Tuesday, June 29, 2010

The swadeshi serpent bites its tail; and a response

The swadeshi serpent bites its tail; and a response by Sauvik Chakraverti

21 December 1996 Indian Express

History does not reveal the lurid picture of colonial exploitation that Indian economic historiographers have painted in our minds. Well into this century, when laissez-faire ruled British thinking, it was quite clear that foreign capital was a good thing, and that foreign capitalists were profit-seeking individuals with interests quite distinct from that of the imperial state. Further, that the laissezfaire imperial state providing high quality administration should perhaps be the 'model' to be emulated today, given the dismal record of socialist interventionism.

India had its trains and telecom decades before Japan (Perry presented the Shogun with a miniature railway), and Indian cities had modern, efficient and economical electric mass transportation system - so it is quite clear that infrastructural development was proceeding rapidly with the inflow of foreign funds, much of it private.

When we examine the mind of the foreign capitalist, there does not seem to be any indication that he is an agent of the imperialist state: he is a private man, interested in private gain. The mistake made by exponents of swadeshi (or those who see a sinister neo-imperialism at work in the global market) is that they do not see individuals: they see states. Where liberals look upon the state with unconcealed scepticism, they see states in business, and they want their state to protect their businesses - at our expense of course.

The real problem with swadeshi - as with any other false ideology - begins when you place yourself at the receiving end: when the serpent bites its tail. If it was true that the best way to ensure national prosperity and general well-being is to consume only locally-produced goods, India wouldn't have had a caste of trader, or entire communities of them. Trade would be uneconomical, unintelligent, and not worth the trouble. If you look at our traders carefully, you do not see them as political agents they are economic actors.

They work in a self-regulating civic society, buying and selling for a margin. You see them everywhere: from the North-East to the deep South, you will find shopkeepers who all hail from some part of western India. They contribute to the local economy. What do they do when swadeshi strikes deep, and sub-national political movements espouse ideologies that look towards Indians from other parts of the country as foreigners? Keeping Indian markets for Indians may be fine for some big industrialists, but what happens when people want Maharashtra for Maharashtrians, Assam for the Assamese and so on.

Not having thought out its economic ideology clearly, the Government of India is making a fool of itself 'protecting national interests'- as at the WTO meet in Singapore. Where children study the swadeshi movement in government-approved textbooks as a logically correct way of securing national prosperity, how can our bureaucrats think differently? The ideology filters through and is adopted at sub-national level by sub-nationalists. Fast-food outlets owned by Americans are demolished by those who do not bother to notice that ITC was free to set up Indian food restaurants in the US: the Government of India's exchange regulations were the only hindrance!

Swadeshi is not truth. Chandni Chowk, where the world came to do business in a prosperous India, is. Swadeshi is merely the ideology of Congress nationalism. It should not be the ideology of the Government of India. It should also not be taught to children in the manner in which it is done today. They will soon be young voters, and so should be politically aware. Economic historiography should not be nationalist propaganda that borders on hysteria. Congress Raj - socialist and nationalist - must be compared with British Raj - imperial and liberal.

It will be seen that we had a far greater share of world trade then than we do now. That money was coming into the infrastructure. The government was standing by, running things, and not getting in the way. That money was convertible, and we were freer, economically. Big cities were built. Municipalities worked. Is Seshan calling for a second freedom movement?

Gandhi's mistake, Gunnar's too; and a response

Gandhi's mistake, Gunnar's too; and a response by Sauvik Chakraverti

The Indian Express 10 December 1996

Going through Gandhi, one sees how his mind was working on the confusing question of technology - boon or bane? In Young India, November 13, 1924, he attacked machinery: "Helps a few to ride on the backs of millions". He warned that 'the machine should not tend to make atrophied the limbs of man'. And he made an 'intelligent exception' of the Singer Sewing Machine because it had 'love at its back': Mr Singer saw his wife labouring over her sewing and invented a device that would save her trouble! Gandhi approved.

And he was honest about his confusion a long time later: In Community Service News, September-October 1946, he said: "As a moderately intelligent man, I know man cannot live without industry. Therefore, I cannot be opposed to industrialisation. But I have a great concern about introducing machine industry. The machine produces too much too fast, and brings with it a sort of economic system which I cannot grasp."

