Vivek Kaul
Does the American president Barack Obama have the foot-in-the-mouth disease or is India just overreacting? In an interview to PTI Obama said “In too many sectors, such as retail, India limits or prohibits the foreign investment that is necessary to create jobs in both our countries, and which is necessary for India to continue to grow.” He also cited concerns over the deteriorating investment climate in India and endorsed another ‘wave’ of economic reforms.
Predictably this has led to a series of terse reactions from across the political spectrum in India. Indian politicians have gotten together and asked Obama to mind his own business. “If Obama wants FDI in retail and India does not want, then it won’t come just because he is demanding it,” said former finance minister and senior BJP leader Yashwant Sinha. The left parties were equally critical of Obama’s statement.
Veerapa Moily, the minister for corporate affairs said “Certain international lobbies like Vodafone are spreading this kind of a story and Obama was not properly informed about the things that are happening, particularly when India’s economic fundamentals are strong.” Moily clearly wasn’t joking. The corporates were also quick to criticise Obama’s statement.
But for a moment let’s keep aside the fact that India does not need any advice from the President of the biggest economy in the world and try and understand Obama’s statement in a little more detail.
What did Obama essentially mean by what he said? He was basically pitching for Wal-Mart, the biggest retailer in the world, to be allowed to do business in India. Wal-Mart is headquartered out of Bentonville in the American state of Arkansas. It currently has a marginal presence in India through a joint venture with Bharti.
Such is the fear of Wal-Mart entering India and destroying other businesses both small and large, that politicians from across the political spectrum have used it as an excuse for not allowing foreign direct investment in the retail sector in India. This fear comes from the Wal-Mart experience in the United States.
As Anthony Bianco writes in The Bully of Bentonville – How the High Cost of Wal-Mart’s Everyday Low Prices is Hurting America “It (Wal-Mart) grows by wrestling businesses away from other retailers large and small. In hundreds of towns and cities, Wal-Mart’s entry put ailing …shopping districts into intensive care and then ripped out the life-support-system.”
But that’s just one part of the story. The question to ask here is, whether what is true for America is also true for the rest of the world? And the answer is no.
Pankaj Ghemawat, who has the distinction of becoming the youngest full professor at the Harvard Business School, in his book Redefining Global Strategy, points out a very interesting story. “When CEO Lee Scott (who was the CEO of Wal-Mart from 2000 to 2009) was asked a few years ago about why he thought Wal-Mart could expand successfully overseas, his response was that naysayers had also questioned the company’s ability to move successfully from its home state of Arkansas to Alabama…such trivialisation of international differences greases the rails for competing exactly the same way overseas at home. This has turned out to be a recipe for losing money in markets very different from the United States: as the former head of the company’s German operations, now shut down, plaintively observed, “We didn’t realise that pillowcases are a different size in Germany.””
Given this the countries that Wal-Mart has achieved success in are countries which are the closest to the United States. As Ghemawat writes “Unsurprisingly, the foreign markets in which Wal-Mart has achieved profitability-Canada, Mexico and the United Kingdom are the ones culturally, administratively and geographically closest to the United States.”
Wal-Mart and other big retailers have had a tough time in emerging markets. As Rajiv Lal, a professor at the Harvard Business School told me in an interview I did for the Daily News and Analysis(DNA) “There is not even a single emerging market that I know where a foreign entrant is the number one retailer. In Brazil it is Pão de Açúcar, in China you have the local Beijing Bailian. In most markets even when there are foreign entrants the dominant retailer in the organised sector is still the local retailer.”
And there are several reasons for the same. The local retailers are very price competitive. “If Wal-Mart is operating in Brazil there is nothing that Wal-Mart can do in Brazil that the local Brazilian guy cannot do. If you want to procure supplies from China, you can procure supplies from China as much as Wal-Mart can procure supplies,” said Lal.
