Monday, January 19, 2009

A Second Republic

A Second Republic -There Can Be No Collective Property by Sauvik Chakraverti

 30 Dec 2003, 0000 hrs IST The Times of India 

India's socialist judiciary, even after a decade of liberalisation, remains inextricably wedded to the notion that publicly held property is in the public interest: The collectivist ideal. 

This indeed must be the rationale for blocking privatisation in the oil sector and referring the matter to Parliament — the custodian of collective property in socialist thinking. 

To understand the pitfalls of the notion that collectively held property actually exists, the reader should take a walk around Lutyens' Delhi. All the bungalows there are public property: They belong to the state. 

But does this mean that they belong to us, the people? Certainly not. If anyone of us were to try and enter one of these compounds, even if just to admire the flowers in the opulent garden (maintained at public cost), we would be turfed out pronto. 

From this, we arrive at a theorem: There is no such thing called public property. Whatever goes under that name is very much private property, in the hands of someone or a group that claims to represent the public. 

That person or group has obtained a lien on that property, and exploits that so-called public property for private gain. Thus, in the case of the bungalows of Lutyens' Delhi, various functionaries of the state have obtained liens on these public properties at rates far below market prices. 

Having understood this, let us extend this theorem to the public sector enterprises our socialist rulers have invested in: Are all of them public property by virtue of the fact that they belong to the collective — the state? Of course not. 

Indeed, we can analyse them in much the same way as we saw the bungalows of Lutyens' Delhi: Certain individuals or groups have obtained private control over these public properties and are exploiting this for private gain. 

In the case of the state-owned enterprise sector, we can even develop a public choice model of the political economy based on our theorem, as follows: All these firms are the properties of various ministries. 

Whoever gets appointed minister then rents these firms out to individuals or groups for private exploitation. Hence, totally at odds with the opinion of our learned judiciary, liberal jurisprudence will hold that publicly held property is a socialist myth. 

A truly liberal constitution would debar the state from holding property. 

What should be done with the vast properties of the socialist Indian state? Before we arrive at that decision, let us first inquire as to how these property titles were obtained in the first place. 

This is necessary because the title may have been criminally acquired. For example: If we see A snatching at B's wristwatch, this does not necessarily mean A is a thief, for B may have stolen A's wristwatch in the first place and A is simply trying to regain his just property. 

According to liberal jurisprudence, only just property titles are valid — there is always an ethical dimension to liberal law. 

So let us consider how the socialist state acquired these titles. It owns all these bungalows, all over the country, where its functionaries reside for free. 

It owns all these enterprises which it leases out to its cronies. It operates a land monopoly in most cities, including the Capital. It owns all the forests, all the rivers, all the mountains, all the oil under the ground, all the minerals: It practically owns the entire country. 

For the rest of us, property titles are extremely insecure. We really own nothing. Tribals get booted out of their traditional homelands, which are leased out to forest officials and contractors for private gain. 

In Karnataka, the state government is passing law to take over temples: God is being nationalised! 

At this point, let us pause to reflect on the fact that there can be some truly public properties which every citizen and even every foreigner is free to use like a public thoroughfare or a public park. 

Liberal economists call these public goods and call for public investments in public goods alone. This is because businessmen will not invest in goods which everyone can use for free. 

In India, although this is a planned economy, the state has not invested in these public goods at all. Instead of investing in roads, it invested in an automobile factory. It owns Scooters India. It owns oil companies. Hotels. Steel plants. Airlines. Should liberal jurisprudence hold these property titles to be valid? 

Absolutely not. These are all criminally acquired titles. The taxpayer's interests have not been represented in this planned socialist democracy. Instead of investing in public goods, they have invested in private goods. This is planned theft. 

All these properties should be seized and auctioned off. Those responsible for this diversion of public money should be prosecuted. The charge: Criminal misappropriation of public money. 

If the disputed site at Ayodhya is handed over to a Hindu group, then this temple will not belong to all Hindus. It will be the private property of that group of Hindus alone. Thus, as mentioned in these columns earlier, the disputed site at Ayodhya should be auctioned. 

And, with this de-politicisation of the saffron agenda, let us also bury the notion of collective property. We put an end to both fascism as well as socialism. Onwards to a Second Republic.