Why is it so difficult to grasp what machinery does? Only because we look at immediate - and not long-term consequences. Industry - Gandhi agrees - is a basic human impulse: we all strive to do whatever we do such that we save effort. Machines do the same. If they were bad, we would all be unemployed, our limbs atrophied, and we would yearn to be back in the Stone Ages, when we could have been much more active. But the obvious fact is that machines have raised production, wages, the standard of living and the sum total of human life on Planet Earth.

To examine the question, we look, like Henry Hazlitt did, at what happens when a new machine enters the factory of an overcoat manufacturer. Since it raises productivity, it displaces, say, 25 per cent of his workforce. This is more than what has been employed in manufacturing the machine itself. But look at the long-term consequences.

In a few years the machine `pays for itself. It has saved more than it was worth. These excess savings come to the man who bought it, who can either reinvest in his business, invest elsewhere or spend it thereby adding to employment. Further, the machine would probably have reduced costs in manufacture, giving the leader in introducing it an edge over his rivals.

Today, technophobic arguments are still heard all over the world. The anti-word is 'automation'. It is bad, and it reduces employment. The automobile industry is one in which automation is greatly opposed. Here is an industry
which has mechanised itself greatly, and the statistics are telling. In the US: 1910 - 140,000 workers; 1920 - 250,000; 1930 - 380,000; 1973 - 941,000.

Evidence indicates that the khadi philosophy is seriously wrong. It cannot be a way of either increasing employment or national wealth. It can, at best, create a constituency. What it will not offer this constituency is a means by which their produce gets treated as art - as hand-work should be considered - instead of a subsidised, protected something that needs the state to shelter it from the machine. It does not call for the artistic pride of the weaver. It asks for his submission to state patronage under the aegis of Gandhians whose only claim to fame is that they worship their God without original - or even critical - thinking.

What is surprising is that a Nobel Laureate in Economics (1974) is committed to the same error. Gunnar Myrdal, shortly before he won the prize, wrote that machines which increased output should not be introduced into underdeveloped countries because they 'decrease the demand for labour. Can this be for real? At a time when Malaysia has decided it will be 'developed' by 2020 (Mahathir drives a car numbered 2020!), how can we languish between socialism, and the unintelligent economics of a Nobel Laureate who has been hugely felicitated by the Indian state.

We live in times when even the existence of an intellectual-moral elite is doubtful - forget its capacity to guide the destiny of millions. Good economics and sound political science can offer some respite. This will never happen unless we are willing to sift through the heap of ideology we lug around and discard whatever is false.

Monday, June 7, 2010

Is This 'An Occasion to Celebrate'?

Is This 'An Occasion to Celebrate'? By Sauvik Chakraverti - August 27, 2003 12:00 AM

My friend Sunondo has four children. I asked him which one he loved the most and he said the youngest one. Now, this is contrary to Carl Menger's law of diminishing marginal utility, which holds that the more we have of anything, the less we love it. So, if it was cake you were consuming, the first slice would be heaven, but by the fourth you would be sick and want to throw the rest of cake into the waste bin. How come Carl Menger's law -- and law it is -- applies for cake and for everything else we have, but not for children?

I ask this question in a particular context: that of the so-called "population problem" which has had a host of Third World governments, including mine in India, taking out stringent policies in order to limit the number of children people have. Recently, in India, many states have debarred candidates with more than two children from contesting local elections. If every succeeding child gives us more pleasure, what sense does it make to penalize fertility?

In China, the "one-child norm" was enforced because, after several generations, there were millions of Chinese with no brothers, no sisters, no aunts, no uncles, no cousins, two parents and four grandparents. What is better for a child? A large family? Or a strong state?

The Reverend Thomas Robert Malthus worried that a growing population would outstrip a society's ability to feed itself. At the time he was writing, Malthus had many eminent classical liberal economists opposing his predictions of doom. Jean Baptiste Say and Frederic Bastiat both wrote tellingly of the mistake Malthus was making: assuming technology to be constant. In modern times, the economist Lord P.T. Bauer was a prominent critic of the "population problem" and, after him, Julian Simon proved convincingly that human beings are not a problem, but the world's "ultimate resource."

