Tuesday, September 4, 2012

Road to Liberty: Markets Alone Reward Diverse Knowledge Forms

Road to Liberty: Markets Alone Reward Diverse Knowledge Forms

Sauvik Chakraverti, Sep 4, 2004, 12.00am IST
Socialists insist education will help the poor. Actually, millions are poor not because of ignorance, but because of socialist law. Unlettered tribals in the jungles of central India, for example, know how to distil mahua but laws prevent them from selling it. Millions of poor coastal Indians know how to climb the palm tree, harvest the juice, and brew toddy. They are poor because laws prevent them from selling the fruits of their traditional knowledge. In Sri Lanka, toddy is touted as the national drink and sold in tetrapak. No toddy is sold on Brigade Road, Bangalore: Excise law.
Similarly, millions of unlettered Indians know how to sing, dance and play musical instruments. But they languish in poverty because the socialists have outlawed nightlife. The poverty-stricken north-east is full of potential rock stars. Arun Shourie showcased many great north-eastern bands in Delhi recently but where do they perform, given all the restrictions on opening bars and clubs, serving alcohol and so on? In Mumbai, entrepreneurs have invested in thousands of dance bars which fork out crores in taxes, but cops routinely raid bars and arrest these girls who are just trying to earn an honest living with skills they already possess. In Maharashtra, legends recount the Peshwa Baji Rao's deep love for the dancing girl Mastani. Today, poor Mastani would be in jail or in a municipal school! Tamasha is an ancient Maharashtrian form of ribald popular entertainment, but it has been legally crushed, and the papers report that tamasha artistes today survive as mistresses of corrupt local politicians. Mujra is banned in Lucknow.
In America, black slaves made it big in music. New Orleans produced Satchmo and hundreds of jazz and blues stars not because of education, but because of liberty: The liberty to earn an honest living.
The socialist emphasis on education also demonstrates complete ignorance of how knowledge operates in the market economy. Main Street, Pune, is a busy market. Walking around, you find hundreds of small bakeries that turn out a dazzling array of breads, buns, biscuits, rolls and so on. There are scores of small jewellers, tailors and
expert darners. Many tiny establishments make picture frames. There are Irani, Parsi, Chinese, tandoori and continental restaurants. Budhanis is famous for its potato chips. There is a popular home-made softy ice-cream joint. There is a vada-pau stall that always has crowds of customers. There are bhelpuri and chaat-wallahs. A group of acrobats perform for passers-by. The street is lined with hundreds of shops selling diverse products ranging from footwear to sarees, from electronic goods to kitchenware. This is what Friedrich Hayek called the division of knowledge: Every economic actor is operating with distinct know-how.
Important implications follow the Hayekian view of knowledge. First, that central economic planning can never work, because knowledge cannot be centralised: What cannot be known cannot be planned. The socialist central planner, Hayek said, suffers from fatal conceit: He does not see the wonder of knowledge, and thinks he knows it all. It is because of knowledge failure that there are shortages of everything that is planned, from roads to power. There are no shortages in the market economy.
Second, Hayek showed how knowledge and education are entirely different things. Hayek found much of the knowledge used in the market economy to be inarticulate and uncodifiable. The bakers, tailors, expert darners, and bhelpuri-wallahs of Main Street possess this kind of knowledge. This shows the limits of formal education as a means to economic achievement.
Formal education churns out certain types of economic actors only: Bureaucrats, managers, accountants, doctors, lawyers and so on. The vast majority of successful economic actors get their knowledge elsewhere. That is why VJs, DJs, sports-persons, fashion models, and hotel chefs earn more than professors of economics.
Liberty matters much more than all the education the socialists can impart. Liberty means free trade and open borders. Liberty means there are no restrictions placed on economic achievement and it is this freedom that empowers the poor to enter the market, not education. Liberty beats education in another important way, for education requires us to pay a new tax, while liberty is free, requiring only that repressive laws be repealed and meddlesome, corrupt bureaus be shut down. So why have almost all educated Indians agreed to the education cess?
Perhaps their education made them forget liberty. In 1215, when the Magna Carta was signed, Englishmen were all quite illiterate, but they instinctively valued liberty: Every freeborn Englishman is the king of his own castle. Thus, we see the birth of constitutional democracy and the birth of capitalism. The merchants of cities and towns
extracted from King John constitutional liberties to self-government and trade by land and sea. The richest livery companies in London then were those of the fishmongers, grocers and fruiterers because they sold what everyone consumed. The merchants of England's cities and towns comprised the commons. But in every Indian city today, people in these basic trades have their surpluses robbed by parasitic state personnel. How can we believe we are a true constitutional democracy when we don't have liberty?

