The SAARC could well be purely utilised as a trade organisation

(column by Vijay Simha)

One of life's quirks is that you can choose your friends but not your neighbours; a fact that countries around Germany during World War II must have experienced, and surely not much to their delight. It would be so much simpler in South Block if neighbours thought the way India does. Except that if recent events in Sri Lanka and Nepal are an indication, the gulf between India and nearby nations appears to be widening. With every step that India takes forward, countries adjacent to it seem to be slipping into more problems.

Barely a week goes by without India having to grapple with a neighbourhood crisis. Some think it is alarming - a success story surrounded by failed states. As India grapples with a neighbourhood of varying complexities, the issue is becoming unavoidable: How does India look at neighbours? Has it discerned and thought out a neighbourhood policy? In a speech after India sought postponement of the 2005 SAARC summit, Foreign Secretary, Shyam Saran, referred to the unrelenting logic of geography and proximity as the most difficult and testing challenge a country faces.

"Frontiers with neighbours are where domestic concerns intersect with external relationships... It should come as no surprise, therefore, that in defining one's vital national and security interests, a country's neighbourhood enjoys a place of unquestioned primacy," Saran had vociferously argued. The Foreign Secretary's speech was seen as India's definative stand on SAARC. Some time s neighbourly relations can get so sensitive that even a powerful nation like the United States fails when it comes to influencing Cuba and other nations close by.

South America and Latin America, for example, are no gos for the US. India, likewise, struggles with neighbours. An additional factor in the era of globalization is that the linking of domestic and external interests that Saran refers to, has acquired cutting edge fervour. In the global village, no country is able to shut itself from others. India's difficulties revolve around Pakistan, Bangladesh, Myanmar, China, Bhutan, Nepal, and Sri Lanka. Bhutan, the tiniest of India's neighbours, is the least troublesome. For 50 years, the choices have been basically two: Get pro-active and expect, or don't look for reciprocity.

The theory of non reciprocity got full volume during the short time that Inder Kumar Gujral was prime minister. Gujral said, as the largest country in south Asia, India must give, even though it doesn't get in return. But, this hasn't solved anything. Politically and economically, India has not been able to lead in the neighbourhood as it ought to. So, should India stay with the principle of non-reciprocity, or get fully involved instead? "There are different kinds of problems. We can't have one remedy for all of them. For example, the peace process with Pakistan is a dilemma. Should we continue with it even though Musharraf hasn't delivered?

Or do we do away with it?" laments Brajesh Mishra, National Security Advisor in the NDA government, and Principal Secretary to former Prime Minister Atal Behari Vajpayee. But Mishra is definitive when it comes to internal interference, "We should continue the peace process in all areas except J&K, where we must tell Musharraf that we can't move unless he delivers on ending cross border terrorism!" Tough speak, and perhaps of a party that has gone out of power. But then, it is also true that India's neighbour policy in general hasn't changed radically with change in governments.

For example, taking the case of Nepal, while Mishra had supported the cause of Nepal's Seven Party Alliance, and had advanced the theory that Maoists should be encouraged to join the democratic process, Manmohan Singh seems to be exercising a strategy quite similar to that. The fact that India and Nepal are predominantly Hindu nations barely has an impact. But Nepal wants Indian arms, not advice. Though at the same time, while Mishra's stand in Sri Lanka had been that "India should get the two principal political parties in Sri Lanka to cooperate and have a unified view on negotiations with the LTTE," the fact is that India had failed miserably after sending peace keeping forces to Sri Lanka in the late 80s; a fact that ostensibly led LTTE to assassinate former PM Rajiv Gandhi; a fact that prevents current governments from actively involving in Sri Lanka's internal conflict.

Consecutive Indian governments have also played mid-wife to Bangladesh, but our relations with them are prickly. And of course, each time there's a battle in Baluchistan, Pakistan blames India. "Many of India's regional problems, with Pakistan for example, seem to be shaped by geo-political dynamics. If there were no US, no China, no Soviet invasion of Afghanistan, we would have dealt with Pakistan diff erently," pronouncedly asserts Commodore C. Uday Bhaskar, Member-Secretary, Task Force, Global Strategic Developments.

