The road to trade and growth

The road to trade and growth by Sauvik Chakraverti

Posted: Mon, Sep 21 2009. 9:45 PM IST The livemint

History shows that better transport means more prosperity. The pathetic state of India’s transport infrastructure is a major reason it still isn’t very prosperous

The history of human civilization is nothing but a story of the close links between trade, transportation and urbanization.

The Mediterranean became a cradle of civilization because the small sea served as the transportation backdrop, enabling diversely gifted cities along its coasts to easily trade among each other. This hold of the Mediterranean over trade was broken only when Venice was upstaged by the Portuguese, who found a sea route to the East, and also built and manned the ships that could carry gold out and bring nutmeg in. The honourable East India Company would have been nothing without their “tall ships”.

But this link between trade and transportation—and the growth of cities and civilization—is apparent in Indian history, too, for the Indus and the Ganges were also the best way to transport tradeables up and down the river. Mohenjo-Daro and Harappa were served by the seaside port of Lothal. And the Ganges valley cities were organically linked to the port cities at the mouth of the river. When the British came to Bengal in the early 1600s, the province was already conducting flourishing trade with the outside world.

Why is transport so important to trade?

Simple. The ancient principle of trade is “to buy in the cheapest market and sell in the dearest”. In other words, if you buy apples in Kulu there is little to gain by selling them in Manali. To book great profits, you must transport these apples to where they do not grow, where they are scarce and highly prized—to Mumbai, Kolkata and Chennai. Venice was upstaged by Europeans buying nutmeg in the Banda Islands, transporting the nutmeg home, and then selling it there. The overland route, with many intermediaries, disappeared from use. This is the power of transportation. This is proved by history.

Having said that, let us turn to transportation in present-day “centrally planned” India. Even strong words like “disaster” or “catastrophe” fail to describe the situation on the ground. Be it roads, railways, ports, airports or even fishing boats, our country is a shambles. It is this that is holding our nation down. The problem is not the illiteracy of the poor Indian; rather, it is the illiteracy of those who wield power.

Let us list the losses we suffer because of this “planned catastrophe”. Topping the list is the reduction in productivity for each of us. Productivity is measured in time. And a disaster of a transport system wastes time—the most important factor of production. The human engine can work only so many hours in a day. The more hours eaten up by transportation, the less there are left over for work and production. As Lord Peter Thomas Bauer famously remarked: “What limits growth in poor nations is not the limited capacity to export. Rather, it is the limited capacity to produce.”

The second major loss lies in the destruction of all goods that are perishable, such as fish, milk, fruit, vegetables and so on. In my travels in Coorg and Jharkhand, I was often told of the potential these regions have for exporting cut flowers. But the horrible transport system lets these regions down. In these instances, the flower farms never happen. They comprise losses that are not seen.

The third loss we face because of our nuclear disaster of a transport system is the destruction of our urban habitat. Satellite towns do not develop, primary cities face overcrowding, urban land becomes hideously expensive—all these are the result of poor transport links. The destruction of our urban habitat, of course, should be considered “de-civilization”—the very opposite of progress.

What can be done immediately to rectify the situation?

First: Look at the 7,500km coast. The open sea is the world’s biggest highway. So, declare unilateral free trade and let loose the forces of urbanization along our coasts. Build twin coastal expressways. This will, to a great extent, solve the urban habitat problem as entirely new cities and towns erupt along the twin coasts and outcompete existing ones.

Second: Build expressways in a “hub-and-spoke” pattern around every city, connecting all the outlying towns. This will allow a spread of urban population, lowering overcrowding.

Third: Empower one official in each district to look after the building and maintenance of all roads in the district. Since the price of rural land rises when connected by road, this will, along with clear property titles, increase the capital available with every rural landowner, including especially small plot-holders.

I have focused entirely on roads because markets can provide everything else. This includes tramways in small cities and towns. This includes modern ships and boats. This includes modern cars for every Indian. Indeed, the cars are already here. It is the roads that are lacking.

Our state must, therefore, think like the Roman emperors of yore, who did not teach their subjects, but constructed roads everywhere in their vast domains. The Old Roman Road is still in existence leading up to Hadrian’s Wall in the UK. And in Cologne, Germany, outside the great cathedral, I found that the old Roman stones paving the roads have been carefully preserved.

The lesson from history that transportation matters most is irrefutable. The state must build a pan-India toll-free road network as top priority.