Thursday, January 12, 2012

Unleash Tiebout forces

Unleash Tiebout forces by Sauvik Chakraverti

EDITORIAL, TNN Apr 4, 2002, 01.46am IST The Economic Times

A survey carried out by this newspaper has ranked hyderabad as the cheapest indian city to live in, and mumbai the most expensive. delhi follows a close second. What this means is that your salary goes further in hyderabad than anywhere else: on the same salary, if you live in mumbai, your monthly expenditure goes up by a whopping 87 per cent. Therefore, salaries are necessarily higher in mumbai. If this continues, the city will get outcompeted eventually by market forces. Goods manufactured in mumbai will cost more than goods made in hyderabad. When cities compete, and when citizens 'vote with their feet', a phenomenon occurs which economists call the tiebout effect. charles tiebout had solved the 'public goods' question in a rather unique manner. He said that if mobility could be assumed, then, cities and towns would compete with each other on the basis of public goods provided and their costs as measured by taxes. People will flock to cities where taxes are low, and where public goods are excellent. They will abandon cities where taxes are high and where public goods are not provided adequately. It is this competition, and not local democracy, that will yield functioning municipalities. In the indian context, the depressing truth is that public goods are undersupplied everywhere. mumbai is so expensive only because of high housing costs. This is because of archaic land laws like the land ceiling act and rent control act as well as undersupply of a critical public good: roads. With good roads into the surrounds, more land would be colonised, and prices would fall. This is already happening in delhi. With accretions to the available stock of housing occurring in noida and gurgaon, real estate values in posh south delhi have collapsed by 40 per cent in the last two years. Of course, even in delhi, if roads to satellite towns were excellent, prices would have crashed further. This is the line indian cities and towns must pursue. The focus must be on functioning, competitive municipal organisations. They must treat citizens as customers. in this scenario, those cities that provide the best services and quality of life at the lowest cost will see more 'customers' — and hence more development. Bad cities will gradually see decline, as businesses, factories and people shift out. The greatest benefit of this approach is that we, the citizens, will no longer be viewed as a 'population problem'. We will be viewed as customers.

Tuesday, December 27, 2011

The Liberal Visions for India

The Liberal Vision, India by Sauvik Chakraverti

Liberal Times, August 2001

Indian liberals have a powerful vision of a prosperous India: 400-500 free trading and self-governing cities. This contrasts radically with the Gandhian-socialist vision of an India composed of self-sufficient villages. Watch out for liberalism in India.

Liberals in India have been going around for quite some time selling a ‘vision’ of a modern, ‘developed’ India. This is based on simple economics and, since it has brought us considerable support, let me begin by sharing it with this wider audience. I do believe that this has tremendous implications for South Asia, and indeed the entire developing world. India has been a leader of the developing world and has led it up the grossly mistaken path of statism. When India decides to change course, the entire developing world will be influenced.

The Liberal Vision for India

The basic economic truth is that all human beings are blessed with what Adam Smith called ‘a natural propensity to truck, barter and exchange’. The ability to trade is a gift from God. Little children engage in gainful trade: give me some of your chips and have a sip of my cola. No one has to be taught how to create wealth. All human beings are born wealth creating machines. We are all born to be rich. If there is poverty all around, it is because the State has placed innumerable restrictions on the free use of this ability. This implies that population is a resource, and that State policies are the problem.

Notion of Self Sufficiency

Because of this inborn ability to trade, human beings operate in the exchange economy of a market system. This enables them to occupy specialised niches in the market economy: butcher, baker, tailor, sailor and so on. No human being is ‘self-sufficient’. To do so would be economic suicide; and it is no wonder that, if you ask a class of kindergarten children what they want to be when they grow up, they will answer: "policeman, singer, dancer, actor, pilot" None will say: "I want to be self-sufficient." It goes against the basic logic of little children. Yet, the economic policies of this vast nation were based on the notion of self-sufficiency. India opted out of the international division of labour.

Free Trading Cities

Now, Adam Smith had said that "the division of labour is limited by the size of the market". Thus, there is greater division of labour in crowded cities than in sparsely populated villages. In a crowded city like Delhi, it is possible to be a Thai chef, run an institute for ear diseases, drive a taxi or be a receptionist. In sparsely populated Jhoomritalaiya, it would be difficult to even be a successful dentist. Thus, it follows that cities and towns are vital engines of wealth generation. And, that population causes prosperity: cities are crowded, and rich.

The statist, socialist vision of India that planners have been selling and pursuing for over 50 years is of an India of millions of ‘self-sufficient and self-governing villages’. As opposed to this, liberals believe India should aim to become a nation of 400 to 500 free trading cities. This causes, among our potential supporters, what Thomas Sowell called ‘a conflict of visions’. As Sowell said, a conflict of visions lies at the ideological roots of all political struggles.

