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Saturday, 3 December 2016

Demonetization on Payday: A Photo Essay

Demonetization on Payday: A Photo Essay

Written by Dr. Seshadri Kumar, 03 December, 2016

Copyright © 2016 Dr. Seshadri Kumar.  All Rights Reserved.
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A few days ago, I wrote a blog article talking about why Indian PM Narendra Modi’s widely-discussed “demonetization” plan was a huge mistake, and suggested an alternative. In it, I discussed the fact that India was completely unprepared for the cashless economy that Mr. Modi was trying to force down its throat. That assertion was made on the basis of exhaustive data, such as the number of bank branches in rural India, the number of Indians who had a bank account, and the like. The study made use of an index prepared by the Reserve Bank of India (RBI), called the JAM-preparedness index, which measured the extent to which India was prepared for a cashless world, relying on the three main infrastructural legs of the Jan Dhan Yojana bank account (J), Aadhar card (A), and Mobile transactions (M). The RBI report mentioned in that article said that even urban India was nowhere near ready for a cashless world, while rural India was woefully unprepared, with all of rural India deemed less than 5% ready by the government’s own estimate.

However, some friends of mine said I was quoting dry statistics, and wanted to rely more on anecdotes. My response to that objection was and is that large-scale, broad-based statistics are more representative of the truth than isolated anecdotes, and that my earlier article, basing itself as it does on hard evidence, is more representative of the true state of India than a friend’s or a relative’s first-hand account.

Although I still believe this, I thought I would also get some anecdotal evidence on the state of things following Modi’s now infamous demonetization move.

So I decided to do a first-hand sampling of banks and business on the first day of December, 2016, or pay day - most businesses deposit their employees’ salaries in their bank accounts by the first of the month, if not a few days earlier. December 1, 2016, was the first payday in India after Modi’s announcement on November 8, 2016. This was thus the first time many employees needed cash for their main monthly expenses after the demonetization exercise began – for monthly rental payments, food from ration shops, fees for children’s schools, and many other needs which often need to be paid around the first of the month. While many people can take care of these through cheques and debit cards, many are still dependent on cash despite having bank accounts, judging by the number of employees trudging to banks to withdraw cash on payday.

I am currently on vacation in Bengaluru, so I decided to investigate in my local area, viz., Malleshwaram. I walked down Margosa Road from 18th Cross to 6th Cross, walked on 6th Cross to Sampige Road, and walked up on Sampige Road back to 18th Cross. I chose this route because Margosa Road had most of the banks in Malleshwaram, whereas Sampige Road was the business hub of Malleshwaram. In addition to looking at banks, I also wanted to talk to businesses and find out from them what the impact of demonetization on businesses in this highly urban area had been. Here are the results.

Banks and ATMs

I went to several banks in the area on my expedition, starting at 12.00 noon and ending at 1.30 pm. Some banks had more than one ATM outlet. These are the banks I encountered:

1.     Kotak Mahindra Bank
2.     HDFC Bank
3.     Canara Bank
4.     Bank of India
5.     State Bank of India (SBI)
6.     AXIS Bank
7.     Bandhan Bank
8.    State Bank of Hyderabad
9.     Yes Bank
10. IDBI Bank
11.   IndusInd Bank
12.  ICICI Bank

Most banks did not have working ATMs because of lack of cash. One employee at a HDFC bank told me that they were waiting for the supply of the new Rs. 500 rupee notes and for the ATM machines to be recalibrated for the new notes, which might take a few more days. The only banks that had functional ATMs were State Bank of India, Bank of India (both public sector banks), and IndusInd Bank (a private bank).  The bank employee at HDFC also told me that they were limiting withdrawals to Rs. 8000 because of shortage of cash, even though the government rules allow up to Rs. 24,000. It appears that the bulk of the new currency is going to state-owned banks.

Banks are also managing long lines by innovative ways. The HDFC bank I went to would not let anyone linger near the entrance. The employee there explained that they were issuing tokens for service at 9.30 am, 11.30 am, 1.30 pm, and so on. At these times, the bank would issue a limited number of tokens, and only those fortunate to get these tokens would be served. Thus there were no long lines. Bank of India had a seating area inside, and you could take a token for the specific transaction you were interested in: cash under Rs. 2000, cash between 2000 and 4000, 4000 and 10000, and so on.

The only denomination of currency available at all of the banks I went to was the Rs. 2000 note. Nobody had any other denomination available for withdrawal.

So, out of 18 ATMs that I saw, only 3 were functioning on Payday. All banks were allowing cash withdrawals, but mostly with reduced limits in spite of the government notifications.

