November 30, 2005

France Weighs Immigration Controls After Riots

The French government Tuesday proposed tightening immigration controls to make it more difficult for foreign students and foreign-born relatives of French residents to enter the country. The plan was fueled by concern over unrest in immigrant neighborhoods, the scene recently of three weeks of street violence.

At the same time, the lower house of Parliament overwhelmingly approved new anti-terrorism laws that would allow increased video surveillance in public places and tougher monitoring of international travel by French citizens.

Several French political leaders have linked polygamy with the violence that struck more than 300 communities across France. Large families with multiple wives and numerous children foster poverty and lack of parental control over youths, the politicians said.

Polygamy is illegal in France, but the law has not been enforced among African and Arab immigrants who have imported the practice from their home countries.

The government's proposed law, which Villepin said would be submitted to Parliament next year, would make it more difficult for French residents and citizens to bring foreign spouses into the country and require longer waiting periods for legal immigrants to apply for visas for their spouses and children. Legal immigrants would be required to be able to speak French before family members could join them in France.

The new anti-terrorism measure, strengthening laws that are already among the toughest in Europe, passed the lower house 373 to 27.

Under the draft law, certain buildings, including department stores, mosques and synagogues, could be equipped with surveillance cameras. Aides to Sarkozy say he embraced the measure after seeing how effective video recordings had been in helping British authorities identify the subway bombers.

Education in India: Quotas for Muslims in IITs and IIMs?

Not embarrassed by the judicial snub on an enhanced quota in Aligarh Muslim University, the HRD Ministry appears to be serious about reservation for Muslims in IITs and IIMs.

Barely had the HRD Ministry recovered from the setback of the Allahabad High Court decision on the minority status of Aligarh Muslim University (AMU), when Arjun Singh decided to wear his secularist heart on his sleeve yet again. By making appropriate politically correct statements about the National Monitoring Committee for Minorities' Education (NMCME), which has recommended reservation for Muslims in IITs and IIMs, he has set the stage for another round in the endless debate on appeasement.

If Singh decides to ignore another landmark judgement-the Andhra Pradesh High Court striking down 5 per cent reservation for Muslims introduced by the Y.S.R. Reddy Government in July this year-it may well unleash another genie that has refused to be bottled in the bitter communal politics of the nation since 1990.

Quotas for minorities, especially Muslims, in institutions of higher learning

Adequate number of minority students in ITIs and polytechnics to improve their technical skills, plus coaching for IITs

Setting up of a cell in All India Council for Technical Education, National Council for Teacher Education and CBSE to monitor induction of minorities

Modernisation of madarsas, with a central madarsa board being set up on the lines of the Kendriya Vidyalayas

This fresh round of potential hostilities began with a report of the NMCME last week. A brainchild of Singh who introduced this panel in his earlier tenure as HRD minister in 1992 to "monitor the ongoing schemes of the Ministry targeted at minorities", the NMCME went into a recession under the subsequent governments. Having been given a new life, it is clearly taking its job seriously. Re-constituted in September 2004, the standing committee of NMCME has made several recommendations which its chairman Zafar Ali Naqvi thinks are absolutely essential for the minorities. Naqvi, a former home minister of Uttar Pradesh, is virtually advocating a new charter for minorities encompassing the entire range of educational rights enshrined in Article 30(i) of the Constitution which details the minority "right to establish and administer educational institutions of their choice". Among these is the introduction of Urdu in all Central schools, Navodaya Vidyalayas and Aanganwadis. By far the most contentious recommendation pertains to reservation in institutions of higher learning. Not just because it takes reservation out of the ambit of caste into community which the Constitution did not visualise, but also because it creates a confrontation of viewpoints between Congress and its UPA ally-the Left. The Left has been ideologically opposed to community- based reservation and had welcomed the Allahabad High Court decision. The High Court not only struck down the 50 per cent reservation for Muslims introduced in AMU, but also nixed the Central university's minority status.

Even as Singh says he is considering the legal and administrative implications of the recommendations, it is clear that he is following his own so-called secular agenda. On the AMU decision, Singh's stand had been that a minority institution could take such decisions and it mattered little to him that Muslim students already constitute more than 65 per cent of the Central university. How it would lead to integration if the percentage rises further is difficult to fathom.

NEW DEMAND: Arjun Singh at the minority education panel meeting

What has caused widespread consternation this time is that the NMCME recommendations are specifically aimed at seats in the burgeoning technical education market. The IITs offer around 4,000 seats annually. Together with nits, the total number of seats at the very highest level of technical education are 10,000. Naqvi would like at least 1,000 seats reserved for Muslims to bring them at a par with other communities. In the case of other streams like management, forests and dentistry, the pie is much smaller. Naqvi wants a minority cell in all institutions like the All India Council for Technical Education (AICTE) which control the number of technical seats in the country. He has already won a battle by getting Singh's nod for bypassing state governments when minority institutions apply to AICTE for accreditation.

While debating reservation for Muslims, there also appears a need to closely examine their current status in higher education and employment. There is no clear empirical data-Naqvi says a research has been commissioned by NMCME-on the percentage of minority students in technical courses and higher government jobs. But the general consensus is that it cannot be more than 2-3 per cent. "The minorities have fallen so far behind that reservation at the highest level is no longer a desire but a necessity," says Naqvi. He feels that it can be introduced by recognising the backward castes amongst Muslims as part of the OBC cluster, as is done for SC/STs. But this proposal is fraught with its own problems. In Kerala, for instance, a 10 per cent quota for extremely backward Moplah Muslims has been in existence since 1926 which even the Left governments have not overturned. It has reportedly led to large-scale manipulation.


"There is need for affirmative action but it should be at the operative level."

There is a need for affirmative action but it should begin at the operative level of imbalance and not at the level of the IITs and IIMs, says eminent historian Irfan Habib who has been at the forefront of opposition to a quota in AMU. He feels there is a far greater need to correct social imbalance at the school and technical level than in IITs and IIMs. Both these institutions are very particular about their autonomy, as was evident in the previous HRD Ministry's disastrous attempts to change the fee structure. One IIM director told India Today on condition of anonymity that he would not appreciate reservation for particular communities.

Others are waiting for official communication on this. More than legality, the quality of students is on their minds. None of them objects to one of the recommendations-that coaching centres be affiliated to these institutions to prepare minority students for entrance exams. The HRD Ministry would do well to take that into consideration.

Spectacle Of Bigotry: The pre-martial sex controversy

The Khushboo imbroglio symbolises the lethal trend of political parties using cultural bigotry to achieve electoral ends. The attempt to curb free speech needs to be nipped now.

SAVAGE SHOW: A protest against the actor outside the court

Angry mobs throwing slippers, tomatoes and eggs at a beleaguered woman who dives for cover as she appears in a court for allegedly insulting the Tamil community. It was a scene that would have made the 18th century French philosopher Voltaire cry in disgust, "What a fuss about an omelette!" The woman in distress: Khushboo, the popular actor who was so loved by Tamil audiences that her fans even built a temple for her. But real life doesn't often work along a predictable script. Last week, as her effigies were being burnt outside, a court in Mettur granted her conditional bail after she surrendered before a judicial magistrate in connection with a defamation suit filed against her.

"She didn't defame anyone. Why did courts entertain the petitions?"


 "You cannot curb a person's right to free speech and to express views."

 "This hue and cry about her views is needless. We are with her."

 "It's sad that we are not prepared to accept a perfectly reasonable opinion."
 "The message this is going to send out is 'stay quiet' and 'don't mess around'."
 "We should support her against bigots who are making an issue out of nothing."
 "Right to free speech can't be held to ransom by intolerant sections."
 "They are using cultural policing for political ends. It won't work."
 "Khushboo is just a soft target for a highly politicised issue."
 "Sex is something we need to talk to youngsters about for their own good."
 "We don't have the right to bully someone or curb their freedom of speech."