The Liberal Vision and Recent History

The urban vision of India’s liberals is strongly supported by recent history, which saw to the building of all our major cities, and innumerable ‘hill-stations’. It is easy to see that liberalism and a commercial spirit powered this urban boom, without which India would be much poorer today. Indeed, the greatest success story of British India was urban development.

In a letter that survives, dated 1717, the Directors’ of the East India Company advised their Governor at Fort St. George (which developed to become Madras, now renamed Chennai): "Make your settlement a mart for all nations, that being the way God Almighty of old promised to make Jerusalem great." This was 60 years before The Wealth of Nations was penned.

Cities and Hill Stations

Because of their belief in the simple logic of commerce, the British pursued urban development that led to the building of many great cities and countless hill-stations. Independent India has only seen to the destruction of these cities and towns, and the mindless pursuit of ‘rural development’: the bread, butter and jam of the politico-administrative spoils system.

If we study the development of the hill-stations in British times, a peculiar pattern emerges: they were all linked to a major city. The Simla-Mussoorie belt was linked to Delhi; the Darjeeling-Shillong belt was linked to Calcutta; the Poona-Mahabaleshwar belt was linked to Bombay; and Ooty and the Nilgiri hill-stations were linked to both Madras as well as Bangalore. They were satellite towns. And they could be so only because of transportation links: Darjeeling had its hill-railway before Japan had its first train.

Primacy and Urban Overcrowding

The centrally planned socialist Indian state’s policies have, for 50 years, neglected roads. (They also did not promote car ownership.) This has caused the British-built primary cities to bloat and led to the underdevelopment of satellite towns. A typical 250 km journey out of bloated Delhi to, say, Dehradoon, will take one through several major towns: Meerut, Modinagar, Khatauli, Muzaffarnagar and Roorkee. Because the road barely exists, these towns are crippled; and all in-migration focuses on the city.

Primary City and Satellite Towns

Urban geographers call this phenomenon ‘primacy’: where the primary city becomes over-important since it lacks sound transportational links within the domestic urban hierarchy. Thus, we have ‘overcrowding’ - which is not the same as ‘overpopulation’ - and the cure lies not in condoms, but in roads and car ownership. These will lead to the development of satellite towns and the decongestion of primary cities. We have to only follow the British pattern of building hill-stations and India can become, through sound transportational links, a nation of 400 top-class urban areas. The transportational design required is one of ‘hubs-and-spokes’: treat every primary city as a ‘hub’ and develop ‘spokes’ from it. Along the spokes, build the satellite towns.

Protectionist Policies of the State

Unfortunately, the socialist State is yet to get its act together when it comes to the roads infrastructure. And the socialists, with their preference for protectionism, have practically banned used car imports - something that would be a boon for all Indians, deprived of wheels for over 50 years. These protectionist policies are so perverse that they are now protecting multinational car companies operating in India!

With free trade, and aggressive urbanisation, India will be a rich country. If we re-write our Constitution to respect property rights, slums will disappear as rent control will be deemed unconstitutional. This perverse law is the only cause of slums and slumlords. The socialists insist on keeping this law; liberals wish to create a vibrant market for cheap rentals.

The Government of Cities

Socialist India has, for 50 years, pursued the path of Panchayati Raj: institutions of village self-governance. Of course, they have done so without much heart, and hence, without much success. The liberals, on the other hand, stress the need for sound municipal organisation to run each of the 500 free-trading cities.

Socialist India has also been run bureaucratically, and this has led, as public choice theory predicts, to massive budgetary overruns. The future requires us to get rid of bureaus in the provision of public goods and services, and have all the cities and towns run by minimalist administration, based on the principles of the New Public Management. Garbage collection - a major problem - can be contracted out. Primary education - a crying need - can be provided by voucherisation. And so on.

Principle of ‘Subsidiarity’

If we institute the principle of ‘subsidiarity’, there will be very few tasks left to a central authority. This will take the spoils away from politics and administration, and India will finally have honest, knowledgeable and respected politicians and administrators. The central authority of India will be but the collective representative of an association of free trading cities - something like the Hanseatic League of old. It will not be a nation-state: the kind that dominated the world the entire 20th century.

The Future of Village India

At a recent talk to farmers belonging to the Shetkari Sanghatana - a free market farmers’ movement - I ‘sold’ our urban vision and was promptly asked what this had in store for our farmers. I replied that the development economics literature abounds with stories of village India being full of ‘marginal farmers’ and ‘landless labourers’. These people are all supposed to be engaged in ‘subsistence agriculture’.