Friday, January 16, 2009

Reinventing our social science

Reinventing our social science by Sauvik Chakraverti 

The government, at the commanding heights of education, has impoverished social science in India

Posted: Thu, Jan 15 2009. 10:28 PM IST The Mint

To understand the difference between the mind of a scientist and that of a social scientist, it is useful to contrast Newton’s fortuitous discovery of gravity with Frederic Bastiat’s “broken window fallacy”. In the former, an apple fell bang on Newton’s head; in the latter, the social scientist proceeds “from what is seen to what is not seen”. 

A hoodlum hurls a brick at a shop window and breaks it. A glazier approaches the shopkeeper and offers to install a new window. A deal is struck. The window is repaired. Everything is back to new. And so, all the passers-by conclude that the breaking of the window increased economic activity in their little town. 

This is what is seen. 

Bastiat then takes the discussion into “what is not seen”. In reality, the shopkeeper was saving to buy a new suit. His savings have all been consumed by the cost of the new glass. What is not seen is that the glazier’s gain of business is offset by the tailor’s loss of business. The town has gained nothing. Property has been needlessly destroyed.

So, the destruction of war is not beneficial because it gives a boost to the construction industry. So, government spending does not create employment—because the taxpayer is “what is not seen”. The taxpayer, if he is allowed to keep his money, could generate even more employment by spending or investing it. So, all our UPS manufacturers are not an “industry”: They repair the broken window of an erratic power supply. There is much in society that requires minds that can go beyond what is seen, to uncover hidden, long-term effects. This is social science. It is underdeveloped today.

A true science of society is based on truths that each individual finds ringing true in his own mind.


There are other important differences between the physical sciences and the sciences of society. In physical sciences, we investigate something “out there”—something outside ourselves. Even the anatomist investigates someone else’s body. The scientist also starts from the big picture and then goes into the components. First, there is iron; then, its molecular structure; and then there are the atoms. In social sciences, things are the other way round. 

The science of society is based on individualism. We understand society by understanding its elements—individuals such as you and me. Thus, the quest is begun not by understanding others, but by understanding oneself. We engage in introspection. We look inside rather than outside. And we then “look outside from within the consciousness”. A true science of society is based on truths that each individual finds ringing true in his own mind, as thoughts familiar to himself. 

The only thing common between all human beings is the human mind, with its uniquely human “logical structure”. The philosopher has to look into his own mind to find the “laws of thought” that he has in common with all other human beings. There is nothing to study “out there”: Everything is inside his own mind. There is also nothing to measure as in the case of physical sciences. Social science is therefore subjectivist and individualist in its methodology. Let us take some basic laws of economics to illustrate this point. 

Thus, the great law of demand is a law of thought. We think like that only. As is the parallel law of supply. And also the law of diminishing returns. These basic laws are mistaught today by those who copy the methods and language of physics. The elegant diagram with intersecting curves, all capable of being represented mathematically, is a false science. It is “scientism” and has nothing to do with the idea of a true social science that is based on an understanding of the elements, the individuals and their minds. The true and real social science is based on laws of thought common to all our minds and, unlike physics, these laws of thought require no empirical proof. They are truly a priori because anything else would appear illogical to all of us. Just as 2 + 2 = 4 requires no empirical proof. Using introspection to discover laws of thought is very different from the pseudo-scientific nature of current academic teaching. And the reason is simple: government control over all subject areas in the social sciences. 

In India, what is obvious today is that we have got our social science wrong. We have been producing great doctors and engineers, our software engineers are the world’s best, but we are a miserable failure when it comes to social science. Take economics: Our people are wretchedly poor. Take political science: Our politics and democracy are centralized. There is deep-rooted corruption. There is no local self-government. Take law: The courts system is clogged, with the government as the biggest litigant. And take public administration: Ours is a disgrace to the human race. 

Do note that in all these areas, it is the government that controls all the teaching. Just as the lawyers control all the teaching of law and the IAS controls all institutes of public administration. In India, it seems the bad news never stops. But I hope my readers will wake up to the fact that choosing the government as universal teacher is a grave error: the state at the commanding heights of education. 

A true science of society based on individualism cannot be ideologically acceptable to collectivists. For them, individuals do not matter. All that matters is the collective—the society, the nation—and these are then fused into the party and the leader.