As television audiences are haunted by the indelible images of a tearful Khushboo, the actor has every reason to be bewildered for it is yet a mystery who she defamed. Khushboo, it would seem, has been tried and sentenced by bigots as people looked on. All she said was that pre-marital sex was now an urban commonality and she found nothing wrong in it. She herself had lived with her man for two years before she married him. She was commenting in a column in India Today's Tamil edition (dated September 28, 2005) on the findings of the annual survey on changing sexual mores. She said, "No educated man would expect his wife to be a virgin."

As author Shobhaa De says, "Khushboo has said nothing that sex surveys don't regularly point out. She is neither suggesting anything promiscuous nor is she hinting at some wild sexual orgy." In fact, CPI(M) Politburo member and MP Brinda Karat questions the very admission of the cases by the courts. "It is unacceptable that the court should have, in the first place, admitted a petition against Khushboo's remarks. The court had no business to do so because what Khushboo did was express her views. The freedom of expression allows her the right to air her opinion and what's sad is that not a single individual seems to have come out in her support," says Karat.

Facts may support Khushboo but innuendos and fiction make for a better script. And controversy. The breaking news of her views came via a headline on Sun TV which is controlled by the Marans, nephews of DMK President M. Karunanidhi. Suddenly all hell broke loose. As if on cue the Tamil Protection Movement, the self-styled guardians of Tamil culture, took to the streets. The organisation-headed by S. Ramadoss, leader of DMK ally Pattali Makkal Katchi (PMK) and father of Union Health Minister Anbumani, and Tirumavalavan, a leader of the Dalit Panthers of India-condemned the actor for "insulting the Tamil community as a whole and hurting Tamil women in particular".

Tabloids and the soundbite brigade followed suit. Tamil Murasu, the new evening newspaper of the DMK took over and questioned her right to speak about Tamil women. It didn't matter that she had made no reference to Tamil women. Truckloads of men and women, who did not even know what the issue was, agitated for TV cameras. Tirumavalavan insists that it was a spontaneous reaction but the truth, as Jaya TV showed, is that most people interviewed by them knew nothing about what was published. Agitations spread in all corners of Tamil Nadu, spearheaded by the "culture" protectionists, and defamation cases filed against the star in various courts of the state in spite of her breaking down before Jaya TV cameras and apologising to the Tamil people, asking their forgiveness if she had hurt them unintentionally.

Tamil Nadu, an emerging destination for high technology investments, suddenly showed the world its bizarre and ludicrous face. Morality became an obsession in the state. It would seem that the titillating masala mix videos that rock late night channel viewers and the concept of "chinna veedu" (bigamous second marriages) were from another planet. As filmmaker Mahesh Bhatt points out, "In a state where HIV-aids hovers like a menace, it is absurd that a celebrity like Khushboo who says things as they are about our sexual habits should be victimised and belittled. Everyone seemed to have some view on the issue but no group that mattered made any noise against the chauvinist bullies or pointed out that it was Khushboo's constitutional right to express her views whether you agreed with her or not."


But the voice of reason was silent, stifled with fear. Even the Film Actors Association distanced itself by instructing all its members to lie low. Its secretary, actor Sharath Kumar, a DMK MP says, "Since the matter was in the court we thought it was not right to make public statements about it."

Stars whose huge cutouts dot the Chennai skyline stayed mute spectators to this attack on a colleague. Chivalry, it seemed, was only for the screens, and patriarchal machismo that rules Kollywood screens came to haunt the streets. Indeed when actor Suhasini Mani Ratnam stood up for Khushboo she too was not spared. In a bold move Suhasini apologised to Khushboo on behalf of the Tamil people for the "barbaric attacks", drawing sharp criticism for insulting Tamil women. Angry people burnt her effigies and several cases were filed against her too for disturbing public order and speaking against Tamil culture. Worse, the film actors' association asked her for an explanation and she had to apologise.

None of the political parties-the left parties, the MDMK and the Democratic People's Alliance constituents, Congress, DMK and PMK-intervened. The Congress may be headed by a woman but its spokesperson Anand Sharma merely said, "Those are her (Khusbhoo's) views." No one was prepared to say anything because they did not want to antagonise the PMK. Surely there was a political agenda behind the agitations. Charuhasan, father of Suhasini and actor brother of film star Kamal Hasan, remarked, "I said on a TV channel that chastity attributed to women is a figment of male imagination. Why is it that nobody filed a suit against me?" They would have if any kind of political mileage could be gained out of it.

The genesis of the controversy is not in what Khushboo said but in the incestuous relationship between filmdom and politics in Tamil Nadu. It is widely believed that it all started with a quarrel between Khushboo and film director Thankar Bachan who is quoted as saying that he "depicts women in his films as they should be". Bachan is a member of the Tamil Protection Movement and is close to Tirumavalavan and Ramadoss. A few months ago, Bachan made some crude remarks about film actors-he stopped short of calling them prostitutes. Khushboo, with a few other female stars, including senior actor Manorama, made him tender a public apology. Khushboo's column was an opportunity to hit back.

There is also the peculiar situation of party-owned media outfits. The J. Jayalalithaa and Karunanidhi battle has a queer echo in the electronic media where pro-DMK Sun TV is perpetually battling the pro-AIADMK Jaya TV. Beyond the propaganda war there is also the TRP war. Khushboo anchors a very popular TV show called the Jackpot, the rising TRP rate of which apparently made Sun TV uncomfortable. Also, Khushboo is reported to have annoyed Sun TV by refusing permission for it to telecast a show of hers staged in Singapore.

SEXCAPISM: Onscreen titillation does not seem to bother the culture police

At another level, DMK insiders reveal that Jayalalithaa was planning to induct Khushboo into politics and pit her against M.K. Stalin, Karunanidhi's son, in the coming assembly election. Khushboo, with her popularity with women, may have posed a tough challenge. She was clearly standing on a minefield. The moment was opportune to kill two birds with one stone-a blow to Jaya TV and to the rumoured moves of Jayalalithaa.

With the spectre of the election breathing down her neck, even Jayalalithaa did not come forward to support Khushboo. Worse, she said that Khushboo's view was unacceptable-not only because the concept of chastity as the true Tamil trait has been nurtured by Dravidian politicians into an emotive issue and whipped up as a political weapon, but also because the chief minister is careful not to offend the PMK, which may turn around and join her camp before the polls. The PMK, which has a strong Vanniyar support in the northern belt, is capable of deciding the victory of the lead partner, whether it is DMK or AIADMK.


Chastity is Becoming Outdated

Women in Chennai were lagging behind Bangalore in expressing sexual desires. But Chennai women are now coming out of hibernation. I see a lot of women going out, in pubs and discos here. Women are able to talk about sex without inhibition. Given our conservative Indian backdrop, women are slowly coming out. But I do have questions about this women liberation when cases like Stefani's accident are happening (this girl was chased and killed by drunken youth after a night party in a Chennai hotel). But at the same time, I think sex education is a must in our schools. When the schools fail to teach sex, parents should educate their children about sex. In my opinion, sex is not only related to body; it's got a lot to do with our minds. I can't understand how some girls could change their boyfriends every Friday. When a girl is sure about her boyfriend she can tell her parents that she's going out with him. When the girl has a serious relationship the parents should also allow it. Our society should liberate itself from such ideas that the brides should all be virgins at the time of marriage. No educated man will expect his bride to be virgin at the time of marriage. But when indulging in pre-marital sex, the girl should guard herself against pregnancy and sexually transmitted diseases.

I married a guy who I love. As we were sure about our relationship, we lived together even before marriage. Now it is six years since we got married. As we have two kids, our responsibilities have increased. As our children sleep in the same bedroom, my husband and me should find time for ourselves. But still our sex life is enjoyable. Married couples should be able to give each other happiness physically also. Satisfying each other is happiness. When they understand the other person's sexual desires, there won't be any problems in married life. Some couples make use of pornography to add spice to their sex lives. I don't see anything wrong with that. At the same time each one should understand the other person's likes and dislikes; comfort and discomfort levels. When women express their sexual desires they are looked down upon. This attitude should change. Sex is about two minds.