Kotak Mahindra Bank ATM. Notice the shutters completely down and the guard outside.
Another Kotak Mahindra ATM, out of service as indicated by the half shutters
A third Kotak ATM. Note again the half shutters
Fourth Kotak ATM, attached to a branch. A guard sits in front of a cashless machine.
A non-functional ICICI bank ATM
Citibank ATM
HDFC ATM. The sign says "ATM out of service"
Another HDFC ATM. The sign on the door says "ATM. No Cash. Out of Service."
YES Bank, but NO cash
AXIS Bank ATM. The ATM is behind the closed shutter on the left.
Bandhan Bank. The ATM is behind the closed shutter on the right.
IDBI Bank. The ATM is behind the guard on the left, shutters half down.
State Bank of Hyderabad. Note the sign that says "No ATM."
IndusInd Bank. The only private bank with a functioning ATM.
State Bank of India (SBI) ATM on Margosa Road
SBI ATM on Sampige Road
Bank of India ATM. The other public sector bank with a functioning ATM.

Business Outlook

While walking up Sampige Road, I had a chance to chat with many shopkeepers and ask them how demonetization had affected them. With a few exceptions, most businesses said things were down in the three weeks following demonetization, with an average drop in business of 50%.

Poorvika Fashions is a store that sells a lot of knick-knacks. The owners were very down on the outlook. I asked them how much current business was relative to a level of 100% before the demonetization. They said business was now at 30% - a drop of 70%!!! Most people pay cash at their store, and cash is hard to come by.

Poorvika Fashions, whose sales are down by 70%
All decked up and waiting for customers...
Business is down 60% at this photo frame shop
The owner of this store was very glum as he told me tbat business was down 50%
Prateek Arts and Crafts is a shop specializing in carved wood. They sell a lot of mandaps for home worship. The owner told me that normally, they sell 4-5 pieces in a week. Since the demonetization has happened, they haven’t sold a single piece. “Not even Rs. 100 worth of stuff,” said the owner. I asked him whether he has managed to pay the craftsmen who work in his factory and make these art pieces. He said that so far they have managed to scramble cash from different places to pay them, but he hopes things will improve soon.

The owner of Prateek Arts and Crafts has tons of time to kill as business has completely vanished since November 8
This well-known sports and toys store on Sampige Road has seen business drop by half since November 8
This travel agency is one of the luckier businesses - says business is only down by 25%
There were a few shopkeepers who were not so perturbed by the move to demonetize. One of them was a BATA showroom, who said they had seen no difference in business. Another was a small clothing store selling mostly salwar kameezes. 

The third was the owner of an imitation jewellery store, Sri Lalithambike, who specializes in one gram gold jewellery. The owner is a Gujarati transplant who said that there had been no difference in his business. He said he had seen a dip on November 9th and 10th, because people were confused about the new state of things, but then things picked up. He was even happy to pose for a picture. We had a nice chat, and he asked me to point out in my article one potential problem that he had thought of, and I said I would.

He pointed out that he had been using digital technology for a long time now, and even he was recently fooled by scamsters who managed to get him to pay for something through PayTM. He told me that if this could happen to a net-literate person like him, imagine the plight of those who are suddenly moving to technologies like email, internet banking, and PayTM – they could easily lose their life savings to scam artists.

I also talked to the owner of a Kirana store who did not want him or his store to be photographed, but told me business was down by 50%. He said the shortage of cash was the main culprit. He said some people try to give him a Rs. 2000 note to pay for a Rs. 200 bill. He cannot accept that as he does not have enough Rs. 100 notes in change. He said he does sell goods on credit to some customers – but only to regulars. I told him I was from Pune, and some shopkeepers there make use of a black market where you give Rs. 500 and get four Rs. 100 notes in return – was he aware of such schemes? He said no, he had not heard of it in Bengaluru.

The owner of Sri Lalithambike, posing in front of his shop
Overall, businesses have lost a lot in the last 3 weeks and, unless liquidity returns soon in the form of Rs. 100 and Rs. 500 notes, could stand to lose a lot more.

Concluding Thoughts

My 1.5 hour stroll in one of the busiest business areas in Bengaluru showed me that banks are still not functioning anywhere close to normal, three weeks after the demonetization announcement. Out of 18 ATMs that I saw, only 3 were functional, and this was on Payday. Most banks were not allowing withdrawals up to the maximum allowable limit specified by the government because they had no cash. This will doubtless cause more hardship to the already suffering public.

My conversations with most business owners told me that, on average, most had suffered a 50% drop in business in the last 3 weeks. One just needs to imagine what the nationwide impact of a 50% drop in business for 3 weeks will be – and what the impact on the GDP will be if this were to continue for months.

Business down by 50%. Only 3 out of 18 ATMs working. 