To classical liberals, government is just an organization within society with certain functions. Commanding the heights of academia is not one of them, more so in social sciences, where the government is an interested party. The private sector must step in. 

Sauvik Chakraverti is an author and columnist. He blogs at Your comments are welcome at

Wednesday, January 14, 2009

When freedom comes first

When freedom comes first by Sauvik Chakraverti 

Wednesday, December 19, 2007 The New Indian Express 

Today, democracy is the 'holy cow', but as a political arrangement it must ultimately rest on a 'political culture'. Where this culture is illiberal and undemocratic, western-style democracy can never thrive. This is the story of Pakistan and Nepal. Within India too, we are now perilously close to a situation in which none of the established 'political parties' – all of whom resemble criminal tribes because of their perverted political culture – can single-handedly form a constitutional government, not only at the centre, but also in states like Karnataka.  

As with Pharaohs and Caesars, no political arrangement in human history has lasted indefinitely. Monarchs have been beheaded in Europe and the new arrangements have been subject to constant revision, as they still are. Tyrants often took over the city-states of ancient Greece, and not all tyrants were unscrupulous. 

Today, democracy is the 'holy cow', but as a political arrangement it must ultimately rest on a ‘political culture’. Where this culture is illiberal and undemocratic, western-style democracy can never thrive. This is the story of Pakistan and Nepal. Within India too, we are now perilously close to a situation in which none of the established ‘political parties’ — all of whom resemble criminal tribes because of their perverted political culture —can single-handedly form a constitutional government, not only at the Centre, but also in states like Karnataka. Our socialist democratic state is in crisis. 

The doctrines of classical liberalism prescribe ‘limited government’. To the liberals of the 17th and 18th centuries, universal adult suffrage was a dangerous pipe dream of radical egalitarians. What mattered most to liberals was not how the government is formed, but what the government does. Indeed, their primary concern was with what the government is not allowed to do by constitutional law. Only under such ‘limited government’ could the people be free as also secure in their properties. This was the ideal. And all efforts were thus directed towards limiting the powers of monarchs. Liberals of those days would be horrified at the unlimited powers of modern parliaments and it is only now that some of us are beginning to realise that, just as monarchs were ‘limited’ in those days, so too must parliaments be limited today. 

In other words, the classical liberal is an enemy of all unlimited government, be that of a king, a dictator or a popular assembly. This is because, to the classical liberal, the highest political value is Liberty. There was Liberty in Hong Kong under British rule and this Libertyhas been preserved after the colony was transferred to the Chinese communists under a ‘one country, two systems’ policy. There is Liberty in Singapore under one-party authoritarianism. There is Liberty in the Emirates of the Gulf. It is this Liberty that the classical liberal emphasises, irrespective of the exact political arrangement. Any government that preserves Liberty is good government. Any government that destroysLiberty is bad government — a tyranny that must be toppled. 

In socialist democratic India, Liberty is dead. The Economic Freedom of the World Index finds us ‘economically repressed’. Hong Kong, Singapore, New Zealand, Switzerland top the list. We cannot trade with foreigners freely, we cannot change money freely, we cannot freely open businesses, our properties are insecure, we cannot grow, sell or smoke ganja — something even the Brits did not outlaw. Toddy, mahua, apong — all are illegal, wasting traditional ‘knowledge’ that could take on Mexican tequila. No Indian can open a bar freely, and heaven help them if some nautch-girls were to perform therein! The Brits patronised nautch-girls, and a Mughal prince even fell in love with one. 

So let us examine the ‘liberal’ credentials of those Indians who champion democracy inPakistan and Nepal. Nepal under a limited monarch can surely have a ‘gross national happiness’ index just as the neighbouring kingdom of Bhutan does. Similarly, if Musharraf were to limit his rule and preserve liberty, it would certainly be better for the average Pakistani than the corruption and chaos of either Benazir Bhutto or Nawaz Sharif — and their ‘political parties.’ The moot point is not whether Musharraf or King Gyanendra or Lee Kwan Yew are dictators: the real issue is what exactly are their dictates. Lee Kwan Yew, for example, grants his people total economic freedom, but bans chewing gum and hangs anyone found smoking ganja. It is this illiberality that matters most. If the dictator’s dictates are not so intrusive, and if as a result Liberty is preserved, then one dictator may indeed be preferable to a rag-tag coalition of popularly elected criminal tribes posing as ‘political parties’. Let us turn to this critical issue. 

