carbon black, copper, cement and textiles – but faced Indian competition in the metals space from the enterprising upstart Vedanta / Sterlite (which capitalized on privatizations -- at home with Hindusthan Zinc and BALCO, and abroad through its superbly-timed purchase of the copper mines of Zambia).

All these corporate groups were beneficiaries of the freedom and creativity that is possible in a democracy. Ironically, however, the moral foundations of our democracy itself have increasingly been undermined over the past two decades. The quality of political leadership has deteriorated, our morality appears to have plunged as materialism merged smoothly with corruption, and the perception has grown that the political class is concerned merely with personal gain even at the expense of the broad national interest.

Middle-class Indians bemoan the limitations of democracy, and increasingly yearn for tougher governance.

Strong, effective rule and an unyielding commitment to the national interest, however, are not necessarily incompatible with democracy. In fact, in successful democracies like Japan, the US and the UK, democracy coexists with effective enforcement of the law (often unobtrusively, as with Japan’s police, which presides in the friendliest way over a virtually crime-free society). Our democracy increasingly gives more and more rights to criminals and terrorists – without understanding that the concomitant result is the abridgement of the rights of the vast majority. Sectional political interests increasingly interfere with – and thoroughly undermine – the autonomy of the Institutions of governance. Ultimately, this erosion of morality will begin to eat into the vitals of our vibrant economy – as the terrorists of 26/11 so vividly illustrated in Mumbai last week.

To truly make democracy the handmaiden of a more robust capitalism, we need to seize back our institutions and create an iron core of laws that assure the relative autonomy of key institutions. The Supreme Court and Election Commission have relative autonomy – partly because their tenure cannot really be interfered-with significantly by politicians. (There has recently been an attempt to inject partisanship into the Election Commission, which we must monitor and counter at all costs). Other key institutions must also be freed from political interference, including the Reserve Bank of India (by ensuring that the Governor appointment is undertaken via a more bipartisan process), and key national-security posts (including NSA and chiefs of IB and RAW, who must all be subject to closer parliamentary scrutiny – in camera, where necessary). From the top, this relative autonomy must also begin to filter down to the grassroots, with the police in particular given genuine relative autonomy (freedom from political interference) after their pay-scales and service conditions are improved dramatically to ensure that they inspire fear at least among the criminals and terrorists rather than being seen as simply harassing private citizens. Only with the restoration of the genuine autonomy of our institutions can we be sure that the gains of our capitalist revolution of the past two decades will not go up quickly in the smouldering smoke from the fires that consumed south Mumbai last week, and could spread much wider if we remain careless about our precious civilisational heritage of tolerance leavened with morality.