If this is the state of things in a busy shopping area in Bengaluru, one of the biggest cities in India, and an IT hub to boot, just imagine the state of things in a rural area where most people do not have bank accounts and where internet penetration is very poor.

The worst is yet to come.

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Disclaimer: All the opinions expressed in this article are the opinions of Dr. Seshadri Kumar alone and should not be construed to mean the opinions of any other person or organization, unless explicitly stated otherwise in the article.
For more articles by Dr. Seshadri Kumar, please visit http://www.leftbrainwave.com

Friday, 25 November 2016

An Alternative to Modi’s Demonetization Plan – Without the Pain and the Deaths

An Alternative to Modi’s Demonetization Plan – Without the Pain and the Deaths

Written by Dr. Seshadri Kumar, 25 November, 2016

Copyright © Dr. Seshadri Kumar. All Rights Reserved.
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Summary:

The money-exchange scheme announced in India by PM Modi on the evening of November 8, 2016, has caused tremendous hardship to the people of the country. More than 50 people have died as a result of the policy, while countless people have been forced into extreme hardship. Much more suffering is to come.

Three questions immediately present themselves. One, does the scheme solve the stated objectives of eliminating black money and counterfeit money? Two, does the country have the capacity to absorb the shock of removal of 86% of the cash stocks in the country and their slow replacement, either by stocks of new money or a cashless economy – a process likely to take months? Three, and most importantly, does a better alternative exist?

There has been much debate on the first aspect – viz., whether the scheme under implementation can solve the black money and counterfeit problem. I will only discuss this briefly, and focus on the second and third questions.

I show in this article that the country simply does not have the capacity to absorb the shock of the removal of 86% of the cash stocks in the country.

Further, I also show that a much better alternative to the government’s scheme exists – a scheme that does not focus on chasing stocks of black money, but on completely eliminating black money and counterfeit money, once and for all, in a painless process that does not involve people starving, losing their livelihoods, or dying.

Large portions of this article recently appeared in a column that I wrote in Frontline magazine – the entire section titled “Flaws of the Demonetization Scheme” is taken verbatim from the aforementioned Frontline article: this article expands on that column in order to provide a comprehensive look at the problem, and a better solution than the one the government has implemented.

The Announcement

On November 8, PM Modi announced a money-exchange scheme, the stated objectives of which were twofold:

1. Elimination of hoarded stocks of black money
2. Neutralization of the circulation of counterfeit money

Later interactions with the government through press conferences revealed a third objective: A move of the country to a cashless economy.

According to Modi's speech on the evening of the 8th of November, all existing Rs. 500 and Rs. 1,000 notes would cease to be legal tender by the end of the day; banks and ATMs would be shut for the next 2 days to stock them with new Rs. 2,000 notes and notes of other lower denominations; and after that, banks would start accepting cash deposits and return up to Rs. 4,000 per person in exchange, the rest remaining in their bank accounts; and ATMs would disburse up to Rs. 2,000 per card per day, up to a total of Rs. 20,000 per week. (These limits have changed since and are very dynamic, with new policies being announced virtually every day, which points to a complete lack of planning.)

The impression given was that people would be inconvenienced for just two days and then the bank branches, working late hours and weekends, along with well-stocked ATMs, would relieve any stress or anxiety on the part of the public.

Since then, there has been much hardship experienced by the public because of this move, and these have been documented very well by other articles in the media. Many have also asked if the move really addresses the larger problem of black money in the country; whether this move is really likely to stop black money; and whether the introduction of the Rs. 2000 note will not actually increase the hoarding of black money. There have also been debates on how much actual financial benefit is likely to accrue to the government.

I will not discuss any of these issues here. My concern is more fundamental – whether the move to take out the Rs. 500 and Rs. 1000 notes out of circulation and replacing them with new notes was carefully considered in light of the existing infrastructure, and whether alternatives exist.

Flaws of the Demonetization Scheme

The decision to remove the Rs. 500 and Rs. 1000 notes left most Indians in the lurch. This was because 86% of all the currency printed by the government was in the form of Rs. 500 and Rs. 1000 notes (by value). According to the annual report of the Reserve Bank of India (RBI) dated 29 August 2016, as of March 2016 the currency notes in circulation had a total value of Rs. 16.42 trillion (or lakh crores). Of these, 86.4%, or Rs. 14.18 trillion was in Rs. 500 and Rs. 1000 notes. This was the amount sucked out of the system at midnight on November 8. It was estimated that, of this amount, about 25%, or Rs. 3.5 trillion, was black, meaning that people possessing it would not deposit it in the bank for fear of attracting huge penalties or jail time. That would mean that the amount of money in circulation that would now need to be deposited in banks and exchanged for new notes is approximately Rs. 10.64 trillion. This is to be done entirely through bank branches and ATMs.