(As told to Peer Mohamed)
This guest column by Khushboo appeared on page No. 23 of INDIA TODAY's Tamil edition, issue dated September 28, 2005.

Thanks to factors of political expediency, the cult of culture policing has caught on. In their operations they are no different from those of the Muslim and Hindu fundamentalists. Or the narrow-minded parochial bigotry exhibited by organisations like the Shiv Sena. They have targeted English titles of Tamil films, ransacked the theatres and offices. They splashed black tar on English boards in the markets, accused women poets that dared to speak about their bodies as women of loose morals, unmindful of the obscene film songs written by male poets or the demeaning, glamourised depiction of the "chinna veedu" on big and small screen. Every move is with a political motive. For instance, Rajnikanth's problems with the PMK are well-known but the level of hostility can be gauged by the fact that when the Union health minister banned smoking onscreen few in Kollywood or Tamil Nadu doubted who the target was. It also spawns strange alliances. Ramadoss and Tirumavalavan, people knew, were strange bedfellows. The Vanniyar outfit of the former and the Dalit group of the latter have fought bitterly till a couple of years ago. Political expediency brought the two together. The rationale: a vacuum that pundits have predicted in the political leadership. Both see the DMK's dominance in Tamil politics waning and want to capitalise on it. Cho Ramaswamy, commentator, author, MP and editor of Tughlak, believes that "they have taken up culture policing with a view to emulate Karunanidhi who became popular with the anti-Hindi agitation". He says it is ridiculous because "times have changed. In an era of globalisation, no one is going to listen to your anti-English slogans".

It is ironic that the culture police call themselves the followers of Periyar, E.V. Ramaswamy Nayakar, the founder of the Self Respect Movement who had astonishingly radical views on women's issues. Periyar said, "The concept of female chastity is nothing but a conspiracy to keep women in bondage." So which truly Tamil culture are the protestors pretending to uphold. "If they agree that Sangam poetry (which portrays pre-marital and extramarital sex as normal) represented 2000-year-old Tamil ethos then what are they protesting against," asks Kanimozhi, Karunanidhi's daughter who has formed a forum for free expression with Union Finance Minister P. Chidambaram's son Karthik.

India Today's Tamil edition wrote about teenage dating in Chennai and on unwed mothers in the rural areas 14 years ago. It was a Chennai doctor Dr. Sumathi Solomon who discovered the first case of aids in India. The disease is now a big threat to the country. "In a state that is facing a huge battle against aids we are still so hypocritical and are willing to indulge in slogan-mongering instead of tackling the real issues," says film director Mani Ratnam.

That an individual's opinion can be politicised and result in "incipient Talibanism" is a cause for alarm. The silence of the political parties that aspire to rule Tamil Nadu is more alarming. They may conveniently forget Voltaire's words, "I disapprove of what you say, but I will defend to the death your right to say it." It is left to the people, the real democratic forces to ring the alarm bell and stand firm against such cultural policing whatever the reasons for it.

November 29, 2005

Former Bush Adviser Hubbard Calls Medicare Expansion 'Unwise'

Glenn Hubbard, former chairman of President Bush's Council of Economic Advisers, says the Bush-backed expansion of Medicare to include prescription drugs was "unwise."

"The Medicare expansion without substantial reform of the system was unwise fiscal policy," Mr. Hubbard, now dean of Columbia University's business school, said in an online exchange sponsored by The Wall Street Journal.

"The current Social Security and Medicare systems are on an unsustainable path," Mr. Hubbard said in the exchange with Robert Reich, a Brandeis University professor who served as secretary of labor in the Clinton administration. "In both cases, sound fiscal reform should involve slower benefit growth for high-income households. In addition, fiscal reform for Medicare must be accompanied by reform of health-care markets."

In the exchange on fiscal policy, Mr. Reich criticized the Bush administration for proposing to make Mr. Bush's tax cuts permanent in light of new federal spending commitments. "Much of its new spending -- especially on national defense, homeland security, and Medicare prescription drugs, will go on for years. The drug benefit is a new entitlement. This isn't sustainable over the long haul and I don't think it's sustainable even over the next five years," he said.

See the full exchange, Guns, Butter and Retired Boomers: How Do We Pay for It All?, or vote and discuss the issues in's Question of the Day: In light of the federal budget deficit, was creation of the Medicare drug benefit a mistake?

Mr. Hubbard was chairman of the U.S. Council of Economic Advisers from February 2001 until March 2003, where he advised President Bush on economic, tax and budget policy, international finance and health care, among other issues.

Enrollment for the Medicare prescription drug benefit began earlier this month and continues until May 15, 2006. The program itself begins Jan. 1. To participate, people must enroll in a private plan that will cover a portion of their prescription drug costs. Critics have described the program as much too complex, and recent surveys found potential beneficiaries wary.

Conservatives sympathetic to President Bush's agenda have complained that the legislation enlarged the federal government. Liberals have complained, among other things, that the legislation prevents the government from bargaining with drug companies to lower prices.

The rising cost of Medicare, both because of rising health care prices, a proliferation of new health technology and a growing number of elderly, is one of the major long-term fiscal issues facing the U.S. government.

Mr. Bush isn't expected to tackle government health-care spending in his upcoming budget, and his proposal to revamp Social Security is largely stalled. One option the White House is considering for next year is proposing a revenue-neutral overhaul of the tax code to increase economic growth and provide better incentives for private savings and investment.

Congress, meanwhile, is struggling to finish work on a modest deficit-reduction bill and the extension of tax cuts passed earlier in Mr. Bush's term that, without congressional action, would expire later this decade.


Big Issues
Guns, Butter and Retired Boomers:
How Do We Pay for It All?
November 29, 2005

This is the first of three online debates that will look at some of the biggest issues weighing on American public policy. The federal budget deficit is the topic of this first installment. Joining the debate are Robert B. Reich, who was secretary of labor in the Clinton administration, and R. Glenn Hubbard, who served as chairman of the Council of Economic Advisers for two years under President Bush. The debate will be moderated by David Wessel, the Journal's deputy bureau chief in Washington.

Readers also are invited to post comments in a reader discussion and vote on the Question of the Day.

MR. WESSEL begins the debate: Has the federal government bitten off more than it can chew by reducing tax rates at the beginning of President Bush's term and subsequently -- despite the costs of responding to 9-11, fighting the war in Iraq, rescuing and repairing New Orleans and environs and expanding Medicare to cover prescription drugs? Is current fiscal policy sustainable for the next three to five years, or is a major shift required?

* * *

MR. HUBBARD writes: The U.S. economy, with its strong underlying rate of productivity growth is in excellent shape, and it can absorb the tax changes, military and homeland security changes, and disaster relief. Two points are in order, though: More restraint is needed to ensure that domestic spending growth does not continue, and tax reform is needed to codify pro-growth policy that can raise the revenue required to fund the federal government.

Can the federal budget deficit be kept under control without a big change in tax or spending priorities? Or has the federal government bitten off more than it can chew? Join a reader discussion.

The problem is not the next three or even five years; the problem is the long-run fiscal picture. For example, the nonpartisan Congressional Budget Office tells us that in a generation, if we make no changes, we will spend about 10 percentage points of GDP more on Social Security and Medicare than we do today. To frame that, the Bush tax cuts amount to about 1 percent of GDP. And, to pay for this with tax increases would require raising taxes by about 50 percent across the board, crowding out economic growth. (Indeed, estimates from studies of tax policy and economic growth suggest that a tax increase of this magnitude would force us to give back the entire growth dividend we have received from the recent productivity boom.)

Having said this, the Medicare expansion without substantial reform of the system was unwise fiscal policy. The current Social Security and Medicare systems are on an unsustainable path. In both cases, sound fiscal reform should involve slower benefit growth for high-income households. In addition, fiscal reform for Medicare must be accompanied by reform of health-care markets.

