The Returns to Acquiring Privately Held Firms: Costly Value Addition

P.V. ViswanathEconomic Development and Social OpportunityIndia as a Market-oriented Economy: Present and Future1Economic History: 1950-1990Post-independence achievementsElimination of substantial famines a common occurrence in British IndiaCommon in Sub-Saharan AfricaNehrus Ending of poverty and ignorance and disease and inequality of opportunity has not been achieved2Primary Education StatisticsRecord in Primary Education is dismalAdult literacy rate (based on 2000-2007 data)(http://data.un.org/Data.aspx?d=SOWC&f=inID%3A74)3Male Life Expectancy at Birthhttp://data.un.org/Data.aspx?q=life+expectancy&d=GenderStat&f=inID%3a374Female Life Expectancy at Birthhttp://data.un.org/Data.aspx?q=life+expectancy&d=GenderStat&f=inID%3a375Literate Life Expectancy: Trans-state differentials

A. Chattopadhyay & K. C. Sinha : Spatial Scenario of Literate Life Expectancy at Birth in India. The Internet Journal of Epidemiology. 2009 Volume 7 Number 1LLE is an index combining life expectance and literacy.Improvement over time, but there is inter-state variation6Per Capita Income by State

7Per Capita Income by StateFor 2003-4 in constant 1993-4 rupeeshttp://sampark.chd.nic.in/images/statistics/SDP2005R6.pdf8The Case of VidarbhaAn example of the sort of extreme poverty and despair that it is possible to have in the midst of plenty is the case of Vidarbha in North-East MaharashtraEven though Maharashtra as a whole is fairly well-off and the per-capita income of the state is high, there have been a spate of suicides in the region over several years from 2002 to the present.9District Map of Maharashtra

10Vidarbha: Land of Suicides

11Physical Map of Maharashtra

http://www.mapsofindia.com/maps/maharashtra/maharashtraphysical.htm12Vidarbha and AgricultureAgriculture is the main stay of the state of Maharashtra. Total irrigated area which had been used for cultivation is 33,500 sq kilometers. Average annual profit from cultivation in the state of Maharashtra is the lowest of all Indian states, lagging far behind the state with the highest - Jammu and Kashmir (Rs. 4363 vs. Rs. 22,770).The reasons for such a pathetic state of farmers include below average rainfall, heavy load-shedding, lack of small irrigation projects, poverty, pressure of private moneylenders and banks, ignorance of ancillary occupations for raising income, employment problem of the farmers' children, decreasing interest of the young generation in farming, rapid urbanization, apathy and lack of political willpower toward welfare and development of the region, etc. The cumulative effect of all these is evident on the psyche of the people of Vidarbha in general and farmers in particular. Farmers are hence prompted to turn to local moneylenders (sahukars) who charged them a much higher rate of interest. In fact moneylenders proved to be the most common and easy source of loans for the farmer (28.4%) followed by loans procured from relatives (22.93%) while only 3.94% turned to land development banks.Farmers' suicide in Vidarbha region of Maharashtra state: A myth or reality?, Current Themes, 50(2), pp. 124-127, 200813Economic Development beyond WealthWe have reasons to value many things other than wealth, which relate to the real opportunities to lead the kind of life we would value livingDevelopment is the expansion of the real freedoms that the citizens enjoy to pursue the objectives they have reason to value, and in this sense the expansion of human capability can be seen as the central feature of development.Capability is freedom the range of options a person has in deciding what kind of a life to lead.Poverty is the lack of real opportunity given by social constraints as well as personal circumstances to choose other types of living.Economic growth is important for the expansion of human capabilities, but it is important to look at factors such as whether the growth is employment-intensive and whether economic gains are evenly distributed and are channeled into remedying the deprivations of the neediest.14Education and Health: An exampleIntrinsically ImportantInstrumental in other things, such as getting a job and in making use of economic opportunities.Instrumental socially education can facilitate public discussion of social needs and encourage informed collective demands e.g. for public healthInstrumental in a process sense e.g. the non-schooling of children is correlated with child labor. Schooling also expands childrens horizons and brings them in contact with other kinds of people from other regions, castes and economic classes.Education can empower it can help disadvantaged groups to resist oppression, organize politically and lead to better redistribution of wealth. This is true not only within society, but also within the family e.g. gender inequality in the family.The education of one group in a region can help and spur development of other groups the Nairs, Ezhavas in Kerala. People are more able to help each other.15Government, State and MarketThe state is the government, the legislature that votes on public rules, the political system that regulates elections, the role that is given to opposition parties, and the basic political rights that are upheld by the judiciary.Right to Information ActRelatively Free ElectionsCorruption in GovernmentInefficiency in GovernmentSlowness of the Judicial System (see Jalans articles)The nature of the government is importantA democratic system makes it more difficult for governments to be unresponsive (Jalan argues that this is mediated by education.)16Nature of Markets under discussionSimilarly, the nature of markets is important, as well.We need to consider how easy it is to move to equilibrium frictions, etc.What is the nature of the performance of markets in non-equilibrium states?Are the participants in markets equally powerful, or are the markets being controlled by particular individuals? The non-competitive nature of political markets can lead to a non-competitive character of economic markets openness of entry, scope for manipulability, cooptation of regulatory authorities, etc.

17Markets and GovernanceThe operation and success of markets depend on the nature of government actions that go with it.Markets can hardly function in the absence of legal backing of contracts and particular rights.The government may have a major role in initiating and facilitating market-reliant economic growth. Cf. Japan and Germany.US examples are SEC mandating information disclosure, the existence of Treasury bond markets allowing a base to price corporate bonds. The lack of such markets in India affecting bond markets there negatively.Governments cannot achieve an acceptable social arrangement without markets, e.g. if citizens are not allowed to produce and exchange on their own.Public policy can have a lasting role in the way markets are used and work e.g. the role of labor markets in India, cf the recent Air India strike.18Market-Exclusion & Market-Complementarity Market Exclusion is not allowing markets to operate freely.A market-complementary arrangement allows the state to do things that the market would not do.Example:Markets do not cause famines. However, markets do not always do everything to reduce the impact of a famine.If a group has lower income during a famine (e.g. farmers and agricultural laborers who suffer a drop in the demand for their labor), the market may not do much to regenerate incomes their access to credit markets might suffer due to lack of collateral. Microfinance may be necessary.The situation is also affected by social realities preventing the quick reorientation of groups in terms of their professions, cf. the slow reduction in the proportion of the population dependent on agriculture.India still suffers from undernourishment, widespread illiteracy and high rates of morbidity and mortality!19