In press interactions since the demonetization move was taken, the FM has informed the people that this move is part of a larger plan to move to a cashless economy, and urged people to start using electronic banking, mobile payment, and credit and debit cards. The attempts by people to exchange their now-worthless money for new, usable notes hit another roadblock as ATMs needed to be recalibrated to accept the new notes, a process the FM estimated as needing another three weeks. In yet another interaction, PM Modi informed the nation that he expected the hardship to continue until December 30th at the latest.

But is this realistic? Are the two major legs on which the demonetization scheme stands, viz., for citizens to deposit old notes in banks and withdraw their money using either bank account withdrawals or ATM withdrawals, or the transition to a cashless economy for 50 days, relying only on ATMs, bank branches, smartphones, credit and debit cards, realistic at this time? What percentage of Indians actually do have access to these?

The Global Financial Inclusion report, prepared by the World Bank, gives a lot of useful information to answer these questions. The data shows that while things are improving, they are nowhere near where they need to be. For instance, the percentage of those 15 years or above who had a bank account rose from 35% in 2011 to 53% in 2014. The number of ATMs per 100,000 Indians, on average, was around 18. This compares unfavourably to other countries like 66 in South Africa, 129 in Brazil, and 184 in Russia. Clearly India is a lot more unprepared to deal with a situation where 86% of the cash vanishes overnight than any of these nations. Figure 1 shows the availability of ATMs in several countries over the last decade.
Figure 1. Availability of ATMs in Different Countries
Credit and debit card usage does not fare much better. The Global Financial Inclusion report says that in 2014, only 11% of Indians 15 or above made a payment using a debit card, and only 3.4% used a credit card; and only 2.2% used a mobile phone to make payments. Further, it says that in 2014, only 6.4% borrowed from a financial institution, whereas 12.6% borrowed from a private lender; 6.6% borrowed from a store by buying on credit; 5.4% borrowed from an employer; and 32.3% borrowed from family or friends. The Indian economy is therefore dominated by cash and unaccounted transactions, and most people are quite unfamiliar with electronic means of payment and withdrawal. Only 20% received their wages at a bank. Less than 0.2% of Indians used a mobile phone to pay utility bills; just over 4% of all Indians used a bank account for business purposes; just under 4% of Indians used a bank account to receive government transfers; and only 6.7% used checks to make payments.

What is very clear from these figures is that a large majority of Indians are not even in the formal banking/financial net, let alone specialized forms of it such as internet banking and mobile banking using smartphones. Further, it should be kept in mind that these figures, dismal as they are, do not reflect the true desperation of the situation today, because they are average figures for India and do not reflect the urban/rural divide.

Figure 2, taken from the RBI’s “Report of the Committee on Medium-Term Path on Financial Inclusion,” dated 28 December 2015, shows that the bank branch density in rural areas is less than half of the bank branch density in urban areas. Rural India is largely cash-driven. One reason for this is that agricultural income is exempt from income tax, and a lot of transactions are done with cash alone. This is not black money.

Figure 2. Variation in Bank Branch Density in Rural and Urban India
So, the irony of the situation is that bank branches and ATMs are far fewer in the rural areas, but the percentage of wealth that is held in cash in rural India is much greater than what is held as cash in urban India, where people use banks to store their money – and now these rural Indians will have to contend with getting their larger stores of money in and out of banks with little experience doing so and this during a liquidity crisis!

The Jan Dhan Yojana has created a lot of new bank accounts in India, but a lot of them are zero-balance accounts, and people have not yet taken to using them.

It should be clear from the above that rural India was woefully unprepared for the shock of the withdrawal of 86% of liquid currency on November 8, and is unlikely to recover from this situation any time soon.

One of the main thrusts of the economic policy of this government is the JAM troika – standing for Jan-Dhan Yojana, Aadhar unique identification, and Mobile. The RBI’s Economic Survey of India 2015-2016 discusses, in Chapter 3, the JAM approach in detail and presents a JAM preparedness index – i.e., how ready is India for a world in which benefits will be transmitted electronically to bank accounts, verified by Aadhar cards, and accessed by mobile phones – in other words, a cashless economy, of the kind people have been forced to confront themselves today. A JAM preparedness index of 100% indicates full preparation, and 0% indicates complete unpreparedness. 

Figure 3 shows the JAM preparedness index for urban India, and Figure 4 shows the index for rural India. It should be very clear that India, especially rural India, is neither ready for a JAM world, nor was it ready for the world of November 9, 2016.

Figure 3. JAM Preparedness Index for Urban India
Figure 4. JAM Preparedness Index for Rural India
This is going to lead to unbelievable suffering in the next 50 days. People are going to starve and die – many already have; people are going to continue to be refused medical treatment for life-threatening illnesses and pregnancies for lack of liquid cash; and farmers are going to suffer as they cannot sell their produce or buy seeds. Business is going to come to a standstill in both rural and urban India. The worst effects of this measure will be felt by those with the least capacity to absorb these shocks.