Also the local guys understand the market better. This is because they have a better understanding of the customers. “On top of that they have local merchants that they know they can source from and Wal-Mart may not,” said Lal.
The other big fear about the likes of Wal-Mart being allowed into India is that it will destroy the business of the local kirana store. This is a highly specious argument at best because it is not easy to compete with kirana stores. As Lal explained to me “Just because you are a big guy with a lot of money, it doesn’t mean that you can compete. Kirana stores have a lot of benefits that established retailers don’t have. First of all location. What rents do they pay versus what established companies have to pay? Employees, same story. On the consumer side they can deliver services, in terms of somebody calls them and asks can you deliver six eggs? The guy runs and delivers six eggs. That’s not something that the big established firms can provide.”
A Wal-Mart in the US is typically established outside the city where rents are low. But such a strategy may not work in India. “It’s not easy to open a 150,000 square feet store in India. That kind of space is not available. They can’t open these stores 50 miles away from where the population lives. People in India don’t have the conveyance to go and buy bulk goods, bring it and store it. They don’t have the conveyance and they don’t have the big houses. So it doesn’t work,” explained Lal.
The kirana stores also provide goods on interest free credit to their customers something that no big retailer can afford to do. Also as the economy grows the chances are that the kirana stores will grow faster than big retailers. “So think about in five years, where will organised retailing be as a market share. Maybe it’s less than 1% now, and maybe it will become 3% or 5% of total retailing. It will not be more than that. In five years organised retail grows from one percent to five percent, the economy would have grown by another 50 percent. If they grow from one to five percent and the economy grows by 50%, virtually it means that the number of kirana stores and mom and pop stores are actually growing. They are not reducing by any means,” said Lal.
Allowing foreign investment in the retail sector is also expected to bring down food inflation. As Satish Y Deodhar writes in Day to Day Economics “Allowing private players – including multi-brand retailers who bring in foreign direct investment – to deal in retail and wholesale markets will reduce trader margins. An empirical study on domestic and imported apples sold in India shows that there are a number of middlemen in the farm-to-finger supply chain: out of the final rupee spent by a consumer on apples, about 50 percent goes for trader margins…More competition through private players will reduce the margins for the middlemen and lower the prices for consumers.”
Allowing foreign retailers into India is thus likely to bring down food inflation. Also as explained earlier the kirana store has not much to fear from the likes of Wal-Mart and other foreign retailers. But the same cannot be said about the companies which are the organised retail sector. Wal-Mart does take time to get its act right, but eventually it does. As Lal put it “The people who should be more afraid should be people who are in the organised retailing sector and not the mom and pop stores.”
And that’s where the real story about all the opposition in allowing foreign retailers entering the country, might lie.
(The article originally appeared on www.firstpost.com on July 16,2012. http://www.firstpost.com/business/should-india-fear-wal-mart-the-bully-of-bentonville-378330.html)
(Vivek Kaul is a writer and can be reached at [email protected])
Barack Obama
…And That's How Government Sachs Rules the World
Bruce Wiseman is a man who wears many hats. He writes detective fiction under the pseudonym of John Truman Wolfe (www.johntrumanwolfe.com). He runs a market research, survey and positioning company (www.ontargetresearch.com). He has managed money for many Hollywood stars through the investment firm Wiseman & Burke. And if all this wasn’t enough he has recently written a bestselling book on the financial crisis titled Crisis by Design, The Untold Story of the Global Financial Coup. In this interview he speaks to Vivek Kaul on how the investment Goldman Sachs rules the world.
You talk about an incestuous link between Goldman Sachs and the American government. Could you explain that to our readers?
The Rolling Stone magazine recently published an article called “The Great American Bubble Machine,” a masterful exposé by Matt Taibbi revealing Goldman’s greed and corruption in the creation of several investment “bubbles” that have made the firm and its partners—the term filthy rich comes to mind—but which have been devastating to Americans and to the U.S. economy. I have no problem with people making money—barrels of the stuff. Boatloads. But this needs to be done with some sense of ethics, some sense of morals, some sense of responsibility toward one’s fellow man.
