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India's Economic Troubles Are Rooted in Politics – Foreign Policy

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Since the Great Recession that began in late 2007, there is a growing feeling that economics is not serving us well. There is truth to this hunch, but the reasons are more complex than most people realize.

Academic disciplines are built on assumptions; the most tried and tested of these are often enshrined as axioms. When economic policies go wrong, the standard practice is to rush to examine those axioms. Are some of them incorrect? Economists collate statistics, create new data using randomized trials, collect impressionistic information, and often come out with the conclusion that some of the established axioms are not quite right. Correct them, and one will get better predictions and better policy. Such an approach can work under normal circumstances, but when economic outcomes go deeply wrong, the problem may be more foundational: not in the axioms of the discipline but in the unstated assumptions—the “assumptions in the woodwork,” which all disciplines have and which we are usually unaware of.

The most striking example comes from geometry. Euclid’s Elements contained an assumption that was never stated explicitly, and it is not even clear that Euclid was aware of it: the presumption that his experiments were conducted on a flat, two-dimensional surface. But if Euclid’s work was premised on a curved surface, such as that of the Earth, Euclidean geometry would be flawed. This was realized in the early 18th century by the Swiss mathematical genius Leonhard Euler, and through his work and that of several other mathematicians, such as Germany’s Carl Friedrich Gauss, non-Euclidean geometry was born.

Euclid’s error, if we can call it that, did not matter much when human beings did not travel and trade over great distances—at least not over short durations of time. This is because over short spaces, a flat surface is a good approximation of a gently curving one. When, from the 15th century onward, it became common to travel long distances for trade and conquests, initially by ship and then by plane, it became critical not to base calculations on Euclidean geometry. The curvature of the Earth mattered.

To understand the analogy for economics, consider trade. Much of human well-being depends on our ability to conduct trade and exchange goods. If each household had to produce all that it consumed, our lives would be solitary, poor, and short. What leads to efficient trade and exchange? Economists usually point to a few assumptions, such as self-interest (in particular, the urge to accumulate and consume more), the axiom of diminishing marginal utility (the fact that consuming more of the same good causes utility from each additional unit to decline), and so on. But these assumptions are in fact inadequate. Laboratory tests show that rats satisfy these axioms, too, but there is no evidence of trade among rats. For society to conduct trade, these economic assumptions need to be supplemented with other social and normative preconditions: We need language, the ability to communicate, and some minimal respect for others’ rights. These are the assumptions in the woodwork that economists are often unmindful of but play a vital role.

Put simply, markets, trade, development, and economic growth are made possible by a bedrock of social norms beneath the economy. When these norms are not there or they mutate, the economy can teeter or even collapse. One can see the importance of this in today’s world. There is a lot of soul-searching about the malfunctioning of standard policy. Central banks cutting interest rates and increasing liquidity are failing to revive growth and create jobs. The Phillips curve—the theory stating that inflation and unemployment have a stable and inverse relationship—is in tatters. Economies that were doing remarkably well are suddenly stalling and stumbling. It will need research and analysis to locate all the fault lines causing these problems, but it is arguable that with globalization, societies with very different norms are coming to inhabit a common playing field and this is causing strains not seen before, as would happen if two sets of islanders, one that followed the norm of driving on the left and one that drove on the right, came to live on the same island. In brief, we need to step beyond economics to understand the 21st century’s troubled economies.

India presents a striking example of the limitations of pure economics. From 2003 to 2011, the world’s largest democracy was growing at a phenomenal rate, exceeding 9 percent each year between 2005 and 2008. Even after 2011, it kept up a reasonable rate of growth. However, since 2018, the economy seems to be spinning into a crisis, with growth declining to 4.5 percent, consumption in India’s vast rural sector declining at rates not seen since the late 1960s, and the overall unemployment rate at a 45-year high. The 2018 Accidental Deaths and Suicides in India Report, recently released by the National Crime Records Bureau, highlights a stark mood of despair: Since 2017, there has been a noticeable rise in the relative share of suicides by daily wage earners. They are among the poorest people in the economic ladder, thereby suggesting a rise in poverty.

What is causing this economic turnaround in a country that until a few years ago was perceived as exemplary? Mistakes in fiscal and monetary policies have played a role, of course. But the sharpness of the decline suggests that something more is going on, and part of the cause lies in ruptures in the normative and institutional foundations of the nation caused by divisive politics.

Trust and a sense of belonging are not economic variables, but they form an important part of the underlying normative foundation of an economy. These values are eroding in India. An important hint of this comes from the decline in India’s investment rate—investment being dependent on trust and confidence—from nearly 39 percent of national income seven or eight years ago to 30 percent today. This may well be contributing to the slowdown. Market economies rely on trust in several ways. For most transactions, there is a gap between service and payment. The auto shop repairs your car today, and you pay tomorrow. You pay the painter today, and she paints your home over the following week. Without trust, all these transactions would slow down and malfunction. Francis Fukuyama noted the correlation between a society’s level of trust and economic prosperity, and, in a 2013 paper, Yann Algan and Pierre Cahuc use statistical analysis to show that trust can be critical for economic growth. By their calculation, an Africa with Sweden’s trust levels would achieve six times the per capita income it currently has.

A recent Harvard Business Review paper shows that if a company’s workers have a sense of belonging, they improve their job performance by 56 percent, with a 50 percent drop in churn and a 75 percent reduction in sick days. For a 10,000-person company, this would result in annual savings of more than $52 million. Extrapolate this to a nation, and you get a sense of why nations where large segments feel excluded do poorly.

The rise in divisive politics, whipping up of religious tensions, and marginalization of minorities that we have seen over the last four or five years in India are undoubtedly taking a toll on people’s sense of belonging and trust in the nation. This is an important reason India’s economy is doing so poorly.

The role of trust and sense of ownership get endorsement from a very unusual source: The British music conductor Charles Hazlewood noted in an interview that while discipline and obedience play an important role in a successful performance, the critical element between the conductor and individual musicians is trust. Giving them space to use their own judgment and creativity is what leads to truly great music.

Something similar is likely true for the economy. With globalization and dramatic changes in technology, our world is transforming beyond recognition. It is not enough to simply collect data and examine the axioms of economics. Instead, economists must unearth some of the hidden assumptions of our discipline—the norms that we, knowingly or unwittingly, assume to be there, which may not be there or may have shifted. It is time to bring anthropology into economics and to rewrite our models. In short, this may well be economics’ Euclidean moment.

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Business

A timeline of events in the bread price-fixing scandal

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Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

The Canadian Press. All rights reserved.

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S&P/TSX composite up more than 250 points, U.S. stock markets also higher

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TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.

The S&P/TSX composite index was up 254.62 points at 23,847.22.

In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.

The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.

The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.

The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

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VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

The Canadian Press. All rights reserved.

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