For a Pakistani citizen, what matters most is a clear understanding as to what he is free to do and what he is not. If Musharraf spells out clearly that murder, theft, kidnapping, rape, rioting, arson and the like are illegal, and those who indulge in these will face the brunt of his coercive powers, I have no doubt that every honest, hard-working Pakistani will breathe easy. Simultaneously, Musharraf will also be sending a clear command to his forces that only if someone indulges in these illegal activities should his men in uniform intervene. Thus, the military dictator will at one stroke liberate the good people, freeing them from interference, while also establishing ‘command-and-control’ over his own forces, by providing them with clear instructions on when they must act. The good people ofPakistan will be free, while Musharraf’s own men will be on a tight leash. Musharraf will not command the economy (like Nehru did), nor ‘education’ (like Manmohan Singh); he will command his own organisation of coercive government power. 

And his commands will be ‘just’. The citizenry will operate in a free economy, a ‘spontaneous natural order’. If this happens in Pakistan, I will applaud. For what matters most is what government does. Any government that preserves Liberty is good. 

Indians who clamour for democracy in Pakistan or Nepal should look critically at their own illiberal order. Under no circumstances can our socialist democracy be called good government. Pointing the ‘democratic finger’ at Pakistan and Nepal is not only injudicious, but also insincere. Freedom comes first. The precise political arrangement is inconsequential. 

This article was published in the New Indian Express on 16 December 2007 Please read the original article here.

Company towns

Company towns by Sauvik Chakraverti 

Date:Aug 21, 2006; Section:Editorial; Page Number:18  The Times of India 

The UPA government’s clearance to private firms for the setting up of over 100 Special Economic Zones (SEZs) has raised loud objections from those who are otherwise defenders of free markets. Noted columnist Swaminathan Aiyar warned that this is a “real estate scam” in the making. A lead editorial in The Times of India echoed his view.

    It is easy to surmise that the transfer of land to these private parties will involve corruption. Each SEZ requires between 25,000-35,000 acres of land. Since they are not buying this land outright, but getting it via the state, politicoadministrative corruption must be expected. However, this is in the nature of a onetime pay-off. That is the full extent of the “scam”. Thereafter, each of these private parties will own vast stretches of land that will have to be developed by them and converted into real estate. They will all have to then compete for buyers. Indian society will have much to gain when this happens.

    There will be an additional 100-plus new cities and towns where Indians can choose to live. These private developers have to mandate only 25 per cent of the land for export-processing purposes. The rest of the land can be developed for the market: Housing, shopping, schools, parks etc. Citizens who choose to shift to any of these areas will definitely be able to find a better quality of life than they do in present-day urban India.

    What is important for the future is that these SEZs remain full-fledged “company towns”, maintained and administered by their developers/promoters, with neither “democracy” nor “bureaucracy” having any say in their internal affairs. Without any “elections”, without the IAS-IPS combo, these 100-plus new towns will mimic the “princely states” of British India: Areas where “sovereignty” is local, while the “suzerainty” of the “paramount power”, the Centre, is formally observed. There were over 600 “princely states”: We can have thousands of such “company towns”.

    There will be a gradual decline of India’s “metro” cities, as more and more people “vote with their feet” and shift to these attractive and functional new towns. This is what happened to Murshidabad, the Nawab of Bengal’s capital, when the Brits built Calcutta. There will be a huge opening up of urban space, with vastly improved choices, and the “government cities” of today will face an exodus. The new “company towns” will blossom.

    It is, therefore, important to view these SEZs as purely real estate projects instead of export processing zones. Only mercantilists see economic advantage in promoting exports. Real economists see economic gain in two-way trade, with imports mattering more than exports. There is thus nothing to gain by treating exports favourably. On the other hand, there is a lot to gain from quality real estate development on a massive scale which is really where the private players intend to make their money.

    It is the government’s intentions and motives that are questionable, not those of the private developers. If there is a “scam”, then the needle of suspicion should point to the politico-administrative apparatus of the state. The private players should be deemed innocent of any ulterior motive. As with all competitive businessmen, they can only gain by serving their customers better.