Could you elaborate on that?
The all too coincidental participation of Goldman executives in the creation of the financial crisis is something that Machiavelli himself would be proud of. Taibbi laid bare the army of Goldman alumni that have turned up at critical decision points in the universe of credit, investment and finance. His orientation was such that he omitted a few that I will tell you about. My focus has been exposing the actual cause of the worldwide financial crisis. And our paths have crossed at a few key junctures. Junctures that bring to mind the great Gordon Gekko—Michael Douglas’s character in Oliver Stone’s Wall Street. Douglas shares the philosophy of the successful investment banker:“Greed is good. Greed is right. Greed works. Greed clarifies and cuts through and captures the essence of the evolutionary spirit.” Yeah, baby.
Could you give us an example?
I could start this part of the story with Henry Fowler, who, after serving as the 35thSecretary of the Treasury, in 1969 became a partner at Goldman after leaving office. But that’s not how things worked in the nineties and beyond. Oh no. The current sequence is very different. Pictures of Robert Rubin always remind me of the cartoon character Droopy. He seems to be in a perpetual state of sad worry. More to the point of our story, having served 26 years with Goldman Sachs, ascending to the position of co-chairman, Rubin came to Washington with the Clinton administration as the Assistant to the President for Economic Policy. Bill must have dug the Wall Street touch, because in January of 1995, he appointed Rubin the 70th United States Secretary of the Treasury. This could be called the start of what the New York Times has referred to as the modern era of “Government Sachs.”
Government Sachs?
Allow me to explain. The hallmark of Rubin’s years in Washington was deregulation—specifically, deregulation of the financial industry. Turn the financial industry loose. Let the big dogs eat. Let them earn. They have Porsche payments to make. Working with Greenspan, he kept interest rates implausibly low and ensured that regulatory safeguards were gunned down like victims in an L.A. drive-by shooting. The Glass-Steagall Act is a prime example. A piece of the Great Depression-era legislation that kept investment banks and commercial banks from committing fiscal incest, it was repealed—charged with being out of touch with the global financial structure. What it was out of touch with was an agenda to open the floodgates to unbridled speculation by banks that set the industry up for a financial Hiroshima.
Would you like to add to that?
When Rubin was co-chairman of Goldman, the firm underwrote billions of dollars in bonds for the Mexican government. When the Mexican peso tanked a few years later, Rubin, as Secretary of the Treasury, arranged a multibillion-dollar taxpayer bailout, which, according to reports, saved Goldman a cool $4 billion. Even today, Goldman’s former co-chairman is advising Obama behind the scenes and his acolyte Timothy Geithner is in charge of the U.S. Treasury.
But Geithner never worked for Goldman Sachs…
Geithner worked for Rubin at Treasury during the Clinton administration and was a Rubin favorite. He then snagged the powerful presidency of the New York Federal Reserve Bank. It was Rubin who got Geithner the gig at the New York Fed and it was Rubin who hooked him up with Obama, who appointed him as his Secretary of the Treasury. In addition to Rubin, another former Goldman chairman,the controversial Jon Corzine, has been a top economic advisor to the current American President Barack Obama.
That’s quite a link…
Yup. And there is more to come. Given that Goldman employees gave more money to Obama ($994,000) than any other commercial enterprise in the United States, and that the White House is awash in Goldmanites. Even with the White House under control, Geithner beefed up his Goldman staff at Treasury. He named yet another Goldmanite as his chief of staff. Mark Patterson was selected to help him run the government’s financial circus. Patterson gave up his plum position as the vice president for Government Relations at Goldman—meaning he was the investment bank’s chief lobbyist—to become the number two man at Treasury.
What about Henry Hank Paulson, the Treasury Secretary of the United States, when the financial crisis broke out?