But the fact is that subsistence agriculture is not the division of labour. It is self-sufficiency - and hence, economic suicide. Those who are stuck in village India in such conditions would be better off migrating to one of the 500 cities we will build and participating in the greater division of labour possible there. Village India is poor because more and more people are sharing a pie that is steadily shrinking: the share of agriculture in GDP is under constant decline. Prosperity lies in more and more of those marginalised in agriculture shifting to the towns.

Rural-Urban Migration

This is something the socialists have never encouraged. At the 1998 Economic Editors’ Conference, the then head of our Planning Commission, Jaswant Singh, said that his greatest desire was to see that no villager would move to a city! My audience liked the idea of moving to cities. Their only question was: Why can’t we have free immigration worldwide?

If India pursues the liberal path, and aggressive urbanisation is accompanied by massive rural-urban migration, Indian agriculture will no longer be the kind it is today. Nor will there be any need for ‘land reforms’. The only role of the State will be to enforce property rights: something that is not being done properly today.

Relations with Neighbours

The 400-500 free trading cities that will comprise India in the near future will all be self-governing. This will allow tremendous diversity. We will have towns like Haridwar where it is illegal to eat meat or drink alcohol, but it is perfectly legal to smoke hashish. In keeping with the spirit of diversity, residents of an urban area should be allowed to make their own rules as they go along; the central authority need not interfere.

In such a scenario, taxation will be a local subject; and the cities will compete for citizens on the basis of public goods offered at specified tax rates. Those cities that offer better services at lower rates will attract citizens and taxpayers; those that are badly run and expensive on the purse will see decline. That is, local funded by contributions from the member cities.

Free Trade and Free Immigration

In this proposed arrangement, it is difficult to expect the member cities to fund something like statist diplomacy. It would be better – and cheaper – to practice free immigration and allow the neighbourhood to adjust to the changes that will be sweeping India. Without an India that is an empire, or a hegemony, neighbouring states will be quick to see their future in the free trade and free immigration policies that India’s free trading cities will employ. The whole of South Asia will be peaceful, and prosperous – and the rest of the world will wonder at us.

Happy Co-existence

It is also important to note that the Hindu-Muslim question has dominated politics in the region for much of the last century. Liberals hope this new millennium will be different. We believe Hindus and Muslims can coexist happily in a free market. Hindus were the first to note the beneficial effects of Adam Smith’s ‘invisible hand’ and say Shubh Laabh: profits are auspicious; and the Prophet Muhammad, peace be upon him, was a free trader, as was his wife Khadija. Islam is the morality of honest traders, not soldiers. If we stress this basic commonness between Hinduism and Islam – that they both believe in a free market - both communities can happily co-exist, and the entire region can be peaceful.

Urban Trends and Globalisation

The world is 50 per cent urbanised today: 3 billion urbanites. This is expected to peak at 85 per cent within 50 years - living on just 7 per cent of the Earth’s land. India is lagging behind at 30 odd per cent urban, but the richest states of India (like Maharashtra and Gujarat) are close to the world average. What is powering today’s urban boom is globalisation - and the future lies in excellent, globally connected, free trading cities: the hubs and spokes of the global economic system that is emerging.

World Market and World Factory

Along with urbanisation, countries like India will also see massive industrialisation - only if they get their infrastructure working. Today, unlike the globalisation in the 18th and 19th centuries, industrialisation is not restricting itself to the ‘core’ of the world economic system. Instead, the West is witnessing ‘post-industrialisation’ and smart companies catering to the world market are moving their production facilities to places where the economics makes sense. The world is not only the market; the world is also the factory.
India has skilled labour, and the English language is widely understood. It can be a manufacturing destination of choice in the global economy. The infrastructure is the only limitation. With good roads and ports, abundant power and water, and plenty of good cities and towns, India can emerge not only as a trading force, but also a manufacturing power. The only difference now is that the manufacturers will not be protected.

Killing Predatory States

The vision above, which liberals in India are selling aggressively, is based on the urgent need to finish off the predatory states that have brought the entire Third World to ruin. These states have been supported by the United Nations - they are all members - and they have received monies and advice from international bodies. The vision that drove the international community was one of a world divided into nationstates, each a prison for its citizens. Here, they suffered bad government and misgovernance. Here, flourished a kleptocracy. This occurred largely because standard ‘development economics’ literature upheld a strong role for the state in the development of poor nations.

Limited Government

Today, development economics has undergone a revolution thanks to the works of Lord Peter Bauer, Deepak Lal and Julian Simon. Today, it is seen that very few things are needed to make the Third World at par with the First: free trade, sound money and property rights. This requires limited government: a government whose powers are limited by constitution in order to provide a leading role to civil society. This intellectual revolution is sweeping the Third World, and it is undoubtedly true that huge political change will follow.