The bottom line issue is less guns v. butter today (the next three to five years) than whether the butter will crowd out guns tomorrow (think the fiscal situations of continental Europe today) or indeed whether the butter itself will be affordable on the same terms tomorrow.

* * *

MR. REICH writes: Undoubtedly yes. But we should distinguish between deficits that occur when the economy has lots of unused capacity -- which was the case in the first two years of the Bush term -- and deficits that become part of the long-term structure of the federal budget. If the tax cuts and spending increases that occurred at the start of the administration were temporary and stayed temporary, there'd be little to complain about. In fact, they might have helped get the American economy moving. But the administration wants to make the tax cuts permanent. And much of its new spending -- especially on national defense, homeland security, and Medicare prescription drugs, will go on for years. The drug benefit is a new entitlement. This isn't sustainable over the long haul and I don't think it's sustainable even over the next five years.

Robert B. Reich is professor of public policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served under three administrations, most recently as secretary of labor under President Bill Clinton, where he implemented the Family and Medical Leave Act, led a national fight against sweatshops in the U.S. and illegal child labor around the world, headed a successful effort to raise the minimum wage, secured worker's pensions, and launched job-training programs and school-to-work initiatives. Mr. Reich is co-founding editor of The American Prospect magazine, and his weekly commentaries on public radio's "Marketplace" are heard by nearly five million people. Mr. Reich received his B.A. from Dartmouth College, his M.A. from Oxford University, where he was a Rhodes Scholar, and his J.D. from Yale Law School.
R. Glenn Hubbard is dean of Columbia Business School and a professor of economics and finance at the university. From February 2001 until March 2003, he was chairman of the U.S. Council of Economic Advisers under President George W. Bush, where he advised the president on economic, tax and budget policy, emerging market financial issues, international finance, health care, and the environment. He also chaired the Economic Policy Committee of the OECD. Mr. Hubbard received his Ph.D. in economics from Harvard University in 1983, and has also taught at Northwestern, Harvard, and the University of Chicago.

While we're at it, let me make one additional distinction often left out of debates about the federal budget. There's a vast difference between tax cuts and spending increases that merely add to the nation's overall consumption, and tax cuts and spending increases that add to the nation's productive capacity. Most spending on education, basic research and development, the health care of our children, and infrastructure, for example, builds the nation's capacity to be productive in the future -- as long as it's well targeted. This kind of spending makes enormous sense. By contrast, it makes no sense for the House of Representatives to cut student loans, for example, while extending tax cuts that mostly benefit the wealthy and have shown to have nothing to do with improving long-term productivity.

* * *

MR. HUBBARD writes: I agree wholeheartedly with Bob that dividing the timeline of fiscal worries into two parts -- short-run and long-run is important. I also agree that we must distinguish between running deficits when the economy is not at full employment versus when it is (read now).

Tax cuts that add to the nation's productive capacity include reductions in the tax burden on saving and investment and reductions in marginal tax rates on entrepreneurial activity. Recent tax cuts have accomplished these, but added other tax cuts with much smaller effects on economic growth. The near-term tax debate should be about tax reform so that we can maximize the opportunity for pro-growth policy.

On the spending side, a strong case can be made for continued basic research support and support for individualized training programs. What often goes under the heading of investment -- highways, for example -- is a tougher case to make from an economic perspective.

Where Bob and I disagree regards his characterization of "tax cuts that mostly benefit the wealthy." Reductions in the taxation of saving and investment show up in current tax distribution analysis as benefiting savers -- generally well-to-do savers. Yet, over the long run, those tax changes raise capital accumulation, productivity, and wages. Economists generally believe that the best tax rate on capital income is zero (though there are some quite well respected economists who believe it should be negative!). It is hard to imagine what tax changes Bob has in mind that would add more to the nation's productive capacity.

* * *

MR. REICH writes: I'm not adverse to tax cuts on savings and investment, but in my view the growth we get from such tax cuts is far less than the growth we get from well-targeted public investments in education at all levels, on health care (especially for our young), infrastructure, and basic research and development. Relative to our needs, the nation is woefully behind in all these domains of public investment.

On the other hand, we're hardly suffering from a scarcity of financial capital. Indeed, the world seems to be enjoying something of a glut of it. Over the long term, capital flows to places around the world where it can get the highest return -- either because production is very inexpensive there, or because of natural resources located there, or (and here's where our future should come in) because people there are enormously productive. And they're productive because they have high skills, good health, good infrastructure linking them together, and an excellent scientific base from which to draw.

Obviously, we can't do it all. We can't extend the tax cuts and at the same time carry out all the public investments that are necessary -- while at the same time we fight wars in Iraq and Afghanistan, build up homeland security, give the middle class some relief from the Alternative Minimum Tax, and dole out Medicare drug benefits (not to mention the rest of Medicare) to early boomers. Deficits do matter, and choices do have to be made.

I'm skeptical of claims that continued tax cuts on capital gains and dividends have such a hugely positive effect on the economy that these should get priority of place in those choices. This recovery, for example, is weaker than the average post-World War II recovery, the 2001 and 2003 tax cuts notwithstanding. Indeed, those tax cuts appear to have been a major cause of our current budget deficit. So I see no reason to extend them. According to the Joint Committee on Taxation, the proposed 2-year extension of capital gains and dividend tax cuts would reduce revenues by $51 billion between 2006 and 2015. (Of course, if made permanent, much more.)

* * *

MR. WESSEL, Moderator, asks: On taxes, do either of you believe that a significant tax increase is either wise or inevitable either in President Bush's term or in the first term of his predecessor? If so, what tax and on whom?

And on spending, what one or two things would you have the government spend more -- a lot more -- on? And what one or two things would have the government spend less -- a lot less -- on?

* * *

MR. REICH writes: The president's former Secretary of the Treasury, Paul O'Neill, wrote that the White House's prevailing orthodoxy when he served seemed to be that "deficits don't matter." Apparently that's still the philosophy. I don't anticipate any concerted move by this administration to tame the deficit by proposing to Congress realistic spending cuts or tax increases unless bond markets get so rattled by the size of pending deficits that the White House is forced to come up with something. The best we can hope for is that a coalition of fiscally-responsible Republicans and Democrats on the Hill refuse to extend the temporary tax cuts of 2001 and 2003. That will still leave a fiscal mess for the president's successor, who will have to attack several things right away, starting with the ballooning costs of Medicare.

Our second online debate, on corporate social responsibility, launches Dec. 5, and the third, on curing the nation's health-care ills, will launch Dec. 12. Responses will be published in a special Wall Street Journal Report coming in January.

What would I have the government spend more on, notwithstanding the above? Early-childhood education. The evidence is clear and compelling that these expenditures provide very large social returns, in terms of young people who subsequently finish high school, avoid teenage pregnancy, stay out of trouble with the law, and assume productive roles in society. I'd also have the government spend more on K through 12 in poor communities where classrooms now often contain 28 or more kids, are inadequately equipped, and are run by teachers without adequate training. I'd even be in favor of a progressive voucher system, where the amount of the voucher was inversely related to family income (I've proposed such a plan on the Journal's editorial page).

What spending to cut? Start with subsidies and tax breaks directed to specific companies and industries -- what's now commonly termed "corporate welfare." Depending on whose estimate you believe, it now runs between $60 billion and $120 billion annually. Last summer's energy bill was a cornucopia for the oil companies, for example. Why do they need it when their profits are soaring? Also, get rid of all earmarked spending on specific projects. It's pork. Look at the disgrace of last summer's highway bill if you want to see how irresponsible and wasteful such spending can be. We need a capital budget that establishes clear priorities for infrastructure spending. Medicare savings are possible by using case management techniques to focus on the relatively small percent of beneficiaries who are responsible for most of the costs. I'd also amend the new Medicare drug benefit to allow the government to use its huge bargaining power with pharmaceutical companies to push down costs. 