An Alternative Solution

One of the arguments put forth by the Government and its supporters is that there was no alternative to all this pain and chaos – that this was the only way.

“Do you not want black money and counterfeit money to be ended?” they thunder. 

Indeed, we do. Every right-thinking person in this country would like a more honest system in which there is no black money and no counterfeit money. But there are many ways to skin a cat. The way the Government has chosen is full of fatal flaws.

Is there a better alternative? Yes, there is – a painless alternative that will not result in anyone losing their livelihoods, their health, or their lives. And I will discuss that here.

It is clear that all these problems experienced by the people are because of the fact that the system simply does not have the infrastructure for people to exchange their money and get new notes in a reasonable time-frame. That is because the necessary tools, viz., online banking, internet connections, smartphones, physical banks and ATMs, and credit and debit cards, are simply not widespread enough. In other words, the problems have happened because the government has put the cart before the horse.

Therefore, the better alternative would have been for the government to first build the necessary infrastructure – to invest in last-mile connectivity for banks; to invest in cheap smartphones (as they did with the Akash tablet) so that every Indian could afford one to engage in financial business; to ensure national internet connectivity; to get every Indian in the banking net; to make all Indians use only debit and credit cards for purchases; and to make all Indians use mobile apps such as PayTM or apps using the new Unified Payments Interface (UPI) to make even the smallest purchases, such as buying vegetables on the street.

This will take time and have to be done in a calibrated manner, by both investing in the infrastructure as well as working on people’s inertia, by gradually closing off alternative means of payment such as cash in sector after sector.

So the government could announce, for example, that all supermarkets and malls would no longer accept cash for amounts greater than Rs. 500 after six months; that in the next one year, the Railways will stop accepting cash for tickets and only accept electronic payments such as credit cards, debit cards, internet banking, mobile wallets such as PayTM or Mobikwik, and payment banks under the UPI; that in six months after that, no government office will accept cash for any transaction; and so on.

This will force more people to go cashless – but it will give them sufficient time to prepare for a cashless economy – to open bank accounts, to get debit and credit cards, to obtain cheap smartphones subsidized by the government, to learn how to use apps such as PayTM or UPI-based apps, to use ATM kiosks for internet banking to pay bills, and so on. Since it will not be an overnight change, it gives people time to learn these new tools and make an orderly transition. There will be no panic and no one will die of shock. If there is a wedding or an operation, people have six months or a year to plan an alternative way of payment, rather than be surprised by a last-minute pulling of the rug under their feet.

Once this is done, cash will die a natural death and there will be no need for a demonetization drive. This also automatically removes the threat of counterfeit money – since the economy is cashless, there is no worry about counterfeit bills. Also, since everything is electronic, nothing can be hidden. Everything is tracked, and there is no black money. People will not offer cash bribes because nobody will accept something that cannot buy anything.

This is exactly what one of the most advanced countries in the world, Sweden, is actually doing – by ensuring that everyone has internet connectivity and the necessary devices, they are eliminating cash. But this is not something that you can do overnight. It takes years, and is gradual. All the objectives of the government are achieved – eliminating of black money (not just a stash, but even the generation of black money); eliminating of counterfeit money; bringing everyone under the tax net; and moving India to a cashless economy. All this without a single person dying.

But it does not fetch you dramatic headlines.

References

1.       World Bank Data on Financial Inclusion. http://databank.worldbank.org/data/databases.aspx
2.      RBI Report on Financial Inclusion. https://rbi.org.in/scripts/PublicationReportDetails.aspx?ID=836#CH1
3.      Economic Survey of India 2015-16. http://indiabudget.nic.in/survey.asp

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For other articles by Dr. Seshadri Kumar, please visit http://www.leftbrainwave.com

Disclaimer: All the opinions expressed in this article are the opinions of Dr. Seshadri Kumar alone and should not be construed to mean the opinions of any other person or organization, unless explicitly stated otherwise in the article.



Wednesday, 9 November 2016

The Morning After: Lessons From the 2016 US Presidential Election

The Morning After: Lessons From the 2016 US Presidential Election

Written by Dr. Seshadri Kumar, 09 November, 2016

Copyright © 2016 Dr. Seshadri Kumar.  All Rights Reserved.
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Executive Summary:

Donald Trump is going to be the 45th President of the USA. Today’s election results have given him a comprehensive victory. This article discusses the reasons for his victory and the lessons that we must learn from his victory, and briefly talks about the implications of a Trump Presidency for the US and the rest of the world.