The planet Earth is bountiful. There will always be an abundance of resources, including energy, so long as we allow human beings the freedom to utilize the Earth's bounty and serve the needs of mankind through the free market and the price mechanism.

However, Third World governments and the United Nations are still on the side of Malthus. The Indian Parliament, in a unanimous resolution recently passed on the 50th year of independence, asserted that population was India's biggest problem. That is, the representatives of the people were united in saying that their constituents and their children were a problem.

And as for the United Nations, recently a baby girl was born and promptly billed as India's billionth citizen. The UNFPA representative in New Delhi said in a press statement, "This is not an occasion to celebrate." What should we celebrate instead -- the fact that tens of thousands die on our unsafe streets every year?

India is an overwhelmingly young country; 96 percent of the people are below the age of 59; 74 percent are below the age of 39; and 34 percent are below the age of 15. This young country is ruled by aged rulers who believe that our babies should not have been born. What could be worse than that?

Third World governments like those of China and India, which endorse the population problem and coerce citizens into having fewer children, should be disgraced, as should the UN. Every couple in the world should be free to decide how many children they can have. And every child should be welcomed into the world. Every birth should be celebrated and every death mourned. And it is not just additional children that give us pleasure: This pleasure is multiplied when we have more and more grandchildren. Carl Menger may have been the Emperor of Economics, but his "law" certainly overlooked the issue of reproduction. So let us have more children; let every child give us increasing marginal utility; let us have more and more grandchildren too, where marginal utility is even higher, and let us bury the ghost of Thomas Robert Malthus who was, after all, a priest who disapproved of poor English people having sex.

Sauvik Chakraverti, is a winner of the Frederic Bastiat Award for journalism (2002). He was senior assistant editor at The Economic Times in New Delhi, and is the author of Antidote: Essays against the Socialist Indian State (2000), Free Your Mind: A Beginners Guide to Political Economy(2002), Antidote 2: For Liberal Governance (2003), Antidote 3: From the Hair of Shiva to Hair of the Prophet and Other Essays (in press).

Forget the WTO; Concentrate on Trade

Forget the WTO; Concentrate on Trade By Sauvik Chakraverti - January 12, 2006 12:00 AM

The failure of WTO talks in Hong Kong wasn't difficult to predict. It has been obvious for some time that vested interests have hijacked the original agenda. Instead of free trade, influential voices are promoting a different message: poorer WTO members should seek to export everything, but import nothing.

In the face of such a bald illogic, perhaps we should reiterate a simple fact: just as we produce in order to consume, so we export in order to import. And just as consumption is the most important aspect of our visit to the market, so imports are the most important part of international trade.

Developing countries, led by India, whose people are poor in part because they have been unable to import for decades, are waiting for EU concessions on agriculture before allow them to open their markets. Many have criticized the EU's intransigence on the issue. And they should. But many others, quite rightly, have asked developing nations to look at Hong Kong's example of unilateral free trade and draw important lessons from it. Indeed, developing countries like India should proceed forthwith to free trade unilaterally -- even if the US and EU continue with protectionism and subsidy of agriculture.

Unilateral free trade is a very good idea for a huge country such as India. If subsidized grain enters the market, poor marginal farmers, subsistence agriculturists and day laborers get cheap food. They will move away from subsistence farming as grain will be cheaper to buy in the market. They will move 'from subsistence to exchange', in Peter Bauer's words, and integrate themselves with the urban exchange economy. Instead of grain, Indian farmers will produce fruits and vegetables or even flowers -- solid cash crops. And this benefit will be paid for by US and EU taxpayers.

Indian farmers are also consumers. Farmers should look not only at what crop they will sow or where they will sell it, but also at the more important question of what they will buy with their money. The personal possessions of every poor Indian will record a quantum jump -- and this is the only true measure of the 'wealth of nations'.