Predatory States: Kleptocracies

The states of the Third World are largely predatory states: kleptocracies. The socialist Indian state is no different. It makes cars but does not build roads. It pursues ‘rural development’ but does not connect villages to the nearest city or town by a good motorable road - thereby creating, sustaining and preserving the ‘rural-urban divide’. And, of course, it’s policies deny affordable wheels to its citizens. It restricts trade at every level. And the petty bureaucracy of police and municipal functionaries prey on the unorganised, informal sector of hawkers and street vendors. It is because of states like this that masses of humanity remain poor.
The majority of the world’s poor reside in India. Getting rid of poverty requires getting rid of the state. Nothing less. When we no longer have a nation-state, we need not belong to the United Nations, and the rest of the Third World can learn from us. The collapse of the Soviet Union changed the whole of East Europe. The collapse of Indian socialism will change the entire Third World.

Getting There

Today, one of the blots on Indian democracy is that liberals are denied the right to form political parties and compete for votes. It is imperative that liberals form a party and actively campaign against this restriction. Liberalism in India has a powerful vision that attracts widespread support. Compared to us, the legal parties spew out the same old dead socialist rhetoric. And they have no vision. And there is simply too much corruption.

Liberal Parties and Think Tanks

Today, there are some fledgling liberal parties in South Asia - all supporting a dynamic free market in the region so as to enable prosperity. It would help if India too had such a party, and this party could have relations with the other liberal parties in the region. In India, although liberals do not have a real political party, they have a few ‘think-tanks’ and these are doing commendable work in public education and policy advocacy. Indeed, it may even be said that these think-tanks have succeeded in creating the intellectual climate for liberalism. They have unearthed and nurtured a vast amount of liberal sentiment that lies beneath the surface of Indian society; and all that is required today is the formation of a party to carry this sentiment into political reality. I do believe that the next few years will be crucial. Watch out for India’s liberals. They are out to change the world as we know it. "

Tuesday, October 25, 2011

Ban Communism

Ban Communism by Sauvik Chakraverti

Dec 29, 2005, 07.49pm IST Times of India

Communists despise private property and idealise commonly held property. But I'll bet Brinda and Prakash Karat don't share a toothbrush.

So let us conduct a "reductio" thought experiment as to what would happen in a city if private property were abolished and all property declared to be held in common.
Well, the first thing that would happen is that everyone would stop working. If someone needed something he would simply go to the house or shop where the object of his desire was located and demand it in the name of communist brotherhood.

Within a few days of the establishment of the communist fraternity, all shops would be stripped bare, as would be all the mansions of the rich. All economic activity would come to a standstill.
The redistribution of all property in the name of communism would lead to the "levelling down" of all the members of the commune.

Further, instead of the polite civilisation that existed previously, bound by the "natural law" of private property rights, the commies would soon descend to barbarism — snatch, grab, loot, scoot.

Observing markets easily reveals the natural law of property at work. When a fisherman returns from the sea, no one forcibly takes fish away from him because the ocean has not furnished him with a title deed to his catch.

No one snatches bananas from any of the millions of fruit vendors. Look at any big market and you will see thousands engaging in the great game of trade, respecting private property rights.
If this natural law was overthrown, man would be reduced to the status of ape. Indian commies do not practise what they preach to the level of the above 'reductio ad absurdum'.

They idealise some supposedly commonly-held properties, especially the state-owned industrial sector. However, these are all really "private properties" in the control of individuals or groups claiming to represent the public.

The minister's official bungalow is his "private property". We (sic) the people cannot enter it freely. The PSU is the minister's fiefdom.

Neither are "common property" in the sense that the term would be used for a public thoroughfare or a public park, which all can use. Thus, communism is so totally wrong, it should be banned.

Friday, October 7, 2011

Hobbes' Mistake - The Rational Case For Anarchy

Hobbes' Mistake - The Rational Case For Anarchy by Sauvik Chakraverti

Published in the Times of India, New Delhi, Saturday, May 26, 2001

In his classic "Leviathan", written in 1651, the English political philosopher Thomas Hobbes established the liberal case for the state. He said that, without the 'mortall god' of the state to hold us all in awe, society would disintegrate, there would ensue "a war of each against all" and life would be "nasty, poore, brutish and short". Since then, liberals in the West have upheld statism - and have encouraged state-building in the Third World. Today, it is seen that almost all the states of the Third World are predatory states, enemies of the people. They are huge kleptocracies which amass and then misuse economic powers and keep people poor. When libertarians talk of the need to do away with states and statism, we are accused, even by our liberal friends, of being anarchists. How do we defend ourselves from this charge?

