When political freedom is secured and the market is unrestrained, more people increases demand, and therefore also the supply, and at the end there is more available for consumption than ever before. People are the ultimate resource, they just don't come with a mouth alone, but also a mind and a pair hands. It is time to party and cut the cake on the arrival of the 6 billionth person on this planet.
A shorter version of this article titled "6 Billion and Growing" appeared in The Economics Times on 12 October 1999.
Birth of baby is usually a source of great joy. Therefore, on October 12, the date symbolically designated to mark the arrival of the 6 billionth person on this planet there should have been a grand party to celebrate the momentous event. This is the first time in history that the human population reached this figure. In the last quarter of a century, the population has increased by 50% from 4 billion. A four fold increase in just this century! Before that it had taken about 400 years for the population to triple to about 1.5 billion in 1900. And in the preceding 500 years, between 1000 and 1500 AD, the population is estimated to have merely doubled from around 250-300 million to 500-550 million. (See here for an historical estimate of world population)
Clearly, the mankind in the last 200 years can be said to have at last begun to grasp the secrets of mother nature and succeeded in harnessing those for his own betterment as never before.
Today, there is so much concern about extinction of species. This suggests that if the number of any species increased, then it is an indication of the quality of the environment. Ironically, this is not applied to the most successful of all species - the Homo sapiens. Far from celebrating this success, today the population is commonly held as the problem.
Problems of Plenty!
It is believed that the food production may fail to meet the demands from a growing a population. If this comes true, then at least farmers of the world would have something to celebrate because of the rising food prices. However, today, farmers' world over are more concerned about falling prices of their produce! In some parts of the world, governments are paying farmers not to produce. Among current arguments against biotechnology lies the fear that productivity may increase still further and force the prices down even more.
In India, in the past 50 years, production has increased four-fold, faster than population growth. And still productivity in the best parts of the country is substantially lower than what has been achieved in other parts of the world. In Punjab, yield of wheat is about 3500 kg per hectare, is half of what has been achieved in some other countries.
Truly, the world is faced with the problem of plenty!
More people, Higher consumption, Falling prices!
The falling-price syndrome has affected virtually every aspect of life. Prices of most natural resources are at their historic lows. This was best brought out dramatically, when the late economist Julian Simon won his famous bet on the future of the planet with environmentalist Paul Ehrlich and others. In 1980, Simon had challenged anyone to accept a bet on the falling prices of natural resources. Ehrlich and others accepted the challenge and claimed that the prices of the chosen resources would rise due to increasing demand from the growing population. When the bet was settled in 1990, Simon won hands down. The real prices of the resources had almost fallen through the ground, although the population had increased by nearly a billion during the decade, and Simon would have won even without adjusting the prices for inflation.
Oil is thought to be one of the critical natural resource in today's economy. Yet, real price of crude oil today is lower than the peak after the first oil crisis in 1973. The recent relative increase in prices is due to OPEC trying to cut its production in order to prop the prices up, and not because of any physical shortage of oil. Amazingly, a litre of mineral water costs more than a gallon of petrol in the US.
It is said that the high consumption pattern in the developed world is depriving the poorer countries. But falling prices clearly indicate that there is no scarcity of natural resources. After all, humans don't just consume they also produce. In fact, greater the number of people, greater the demand for goods and services. But, in an open market characterised by free trade and competition, this also provides incentives to producers to discover new knowledge and innovate cheaper and better means of meeting the demand. And then as economics of scale strikes from this larger demand, the prices per unit of the product fall. Consequently, more people lead to increased demand, but also an opportunity to produce more. It may seem paradoxical, but the more we consume, more there is to consume.
The error lies in our inability to grasp that people don't just come with a mouth for consumption, they also come with a mind and a pair of hands to produce. In fact, given the freedom to operate, people generally produce more than they consume, otherwise civilisation would have remained where it was 10,000 years ago.
Free but expensive or priced but cheap
Throughout much of human existence on this planet, most of the things man needed for survival were freely available in nature. He could just go out and get it - fruit from a tree, animal for meat. But ironically, while being free, these were not cheap. He was completely dependent on the vagaries of nature, danger stalked him on each step. The enormous price that man paid for these "free" items is reflected in the small population. The population simply had no opportunity to grow.