Sauvik Chakraverti is an author and columnist. He blogs at sauvik-antidote.blogspot.com Comments are welcome at theirview@livemint.com

Saying no to ‘social justice’

Saying no to ‘social justice’ by Sauvik Chakraverti

Posted: Wed, Sep 2 2009. 9:16 PM IST

Advocates of social welfare all have different ideas. But they invariably champion state redistribution

Michael Jackson was a very wealthy man. And there are millions without shelter, education and nutrition. Is this unjust? To answer this question we must ask ourselves another: Did Michael Jackson acquire his wealth unjustly? Of course, not. Michael Jackson thrilled billions with Thriller. They flocked to the stores to buy the album. This is how and why he got rich. There was no injustice at all.

Let us be very clear in our thinking: Justice is an attribute of individual conduct. Further, the free marketplace has nothing to do with either justice or injustice. As long as the rules of just conduct are being followed, the resultant “distribution of wealth” in a free society can only be called “natural”. This distribution can neither be called “just” nor “unjust” because individual shares are neither intended nor foreseen. There is no one “distributing” anything. And chance plays a big role.

So what about the fate of the poor? The fact is that modern capitalism is mass production for mass consumption. The masses gain as consumers. Henry Ford invented the Model T in 1908. Within 25 years, every American had a car. Very few Indians had cars 20 years ago. Or phones. Or TV sets. Since “liberalization” began, free markets have allowed Indians to succeed as consumers. None can deny the fact that free enterprise has hugely empowered the poor Indian during these last 10 years. My prescription for improving the lot of the poor is free markets. Period.

Advocates of “social justice” differ. They champion “redistribution” through state action. Thus, their ideas lead to heavy taxation and even heavier state expenditure. Whereas classical liberals conceive of a civil government that only acts against the unjust and nothing more, those who advocate social justice also advocate a role of the State that goes well beyond governance. They call themselves “socialist” but they are really étatists—worshippers of the State.

Unfortunately, heavy taxation and an overweening state are actually bad for the market economy. Savings decline. Investments decline. The poor suffer. And if the State engages in monetary inflation to fund itself, the poor lose even more. As Nobel laureate Friedrich Hayek says, “Rules of just individual conduct are as indispensable to the preservation of a peaceful society of free men as endeavours to realize ‘social justice’ are incompatible with it.”

Hayek goes further: He says, “No one has yet found even a single general rule from which we could derive what is ‘socially just’ in all particular instances that would fall under it.” Welfare is such a loose concept that “some will put it here and some will put it there”. Amartya Sen will champion nutrition, Jean Dreze employment generation, and Manmohan Singh education. A fourth person might find something else, say, healthcare. The decline of the modern West is indeed such a story, thanks to ideas of social justice, which produced the “Illfare State”.

Hayek also offers an explanation for the popularity of social justice: The idea appeals to our primitive instincts. Whereas liberalism is modern and individualistic, social justice yearns for a return to the happy days of hunter-gatherer tribes where there is the “leader” who shares the prey with all members. Yet, we emerged from primitive society only by disregarding the principles that held the old tribes together. The pioneers abandoned the old closed groups and sought unknown people they could trade with. This is how we created cities and towns, settled agriculture, and the Great and Open Society. Social justice is “atavistic”. As a theoretical concept, Hayek calls it “intellectually disreputable”.

This conclusion is strengthened by the fact that, while eminent étatists champion social justice, there is little real justice in India. The National Human Rights Commission registers 75,000 cases a year—against the State’s police! There are at least 30 million cases pending in courts. Murders and rapes go unpunished. Injustice rules the land—and these étatists wave the flag of a phoney justice, a mirage, an illusion, a trick. They must be defeated.

It is undoubtedly true that millions of Indians are miserably poor. However, their only hope lies in economic freedom, free trade, private property and an equal justice. Under these conditions, none of which exists today, each can try and improve his position. That is, the individual matters; not the State. All that a civil government can do is apprehend the outlaws and the unjust, maintain the peace, keep accurate land records, build roads, roads and more roads, and manage the cities and towns. Even if it performs these tasks tolerably, the poor will slowly but surely climb out of poverty. Recall that in the US, black slaves made it big in show business and sports. Even these avenues are not fully open to India’s poor today.

Lastly, we undermine ourselves and civil society when we do not champion the case for private charity and philanthropy. Where taxation is heavy, private charity is low. All the money is taken by the State and usually wasted. Government is not charity. It cannot “attempt to purchase the affections of the populace by gratuitous alienations of the public revenue”. Social justice is a sham. Say no to it. Loudly.

Sauvik Chakraverti is an author and columnist. He blogs at sauvik-antidote.blogspot.com. Comment at theirview@livemint.com