The fact is: Thomas Hobbes was wrong. Very wrong. The following thought experiment will show how. Carry a tray of ripe bananas before a group of monkeys. What will happen? The monkeys will snatch and steal all the bananas: the Hobbesian war of each against all. Now take another tray of ripe bananas and carry them to a place where there are no monkeys but lots of human beings: Chandni Chowk, Connaught Place, Crawford Market... What will happen? No one will steal your bananas. If they want your bananas, humans will politely ask whether you will offer them in exchange for money. Homo Economicus is a moral creature. Because he has the ability to exchange, which the monkey does not, Homo Economicus does not snatch and steal. He has an inborn morality that respects property rights. In stark contrast, the Constitution of India does not recognise property rights!

Now, hang around in the market a little longer and observe who are the monkeys amongst us. Then you will see the policeman extorting goods for free; you will see the municipal functionary preying on urban commerce. These are the cutting-edge personnel of the predatory state. This clearly shows that: 1) the market is a secular basis of human morality; and 2) power corrupts.

Yet, it is important to note that Thomas Hobbes was a liberal. In Leviathan he does mention that every man would very much prefer to rule himself. We sacrifice some of our freedoms in exchange for the law and order that the state creates. The original cover illustration of Leviathan shows a huge king-like figure wielding a massive sword. A little careful examination reveals that the body of the 'mortall god' is completely made up of little people: the citizens. "Leviathan bears the body of the citizenry," Hobbes says. In predatory states it is obvious that the sword of state is not borne by a 'mortall god'. Rather, it is in the hands of a huge monkey. And its body is not composed of the citizenry; rather, it is composed entirely of little monkeys. Why should the entire Third World continue to suffer this situation? Will not absolute freedom - anarchy - be better?
The word anarchy has a beautiful meaning: no ruler. It does not mean chaos, as the enemies of freedom would have you believe. It means, quite simply, that the king is dead, and there are to be no more kings. All human beings are free and equal. There is no one to lord over us. There is no one with power. Before dismissing this option outright, let us inquire into what forces within civil society will maintain morality and order in the absence of the state.

Under conditions of anarcho-capitalism - no state - all the people will seek their survival in the free market. Statists believe that under such conditions robbery and thievery will ensue, but are their fears based on reality? After all, in a free market, cheating succeeds only in the short term. Every capitalist knows that, for long-term success, he has to protect his reputation. That is why brand names and brand equity matter so much in assuring us of quality. Only those who satisfy customers will succeed in the long run, and that is why morality will rule.

Secondly, in a completely free market, credit will go only to the creditworthy. Unlike today, when political allocation of credit prompts many to not pay their dues, under anarcho-capitalism, everyone will realise that creditworthiness is something to be cherished and carefully nurtured. Free banking will ensure more moral behaviour than politicised banking.

Thirdly, human beings, apart from being economic creatures, are also sexual creatures. This prompts them to raise families. Without a state that will look after them in times of trouble, under anarcho-capitalism, the family will be the main source of support. Families will be strong. Children will be well brought up. This shows that there are only two secular bases of human morality: the market and the sexual union. Not the state, which is a promoter of immorality.

Some will say that the free market cannot exist without supporting institutions. This is true. There must be courts and justice. But law is also an enterprise. Today, the monopolistic state courts system is hopelessly clogged and does not deliver timely justice. Further, it is based on the socialistic disregard for property rights, which cannot co-exist with the free market. We will need property rights to be enforced; we will need disputes to be settled or adjudicated. All this can happen easily under anarcho-capitalism.

Lastly, we will need some form of policing. This must be done because there will be a few thieves, rapists and murderers amongst us: a free society is not a perfect society. But, throughout history, such plunderers have come from outside the city, and the city people have always organised themselves for their own protection. Today, in our cities of joy, entire communities get murdered with tacit state police support. Tomorrow, with self-policing, we shall surely be safer.

The entire Third World, comprising two-thirds of humanity, is suffering because of Thomas Hobbes' mistake. We must unitedly reject the notion of Leviathan. Statelessness and anarcho-capitalism will make us rich, moral and safe. We will all achieve our destiny. The path we must take is not to reform the state and its institutions, but to do away with them altogether. What is required is shifting the paradigm from nation-states to associations of free trading cities: limiting politics to the polis.