* * *

MR. HUBBARD writes: Let me echo Bob's call for a reduction in corporate subsidies and earmarked spending projects.

With due respect to Paul O'Neill, I never heard anything like "deficits don't matter" from administration officials, and certainly never from the President. At the same time, I think the administration is missing an important opportunity to talk with the American people about the enormous looming entitlement liabilities and the large implicit flow deficits (larger than the official deficit) that go with them. If we cannot bring these deficits (which conventional spending restraint and economic growth will not control) under control, we will have to raise taxes, with significant adverse consequences for economic growth.

I do not believe that a significant tax increase is wise or inevitable. In the context of my earlier remarks, I say this because I believe we should and will scale back the growth in the entitlement programs that are the clear and present fiscal danger.

I would like to see the government spend more on basic research and on training (because our employment policies are outdated) -- but these $$$ are not large in the context of the overall federal budget. While the discretionary budget offers opportunities for reductions, the real area for spending restraint is the entitlement programs.

Re: Bob's second reply: Blanket spending increases on health care, infrastructure, and education strike me as unwise. Our goal for health care should be to improve value -- this will require energizing markets (tax reform, insurance reform, Medicare administrative reform, litigation reform, and competition policy reform) before rethinking spending. The evidence on the effectiveness of infrastructure spending is, to put it mildly, mixed, as the evidence of CBO Doug Holtz-Eakin's work shows. Even with education, higher education in the US remains the envy of the world, while primary and secondary education lag; structural reform is a bigger deal here than a cry for more money.

There is substantial economic evidence that capital income taxes retard economic growth. Alan Auerbach and others have concluded, for example, that fundamental tax reform could raise household incomes by 9%.

* * *

MR. REICH writes: I'm not suggesting "blanket spending increases" on health care, infrastructure and education. To the contrary, I'm urging more and better-targeted spending in these vital areas. I've mentioned early childhood education and, for K-12, progressive vouchers whose value is inversely related to family income. We need a capital budget for infrastructure spending. As to health care, I'd recommend that the federal employee's health insurance system be made broadly accessible and affordable to all small businesses wishing to enroll their employees -- thereby giving the federal system far more bargaining leverage with providers and drug manufacturers, while at the same time enrolling a large portion of Americans currently without health care. This would be a first step toward a single-payer system.

As to entitlement spending, and contrary to what we've heard from the White House, Social Security isn't the biggest entitlement problem. It's Medicare. If nothing is done to constrain Medicare's costs, in two decades spending on it will surpass spending on Social Security. The reason Medicare spending is rising so quickly -- apart from the aging of the population -- is double-digit increases in annual health-care expenditures across the economy. So the key to containing Medicare is streamlining our whole health-care system. That's a big enough topic for a discussion all its own.

* * *

MR. HUBBARD writes: I couldn't agree with you more on Medicare being the more significant problem and that reform of health care markets is central. (Oprah moment:  John Cogan, Dan Kessler, and I offer a route to doing so in our new book "Healthy, Wealthy and Wise.")

Sprawl is threatening almost every stream in the country

That problem is pavement, and the way it has changed the ancient relationship between streams and rain. For most of human history, rain fell onto meadows, fields and forests, and sank slowly into the ground. In fact, most of the rain was intercepted by plants and tree leaves before it ever hit ground, and evaporated back into the air, eventually returning as rain again. (This is still the case in undeveloped areas -- a forest after heavy rainfall is a remarkably dry place.) The small amount of rain that did reach the ground sank slowly down through layers of soil and rock until it reached the underground water table. From there it flowed laterally and downhill, still underground, toward streams, where it seeped into the streambeds and recharged the waterways from below. During a heavy storm, some rainwater might flow downhill on the ground's surface, but that was the exception, not the rule.

Pavement has changed all that. Now, every time it rains, water that once would have been slowly absorbed into meadow or forest floor courses off roads and parking lots and roofs and into curb gutters and storm drains, which funnel it directly to the local creek, at a speed and a volume that, before development, a stream saw only during spectacular storms, the kind that occur once or twice a century. These storm-water surges, as they are called, work as giant routers, scouring out streambeds and banks, flushing away the dirt around the roots of trees along the stream banks, and washing away the small creatures that cling to stream rocks. Under this regular, relentless scouring, stream life is swept away, and the stream becomes little more than a biologically dead sluiceway.

Gimme an Rx! Cheerleaders Pep Up Drug Sales

Known for their athleticism, postage-stamp skirts and persuasive enthusiasm, cheerleaders have many qualities the drug industry looks for in its sales force. Some keep their pompoms active, like Onya, a sculptured former college cheerleader. On Sundays she works the sidelines for the Washington Redskins. But weekdays find her urging gynecologists to prescribe a treatment for vaginal yeast infection.

Some industry critics view wholesomely sexy drug representatives as a variation on the seductive inducements like dinners, golf outings and speaking fees that pharmaceutical companies have dangled to sway doctors to their brands.

But now that federal crackdowns and the industry's self-policing have curtailed those gifts, simple one-on-one human rapport, with all its potentially uncomfortable consequences, has become more important. And in a crowded field of 90,000 drug representatives, where individual clients wield vast prescription-writing influence over patients' medication, who better than cheerleaders to sway the hearts of the nation's doctors, still mostly men.

"There's a saying that you'll never meet an ugly drug rep," said Dr. Thomas Carli of the University of Michigan.

Diabetes: the latest wedding wrecker

By Kounteya Sinha/TNN

New Delhi: Sarita Anand (name changed), a research scientist with one of India’s leading pharma companies, hates the word “marriage”. Her wedding was called off by the bridegroom’s family not once but twice (in 2002 and 2004), hours before the wedding ceremony. Her crime: She is Type I Diabetic.
   What’s worse, in both cases Sarita had, in the matrimonial advertisements, clearly mentioned she was a diabetic. Twice bitten, she has now drowned herself in work, spending over 12 hours in the laboratory.
   This is not just a stray incident. Diabetes has started to wreck marriages. In some cases, it is also stalling them. In a shocking trend, both men and women, suffering from it are not finding a partner willing to marry them.
   Nearly 45 such cases have been reported to the Delhi Diabetic Association in the past one year. Sarita is just one of the victims whom The Times of India tracked down.
   Speaking to TOI, Sarita said: “For me, diabetes is just a condition. I live my life like any normal person. But our society thinks it is an infectious disease that could pass on to the next generation. I get nightmares when I think of what my parents went through.”
   In another case, TOI met Amit Saran (name changed), who spent lakhs on his daughter Preeti’s wedding in 2003. A year later, Preeti was diagnosed with Type I Diabetes. After months of verbal abuse, her in-laws sent her back to her father. Just a week ago, after learning that she was pregnant, Preeti’s husband decided to take her back with him.
   Sunit Batla, father of 24-year-old Vineet, faced a different kind of music. Because Vineet was diabetic, more than 11 women refused to get married to him. Sunit then went looking for a diabetic woman in Haryana for his son. Today, Vineet is happily married to Neeru. “It helps that both of us are diabetic. We understand each other’s problems.”
   Dr A K Jhingan, Delhi Diabetic Association president, says: “A large number of Type 1 Diabetics are facing matrimonial problems. This trend is becoming acute, especially because people don’t know about the disease and what it really is. We recently conducted a study to assess the magnitude of matrimonial problems faced by these people and how the prevailing social perceptions make their life miserable. Over 40 Type 1 Diabetic women, aged between 19 and 31, were interviewed. We found that only 7.5% are happily married as compared to 92.5% who faced matrimonial problems.”
   Health minister A Ramadoss told TOI: “India is home to around 40 million diabetics, the largest number in any one country. That’s why it is called the diabetic capital of the world. Nearly 12.5% of India’s urban population is diabetic while the number is over 4% in rural India.”


Type 1 Diabetes is the second most common chronic disease in children after asthma. Those who suffer from it experience frequent urination, unusual thirst, especially for sweet drinks, extreme hunger, sudden, sometimes dramatic, weight loss, weakness, fatigue, blurred vision, irritability, nausea and vomiting.
   It is an auto-immune disease in which the immune system attacks the beta cells in the pancreas that make insulin. Thus, the pancreas does not make insulin, a hormone which helps turn blood sugar (glucose) into energy. The cells become starved of energy and there is an excess of glucose in the blood. People with Type 1 Diabetes must have daily injections of insulin to survive.

November 28, 2005

East-to-West Migration Remaking Europe

God bless the Irish.

Since Latvia and nine other countries joined the European Union in May 2004, almost 450,000 people, most of them from the poorest fringes of the formerly communist east, have legally migrated west to the job-rich economies of Ireland, Britain and Sweden. Germany, France and other longtime E.U. members have kept the doors closed for now but promise to open them in coming years to satisfy the bloc's principle that citizens of all member states share the right to move to any other.

Perhaps nowhere is this feeling stronger than in Ireland, a country of 4 million people with one of Europe's fastest-growing economies and memories of how the world took in destitute Irish migrants in generations past. About 150,000 new workers -- mostly Poles, Lithuanians and Latvians -- have registered with the Irish government in the past 18 months, statistics show, although officials say that some may have already been there.

Citizens of E.U. countries do not need Irish visas or work permits, and there are no restrictions on how long they can stay or what work they can do. They are generally eligible for government health care and other services. There is no special system for them to seek citizenship.

From Dublin to Donegal, it is now difficult to find a construction site, factory, hotel or pub where some of the workers are not speaking Polish, Russian, Latvian or Lithuanian. They are changing the country's ethnic character. Multi-language newspapers cater to the job-seekers. Banks have hired tellers who speak their languages. East European grocery stores sell meats and cheeses from home, and phone companies post flyers in Internet cafes listing cheap calls to Warsaw, Vilnius, Riga, Tallinn.

The man Intel loves to hate

The remarkable story of a Mexican immigrant who wants to change the rules of the global semi-conductor business. By Charles Assisi

It’s tempting to imagine tough men don’t think much of guardian angels. Certainly not men like Hector Ruiz, the soft-spoken CEO of semi-conductor manufacturer AMD. But he does. And there is a good reason why. The impoverished Mexican from Piedras Negras, a town that borders Eagle Pass in Texas, came out of nowhere, challenged the rules in a ruthless business and eventually gave Intel, the industry leader, a bloody nose. After three decades of playing second fiddle, it took Ruiz barely four years to catalyse a war that now promises to be an epic one.
   But getting this far was never easy. The poor critter guarding Ruiz had to work awfully hard to keep the man going. When he first walked into AMD in 2000, the company was in a mess.
   The move met with raised brows in the business. Ruiz had just had a phenomenal run at Motorola for 22 years. When he rose to head the semi-conductor business at the company, he had an unenviable job on hand. Eventually, over three years, Ruiz gave 21,000 people the marching orders. His style generated resentment and the media dubbed him Hector the Dissector. Motorola survived. So did Ruiz. He was well on his way to the top job.
   The Turning Point
   What Ruiz didn’t know of was Jerry Sanders intentions. Mercurial and flamboyant, Sanders, a Silicon Valley legend co-founded AMD in 1969. The company survived Intel, the most dominant player in the business, by delivering chips that offered the same performance at a cheaper price. There was only one problem with this approach. It relied on replicating all that Intel did. AMD, however, couldn’t be faulted for not trying. It tried hard to innovate. But Sanders didn’t have a clue how to take the innovation to market.
   Then there was Sanders himself AMD had to contend with. The man who drove to work in a Rolls Royce kept the reins of the company tightly to himself. It earned AMD the ignominy of being named on Fortune magazine’s list of companies with the worst management board in corporate America.
   Precisely the reason why many wondered why did Sanders court Ruiz. They were as apart as chalk and cheese. But Sanders for all his flaws, was also a brilliant man. He knew AMD didn’t need somebody like him to lead it. It needed somebody sane; somebody who understood systems, appreciated innovation and motivated people; a man like Ruiz.
   Born into extreme poverty, Ruiz’s father didn’t have the wherewithal to summon medical help when his mother was expecting Hector.
   Finally, a kind doctor intervened and a grateful couple named their son after him. Because it was Christmas day, the devout Roman Catholic family chose de Jesus as his middle name. That was his first brush with an angel.
   As a 15-year old, Hector de Jesus Ruiz played in a local rock band and dreamt of growing to be an auto mechanic. The dream
drove him into Olive Givins
home. A local American missionary, she was looking for somebody to run the odd-errand and keep her house in order. Ruiz wanted the job. In return for which, he hoped, she would teach him English. Books on automobiles in his native Mexican weren’t easy to come by. The lady agreed.
It didn’t take her long to figure
she had a bright kid on her hands.
She suggested he go to school across the border. If that’s what it takes to be a mechanic, thought Ruiz, then so be it. Armed with $25 every month that Givin provided, Ruiz trekked across the border, daily. Eventually, he went to college and earned a doctorate in electrical engineering. He finally dedicated his thesis to Givin. That was his second brush with an angel.
   He then worked six years at Texas Instruments. Motorola followed, until Sanders weaned him away.
   The Ruiz way
   Those were the days when Intel was working on a new processor it called the Itanium. It differed significantly from the previous generation of processors that could deal with only 32 bits of information. The Itanium could do twice as much. Once Intel got there, Sanders knew AMD would wither away in a few years. Which is why, he tried to focus his efforts on getting there first. But his track record of successful implementations was an impediment. This is where Ruiz fitted in.
   Ruiz knew Sanders was right on the technology. But the problems were elsewhere. AMD wasn’t selling its products right. It focussed first on selling to retail users of desktop computers. Original equipment manufacturers (OEMs) who made laptops and servers that power backbone networks like the internet were not on its radar. This left Intel with a clear playing field. Among the first things Ruiz did was to turn AMD’s approach on its head.
   For a company used to a different pace, this was a shock. But Ruiz had learnt his lessons well
   from the days at Motorola where he was reviled for making tough decisions. He opened up new channels of communication across the rank and cadre of the company.
   Overnight, people from the company could meet the boss without an appointment. His photographic memory snapped up names and profiles of people as they walked in. He also did away with a weekly session his predecessor presided over—Breakfast with Jerry Sanders. Instead, he simply called it a breakfast meeting.
   Of course, his penchant for tough decisions hadn’t jaded. Soon after he moved in, the dot com boom went bust and technology went into a downward spiral. Ruiz responded by laying off 4,500 people and shutting down two factories.
   The worst was still to come. In 2002, the company hit its worst point. On revenues of $2.7 billion, it lost $1.3 billion. That didn’t deter Ruiz from ploughing an astounding 30% of revenues into research and development and acquiring two small chip companies.
   The ruthless persistence paid off when his engineers unveiled a new 64-bit chip for servers called Opteron in April 2003. A few months later the Athlon 64 for its more traditional desktop market followed. It met with rave reviews and found new takers like Microsoft, which was until that point, a traditional Intel ally.
   Thanks to some missteps on Intel’s part, its offering, the Itanium was trashed. Intel grudgingly conceded the round. For the first time, Intel started to work on a strategy similar to AMD’s.
   Early this year, Ruiz fired another salvo at Intel. He dragged it to court for u n l aw f u l bu s i n e s s p r a c t i c e s. The complaint alleges that Intel resorted to bribery and threats to keep virtually every PC manufacturer in the world from using AMD’s chips. If the courts rule in AMD’s favour, analysts reckon the industry will finally be on its way to be a duopoly. Since then, more successes followed.
Earlier in June, AMD finally convinced Hewlett-Packard and Acer to start shipping with processors powered by AMD. Until then, this was Intel country.
AMD now makes profits. But the overworked guardian angel still sees no respite. Intel is still 10 times larger than AMD. The war, for Ruiz, has only begun.

Bangalore Roads: Sponsored by Motocross Deve Gowda

We hear from sources that furious bidding is on for sponsorship of a certain stretch of K H Road, more commonly known as Double Road, in Bangalore. Among the strong contenders are: i) The Motocross Association of Shantinagar which claims that this portion of the road is ideally suited for daily contests to determine which vehicle rider can successfully negotiate the potholes and sandfills; ii) The Tyre-Sellers’ Association of Mavalli which has promised to build a place of worship in honour of the pothole deity; iii) The Practising Orthopaedics’ Forum of Bangalore which feels that this stretch has sent in the most patients in the September-December quarter and iv) The Driving School Instructors’ Association of Bangalore which says this is the best way for drivers to learn the art of negotiating potholes, but not lose your balance, mental and otherwise.
Musical chair in the middle of road

Last week, in the middle of the bustling Station Road in Hubli, some chairs were kept and a few grown-ups were busy playing musical chairs unmindful of the zipping vehicles. Passers-by stared at them, while drivers tried hard to avoid them. The curious wanted to know what they were up to. The game was up then. The few who were disrupting the traffic were in fact conscientious citizens, trying a unique way of protesting against the pothole-riddled or non-existent roads in the city, and dust pollution. The others had no choice but to join the game and support the cause.
This is the condition of one of the major roads in Peenya, where about 50 per cent of Bangalore’s apparel export factories are located. Factory owners and the area residents say this road, like many others in the area, has been in this state for a year and nothing has been done so far. Added to the misery, the already damaged roads have become worse, thanks to the rain. Bad roads have seriously affected export activities as representatives of foreign companies refuse to travel on these roads, they add. These pictures were sent to The Times of India by Gokaldas Exports.

SP Road left in the lurch
Bangalore: Sadar Patrappa Road (SP Road), one of the major roads in the busy City Market area, was dug up by the BMP during October to concretise the stretch. But till date, the stretch lies in a battered state as the concretisation work has not moved an inch forward. “Traders of Silver Jubilee Park Road (SJP Road) and SP Road have been struggling for survival. The trade on these roads has practically come to a halt. Thanks to the huge craters, potholes, slush and dug-up stretches, vehicle users avoid this stretch and twowheelers drive at their own risk,’’ said B K Goyal, secretary of Federation of Trade Associations of Central Bangalore.
   The concreting work of SP Road was launched on October 1, but even after more than 55 days, the road still lies dug up, full of slush and with open trench on one side.
   The condition of the adjacent SJP Road is no better as the road is enveloped with layers of fine dust which is causing health problems to the traders. And less said the better about the stretch when it rains, inviting slush all over. Traders complain that their business has come down by 50% in the last few months.
   The project to concretise SJP Road was launched on November 21 by BMP after the traders protested and blocked the road. But now they are apprehensive about the project as several such projects had got kicked off in the area only to be dropped mid-way.

Pension Officers Putting Billions Into Hedge Funds

Faced with growing numbers of retirees, pension plans are pouring billions into hedge funds, the secretive and lightly regulated investment partnerships that once managed money only for wealthy investors.

The plans and other large institutions are expected to invest as much as $300 billion in hedge funds by 2008, up from just $5 billion a decade ago, according to a study by the Bank of New York and Casey, Quirk & Associates, a consulting firm. Pension funds account for roughly 40 percent of all institutional money.

This month, the investment council that oversees the New Jersey state employees pension fund said it would put some of its money into hedge funds for the first time, investing $600 million over the next several months.

While most pension plans have modest stakes in hedge funds, others have invested more than 20 percent of their assets. Weyerhaeuser, the paper company, has 39 percent of its pension fund's assets in hedge funds. In Congress, there has been a push for amendments that would make it easier for hedge funds to manage even more pension money, without having to comply with the federal law that governs company pensions.

Pension officials who have been shaken by market downturns and persistent deficits are attracted by hedge funds' promise of richer, or more consistent, returns. But the trend has caused some consultants and academics to voice cautions. They question whether hedge funds, with risks that are hard to measure, are appropriate for pension funds, whose sole purpose, by law, is to pay out predetermined benefits to retired workers.

Those benefits are considered so crucial that they are guaranteed: corporate pension failures are covered by the Pension Benefit Guaranty Corporation, a federal agency, while pension failures by state and local governments are covered by taxpayers. Given that the benefits are paid out on a set schedule, critics wonder whether it makes sense to rely on investments whose returns are hard to predict, managed by private partnerships that disclose little about their operations and charge some of the highest fees on Wall Street.

"It's very inappropriate when the company is offering a pension plan that is guaranteed by the federal government," said Zvi Bodie, a professor of finance and economics at Boston University who is enthusiastic about hedge funds in other contexts.

Hedge funds make large, sophisticated investments based on the premise that by swimming outside the currents of the markets, often betting against conventional wisdom, they can outperform other investments. Hedge funds became famous in the 1990's, when managers like Michael Steinhardt and George Soros made huge swashbuckling bets that sometimes produced returns of 30 percent or more.

More recently, hedge funds have made headlines when they ran into trouble: Long-Term Capital Management, a hedge fund whose principals included two Nobel Prize-winning economists, nearly collapsed in 1998; and this summer, Bayou Group, a $450 million hedge fund based in Connecticut, shut down after most of its money disappeared. Its two officers have pleaded guilty to fraud charges. Hedge funds have traditionally been only for wealthy, sophisticated investors so regulators have not monitored them as they have stocks or mutual funds, although they are starting to do so.

The news of splashy gains and scandals may not paint an accurate picture of a business that in many ways has become more conservative as a result of the flood of pension fund money. To attract that money, many hedge fund managers emphasize stability.

Among pension fund managers, however, "the whole mentality has changed," said Jane Buchan, chief executive of Pacific Alternative Asset Management, which manages $7.5 billion in funds that invest in hedge funds, primarily for large pension funds. "They are saying, we need returns and we will be aggressive about getting them. They just don't want any downturns."

November 25, 2005

Indian banks are really not that big

What do Bank of China and State Bank of India have in common? They are the largest commercial banks of two of the world's largest and fastest growing economies. But the similarities end here. On all other counts, the two banks are as different as chalk and cheese.

In terms of size, Bank of China is the 11th largest bank in the world, while SBI occupies the same position in Asia. Globally, however, SBI is 93rd. In terms of asset base, Bank of China is over four and a half times bigger than SBI. Last year, it had an asset base of $516 billion against SBI's $110 billion (at an exchange rate of Rs 45.77 a dollar).

When it comes to Tier I capital (that is, equity and reserves) -- another parameter to ascertain a bank's size and its risk-taking ability -- Bank of China is again bigger than SBI. Last year, its Tier I capital was $34.8 billion against SBI's $5.8 billion.

Bank of China is actually marginally smaller than the entire Indian banking industry.  Last year, the collective Tier I capital of 77 Indian banks -- 26 public sector banks (2005-06 balance sheet of Punjab & Sind Bank is not yet available), 24 private banks, and 27 foreign banks operating in India -- was $33.7 billion.

The overall asset base was $533 billion. The top four banks in China, which also hold the top four slots among Asian banks, had a Tier I capital of $95 billion -- almost three times the capital base of the entire Indian banking industry. Similarly, the asset base of the four was $2,095 billion, almost four times that of Indian banks'.

If we look at the world's 10 largest banks, the comparison becomes even more glaring. Last year, Citigroup's, the world's biggest banking conglomerate, Tier I capital was $74 billion. Its asset base was $1,484 billion.

Each of the banks in the global top 10 list - JP Morgan Chase & Co, HSBC Holding, Bank of America, Credit Agricole, Royal Bank of Scotland, Mitsubishi Tokyo, HBOS and BNP Paribas - has a higher capital and asset base than the entire Indian banking industry.

Last year, BNP Paribas, which has the lowest capital base among the global top 10, had a Tier I capital of $35.7 billion, marginally higher than the Indian banking industry's collective Tier I capital of $35.28 billion. Similarly, HBOS, which has the lowest asset base among the global top 10 banks, is almost one-and-half times bigger than the total assets of the Indian banking industry.

November 24, 2005

Japan: The Slow Life. Tune in, drop out, grow rice

Nearly half of the world's population now live in cities. A hundred years ago, only 14 percent were urban dwellers, 200 hundred years ago a mere 3 percent. It's a phenomenal change in world demographics, and it has transformed the way we work, our lifestyles, even our relationship to the food we consume.
Tokyo is an icon of the world's new megacities -- with an official population of 12 million, one out of every 10 Japanese lives there. The greater metropolitan area may contain as many as 26 million inhabitants. The result is one of the most densely populated places on Earth.
Tokyo's "bright lights, big city" energy is a beacon to foreign tourists and Japanese alike. In fact, the lure of the city is so strong that it has depopulated many rural areas in Japan.
FRONTLINE/World reporter Jason Cohn, who has lived in Japan and speaks the language, understands the adrenaline rush of Tokyo, but prefers the quiet island of Shikoku, which is, in his words, "the spiritual center of the nation, the farm country." In this week's edition of Rough Cut, we present Cohn's window into this other Japan, outside Tokyo where people live "the slow life."
"Out there in the big city, the pace is really fast, and I found it really difficult to keep up," says Misa Ichikawa, who left Sapporo, another of Japan's hectic cities, to seek the quiet life in rural Shikoku. "I'm a country person, a country mouse, so I think it suits me."
Not that the slow life is an easy life. Ichikawa's husband, Sean Burgoine, another refugee from urban stress, has chosen to become a rice farmer, with all the backbreaking labor that requires.
"People will tell you straight out that you're mad," says Burgoine. "You can't make a living as a farmer these days."
And therein lies another twist to Cohn's unusual tale. Burgoine is a young Australian who has adopted Japan as his home and rice growing as his profession, even though his mentor, a successful Japanese farmer teases him, "Unfortunately, I think you are hopeless."
But the farmers of Shikoku have welcomed Burgoine and other college-educated refugees from the cities because they fear their world is vanishing. Government subsidies and protectionist tariffs guarantee that veteran Japanese rice farmers can prosper, but their sons and daughters are not following in their footsteps. They have left for the cities. The average age of the Japanese farmer is now 60. Some farms have been abandoned altogether, reclaimed by jungle. So if young people planting the terraced fields means that there's now a small back-to-the-earth movement bucking the trend, the older farmers are grateful, even if some of those young people are "crazy foreigners" like Burgoine.
He and his wife -- and their friends -- seem content to live and work in a quiet, green place, outside the fast lane. "I don't have great dreams of earning a lot of money," says Burgoine.
Stephen TalbotSeries Editor (8.30 minutes video)

Japan Farms: An Old Man's Game

Posted: 07-Nov-03
New York Times By James Brooke Nov. 7, 2003 MIHARU, Japan, Nov. 6 - When the motorcade of earnest agricultural promotion agents rolled up the other morning to his father's rice paddy, Shunseki Ouchi sensed a lecture on the virtues of farming. Without even a bow, Mr. Ouchi, a 22-year-old college student, ran away. Here in the heart of what was once a Japanese rice bowl, young people are voting with their feet on farming. Since 1980, the number of people in this town of 20,000 making most of their money from farming has dropped 56 percent, to 1,655. In the 15- to 59-year age group, the drop has been more precipitous: 83 percent, to 455. The only segment that has grown is of farmers over 70, currently 633.

On Sunday, Japanese voters are expected to return to power the Liberal Democrats, the politicians who over the last half-century have irrigated Japan's farm sector with subsidies and kept city food prices high through tariffs.

But judging by the advancing age of farmers in this town 120 miles north of Tokyo, and by the advance of scrub forest into abandoned farmland, the Liberal Democrats are playing a waiting game, waiting for the grim reaper gradually to thin the ranks of Japan's politically influential farmers.

"Young people dislike farming," Akiyoshi Ouchi, 50, said, looking a little sheepish about his son's abrupt flight. Speaking under the gaze of Sidek Bin Saadon, his 23-year-old "agricultural trainee" from Malaysia, Mr. Ouchi said that of the 73 farm households in his district, only four other families lived solely from farming.

The wait for a policy shift in Tokyo may not be long.

Later in the month, Japanese and Mexican negotiators are to resume talks on a free trade pact. Last month, Mexico's president, Vicente Fox, left Tokyo empty-handed after Japanese negotiators refused to allow measures that would harm pig farmers and orange juice producers. But Japan's leading business group, the Keidanren, calculates that Japanese companies lose $3.6 billion each year that passes without a bilateral free trade pact.

The announcement that Japan would resume talks with Mexico shortly after the election indicates that Japan intends to keep its promises to start free trade talks early next year with South Korea and Thailand, both major rice producers.

Despite billions of dollars in subsidies and protective rice tariffs as high as 490 percent, young rural dwellers do not think the government will maintain today's economic fantasyland in which a farmer can earn $50,000 a year from three acres.

Contributing to the bleak economics of rice farming, last summer's cool and rainy weather is making this fall's rice crop Japan's worst in a decade.

"We knew changes would come, so we decided that he would work outside," Kazuya Furukawa, a 56-year-old rice farmer, said gesturing to Tatsuya, his 34-year-old son, who has a civil service job.

Across the archipelago, the number of people working full time in farming has dropped steadily, to about 2.8 million today, down from 3.9 million in 1980, and from 12 million in 1960.

Here in the Fukushima prefecture, which once had Japan's largest tobacco crop and its second-largest production of silkworms, it is easy to spot some of the region's 40,000 acres of recently abandoned farmland.

In the folds of the hills here, cattails grow in abandoned, 300-year-old rice paddies. On hillsides, weeds grow in old tobacco patches. Mulberry orchards have been left to grow wild, victims of a silkworm business that collapsed in face of low-priced Chinese competition.

"The youngest farmer I know around here is 45," said Yoshio Kanomata, 62, who drives a taxi to make ends meet. His four children have migrated into local white-collar jobs. At this year's harvest time for the family tobacco crop, his wife, Sueko, hired three neighbors: two 70-year-old women and a 75-year-old man.

With government support for tobacco being phased out, the value of tobacco produced in this town has dropped 75 percent since 1975, the mulberry leaf production has been wiped out, and the production of rice, the untouchable of Japanese farm policy, has dropped by a third. The only growth has been in truck farming as production of vegetables has doubled, largely for local market.

"We are going back to the old saying: in order to keep healthy you should eat food grown from the area surrounded by four li," said Shigeru Fukaya, the town employee charged with promoting agriculture, using a local measurement. "You won't get sick if you only eat crops from a four-kilometer-by-four- kilometer area."

While Japanese consumers like locally grown fresh food, they no longer seem swayed by scare campaigns on imported rice.

"American rice is not that much different," Mr. Furukawa, a 12th-generation rice farmer, said in his farmhouse, where the family shrine room includes a portrait of Emperor Hirohito, Japan's wartime leader. "I cook in the winter at the ski area near here. I have used it. I don't think there is a difference."

While Japan limits its rice imports to 770,000 tons, less than 10 percent of its needs, many city dwellers say they would prefer cheap American rice to expensive domestic rice.

At the same time, many Japanese are concerned that the country now relies on imports to cover 60 percent of its food needs, the highest ratio among major nations in the world.

"Japan is the world's largest agricultural importer country," Yoshiyuki Kamei, Japan's agriculture minister, said in a recent briefing for foreign reporters. Pegging imports at around $35 billion year, he added: "Even compared to Germany, which ranks second, Japanese net food imports are more than double Germany's imports."

Despite the general hand-wringing over agriculture in Japan, farming is in retreat. In recent years, farmers have started to battle a new threat: wild boars rooting up their fields.

"The increase of boars is because of the abandonment of farmland," Mr. Fukaya said. "As far as agriculture is concerned, this is a dropout town."