People trade, not nations

So why is this so difficult to understand? On a simple level, trade talks of any kind -- multilateral or bilateral -- are doomed to failure because they occur between nations, while it is individuals who actually trade in the market. When individuals trade "reciprocity'" is meaningless. We never make it a point to buy from those who buy from us. A butcher does not go to the tailor who buys his cuts. He simply sells his cuts and goes to the best tailor that his money can buy. Buying and selling are independent decisions, and we seek benefit in both -- but separately. When reciprocity does not exist between individuals, what hope can there be to find it between nations?

In view of this argument -- and the dismal hijacking of the WTO by other political interests -- one is tempted to propose a radical solution: the WTO should be abandoned altogether. Nations and their governments will only get in the way of trade and cause economic losses all around. Each privilege they grant a few producers will in turn be a punishment that will rain down on the majority of consumers. If India opens up its borders to trade unilaterally, the developed world will benefit too, and the global recession that looms will have a softer impact when it arrives. Thus, the entire world stands to gain if more poor nations adopt free trade unilaterally

Indians should see their 2000-mile long coastline as a huge, unutilized economic asset. With free trade, great trading cities will mushroom all along the twin coastlines. Both Hong Kong and Singapore prospered because of their harbors. In China, it is the coast that is taking the lead. The same will happen to India if trade is made freer.

Fifteen years of 'liberalization' have convinced Indians of the need for free markets. Those who want free trade are upset that WTO talks are stuck. They have long endured protectionism at the hands of the Indian state. To these people, my message is: don't expect free trade as a result of government initiative. The government will only try to sell favors and Indian businessmen are notorious favor-seekers. Call for free trade as a removal of all state interference in the global market. That is, call for unilateral free trade. The rest will fail to follow at their own peril.

Sauvik Chakraverti is a journalist based at the Centre for Civil Society in New Delhi He is author ofArticles Against the Indian Socialist State and For Liberal Governance.

The Illiberal Democracy of India

The Illiberal Democracy of India By Sauvik Chakraverti - February 27, 2006 12:00 AM

Indians often boast that theirs is "the world's largest democracy", but electoral politics in India offers the voter surprisingly little choice. The Indian voter can choose between the socialist, dynastic Congress party; the Hindu nationalist BJP; and the Communists. Tweedledee, tweedledum and tweedledumber. None of these parties is liberal in a free market sense. Currently, voters are stuck with the Congress party, which is stuck with Communists in a coalition.

At the last election, neither Manmohan Singh, the current prime minister, nor Sonia Gandhi, currently head of the Congress party, could generate a clear majority. As a result, the Congress is in office only with support from India's Communists. This support has meant that every liberal policy option is vetoed by the Communists, who decry the "crisis of bourgeois rule" in India.

But there is something more fundamentally illiberal in India's democracy than the current parliamentary arrangement. Indian liberals are legally barred from forming parties and contesting elections, because legislation has decreed that all "recognized" parties must swear by India's socialist constitution. This is reflected in legislation and has enormous consequences for the quality of electoral politics in India.

Take the current situation: in all other ways, the situation is ripe for a liberal, pro-market party. In the past 15 years the ordinary Indian has seen ample evidence of the benevolence of market forces and the malevolence of statism. For example, long distance phone charges have plummeted, as have airfares, as private companies have been allowed in. In areas like consumer electronics and automobiles, Indians now have quality, choice and low prices. A newly formed liberal party could have a go at translating this positive experience into electoral victory, if given a chance, and could thereby free the rest of the economy. But this would require the liberalization of the political sphere, through the repeal of restrictive legislation.

The failure to embrace markets has immediate consequences for social cohesion. As is commonly known, the inability of socialist policies to help the poor in neighbouring Nepal has meant that many have opted for armed insurrection, based on Maoist thinking.

Less well known, in many states of India in dense forests there are alarmingly frequent reports of "Naxalite" activity. The term is used to describe armed revolutionaries who routinely attack and kill police to carry away their guns. As with Peru's misguided Shining Path guerrillas, these rebels need to be weaned away from violence and ultra-left thought by liberals offering them market solutions, like property rights and free trade. If this does not happen soon, social decay will continue.

Liberalism also needs to be allowed to enter the educational system, hitherto exclusively the domain of Marxist professors. Westerners have hailed the current government's stress on education, but the real danger is that this education will consist only of socialist and communist propaganda.