Sunday, October 2, 2011

Alternative Nation The Public Administration of Anarchy

Alternative Nation The Public Administration of Anarchy by Sauvik Chakraverti           

Published in the Times of India on 25/04/2002

Statism has failed both India and Pakistan. The future of both nations lies in a completely free market with free immigration. This is perfectly Islamic. The Prophet Muhammad, peace be upon him, was a free trader. The Islamic calendar starts on the date of migration from Mecca to Medina. Islam is based on free trade as well as free immigration. These are also in total agreement with the basic tenets of the Hindu faith which said Shubh Laabh, or profits are auspicious, aeons before Adam Smith laid down the philosophical foundations of modern capitalism. The Hindus also said that the four ends of Man are dharma, artha, kama, moksha. We can all happily and unitedly reject statism and opt for a vast free market. Both nations can reject the Hobbesian Leviathan together – that which has brought ruin, degradation, poverty and corruption to one of the most beautiful places on the planet, peopled by a deeply moral people.

The question does arise: Does anarcho-capitalism have a public administration? To answer that, let us imagine a scenario when there is no state, when there are no rulers, and let us think of ‘what’ and ‘where’ we will have to ‘organise’ things? We will feel the need for collective action mainly in our cities and towns, where people are densely crowded. We will scarcely need any organisation in scantily populated villages. This means that we will have to set up sound municipal organisations.

Now, contrast this with the socialist state’s public administration. Socialist India does not possess a single properly functioning municipality other than the NDMC which services the VVIP class. All talk about local government relates to panchayati raj, as though villages are in need of government. What villages and villagers need most of all is good connections to urban markets. Without roads, panchayati raj is just clientelism of the most perverted kind. As Arundhati Roy says: India does not live in her villages; India dies in her villages.
Hence, if we abolish the state, we will think up a far better alternative system of social organisation based on our needs. We will have municipalities that will focus on garbage collection, traffic regulation and the provision and upkeep of urban roads of good quality: because we will need just these services and nothing more. Today, municipalities run schools! Tomorrow, these municipalities can be run by just a handful of honest public spirited public functionaries, who can ‘contract-out’ the work to competing private firms. In this way, we can build an India and Pakistan of some 600 free trading cities.

This will be the best thing that can be done for our villagers. Urbanisation will allow them to find niches in the market economy and reduce dependence on agriculture. Today, the share of agriculture in GDP is declining; but more people are dependent on it. Poverty is the inevitable result. With urbanisation, rural India will depopulate, reducing pressures on land. Agriculture will commercialise. There will be no need for land reforms. Mere property rights will suffice.

Now, in public administration, as in management, there is no one correct method of organisation. With 600 free trading cities, each can experiment with laws, rules, and systems. This will allow for diversity. Thus, there can be towns like Haridwar where it is illegal to consume alcohol or eat meat but it is perfectly legal to smoke a chillum of hashish. The US local government scenario presents us such a view: the system is not uniform. There is strong mayor-weak council; weak mayor-strong council; there are city managers. The same can be allowed in India. Let the ants decide how to run their anthills. Thereafter, free immigration will force the municipalities to compete for tax-paying citizens. If Karachi offers better public goods at lower taxes than Bombay, it will prosper as more people flock there.

In this scenario, politics will be restricted to the polis, as it rightly should. There will no longer be the politics of empire: no New Delhi lording over Kohima, Kargil, and Kanyakumari. There will also be no small imperialists either: like Kolkata lording over Darjeeling, or Patna over Muzaffarpur, or Mumbai over Pune. It will be each to his own. Without the politics of empire, and without the economics of statism, it can safely be predicted that there will be very little need for collective action on a national level. Inter-city expressways can be provided by the private sector. Without statism in India and Pakistan there would be very little need for a large defence establishment. In either case, cities can contribute to a fund to finance a small force for the region for emergencies. Today, the defence establishment is hopelessly corrupt. After Bofors and Tehelka, the socialist state cannot be trusted to handle even national defence honestly.

Now, cities are not self-sufficient. They procure their needs from outside. Cities have ‘footprints’. In anarcho-capitalism, rural roads will be provided because this will be in the interest of the cities. It is said that every great city sits like a giant spider on its transportational network. Socialists have reduced our cities to blobs of jelly on the map. Tomorrow, reason will prompt us to build nimble spiders, so that the maximum amount of trade can take place at the least cost of both money as well as time. Today, our trucks do 250 km a day compared with 600 km a day in the rest of the world.

The poor will prosper in anarcho-capitalism. With 600 free trading cities, there will be plenty space for hawkers, who are a hounded lot today. Without rent control, there will be no slums; instead there will be a vibrant market for cheap rentals. Any poor villager will be able to opt for a city or town of his choice, shift, and rent a room with a toilet. Urban overcrowding will end as more land is colonised by roads. There will be a huge real estate boom. Land in the villages will also become real estate as cities and citizens spread out, equipped with modern transportation.