From that era, the history of civilisation is that of privatisation. Access to resources were restricted to only those who invested their time and energy on developing those resources. This opened the door for trade among people. Goods were no longer "free", but they became enormously "cheap". This is the story of market economics, it puts a price on goods, and makes it abundant. By the same token all attempts to keep things "free", creates the condition of perpetual shortages.
As the nineteenth century economist, Henry George, used to say, more foxes leads to less chicken, but more people mean more chicken.
Clearly, most of the things that we take for granted today, would not have been accessible to such wider sections of the populations if the population had remained what it was one hundred years ago, and much less so two hundred years ago.
Rising value of labour
The only thing, which in a free market actually appreciates in value, is the price of human labour. More number of human beings - free, enterprising and skilled - far from lowering the wage rate actually pushes it up. The reason we see a rising standard of living.
It would worth noting that 6 billion can fit in less than a thousand cities like Hong Kong, if the people were free to urbanise. And that would leave over 90% of the planet available for agriculture, resource extraction, recreation and wilderness. More than enough to meet the needs of a much larger population at much higher levels of consumption than currently accessible even to richest.
More significant than 6 billion, perhaps is the period sometime in the middle of the next decade, when 50% of the world's population is projected to be living in urban areas. Urbanisation not only improves the quality of life, mortality and infant mortality is much better in cities than in the countryside, for instance, but it also help in increasing the rural productivity as fewer people depend on land for their survival. Labour becomes more mobile and therefore, available for more productive purposes.
Policies, not population, responsible for poverty
No doubt there are many problems. Environmental problem is at the top of the agenda today. But environmental quality is just like any other valuable resource. The problem, therefore, stems primarily from the failure to bring environmental resources to the discipline of the market forces by instituting property rights and market prices.
If there are no physical shortages, why does poverty persist? The answer lies in the policies. It is not population but policies that are the cause of poverty. These have curtailed people's opportunity to seek newer, better and cheaper economic options. The resulting misallocation of resources is manifested in the problem of poverty amidst plenty.
Breeding inequality
Therefore, blaming population growth for the problems help in diverting attention from the policy instruments. Much more significantly, by holding population growth responsible for the economic problems, we are also questioning the basis of political freedom. Since, if a person, particularly a poor person, is considered incompetent to decide on his or her own family size, then he can never be trusted to make sound political choices. Logical consequence of this is that universal adult franchise, or democracy, the most cherished political instrument to have evolved, based on the premise that all humans are fundamentally equal, comes under question.
Rather than reevaluating their own policies, this focus on population, lets the elite and those in authority to be contemptuous towards the poor and those in lower strata of society. Domestically, this leads to political and social inequality, and economic discrimination. Internationally, such an approach implies pure racism.
More the merrier!
At the dawn of the new millenium, it is time we realised that the ultimate resource is people. As Julian Simon would say, "The ultimate resource is people, especially skilled, spirited, hopeful young people, who will exert their will and imagination for their own benefit, and in doing so will inevitably benefit the rest of us as well."
To do this, the people need freedom and peace to operate. So let us strive to ensure that political and economic freedoms are not curbed. Such curbs are a reflection of our lack of imagination, because of which we devise policies that restrain freedom, curtail choices, and dampen the spirit of inquiry and enterprise. This leaves everyone poorer, economically and politically. India is perhaps the best illustration of the consequences of trying to divide freedom - fifty years of self-imposed deprivation and stagnation. The country prided itself in being the largest democracy, and yet held its own people to be unfit to decide on some their own economic interests. This pushed hundreds of millions to perpetual destitution. It is difficult to imagine a more criminal wastage of the most precious resource, its people. Freedom is indivisible, one cannot be sustained without the other.
Let freedom reign. Let us celebrate arrival of the 6 billionth person. More the merrier!
Friday, December 10, 1999
Tuesday, November 23, 1999
Free Trade Protects Environment
A version of this paper "Free Trade Protects Environment" appeared in The Asian Wall Street Journal on 23 November 1999 and The Wall Street Journal Europe on 26 November 1999.
Are economic and environmental goals really in conflict with each other? Or can the market, which has proved its ability to meet economic interests of the consumers most efficiently, now meet the environmental preferences of the people as successfully? These are some of the basic issues that the participants at the WTO Ministerial Meeting at Seattle will have to try and answer.
