Subcontinental drift

Let us, first, though give Europeans the credit that is due. True, European politicians have created some inglorious examples. Luxembourgh8217;s and France8217;s hostility towards Mittal was matched by French anger at Enel, an Italian power and water utility. Enel had wanted to take over Suez, a French firm in the same business. The French government wanted to protect a 8216;national champion8217;, scuttle a cross-border merger and to that end proposed that Gaz de France, a state-owned company, would merge with Suez 8212; a horrifying economic solution.

Similarly, Spain had objected to a German power company, E.ON, taking over Endesa, a Spanish firm. The Spanish government had wanted to create a blocking, nationalist merger as well. Italians themselves have had the distinction of employing a central banker, Antonio Fazio, who used to block the foreign acquisition of Italian banks. The Poles did one better 8212; they objected to the merger of a German and an Italian firm on the grounds that both had Polish subsidiaries.

Parenthetically, it should be noted here that nationalism, not ethnicity, propels European economic protectionism. Good European firms led by good Europeans got no better treatment in European capitals than Mittal did.

Against this and more examples of irrationality, there are important counterpoints. The Mittal victory is one, of course. Another was British telecom firm, Vodafone, taking over German company, Mannesman. There were union protests, hand-wringing and general outrage over the loss of a national icon. But German politicians stayed out, the German CEO lost his job and German shareholders of Mannesman made a lot of money Vodafone8217;s hostile bid was worth 190 billion.

Mittal8217;s and Vodafone8217;s success is, in fact, the icing on a pretty big cake. Since 2005 and continuing this year, foreign acquisitions in Europe are becoming fairly commonplace. One reason is that the European Commission, which runs the European single market, is not anti-corporate and can8217;t, by definition, play national favourites. The other is that low continental interest rates 8212; the smaller the interest rate, the cheaper it is to borrow 8212; make debt-financed takeovers attractive, while pressure on costs remember China make them necessary. European politics can forget economic logic sometimes but, in general, it is rational.

Would that it was true here. Consider these elections from recent history and their effects on policy. N. Chandra Mohan8217;s 8216;Politics of Economic Liberalisation in India8217;, Harvard Asia Quarterly, Volume VII, No 2, was a wonderful source of information on these assembly election landmarks. Interested readers should also see it for a sharp analysis of reform politics.

Rajiv Gandhi had started quasi-liberalising the economy. He had 400-plus MPs. But the Congress lost the 1987 Haryana elections. The Congress old guard immediately said easing import norms, which Rajiv was trying to do, will be a vote loser. Rajiv stopped reforming.

Narasimha Rao8217;s Congress lost Karnataka and Andhra Pradesh elections in 1994. The same logic was applied. Reforms virtually stopped, Manmohan Singh was asked to make 8216;soft8217; budgets. Atal Bihari Vajpayee8217;s NDA lost elections in UP, Uttaranchal and Punjab in 2002, as well as the Delhi municipal polls. Yashwant Sinha8217;s budget was blamed. Jaswant Singh was made the finance minister and he started his new job by saying 8220;food for the poor8221; meaning, not liberal reform is his priority. By 2003, even Arun Shourie8217;s disinvestment programme was off the agenda.

There8217;s so much silly mythologising about how reforms cost the NDA the last general elections that the India Shining campaign should actually be called a success. Those interpreting Verdict 2004 as a revolt of the poor have never answered two questions: how come big cities and big reform beneficiaries like Delhi and Mumbai voted against the NDA and how come MP and Rajasthan, poor states both, voted for it? The mythologists also don8217;t remember the BJP-led coalition didn8217;t undertake any major reform in the last phase of its rule.

And just as a reforms-wary NDA lost the elections, so did a reforms-wary Narasimha Rao. So did a reforms-wary Rajiv Gandhi. Starting from the 1977 general election 8212; that was the first time post-independence the Congress wasn8217;t voted back 8212; incumbents have lost all elections but those in 1984 and 1999. In those two years, there was a 8216;wave8217; 8212; respectively, sympathy wave after Indira Gandhi8217;s assassination and a smaller but still significant patriotic wave after the Kargil war.

So, minus a countervailing wave, voters over the last 30 years have swept out politicians in power, whether they were old fashioned statists or reformers who lost courage. The proposition that economic reform is a vote loser in national elections hasn8217;t been tested at all. Incumbency, not liberal reform, is the ultimate vote loser in national politics.

But the myth never dies. So, Manmohan Singh is apparently a vote loser for the Congress now. And the Congress has not even done badly in recent assembly elections. Therefore, the myth is actually getting more absurd.

How dare we call European politicians irrational in the face of such abundant political absurdity at home?