If the political sphere is liberalized, then liberal ideas will float in the open, liberals will be heard, liberal policy options will be mentally weighed by the people -- and then only will the contents of state education be challenged. The liberalization of politics will lead to the liberalization of the mind of the average Indian.

Many years back a group of Mumbai liberals petitioned the courts, challenging the restrictive legislation that reserves India's democracy for the illiberal parties that hold sway today. This has been pending hearing for almost a decade. It is time pressure is built towards securing a speedy hearing of this petition. It is only through liberal politics that India's future can be secured.

Two Indias?

Two Indias? By Sauvik Chakraverti

March 15, 2006 12:00 AM

When in India, President Bush cited a range of initiatives for U.S.-India cooperation and touched on ideals the two nations should seek to work towards. Of course, the President has his own foreign policy goals to pursue and the ideas he described were noble. But he could have been talking about a different country. If we look at Indian foreign policy, its nuclear industry and the weak link between freedom and democracy, we can see how far India must go to match such lofty rhetoric.

Nuclear energy is a state monopoly in India and helping this sector strengthens the Government's hand in power generation. Indians are plagued by power cuts as a result of state intervention in this industry. Further, "safeguards" have little meaning in India where there are no tort laws. If there were a nuclear accident, no Indian would receive compensation. The Bhopal industrial disaster, for example, occurred in the mid-80s. Until now, precious few have received anything. Indians routinely die from building disasters, adulterated food and medicine and the like — but rarely receive any relief from the law of torts.

The President also spoke of cooperation on defense. Once again, this is a fine idea in theory. The President spoke widely of multi-role combat aircraft, helicopter gunships and other high-tech initiatives. The truth is that India's defense establishment is hopelessly corrupt. They continue wars where no wars are necessary. Rajiv Gandhi was charged with receiving kickbacks when Swedish Bofors guns were purchased for the Indian army. Recently, India's Defense Minister was implicated in a shameful scandal, when it was discovered that kickbacks were paid for purchases of U.S. coffins for soldiers killed in the Kargil war.

As far as the senselessness of India's security establishment is concerned, the 25-year-old war with Pakistan on the frozen wastes of the Siachen glacier is a good example. I was close to Siachen once: it was -40 degrees Celcius in the sun! If we auctioned off the entire area, no one would offer a penny for it. But India has been spending over 300 million rupees every day for over 25 years in this senseless war. When the war began, we were informed that the 'strategic' goal was to command the heights dominating the proposed Karakoram highway. (William Dalrymple's In Xanadu recounts his travel from Pakistan to China by bus over the Karakoram highway 10 years ago.) India would do better to build its own highway in the region than fight this war, but it may be that the defense establishment is merely interested in budgets, rather than any serious security concerns.

After all, over a million Indians are killed every year on the unsafe streets of India and millions more are seriously injured. Thus, the 'security' concerns of the Indian citizen are very different from those of the Indian state.

President Bush's speech in New Delhi spoke of the link between 'democracy' and 'freedom'. Again, these are laudable ideas. Yet, despite India being a democratic nation, the Economic Freedom of the World Index rates India close to the bottom and the U.S. close to the top. The title of Deepak Lal's book on India,A Repressed Economy, says it all. Indians were freer under feudal lords and even the colonial Brits than they are today. Feudal lords routinely fell in love with dancing girls; but dancing girls have been outlawed by legislative fiat today. Democracy and freedom doesn't always go hand in hand, and nowhere is this truer than in contemporary India.

Free trade between the people of India and the people of America is desperately important for average Indians. Indians would benefit from buying used cars, buses and trucks. Indeed, Indians would even buy insurance write-offs, which could be cheaply repaired in India. Americans would benefit from better prices for their old cars, and lower insurance costs as well. Taking the point further, Indians would also buy used refrigerators and television sets. Cheap American wine would also be a big hit, and yield public health benefits, for Indians are killing themselves with the hard liquor they are forced to drink today. There are a host of trading gains to be made, for the benefit of both ordinary Indians as well as ordinary Americans, which citizens on both sides are being denied. Instead, the corrupt and repressive socialist-communist Indian establishment — and its powerful bureaucratic elite — remain as strong as ever.