    Two points need attention. First, there is no reason why FDI in real estate should not be invited in at this stage. Real estate development is an industry in its infancy in India, with little expertise, and not too deep pockets. Everybody from ITC to Manikchand (of “gutka” fame) is in the real estate business. If people like Donald Trump, for example, could invest here, there would be better choice, and consumer interests would be better served. There would be added competition in the market for buying vacant land too, leading to better prices for those selling land.

    Second, the state’s misuse of “eminent domain” must end. Even firms like Infosys have acquired land via the state. Eminent domain should not be used to give land for private purposes; its use should be restricted to “public goods” like public thoroughfares and parks. “Land acquisition” by the state for private businesses, for private mining, for private toll highways and the like should end.

The writer is an economist.

The economics of false philanthropy

The economics of false philanthropy by Sauvik Chakraverti  

03 January, 1998  The Indian Express 

Watched some dhotiwallahs and topiwallahs arguing on TV as to which party was most `pro-poor'. They all seem to want to help our unfortunate fellow-citizens. But what do they give the poor, and what do the poor really need?

When I studied economics in Delhi University in the '70s, they taught us something called `The Theory of the Vicious Circle of Poverty'. This stated that, because the poor had low income, they had less to save and invest, and so were stuck in poverty. The only way out: statal subsidies.

Lord Peter Bauer says that if this theory was true, the world would be still in the Stone Age. The world is a closed economic system: no resources have come in from Mars. Every country that is `developed' today started off underdeveloped. Impoverished migrants built America -- and Hong Kong. What is poverty then?

Poverty is nothing but the absence of economic achievement. If you seriously want to tackle mass poverty, you must vastly expand the opportunities for poor people to make these achievements. How?

Economic achievements are made in markets. Here, you can sell something: your labour, some guavas, or perhaps a ripe pumpkin. If you're lazy, and people are charitable, you can hang around in some corner and beg. Many do. Observe any Indian market and you'll see them all: the big shops, the small shops, the hawkers and peddlers - and the beggars. Certain principles emerge.First, that markets are urban. Therefore, poor people will flock to urban centres to look for economic opportunities. If you truly want to help poor people you must nurture and expand the urban economy. Singapore had 250,000 hawkers in its Central Business District in 1965. They created special hawkers' markets in newly built outlying residential areas. Today, the very same people are part of Singapore's tax paying middle class. Here, a `pro-poor' communist government simply chucks out Calcutta's teeming hawkers and calls it Operation Sunshine! South Asia's `informal' economy is growing two times faster than its formal counterpart. Here, a `pro-poor' politico-bureaucratic set-up eats up subsidy money, completely neglects urban areas and allows petty municipal and police functionaries to prey on the surpluses of the informal sector. You don't have to look very far: huftha money is collected from ice-cream vendors on Rajpath, right under the President of India's nose, because they stay open till very late at night. In Singapore, they pay great attention to `nightlife'. Cities shouldn't sleep. Our urban economies, unfortunately, shut down every evening.So, all that statist economics with its vicious circle of poverty does is divert scarce resources to finance a politics of false philanthropy. By teaching this ridiculous theory in universities, the state creates `economists' who view poverty to be something incurable without direct statal subsidy. These economists study poverty intensely. Many JNU dons have written weighty tomes on poverty.

Real economists study prosperity, and prescribe means my which prosperity is attained. Adam Smith looked into the `wealth of nations' - and prescribed free markets. Statists don't believe in markets. They believe the poor need the state - not the market. How can they ever make this country prosperous?So what is all this `pro-poor' talk really? Just this: false love. Thesedhotiwallahs and topiwallahs just talk of how their hearts bleed for the poor and the downtrodden. They espouse high socialistic ideals. In reality - and this is fairly obvious today after 50 years of false love - they simply milk away our economic surpluses, from both formal as well as informal sectors, and fund expensive `schemes' based on nonsense economics.

What the poor really need is urbanisation with an eye on the urban economy. This is a country with 10 mega-cities, 100 cities, 5,000 big towns and innumerable small towns. The STD index still doesn't list them all. Highways and inter-city rail connections are horrible. The poor have no chance to make economic achievements because the state has not enabled them to do so. We must do away with this subsidy-culture fast, and invest in an infrastructure that generates prosperity.

Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.