One of Saran's predecessors, Salman Haidar, says, "I believe India should always be ready to take the initiative... The neighbours oft en lament the apparent detachment of New Delhi, and would like to see a more active Indian role in addressing the region's problems." Of course, the nuclear deterrent is as powerful as it is useless. But, the answer surely lies somewhere else; perhaps the markets will do what might is unable to. A free Indian market of 1.3 billion people in south Asia is a great incentive to neighbours for better relationships.

If China has been able to do that - where now nobody even talks about China's human rights abuse - why can't India? India has floated the idea of free currency among SAARC nations. But the idea holds no value currently as intra-regional trade in SAARC barely accounts for 5% of the region's total foreign trade. Ergo, India needs to actively engage its neighbours in mercantile and commercial relationships that ensure wealth flows not only into India, but to its neighbours too. India's rise as a world power should mean prosperity for neighbours as well; and the best method to achieve this is by ensuring that institutions like SAARC, SAFTA, become practically workable and profitable for member countries. Hitler never had this option to resolve his conundrum; but then, neither did he have 'em nukes!

(End of Vijay Simha column)

So who said China was the only example we had?
Insightful lessons from the Nordic countries on social security and market forces

Fewer debates over economics would be needed if the world spent more time examining what actually works and what does not. Almost everywhere, the debate has raged about how to combine market forces and social security. The Left calls for an expansion of social protection; the right says that doing so would undermine economic growth and widen fiscal deficits. But the debate can be moved forward by examining the successful economies of Denmark, Finland, Iceland, the Netherlands, Norway, and Sweden.

While no regional experience is directly transferable, the Nordic countries have successfully combined social welfare with high income levels, solid economic growth, and macroeconomic stability. They have also achieved high standards of governance. To be sure, there are also differences among the Nordic states, with social welfare spending the highest in Denmark, the Netherlands, Norway, and Sweden, and a bit lower in Finland and Iceland. Nevertheless, whereas the taxes at the national level in the United States are equal to around 20% of GNP; in the Nordic countries the ratio is more than 30%.

High taxation supports comprehensive national health care, education, pensions, and other social services, resulting in low levels of poverty and a relatively narrow income gap between the richest and poorest households. In the US, the poorest 20% of households receive just 5% of total income, putting their income at around one-fourth of the national average. In the Nordic countries, by contrast, the poorest 20% of households receive nearly 10% of the total income, putting them at roughly one-half of the national average.

American conservatives argue that a large public sector is subject to inefficiency and mismanagement, corruption, and bureaucratic abuse, while the taxation needed to support it blunts economic efficiency. But each of these propositions is refuted by the Nordic experience. Consider the claims of inefficiency and waste. As a result of government-funded national health insurance, the Nordic countries have a higher life expectancy and a lower infant mortality rate than the US.

Life expectancy is close to 80 years in the Nordic countries, compared to 78 years in the US, where the government does not guarantee national health insurance and millions of families are too poor to pay for it on their own. Ironically, the heavy reliance on the private sector in the US system is so inefficient that Americans pay a larger share of GNP for health (14%) than do the Nordic countries (11%), but get less.

Similarly, although social welfare spending is lower in the US than in the Nordic countries, its budget deficit as a share of national income is much larger. The US spends less in the public sector, but it taxes even less than it spends. Nor has high taxation in the Nordic countries impeded economic performance. Rather than relying mainly on income taxation, as in the US, the Nordic countries rely on value-added taxation, which provides a relatively high amount of revenue with relatively low rates of evasion and few distortions to the economy.

The Nordic experience also belies conservatives claim that a large social welfare state weakens incentives to work and save. National saving in the Nordic countries averages more than 20% of national income, compared to around 10% in the US. Moreover, economic growth in the Nordic countries has been similar to that in the US in recent years. Income levels are higher on an average in the US, but mainly because the Nordic countries work fewer hours per week...