We must think we can do it. We must believe in ourselves. We have too long been dependent on the state. We must now believe that we do not really need it. We do not need our rulers. We can manage perfectly well without. After all, Man is a socially co-operative, moral creature.

Wednesday, May 18, 2011

Funny Money

Funny Money by Sauvik Chakraverti, Apr 7, 2007, 12.00am IST Times of India

Inflation is not new. In my teens, Coca-Cola was 40 paise, a pack of Wills cost a buck and petrol sold at three rupees a litre. A beer was five bucks. 

This inflation has nothing to do with either the demand or the supply of the articles of everyday consumption. 

Rather, inflation is a disease that afflicts money, being but a gradual and continuous erosion of currency value. 

Since the government is the monopoly issuer of our money, we know who the culprit is. The game that politicians and central bankers play is best understood by a parable from Ken Schooland's charming The Adventures of Jonathan Gullible. 

In the story, the people use an inconvertible government paper money called 'kayns', named after John Maynard Keynes, the economist who designed today's world monetary system after centuries of the international gold standard. 

This particular parable tells of a circus coming to town. A big tent is set up and the people gain entry by paying 10 kayns per head. 

Once inside, the show commences, with the ringmaster, every once in a while, picking one member of the audience and showering him with 1,000 kayns. 

When Jonathan remarks that the game is odd, he is told that this circus is a standing institution: it passes by every month, and all the townspeople play the game hoping they will receive 1,000 kayns someday. 

This is 'the kayns conspiracy'. The crucial thing to note is not that the game is a fraud — 'attempting to purchase public affection through gratuitous alienations of the public revenue' â” but that the money used to play the game is fictitious too. 

One can perhaps feel sorry for those who worship Mammon, but what can one say of those who chase this 'funny munny'? Mankind's collective ignorance regarding the most important regulator of the market economy, money, is truly astounding. 

And the education cess will only pay the salaries of armies of Keynesians employed in government universities. This is in addition to the battalions of Marxists already there. Catch-44. 

What is extremely important for the layman to understand is that, since real goods and services are exchanged for this 'legal tender' funny munny, inflation has losers and gainers. 

The gainers are those who get to spend the kayns first — the personnel of the government, their contractors and those cronies who get generous loans from banks. The losers are savers and the poor, who earn eroded money on a daily basis. 
There is thus a 'transfer of real wealth' that occurs alongside creeping monetary inflation, with savers and daily wage-earners losing the most. 

Further, the statistical indices used to 'measure' inflation give a false picture of a 'price level' that is rising uniformly. 

In reality, there are zillions of prices and these move up and down in a totally uncertain world. There is no price level. 

Cellphone and computer prices, for example, are falling steadily. Stock markets and real estate values, on the other hand, are rising much faster than the statistic suggests. 

Wherever the new money (and the new credit) goes, there the price effects are most strongly felt. Again, because inflation affects some prices more than others, the effects are differently felt, and some people gain while others lose. 

This is why inflation continues — because those who produce it, the kayns conspirators, gain anyway. The solution to inflation is essentially a legal one as the existing system is based on legal fiction and fraud. 

When we pick up a Rs 100 note, we see a 'promise to pay' signed by the central banker emblazoned upon it. Under the rule of law, he must redeem his notes on demand. 

This is what prime minister Robert Peel attempted to achieve through his Act of 1844, but he made a crucial error in leaving out bank demand deposits. 

A banker can increase the money supply by making a loan and opening a current account in the borrower's name with that 'money' in it. 

Bankers therefore created so much deposit money (to finance the railway boom) that the currency principle which lay at the heart of Peel's Act became unworkable, and had to be repeatedly suspended — until it was finally abandoned. 

This failure to apply good law to money and banking lies at the root of modern-day inflation, whose only cause is excessive creation of money and credit. 

A recent study of legal history reveals that, long before legislation was invented, Roman and Continental law always recognised the vital difference between a demand deposit (which is placed in the banker's custody for safekeeping) and a term deposit (which is a loan to the banker for a stipulated period). 

These two kinds of deposits were governed by two different contracts. In the first, the private banker was compelled to keep money deposited with him for safekeeping constantly available to the depositor, without being able to lend out any portion of it — a 100 per cent reserve. 

In the latter case, the banker could loan out the money, and was only bound to return it with interest at the end of the contracted term. 

Under such legal principles we can have free, competitive, private banking and sound money without central banks and their fraudulent fractional reserve system. Currency notes will always be convertible, and all depositors will be secure. 

Inflation and boom-bust business cycles will never recur. The poor will steadily accumulate capital. Prices will keep on falling. 

The writer is an economist.