Long Live the King

Long Live the King by Sauvik Chakraverti 

1 Jun 2005, 0014 hrs IST, The Times of India 

Multiparty democracy with universal adult suffrage is a very recent phenomenon in human history. Europe had Hohenzollers, Hapsburgs and Romanovs till the end of World War I. My point is this: Since libertarians believe in minimal government, what could be smaller than a king? Hong Kong and Singapore are prospering without democracy. Why can’t Nepal do the same? Adam Smith, writing in the mid-18th century, gave three tasks to the king: "The sovereign has only three duties to attend to: The duty of protecting the society from the violence and invasion of other independent societies; secondly, the duty of establishing an exact administration of justice; and thirdly, the duty of erecting and maintaining certain public works and public institutions". So, according to Smith, if the king looked after defence, justice and public goods, society would flourish like never before. If the king of Nepal can do these things, the poor people of Nepal will be free to generate wealth for themselves. 

The solemn oath to ensure justice lay at the heart of mediaeval kingship in England and France. The same was true for the rulers of the Indian princely states. In the book, Lives of the Indian Princes, the Maharawal of Dungarpur makes it clear that justice was a prime value to Indian princes. He is quoted saying: "I was head of theexecutive and head of the legislature. As far as the courts were concerned, there were practically no pending cases — and that was a characteristic feature of the Indian (princely) states". The king of Nepal can recruit good judges from the international skills market.Simultaneously, if he declares unilateral free trade and the judges preserve property rights, the Nepali people will realise they don’t need democracy and party politics. Instead, they will seek their sustenance in the free market and their security and justice under their monarch. With free trade and property rights under the rule of law, Nepal will gallop from feudalism to full-fledged capitalism. The lure of Maoist ideology will fade as free markets and the resulting prosperity kick in. Then, democracy can be ushered in. Democracy now is a bad idea. 

The writer is a regular freelance contributor.

Population breeds no poverty

Population breeds no poverty by Sauvik Chakraverti

Tuesday, June 24 1997, The Indian Express  

Consider the economist: he notches up a credit on the national income accounts every time a farm animal is born. Yet, when a human infant arrives, he reduces per capita income appropriately and falls prey to the delusion that population is somehow a major problem that has to be tackled with strong state action. Such a belief is widespread in India, and the strong-armed methods used by a probationary dictator to tackle the population problem should be fresh in our minds.

The other viewpoint -- that of the free-marketeer -- has never been prominent in Indian development economics. It could not, for it did not believe that strong state action was required at all. Lord Peter Bauer has for long been writing that economics begins with the activities of traders -- not manufacturers. Hence a free trade regime can foster development better than one in which state action to restrict markets props up an inefficient manufacturing industry -- what was called ``import-substitution industrialisation''. On population, Bauer was equally free from state's bias: open up commercial contracts between people of different nations and, with prosperity, birth rates will stabilise -- development as the best contraceptive.

Mancur Olson, the leading public choice theorist of the Chicago School, recently presented a paper in Delhi in which he examined the possible reasons for the differences between rich and poor countries. One of the factors Olson examined was population -- the delusion that human numbers cause poverty. Here, the critical indicator is population density: number of persons per square kilometre. If this is uniformly high for poor countries and low for rich countries, then we can identify population to be a cause of national poverty. The actual figures gave a different answer. Germany, Belgium, Holland and Japan had higher population densities than India -- and they are rich. Zaire and Argentina have very low densities -- yet they are poor. Some of the richest parts of the world -- like Hong Kong and Singapore have astronomically high population densities. Olson arrived at the conclusion that the only factor behind the differences between rich and poor countries was ``national boundaries''.

Julian Simon from Maryland has been tackling a big group that believes in the population problem: environmentalists. His research, which led to a Columbia University debate with the environmentalist Norman Myers, has featured on a BBC ``Horizon'' programme. Simon takes the anti-statist position regarding the environment: that it is with prosperity and freedom and knowledge that the world can be cleaned up and nature managed; strong state action is not the solution. Human population growth does not demand it.

Today, India and China are both seen, not as future population explosions, but as the two Big Emerging Markets. The notion that population causes poverty therefore deserves burial. It survives in India on impressionistic grounds. Astronomically high real estate values are not on account of population pressures on scarce land, but because of inadequate investments in roads. Wherever money is not diverted from public goods to development schemes, cities decongest and the countryside is populated. This spreads prosperity. This also reduces real estate values by adding more land to overall supply. Some leave the city for the village; population and prosperity spread. The key: investments in public goods like roads. The Planning Commission invests in a spoils system based on unsound economics.