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Why Trump Won

On September 3, 2016, I wrote a blog post in which I explained why I believed that Donald Trump would win the election. I had hoped to publish the article in a national magazine in India, but the editors there balked at the content of the article – because I was predicting a Trump victory when no other journalist anywhere was willing to say the same. So I published it on my own blog.

In this article, I explained that the main reason for his victory would be that Americans are disillusioned with mainstream US politicians, both Republicans and Democrats, after 16 years of continual job losses. I explained that both Republicans and Democrats had been lying to the American people and telling them that things were going to get better, whereas in fact they were doing everything in their power to make things worse. The reason things were getting worse for the American people was that American politicians – Congressmen and women, senators and Presidents – were all doing their best to help American corporations make money – and corporations making money often meant sacrificing the common American worker – companies only care about finding the best talent at the lowest price, not about keeping jobs in America. I explained that these job losses were an inevitable consequence of globalization – that this was happening because of rapid changes in communication technology and the opening and liberalization of markets in China and India, the need for factories to be moved overseas not only to exploit cheaper labour but also to serve bigger markets in China and India.

My conclusion was that things would not improve for the average American for a long time, and American politicians did not have the requisite honesty to level with the American people. The people of the country figured out they were being lied to by people in the establishment, and lost trust.

Into this situation, two outsiders came in – Bernie Sanders and Donald Trump. Both made huge inroads into their parties’ bases. Trump demolished the competition in the Republican primaries. With a lot of connivance from the DNC and pressure from powerful donors, the Democratic Party managed to defeat Bernie Sanders, believing that a socialist would not be acceptable as President and that Hillary Clinton would be a winning candidate against Trump.

But Clinton was viewed by the American working class as the ultimate insider and part of the conspiracy to export American jobs and impoverish American workers. Trump latched on to the economic issues and savaged the establishment - both Republicans and Democrats -  for American job losses, and used this to win the election. This also involved demonizing those to whom Americans were losing their jobs – foreigners. So a strong undercurrent of racism and xenophobia came along for the ride as Trump tapped blue-collar Americans’ angst to propel his campaign.

Of course, Trump has no realistic solutions to the problem, but in their frustration, people didn’t care. They voted for Trump as an outsider because they could not trust any of the insiders. Bill Clinton had let them down, as had George W. Bush, as had Barack Obama. They could trust no one within the system. Had Bernie Sanders been the Democratic candidate instead of Clinton, Trump would not have had the advantage of being an outsider, because his opponent would have had the same advantage. But Hillary represented to frustrated Americans exactly what they thought was wrong with America.

And that is why Trump won.

While Trump did not win with the margin I predicted (360 electoral votes), he has still won convincingly. He looks set to win at least 305 electoral votes (including Michigan), and maybe more. This in spite of several scandals involving Trump, most notably several women accusing him of sexual molestation, soon after an audio recording emerged showing Trump bragging about sexual assault, all within the last month. It is conceivable that Trump’s numbers could have been significantly higher had it not been for these setbacks.

Lessons to Learn from Trump’s Victory

1.      Economic unrest was the key issue in this election. All these days, while watching CNN (the only American channel I get to watch in India), people who were concerned about job losses were always described in CNN panel discussions as racist blue collar unemployed uneducated white folks. Their concerns were never taken seriously – until today! After the election result, every CNN analyst is talking about job losses as though they only understood this issue today. The exit polls reinforce this conclusion. Asked what they thought was the most important issue facing the nation, 52% of voters responded saying that the economy was the most important issue. This compares to 13% identifying immigration, 13% identifying foreign policy, and 18% identifying terrorism. In the same polls, 42% said that the main effect of international trade was to take US jobs away, as opposed to 38% who said that international trade creates US jobs.

2.     Polls are imperfect by themselves. A lot of people treat polls as sacred. This was one of the most common reactions to my earlier article where I prophesied a Trump victory: “How can you predict a result that goes against what Nate Silver (of fivethirtyeight.com) says? He says Trump only has a 27% chance of winning!” The problem is that Silver is only a statistician. His command of statistics is formidable indeed, and I would not presume to challenge him on that.

However, what is missing is the political calculation. Why did Trump win even though fivethirtyeight.com and realclearpolitics.com said he would lose? Because those models are based purely on statistics. In other words, at the time of the poll, they said that many more people supported Clinton than they did Trump; and they projected from previous election results to say that from that point on, Trump could not possibly win the election. There are two errors in this conclusion.