Before the news of the financial crisis began to go mainline in 2007, a new Goldman CEO descended from his throne on Wall Street to come to Washington and help his government manage the nation’s financial affairs. We love you, Hank. Viewed from the board rooms of Wall Street, Henry Paulson’s blitzkrieg of the nation’s capital was nothing short of stunning: a George Patton(a famous American World War II General) in pinstripes—except Patton was fighting a real enemy, not one that he himself had created. At first, he used PR spin to calm the multitudes. As the crisis began to unravel, in August 2007 Paulson assured the American people that the subprime mortgage problems were nothing to be concerned about, that they would remain contained due to the strong global economy. The stock market peaked two months later followed by a crash that wiped out trillions. In a television interview on Meet the Press on August 10, 2008, Paulson stated that he would not be putting any capital into Fannie Mae or Freddie Mac. Three weeks later, he took them over and committed $200 billion in bailout funds. When I was growing up, we’d call this kind of guy a “bullshit artist.”
Can you get into a little more detail?
Perhaps nothing so demonstrated this scam as the government bailout of American International Group (AIG), the country’s largest insurance company. On September 16,2008, Paulson coughed up $85 billion of your tax dollars to take control of AIG. The $85 billion loan got the government 80 percent ownership of the insurance giant. Just what I always wanted from my government, a bankrupt insurance company. It turns out the $85 billion wasn’t enough. AIG has continued to hemorrhage losses and Uncle has now poured a total of $182 billion into the insurance company. Sticky constitutional issues aside, many have found it more than curious that when the government granted the loan, AIG turned right around and paid it out to the investment banks to which it owed money. The bank that got the largest payout was . . . of course, Goldman Sachs—a cool $13 billion. The money simply passed from your paycheck to the U.S. Treasury, from the Treasury to AIG and from AIG to Goldman (and other banks). Paulson made sure the transfers would occur without any objection from AIG or unseemly negotiations with the banks. To do this, he tapped Goldman Sachs board member Ed Liddy to be the new CEO of AIG. The good-hearted Mr. Liddy took the gig for a dollar a year in salary from AIG. But he held on to his $3 million in Goldman stock.
That was one round about transaction…
Yup. Goldman made billions from AIG earlier as well. AIG didn’t know this. Neither did Goldman’s clients. You see, despite the fact that they had collected enormous fees selling financial products that were “insured” by AIG, Goldman simultaneously sold AIG short. You get this? On the one hand, they sold financial instruments to their clients, which carried high investment ratings because AIG insured the buyer against loss. At the same time, they made investment “bets” for their own account against AIG. Estimates are that they made $4.7 billion betting against AIG while selling the AIG-guaranteed products to their clients.
Anything else that you would want to point out?
Paulson pushed the Troubled Asset Relief Program (TARP) through the House and Senate—winding up with a cool $700billion to “save” the banks. Congress’s actions remind me of a bad Godzilla movie, with masses of panicked Japanese citizens fleeing the fire-breathing monster, which is lumbering through the city toppling buildings and devouring cars. The legislation drafted by our elected officials sounds like something issued to Stalin by the Politburo. They granted Paulson complete dictatorial powers over the bailout money. The TARP read in part: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”
But where does Goldman fit in here?
Calling the multibillion-dollar bailout a “stimulus” program is but a cruel joke. This was nothing more complicated than a coup—a transfer of hundreds of billions of dollars from American taxpayers into the Armani-clad arms of major Wall Street banks. You won’t be surprised to learn, I’m sure, that Goldman Sachs got a cool $10 billion of TARP funds. And if you followed the billions pouring from your paychecks to Wall Street, you might remember that Bank of America at first received $25 billion. Then, in the midst of the chaos, they agreed to purchase Merrill Lynch. As it turned out, however, Merrill’s losses were $15 billion more than Bank of America had expected. This was due in part to $4 billion in bonuses paid out by Merrill’s CEO, John Thain, who pushed the bonuses through his books just before the Bank of America deal closed. Bank of America was taken by surprise by the losses and the purchase of Merrill Lynch started to go shaky, to which Comrade Paulson coughed up another $20 billion of your tax dollars. You guys are so cool bailing out these banks. I mean it. It brings tears to my eyes. Oh, I should mention that John Thain, the guy who pushed through the last-minute billions in bonuses, had been the president and co-chief operating officer at Goldman Sachs before becoming the president of Merrill Lynch.