There is an entire host of literature in development economics that comes from free-marketeers. This is neglected. That is because it fundamentally brings to question the basic belief on which planned economies rest: that `development' requires strong state action. The Indian state lauded Gunnar Myrdal when he won the Economics Nobel Prize in 1974. Myrdal advocated strong state action by an intellectual-moral elite: planning. The man with whom Myrdal shared the prize, Friedrich August von Hayek, represented the other point of view. And it is this latter school of thought that needs to come to the forefront here. We need to have a clash of ideas. Not more of the same.

Chakraverti is a freelance writer based in Delhi

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.

We No Longer Need Economists

We No Longer Need Economists by Sauvik Chakraverti 

6 Feb 2004, 0000 hrs IST, The Times of India 

Our adversaries rail at us liberals for being ideological; they say we are full of empty theories. So here is a simple travelogue. For some months now, I have been living in Mangalore, an ancient city on the west coast. A 13th century Kannada poet has marvelled at the fact that as many as 38 different kinds of coinage circulated in the city’s markets then. It becomes obvious that the city owes its existence to overseas trade: At the centre of the old city is the Bunder, the port.  

It is another ancient trading city that came up by the sea, like Alexandria or Venice. They were all glorious centres of civilisation although there were no economists then. In modern Asia, Hong Kong and Singapore are thriving port cities and neither has produced a single economist of note. The other day I was taken to a beach just beyond the New Mangalore Port Trust. What struck was the wall. The entire port is surrounded by a 20 ft high wall. 

So, because of some theory, Mangalore has moved away from having a port open for the citizens to trade, and now possesses a walled port to which citizens are denied entry. The gates to the walled port are manned by armed guards paid for by the taxpayer. Also at the taxpayer’s expense are a whole lot of customs officials who do not permit trade without prohibitive exactions. All this must be justified by reams of economic theory, for there is an economics department is St Agnes College here, the oldest women’s college in south
India. There is a Mangalore Economics Association. 

Driving along the wall, I passed some towering examples of industrialisation: Nehru’s theory. A sizable amount of prime beach-side land is occupied by a phenomenally ugly public sector iron ore exporting plant. 

There is a fertiliser factory which surely survives on production subsidies. So the dealbetween
New Delhi and Mangalore is clear: We stop you trading and then we give you industrialisation. There is, at the taxpayer’s employ, an entire Indian Economic Service wedded to this theory. The wall is bad for sailors as well. I was with a ship’s engineer when he suddenly announced his departure, saying that if he did not return by 10 p.m., he would get into trouble with the personnel manning the wall. He said that even an ordinary sailor spends at least $20 a day while ashore but here the wall keeps them on board. 

Mangalore is a dream city for eating and drinking out, famous for its cuisine. The seafood is superb, and much, much cheaper than
Goa. Mangalore also possesses many establishments where what is offered might be called cabaret. Surely anyone will realise that we do not need economists to know what is good for Mangalore. What sense does the wall make? The path to commercial success and the regaining of the city’s old glory should be obvious. The citizens of Mangalore should do to the wall precisely what Berliners have done to theirs. Then, as with the old Bunder, they should set up a big market there. After all, didn’t God promise Jerusalem greatness by making it a mart for all nations? The mayor of New Jerusalem should issue externment orders to all the customs officials and the armed guards. 

The prime land occupied by the ugly iron ore plant and the fertiliser factory ought to be seized and auctioned so that hotels, shopping malls and beach resorts take over the landscape. Within a decade, this will be
India’s leading city, especially considering the fact that all the others, including Bangalore, are perishing. To unravel the sophisms in the theories justifying the wall, I recommend Frederic Bastiat, who did not have a formal education in economics, who never taught at university, and who was just a journalist and pamph-leteer. In one essay he put the point across thus: There is this steel magnate in France. He sees cheap steel imports coming in from Belgium and this threatens his profits. He now has two choices. One, he can hire a posse of men and arm them with guns, with instructions to shoot anyone who brings steel into France from Belgium. But such a course is highly inadvisable. 