The battle lines are being drawn up. While developing countries like India are strongly opposed to any linkage between trade and environment, many of the developed countries are pressing for a working group to look into the relationship between these two areas.
However, trade and environment need not be mutually exclusive. Nor need the interests of one be balanced against those of the other. Free trade and an open market, with defined property rights, can be the best friend of the environment.
Over the past few decades, multilateral environmental agreements (MEAs) have increasingly addressed transboundary health and environmental problems, and sought to relate these to international trade and economic activities.
Likewise, international trade has generated concern about impacts on the environment, locally and globally. Although, there is no agreement on trade and environment at WTO, a Committee on Trade and Environment (CTE) has been discussing many of these issues.
It seems that the most fundamental reason some parties want to link trade and environment is the apparently effective and binding dispute settlement mechanism under WTO. And that is clearly the reason other parties are adamantly opposed to such a linkage. First, it may be argued that in view of the existence of wide range of environmental agreements, it would be better to equip them with WTO like dispute settlement mechanisms. Secondly, the issue may be superfluous if other mechanisms are developed to harness the efficiency of the marketplace to produce environmental goods.
However, long before in 1973, the Convention on International Trade in Endangered Species (CITES) sought to regulate and restrict trade that some argued could adversely affect specific species and their environment.
The Montreal Protocol, set down rules on manufacturing and trade in ozone depleting substances (ODS). A special multilateral fund was set up to help promote non-ODS technologies. The Kyoto Protocol seeks to regulate emission from domestic energy production, and promote foreign investment in projects which reduce greenhouse gas (GHGs) emissions.
The Basel Convention is aimed at restricting and eliminating transboundary shipment of hazardous waste. The Convention on Prior Informed Consent for Trade in Dangerous Chemicals focuses on the risks posed by international trade in such chemicals.
Clearly, there are quite a few areas where the interests of trade and environment overlap. And this can cause problems. For instance under the GATT, rules of trade applies to products. Expert opinion is divided on whether wastes that are potentially hazardous can be termed “products” within the meaning of GATT.
The potential for conflict between environmental goals and trade was also recognised at the United Nations Conference on Environment and Development (UNCED) in 1992. The Agenda 21, seeks to make trade and environmental policies mutually supportive. It also acknowledged that the environmental standards valid for developed countries may have unwarranted social and economic costs for developing countries.
The Global Environment Facility (GEF) was the fallout of the 1992 Rio Conference. It set up funds to mitigate some of these socio-economic costs in pursuing the goals of the Convention on Bio-diversity (CBD), the Convention on Climate Change (CCC), and others.
Today, the developed countries are pressing for greater discussion on environment with the aim of creating an environmental agreement under WTO. The developing countries, like India, are clearly against any such linkage between trade and environment, and consider the attempt of the developed countries to relate the two as protectionist.
Likewise, the developed world interprets sustainable development to mean maintaining the status quo, and thus focus attention on climate change, ozone hole, extinction of species, and similar broad issues. Developing countries believe different issues should be covered by sustainable development - poverty, inequity, disease and mortality.
Much of the time, discussions boil down to political negotiations to strike a deal between the environmental and trade goals on the one hand, the political and economic costs on the other hand, and who will bear which costs. Needless to say, without the discipline of market forces, the efficiency of allocation and utilisation of economic and environmental resources is greatly undermined. Often defeating the very objective.
There are two basic flaws to this line of thinking. One, it presumes that economic and environmental goals necessarily conflict with each other. This ignores the fact that environmental degradation is primarily the result of the “tragedy of the commons”, where the incentive to define property rights and restrict access to the resource in concern are lacking. Therefore, there are no mechanisms to internalise the so-called externalities on economic grounds.
Secondly, rather than looking at this basic problem, the strategy adopted so far has been to provide funds to make alternative technological quick-fixes accessible. This approach is a repeat of the old discredited system of foreign aid and technology transfers, and cannot be expected to perform any differently. Because of lack of clarity on the first point, it attempts to bypass the normal trade route, and considers the disciplining influence of the price signal under the market mechanism avoidable.