So Goldman Sachs is everywhere?
Yup. Pretty much. Joshua Bolten, was the Chief of Staff of former President George Bush. Bolten had become Chief of Staff in April of 2006 and is credited with persuading the President to recruit Paulson as the Treasury Secretary. No surprise, since Bolten had been the executive director, Legal & Government Affairs for Goldman Sachs International before joining the Bush 2000 presidential campaign. The president of the World Bank is Robert Zoellick. Prior to joining the World Bank, Zoellick served as vice chairman, international, of the Goldman Sachs Group. Incest doesn’t begin to say it. From the White House to Treasury, from the New York Fed to AIG, from the Commodity Futures Trading Commission to the New York Stock Exchange, Goldman is there.
You talk about 19 men controlling the financial affairs of the whole world. Who are these people?
They are the Board of Directors of the Bank for International Settlements. They are listed on the Bank’s website, but Helicopter Ben Bernanke and Tim Geithner are on the Board, as was Greenspan. And it is the newly created Financial Stability Board, operating as an arm of the Bank for International Settlements, that now structures and dictates the rules and regulations to be carried out by the central banks of the world. And given the fact that central banks essentially operate independently of their national congresses or parliaments, the FSB now controls the monetary policy of the planet. It is now, for all practical purposes, the Politburo of international finance.
Where is Goldman Sachs in this?
Who is the chairman of this little known entity based in Basel, Switzerland? Mario Draghi. Draghi was a partner at Goldman Sachs until, like Henry Paulson, he left Goldman in 2006. Paulson took over the U.S. Treasury and Draghi became the governor of the Bank of Italy (Italy’s central bank) and in April of this year, chairman of the Financial Stability Board. Draghi is also a member of the board of directors of the Bank for International Settlements. In fact, the BIS board reads like a Goldman reunion committee. Mark Carney had a 13-year career with Goldman Sachs, where he became the managing director of Investment Banking before becoming the governor of the Bank of Canada and a member of the BIS board. William Dudley, president of the New York Fed and former partner at Goldman Sachs, is also a member of the board, along with Draghi.
So they are there everywhere…
Yup. Gary Gensler the current head of the Commodities and Futures Trading Commission in the United States spent 18 years at Goldman Sachs. In May of 2007, the granddaddy of stock markets, the New York Stock Exchange (NYSE), bought Euronext (a pan-European stock exchange with subsidiaries in Belgium, France, Netherlands, Portugal and the United Kingdom), which, now branded as NYSE Euronext, operates the largest securities exchange on the planet. To run the show, the newly combined entity brought in Duncan Niederauer and appointed him chief executive officer. Niederauer had been a partner and managing director at Goldman Sachs before joining NYSE Euronext. And there you have it. Complete financial control of U.S. financial policy and markets, from the White House and Treasury to the New York Fed, the New York Stock Exchange and the Commodity Futures Trading Commission (Control of the World Bank along with the most powerful member of the International Monetary Fund (the US Treasury Secretary Timothy Geithner), and at the top of the fiscal food chain, the Bank for International Settlements and its Financial Stability Board.
(The interview was originally published in the Daily News and Analysis(DNA) on June 25,2012. http://www.dnaindia.com/money/interview_how-government-sachs-rules-the-world_1706239)
(Interviewer Kaul is a writer and can be reached at [email protected])