First, the idea that the poll is supposed to represent a perfect sample. In practice, it never does, despite the best attempts. The idea that a sample of 1000 people could be a reliable guide to what a nation of 250 million thinks is a flawed assumption. Random sampling is a good idea, but in a sample of 1000 people, how many black people can you have? Will richer black people think the same way as poorer blacks? Will black men think the same way as black women? Will a 20-year old think the same way as a 60-year old? Will the poll include all these demographic groups within the black sample? NO. This is not to say that polls are useless; it is only to bring some caution that polls are not perfect – that the margin of error is much greater than the 3% (or similar number) that is usually quoted as the margin of error of that poll. Clearly, after the election results, we can now say that most polls that predicted Hillary Clinton would win this election have a 100% margin of error.

Second, past trends on polls were not a good guide to this election because the fundamentals had changed. The logic of previous elections was inapplicable here because people had lost trust in the mainstream parties – they could not, therefore, be expected to behave as in the past. The reason for this is not statistical; it is political.

3.     The Occupy movement was a very important bellwether of the popular mood and the distrust of the people. It lasted for only 5 months between September 2011 and February 2012; and politicians thought that since they were able to successfully break the back of the movement and disperse the crowds without giving them anything, they had solved the problem. But you don’t solve problems by force – the disaffection did not go away but kept simmering under the surface. The trust deficit between the politicians in power and those they were governing widened as nobody did anything to address the concerns of the disenfranchised. People continued to lose jobs, and jobs continued to be exported for the benefit of the corporations on Wall Street. It would be foolish to continue to sweep this under the rug as it was done in 2012. Cynical management-speak such as “Americans need retraining to be more competitive” will not wash any longer. It was because of these reasons that Sanders became very popular – he tapped into the public mood and was able to articulate their concerns in the primary campaign. Unfortunately, no one in power listened to him. The Democratic Party adopted a dogmatic posture and decided that a socialist could not be the President of the USA. The US, after all, was the global champion of capitalism. What this dogma fails to recognize is that capitalism, as it exists in the US, has failed most Americans. Sanders' message was and is an important one, and the American establishment would do well to heed it. This is not to say that capitalism should be abandoned; but it certainly needs to be significantly modified.

4.     Democratic supporters were constantly in denial about Trump, saying that blacks and Latinos would not vote for him because of how he had described illegal immigrants to the USA from Mexico and for the general perception about him as a bigot. But you do not win an election so comprehensively if none of these people vote for you. In fact, the exit polls from the election showed that Trump won 8% of the black vote, 29% of the Latino vote, 29% of the Asian vote, and 37% of votes of other races. Overall, Trump got 21% of the entire non-white vote. What does that tell me? That people were more concerned with his core message regarding jobs and the economy. Racism was not the key to Trump’s victory; economic issues were.

5.     A similar line of thinking blinded Democrats into thinking that women would never vote for Trump because of his sexist and misogynist behaviour in the past. He had in the past described a woman as a “piece of ass” and was known for sexually objectifying women. This history, coupled with his comments about Alicia Machado and allegations from several women about sexual assault in the wake of the publication of a conversation he had years ago with Billy Bush in which he bragged about sexually assaulting women, led Democrats to believe that women would never vote for him.

But these predictions were, as in the case of race, equally wrong. Again, data from the exit polls show that 53% of white women voted for Trump, compared to 43% for Clinton; and 26% of Latino women voted for Trump. If Latina women were so terribly offended by Trump’s offensive comments about both women and about Mexicans, what explains this? Why did 53% of all white women vote for Trump if they were so put off by his attitudes towards women? Also, across all races, 42% of all women voted for Trump. The mainstream narrative is clearly wrong.

Perhaps the best explanation is that Americans are fairly pragmatic people. In spite of most people disapproving of Clinton’s bad behaviour in the Lewinsky episode while he was President, he was and remains a very popular figure. It was said during the 2000 campaign that, in spite of his scandal, if Clinton had been eligible to run for the Presidency again, he would have won. This is because most Americans viewed this as a personal matter between Bill Clinton, Hillary Clinton, and Monica Lewinsky. They were only worried about the state of the economy. Unemployment was at historic lows then and the economy had been booming for 8 years.

The same pragmatic attitude is true now of Americans. Trump may be a bigot and misogynist, but people are more concerned about how he will run the country. He focused on the jobs piece and that resonated more strongly with people than the reports of his sexual offenses and bigotry.

6.     The media has not exactly covered itself with glory, with most of them forgetting their primary duty to report and analyse, and instead re-interpreting their jobs as propaganda agents for Hillary Clinton. Nothing was worse for me than watching CNN daily and finding their reporting to be totally pro-Clinton. It almost seemed like they were themselves believing the alternative version of reality that they were spinning. Unfortunately, when you do not cover an event, especially one of this magnitude, with the appropriate objectivity, what happens is that you are completely nonplussed by the outcome, as is evident from the reactions of various CNN anchors and panellists today.