So there is the other option: Go to
Paris and pay some politician there to do it for you. He will deploy armed men at the borders at the taxpayer’s expense. And the two of them will share the profits, while the taxpayers who paid for the guards will now pay out even more for steel. After reading Bastiat I arrived at a conclusion: We don’t need the WTO; we need unilateral free trade. Get every government out of trade. And every trade economist too. 

The late professor B R Shenoy, a classical liberal who studied under Hayek himself, was the only economist to dissent officially with Nehru, and in writing. His daughter, Sudha Shenoy, an eminent liberal economist, in a recent interview, said that nearly every economics depart-ment in the world could be shut down without having an ill-effect on the world of ideas. 

Strong words indeed. She bemoaned the sad fact that economists do not study the real world of human action any more; they are all lost in theories and models and mathematics and statistics. I entirely agree. The wall proves it.

Monday, January 5, 2009

Employment Guarantee a Hoax

Employment Guarantee a Hoax by SAUVIK CHAKRAVERTI 

Posted: Aug 06, 2005 at 0000 hrs IST The Indian Express 

The UPA government, with an eminent economist at its head, is attempting to perpetrate an economic hoax on the nation under the pretext of guaranteeing employment for one and all. This hoax can be unraveled at four levels.

First, is the government there to see that everyone is gainfully employed? In the bad old days of socialism, the state did emerge as the nation’s biggest employer. It still is. Even today, one in every fifty Indians is employed by the state. They perform not a single task well, and society would be much better off if the state did not employ such a huge army of ne’er-do-wells. It would make far more sense for the government to cut down its flab, cut down its expenses, and perform the tasks expected of it efficiently, employing far less people. In a free market economy, people are expected to generate wealth for themselves either through kaam or dhandha. They are not expected to survive on alms from the state.

Second, anything the government does must be paid for by taxes. If the government pays money to A in order to employ him, then it takes the money from B, who is already employed. This is the ‘‘zero-sum game’’ of the politician (and his economic advisers): B loses while A gains. If the government did not tax B, and let him spend his own money, then B’s private spending would generate as much employment as government spending, if not more, considering that a lot of money is lost from the government’s ‘‘leaky bucket’’. Thus, government spending generates fewer jobs as compared to private spending. The government is an agency that taxes and spends; it does not create wealth. It cannot create wealth. If the government employs hordes of daily wage earners in public works, what is of relevance to the tax-paying citizenry is the public works, not the employment. Public works like roads and bridges are required by the people, yes, and the aim should be to build good roads and bridges; not shabby roads and bridges with the aim of employing as many people as possible.

Thirdly, as industrious individuals, we do not seek to maximize work; rather, we seek to maximize production. So should the nation. India and all Indians would be better off not by working more, but by producing more. Increases in productivity are what we should be pursuing, not increases in work: the sweat theory of value! Indeed, increasing productivity is the only means of raising the wages of the poor. Our productivity today is extremely low. For example: a truck covers 250 miles a day on Indian highways; they do more than 800 miles in the rest of the world. Productivity increases occur when more is produced given the same time and effort. These productivity increases would occur if we revamped our transportation system and employed the latest technologies in whatever we seek to do. Then, every Indian would earn more, by producing more with the same time and effort.

Fourthly, the government is actually a destroyer of jobs because of the innumerable restrictions and bans it imposes on the people. 75,000 dancing girls have just lost their jobs in Bombay. Will they spin and weave in rural India, or work carrying stones for road-building works? Restrictions imposed on economic activity in India are an enormous hindrance. We are ranked 122 in the World Economic Freedom Index, bare notches above the ‘‘economically repressed’’. We would be far better off if the state were to get off our backs.

The socialists and communists who make up the UPA government should give up the idea of guaranteeing employment, and public opinion should be garnered in this direction. All that India needs are complete economic freedom, free trade, property rights under the rule of law, and sound money (freely tradeable money without inflation). Apart from that, we could do with good roads and clean cities and towns. In such a scenario, the state will be minimalist, with only one task to attend to: going after the bad guys while leaving the rest of us alone. In such a ‘‘haven of freedom’’, poor Indians will survive far better than they do today, even by selling peanuts, for they will not have their surpluses stolen by the petty kleptocracy. The government will not guarantee employment; rather, it will guarantee a free and fair business environment. That is what the country needs of the state in a free market system.

The writer, a journalist, coloumnist and an author of books, can be reached at: