India is a free market. But it is fast turning into a casino?a gambling den. The profit motive has given way to impatient greed.
Not a month passes today without a crisis in the market. It says one thing loud and clear: that the speculators are in control of our markets.
This is a dangerous situation. The end of it is predictable. It could be very painful.
In a rush for deregulation of the market, India has already paid a heavy price. And more may have to be paid if we fail to control the greed of the speculators.
The Washington Post wrote of the ?Black Monday? crash (New York stock exchange crisis): ?You have heard an intolerable amount of bosh in the past seven years (the Reagan years) about the deep and infallible wisdom of the markets. In fact, markets are perfectly capable of nervous breakdowns. Your have just witnessed a historic example of it. They need regulation and in times of troubles strong guidance.?
The world is thankful for this admission and admonition, for it was being told that US-style free markets were the irresistible wave of the future. The ?bosh? is not dead yet. They keep repeating ad nauseum.
It has been clear for some years now that share prices no more reflect the health of the Indian economy. In fact, the prices are highly artificial. They reflect the expectations of the speculators. Capitals gains?this is what they are after. They will have it at any price.
Thus, the stock market, which should be safe and profitable havens for millions of small investors, are now casinos. Wealth creation?this is the sole objective of the economy.
Peter Drucker, the celebrated observer of corporate American, once said that Wall Street traders were like ?Balkan peasants stealing each other'ssheep.? The point is: when traders at the stock exchanges can make more money through speculation than through honest investment, it is a clear sign that the market no more serves the people. It serves only the speculators.
There is an old theory that business moves in cycles of optimism and pessimism, booms and busts and bulls and bears. This may be so, but today the market marches to the drumbeats of the speculators. How else could one explain the boom in stock exchanges when the economy was in a parlous state? And how can shares of companies, which are doing badly, flourish in the stock market!
There was a time when a few brokers and a few players ran the exchanges for their own benefits. There was practically no regulation. The losers and gainers could take the swings either way in their stride and were not worried. But today millions of ordinary people have acquired small stakes in the economy. They can hardly afford to lose them. Although the Indian regulatory agency has been strengthened, it has failed to protect the small investors.
It is the policy of almost all capitalist countries (and that includes India) to keep interest rate very low to drive the small investors to the share market. In America, the interest rate is invariably between two and four per cent. The American has no choice but to buy shares. Which is why a crash in America makes millions of small investors bankrupt. The policy of the Government of India is not different. By keeping interests low, it is driving the small investors into the share market, although as a borrower from the market, the GoI has an incentive to keep interests low.
A few thoughts on the deeper problems: 1) The farmer is perhaps the most patent man in the economy. He waits for six months to harvest his crop. But the trader is the impatient man. He wants his returns quick. Today, we are dealing with a new tribe?the speculators. They are the most impatient ones. Their number is growing because the world is awash with ?hot money? ever since the petro-dollar boom.
George Soros, the greatest speculator of all, boasted that he used to make billions by speculation daily when there was the economic crisis in south East Asia. Which is why the speculation mania is now difficult to control.
Today the world is facing two scourges?the speculator on the economic front and the terrorists on the political front. We must be ready, then, to confront both of them with equal determination. It is ?ideological humbug?, Prof. Jagdish Bhawati says, ?to say that without capital (read Hot Money) mobility, the world cannot function.? Capital/mobility was designed to serve one country?America.