Argument

Poor Little Rich Country

How do you categorize India, a nation that is at once fantastically wealthy and desperately poor?

In May, the Indian government announced that it was giving $5 billion in aid to African countries in the interest of helping them meet their development goals. "We do not have all the answers," Prime Minister Manmohan Singh said, "but we have some experience in nation-building, which we are happy to share."

The British could be forgiven for being annoyed with Singh's largesse. Britain, after all, currently gives more than $450 million a year in aid to India, and has plans to continue doing so for at least the next few years. The British economy is bumping in and out of a recession, while India's gross domestic product is growing at more than 8 percent a year. This has put the British government in the rather bizarre position of having to sell bonds in order to donate money to Asia's second-fastest-growing economy, even as the latter is itself getting into the philanthropy business.

The policy is unpopular with most of the British press, which argues that because India has a space program and some flamboyant billionaires, it does not need aid -- especially when Britain cannot really afford it. (When the Labour government was voted out at last year's general election, the departing Finance Minister Liam Byrne left a one-line note on his desk for his successor: "I'm afraid there is no money." It was a joke -- but it was also true.) Nevertheless, Britain still sees itself as a donor nation, with all the obligations and international prestige that entails. This comes in part from a sense of postcolonial guilt: Prime Minister David Cameron spoke recently of a "sense of duty to help others" and the "strong moral case" for giving aid.

The situation suggests just how dramatically the economic rise of Asia has undone centuries of experience, and the expectation that the West will retain the hegemony it has had for the past 400 years. It is increasingly difficult to classify whether a nation is rich or poor, and terms such as "the Global South" and "the Third World" have to be heavily qualified to take into account the fact that large sections of the population in countries like China, Brazil, and India now have a purchasing power matching that of people in "the West."

In 1951, the American diplomat Bill Bullitt described the condition of India in Life magazine: "An immense country containing 357 million people," he wrote, "with enormous natural resources and superb fighting men, India can neither feed herself nor defend herself against serious attacks. An inhabitant of India lives, on average, 27 years. His annual income is about $50. About 90 out of 100 Indians cannot read or write. They exist in squalor and fear of famine." Today, it would be hard to make such an absolute statement about India. Poverty certainly remains a chronic problem, but it exists alongside pockets of substantial wealth. An Indian's life expectancy at birth now stands at 67 years, and continues to rise. It is necessary perhaps to think in a different way, and to see that a country like India, like Schrödinger's cat, exists in at least two forms simultaneously: rich and poor.

The most important change of the last two decades, since the beginning of economic liberalization, has been the transformation of middle-class Indian aspiration. Although the stagnant days of the controlled economy and the "Permit Raj" -- when important decisions depended on a bureaucrat's authorization -- had their own stability, they also stifled opportunity and individual talent. Members of the professional middle class frequently preferred to seek their fortune in more meritocratic societies abroad.

The modern Indian middle class has a new chance to shape its own destiny in a way that was not previously possible. You can move to your own house using a home loan and live outside the joint family; you can buy a car that is not an Ambassador or a Fiat; you can travel abroad and see how people in other countries live; you can watch your politicians accept bribes or dance with prostitutes on television in local media sting operations while surfing your way to Desperate Housewives or Kaun Banega Crorepati, an Indian adaptation of Who Wants to Be a Millionaire? Businesspeople who have succeeded on their own merits overseas, such as PepsiCo CEO Indra Nooyi, are presented as national heroes.

In the 20th century, the world's personal wealth was held in American, European, Arab, and occasionally East Asian hands. By 2008, four of the eight richest people alive were Indian, and 2011 is the first year in which more billionaires have come from the BRICs -- Brazil, Russia, India, and China -- than from Europe. In earlier times, India's rich were princely rulers or members of extended business families who had made a fortune in textiles or manufacturing. Industrialists would hoard capital, and there was a limited expectation of seeking to outbid your neighbors in gross ostentation. Since liberalization, many of the new flock of billionaires who have made fortunes in areas such as construction, real estate, steel, and technology are no longer the scions of well-connected families. An unbound social elite has grown with extraordinary speed.

At times this new wealth has provoked intense resentment. In Mumbai, the industrialist Mukesh Ambani recently built the world's most expensive private residence, a 27-story confection housing three floors of gardens, swimming pools, a "cool room" (which, in the ultimate Himalayan dream, blows flurries of fake snow), three helipads, a six-story parking garage, and several "entourage rooms" -- because who travels without an entourage? The steel tycoon Lakshmi Mittal, who lives in London and is presently the richest person in Britain, is today the only Indian richer than Ambani. In 2006, Mittal Steel's hostile bid for Europe's largest steelmaker, Arcelor, was met with dismay on the continent. The head of the latter firm, Guy Dollé, said sorrowfully that the predatory company was "full of Indians" and his own Luxembourg-based operation had no need for "monnaie de singe" -- an expression meaning "money without value," but a phrase that has the unfortunate direct translation of "monkey change." Lakshmi Mittal won the battle, Dollé was ousted, and Arcelor Mittal is now the world's largest steel company.

During this global financial shift, about one-quarter of India's population has so far gained almost nothing from the country's economic transformation. Those who live outside the cash economy, in hills and jungles and on land that is increasingly sought after for its natural resources, have not shared the benefits of national growth at all. The journalist Mark Tully, who has been reporting on India for nearly 50 years, once said that the crocodile tears shed over India's poor would flood the Ganges. Today, as inequality grows and some Indians become exceptionally rich, the arguments over the country's poverty -- its extent and depth and the best means of alleviating it -- are fiercer than ever. Surjit Bhalla, who runs an economic research and asset management firm in New Delhi, has argued that the numbers of India's least fortunate are massively exaggerated: In his analysis, a "conservative estimate" suggests the poverty level in India in 1999 was under 12 percent, and is surely even lower today. But a first-time visitor to India will notice at once that many people there are painfully poor, and that the suggestion that they number scarcely 1 in 10 of the population -- or lower -- is absurd.

Doubtful statistics are also used by those who dislike liberal economic policies and the effects of globalization. It is commonly claimed that 77 percent of Indians live on less than 20 rupees (about $0.50) a day. This figure has an interesting lineage, and first came to public notice in a report issued in 2007 by the left-wing economist Arjun Sengupta, which he claimed was based on data from India's National Sample Survey Organisation (NSSO), an official body. On closer inspection, it would appear Sengupta used average monthly per capita consumer expenditure for the year 2004-05, which came out at 559 rupees for rural India and 1,052 rupees for urban India. But what commentators who widely circulate this data do not point out is that consumer expenditure figures collected by the NSSO have consistently been low -- possibly because of under-reporting -- and are very difficult to square with the fact that other measures of consumption in India have grown steadily over the past few years.

Using more current data, the Indian government's Planning Commission announced a few weeks ago that in fact, 41.8 percent of the rural population and 25.7 percent of the urban population now live on 20 rupees a day or less -- suggesting either that India's poverty has been more than halved in just six years, or (more likely) that Sengupta's original figure was wrong, and should never have been publicized without extensive qualification. But obtaining accurate data on poverty and interpreting it reasonably is a difficult task; an additional problem is that India's state governments routinely overestimate their poverty levels in order to get more money from New Delhi.

In any case, even cautious figures suggest that a substantial portion of India's population remains desperately poor. The basic argument about whether economic liberalization has been good or bad for India is today largely conducted outside the country. In India itself, the debate ran itself into the ground in the late 1990s, when it became apparent that growth rates were higher even than the reformers had expected. All major political parties are now in broad agreement that it would be a mistake to return to centralized, socialist planning; after all, back in the 1970s per capita GDP in India was growing more slowly than at any point in the preceding 100 years. The crucial question now is, how to narrow the gulf between the rich and the poor? The Indian government has made some progress with social programs in recent years, but is moving interminably slowly, and corruption and weak governance at the centre remain a pressing problem. In the short term there is no harm in countries like Britain continuing with their aid projects, but India has the money to fund its own poverty alleviation programs. Whether it will choose to do so, is another question.

DESHAKALYAN CHOWDHURY/AFP/Getty Images

Argument

The World's Most Important Boring Man

How the economic fate of Europe, and the world, came to rest on the shoulders of an inconspicuous Italian banker.

The most fervent discussions of the European leaders gathered in Brussels on Friday, June 24, focused on riots in Athens, unruly parliamentarians in Berlin, disaffected youth in Madrid, and, perhaps, sexual crimes and misdemeanors in Rome. But they also found some time to ratify their choice for the next tenant of a modest office space in downtown Frankfurt, Germany. As expected, Mario Draghi, an Italian economist with a number of nicely tailored suits, but little evident charisma, received unanimous support to follow Jean-Claude Trichet in becoming the next president of the European Central Bank (ECB).

It's a less-than-pressing issue for most Europeans, to say the least. As long as countries are considering selling off their airports to make ends meet, the obscure, technical art of monetary policy is likely to escape popular notice. But austerity and riots and bunga-bunga parties notwithstanding, Draghi's appointment may be more important than anything else that's likely to happen in Europe this year.

Not that Draghi would give you any way of knowing. In typical fashion, Draghi not only failed to hold a news conference on Friday, he wasn't even in attendance in Brussels as the announcement of his appointment was made. Even when people try to praise him effusively, they end up underscoring this essential boringness. "Mario was never uncombed; he was always tidy," one former classmate from the rigorous Jesuit schools where Draghi was educated told Bloomberg. "Mario has always been very serious."

As one German newspaper put it, the no-nonsense Draghi is the "anti-Berlusconi," the polar opposite of the spotlight-seeking Italian prime minister. Indeed, compared with Draghi, even Trichet comes across as an unremitting dandy. The Frenchman was famous for indulging in extended recitations of poetry, as well as grandiose analogies between economic affairs and the worlds of arts and culture (as one journalist wrote of Trichet, "he could easily have ended up in a university declaiming the verses of Homer rather than at the helm of a monetary institution.") Draghi, meanwhile, rarely gives interviews, has no entourage, and famously carries his own bags when he goes on trips.

But Draghi will, in fact, soon wield more influence than any of the prime ministers who ratified his appointment. Brussels, as the capital of the European Union, still hosts the continent's symbolic grandeur, but it's sleepy Frankfurt -- a banker's town, a city of early nights and breakfast meetings -- that is now the de facto seat of European power. There's plenty of pathos invested in the question of whether Europe will survive its current travails, but it's obvious by now that the European Union doesn't have the reserves of fellow feeling, or the institutional mechanisms, to channel that urgency to much productive end. Indeed, the European Union has been striving toward "an ever closer union," a refrain from one of its founding documents, but European countries have been careful to preserve as much sovereignty as possible: institutionally, the countries of Europe aren't engaged in a bear hug so much as a skeptical handshake.

The ECB is among the few exceptions. Unlike the other forums through which Europe conducts its common affairs, the ECB is not a mere debating club, an opportunity to reach consensus -- it's an actual institution, a body with a mandate to protect the euro and the power to carry it out, even in the face of resistance. There are few equivalents elsewhere in the European Union of the ECB's unilateral authority to alter interest rates on the euro. The European Parliament can initiate legislation only to watch it choked off at any number of veto points; the EU foreign-affairs chief Catherine Ashton can chart a bold rhetorical course in international affairs, but she's required to follow up with exactly the sort of painstaking consensus-building among member states that her position was intended to minimize; Herman Van Rompuy himself might be hard-pressed to describe what his role as president of the European Council consists of.

And, as has often been lamented this year, there is no EU treasury department that can prepare a soft landing for the continent at times of economic crisis. Europeans have instead witnessed the unedifying spectacle of Germany's Angela Merkel and France's Nicolas Sarkozy performing ad hoc fiscal policy on behalf of the continent, trading historical analogies and sketching bailout scenarios -- thinking out loud, essentially. They have, predictably, not made nearly as much progress as Europe has needed.

So while the leaders of the European Union take pains to pay deference to principles of democracy, at a time of crisis it's a small group of unelected central bankers inevitably making momentous decisions on behalf of the continent. Under Trichet's leadership, the ECB has offered authority elsewhere lacking in the continent, if in the dry, technical, number-crunching form that is its métier. The currency of the bank's power, after all, is currency.

That is not to downplay the revolution that the ECB has undergone in the past several years. Although its mandate is narrowly focused on fighting inflation, the credit crunch and subsequent debt turmoil have forced it to serve as a freelance troubleshooter for all systemic threats to Europe's financial system. While Europe's political leaders were still having trouble reckoning with the extent of economic danger a year ago, Trichet saw clearly that default by a single country, or a single major bank, might trigger a cascade of bankruptcies and panic à la the 2008 Lehman Brothers collapse. Europe, Trichet told Spiegel magazine at the time, was "in its most difficult situation since World War II or perhaps even since World War I."

His response was to essentially open the bank's coffers in unprecedented fashion. Beginning in May 2010, the ECB drastically eased lending to banks across Europe, began buying tens of billions of euros of bonds from stressed countries, and cut interest rates to as low as 1 percent to keep credit flowing. The ECB, once tasked with the modest task of keep price levels steady across the continent, is now providing life support to vast sections of Europe's economy.

Draghi is unlikely to change course. Not only is he no stranger to this radical transformation of the ECB, but he was on the bank's governing council as all these decisions were being made. Indeed, Draghi comes to the job with a sterling résumé for the kind of crisis management he'll be expected to perform. Like his fellow central bankers Ben Bernanke in Washington and Stanley Fischer in Israel, he earned his doctorate in economics from the Massachusetts Institute of Technology. He has worked as an executive at both the World Bank and Goldman Sachs, and he is currently head of the Financial Stability Board, an international body that was tasked by the G-20 with reforming global banking rules. He also served as a chief economist of Italy's Treasury Department in the early 1990s. (In expressing confidence that Greece can be pulled back from the brink of total bankruptcy, he's no doubt drawing on his experience presiding over a similar situation in Italy during that time.)

His economic chops might not be in question, but it's Draghi's diplomatic skills that will be put to the test as soon as he assumes the presidency of the bank. The eurozone countries will be quick to remind him of their various national interests, and national prejudices. He will have his work cut out for him with the German public -- the people of perhaps the world's only country that has made hard money a constituent part of its national identity. "Mama Mia! An Italian, of all things!" sneered the front page of the tabloid Bild when Draghi's candidacy became public earlier this year. "For Italians, inflation is a way of life, like tomato sauce with pasta!" (More recently, Bild has come around. An April article about Draghi shows him depicted in a Prussian spiked helmet, underneath the headline: "This is how German the new ECB chief is!")

Cultural questions aside, Draghi will soon find that the ECB is at loggerheads with national governments on the question of how best to navigate the euro through the crisis. Some governments are arguing that the ECB's interest rates are too low; others are arguing they are too high. While some countries, such as Spain, are struggling with massive unemployment, others, like Germany and Finland, are already fearing inflation and overheated economies. And no matter what Draghi decides to do, EU bureaucrats are going to be casting a skeptical eye on the expansive and extraordinary powers he has inherited.

Some in Europe are already murmuring about a worst-case scenario for the ECB. By making such huge bets on the bonds of Greece -- 45 billion euros and counting -- and other heavily indebted countries like Portugal and Spain, the ECB now itself has a huge stake in those countries' staying solvent. Even if Greece moves toward some sort of orderly default, as Germany has proposed, Draghi may see the value of his bank's massive investments precipitously decline. The ECB would then itself become a bad bank writ large, one that will need a bailout from its constituent member states. Indeed, it's not entirely clear what the bank's endgame was, aside from optimism, when it made its bet on Greek sovereign debt.

What's clear is that, one way or another, the ECB will continue to be at the center of the unfolding crisis. Draghi passed only fleetingly through the spotlight on Friday when he was tapped in Brussels, but if he thinks he'll be able to escape to anonymity in Frankfurt, he's wrong. The ECB balance sheets will hide him for only so long. Being boring is a luxury that Draghi no longer has.

Romeo Gacad/AFP