Just repeating that a candidate is going to lose does not ensure that he will lose. CNN needed to search for the truth, which it clearly did not. Most polling agencies also did not care. This election should call into serious question both the use of polls as well as the ethics of media organizations.

There was highly inadequate discussion of the candidates’ policies. It becomes impossible to objectively discuss policy prescriptions when, as a media organization, you refuse to even acknowledge the claims of one of the candidates, viz., that there are serious problems on the job front and the export of jobs overseas. If you are going to treat that statement as Trump propaganda (which media tended to do), then you are not going to discuss which candidate’s proposals are better. But this requires a willingness to admit that things under the current administration are not exactly rosy. If you are reluctant to admit that because such an admission might affect the prospects of one of the candidates, you cannot give viewers a fair discussion of issues and the positions of candidates. For example, if you are going to characterize those complaining about job losses as racist rednecks, you cannot ever discuss the job losses issue fairly.

7.     It is hard to understand why the Democratic Party and the media were so busy inventing reasons for why Trump was winning when he was giving the reasons quite explicitly himself. So, for example, instead of focusing on the obvious answer that he was winning because he was focusing on Americans’ economic difficulties and their frustration in their declining living standards and in the export of jobs, both Democrats and the media went out of their way to invent other reasons – Trump supporters were racist, xenophobic, rednecks, uneducated. They would have had a lot more success had they given answers to the questions Trump was posing to the people. Instead, Hillary Clinton kept saying “America doesn’t need to be great again, we are already great” – which is a perfect example of denial.

Why did the Democrats do this? A simple reason is that creating strawman arguments is an expedient device to win arguments. It was easy to explain on TV debates why Trump was winning – just say that all his followers are racist white unemployed men, and ignore all the women and people of colour that actually did support Trump. The problem is that such logic is fine when you are living in your own bubble; it is inadequate to deal with the situation, as it is now, when reality comes crashing down on you. Hillary tried to do the same thing with her “basket of deplorables” comment.

Concluding Thoughts

For better or worse, Donald Trump is the President of the USA. As I wrote in September, I am no fan of Donald Trump. He is a highly flawed individual. He successfully understood in this election cycle the mood of the American people and their chief concerns, although I do not believe he will do much to solve the underlying problems – because he cannot. The juggernaut of globalization will continue to move inexorably, and neither Trump nor anyone else can do much to stop it. American jobs will continue to be exported simply as a response to global competition. Any attempts to interfere with free trade will only be to America’s detriment and make things worse than they already are. I have explained this in detail in my other article.

What does Trump’s ascent to the highest office of the land mean for the USA?

Well, it is certainly not good news for progressives. The progressive agenda that Obama broke ground on is most likely going to be reversed – Trump has himself promised that. So Trump is going to do his best to make gay marriages illegal again; repeal Obamacare, as he said; appoint at least one – maybe two or three – very conservative Supreme Court Justices who will interpret the Constitution literally - something that will affect America for decades; oppose abortion; and increase gun rights without any background checks – all these are explicit promises from Trump. With a majority in both the House and Senate (which many establishment Republicans doubted), he will find it easy to push through his domestic agenda.

Trump will find it harder to change international agreements because of the wide-ranging consequences: NAFTA, NATO, the Iran deal, and other obligations where the US cannot unilaterally withdraw without serious consequences. What a candidate promises on the campaign trail and what he can actually deliver are two different things. The wall with Mexico he promised is most likely going to be a pipe dream.

Trump’s dramatic victory will definitely change the make-up of the Republican Party. This is a victory that he has fashioned almost single-handedly. Several prominent Republicans publicly spoke against him and said they could not support him and would vote for his opponent. By routing Clinton in such impressive fashion, Trump has made a statement that he is now the big dog in the Republican Party – that he doesn’t need the party – the party needs him. The fact that so many Senators and Congressmen won their races riding Trump’s coat-tails adds to his authority. He will definitely fashion the party according to his need. People like Paul Ryan need to make up to Trump after being so hostile during the campaign – and Trump might still dump Ryan at the opportune time. Trump’s inner coterie of Chris Christie, Rudy Giuliani, Mike Huckabee, and others will now be calling the shots. Success has its perks.

Trump has promised to reduce America’s involvement in overseas wars – a pledge that would be very welcome in the rest of the world. But whether he can actually deliver on this promise is doubtful, if history is any guide. US foreign policy has remained remarkably consistent no matter who is in the White House.

Trump wrote a book on the art of the deal. He is going to have to learn the art of compromise in international relations.

We are going to live in interesting times for at least the next four years.

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Disclaimer: All the opinions expressed in this article are the opinions of Dr. Seshadri Kumar alone and should not be construed to mean the opinions of any other person or organization, unless explicitly stated otherwise in the article.