For instance, much of the funds under GEF dealing with CBD in India seeks to wean people away from the natural resources around them by providing them alternative sources of income and sustenance. Instead of creating the institutions under which the economic potential of local resources can be harnessed by the people themselves, and therefore develop a stake in those resources, they are being subsidised out of their own surroundings.
Such an approach is clearly unsustainable without perpetual outside support. Apart from loss of local culture and knowledge bases, this approach tells the people that the so-called resources are actually of no value. No resources, environmental or economic, can be protected and conserved under such an incentive structure.
If we are really concerned about environmental degradation, then it is time we realised that free trade and open market are the best friends of the environment. Voluntary exchange at a marketplace is not a zero-sum game. Free trade is a win-win, for both the participants otherwise they would agree to trade. Competition in the marketplace provides the incentive to producers to continually enhance their competitive advantage by improving their products at lower prices. On the other side, this process improves productivity and therefore the purchasing power of the consumers. Consequently, consumers can afford a wider range and better quality of products.
Environmental quality is no different from all other products in the marketplace. Improvement in environmental quality is a value-added product that becomes affordable as one goes up the economic ladder. Rather than restricting trade and seeking to put environmental resources outside the scope of the marketplace, we ought to strive to bring these resources under the discipline of the marketplace. Rather than restricting consumption, under the belief that resources are scarce, we ought to try and bring all these resources under the institution of property rights. Then we will discover that more we consume, the more there is to consume.
Rather than market failure, it is the failure to bring environmental resources under the economic laws of the marketplace that is at the root of all environmental problems. If we concerned about our environment, we must embrace the market.
Are economic and environmental goals really in conflict with each other? Or can the market, which has proved its ability to meet economic interests of the consumers most efficiently, now meet the environmental preferences of the people as successfully? These are some of the basic issues that the participants at the WTO Ministerial Meeting at Seattle will have to try and answer.
The battle lines are being drawn up. While developing countries like India are strongly opposed to any linkage between trade and environment, many of the developed countries are pressing for a working group to look into the relationship between these two areas.
However, trade and environment need not be mutually exclusive. Nor need the interests of one be balanced against those of the other. Free trade and an open market, with defined property rights, can be the best friend of the environment.
Over the past few decades, multilateral environmental agreements (MEAs) have increasingly addressed transboundary health and environmental problems, and sought to relate these to international trade and economic activities.
Likewise, international trade has generated concern about impacts on the environment, locally and globally. Although, there is no agreement on trade and environment at WTO, a Committee on Trade and Environment (CTE) has been discussing many of these issues.
It seems that the most fundamental reason some parties want to link trade and environment is the apparently effective and binding dispute settlement mechanism under WTO. And that is clearly the reason other parties are adamantly opposed to such a linkage. First, it may be argued that in view of the existence of wide range of environmental agreements, it would be better to equip them with WTO like dispute settlement mechanisms. Secondly, the issue may be superfluous if other mechanisms are developed to harness the efficiency of the marketplace to produce environmental goods.
However, long before in 1973, the Convention on International Trade in Endangered Species (CITES) sought to regulate and restrict trade that some argued could adversely affect specific species and their environment.
The Montreal Protocol, set down rules on manufacturing and trade in ozone depleting substances (ODS). A special multilateral fund was set up to help promote non-ODS technologies. The Kyoto Protocol seeks to regulate emission from domestic energy production, and promote foreign investment in projects which reduce greenhouse gas (GHGs) emissions.
The Basel Convention is aimed at restricting and eliminating transboundary shipment of hazardous waste. The Convention on Prior Informed Consent for Trade in Dangerous Chemicals focuses on the risks posed by international trade in such chemicals.
Clearly, there are quite a few areas where the interests of trade and environment overlap. And this can cause problems. For instance under the GATT, rules of trade applies to products. Expert opinion is divided on whether wastes that are potentially hazardous can be termed “products” within the meaning of GATT.
The potential for conflict between environmental goals and trade was also recognised at the United Nations Conference on Environment and Development (UNCED) in 1992. The Agenda 21, seeks to make trade and environmental policies mutually supportive. It also acknowledged that the environmental standards valid for developed countries may have unwarranted social and economic costs for developing countries.
The Global Environment Facility (GEF) was the fallout of the 1992 Rio Conference. It set up funds to mitigate some of these socio-economic costs in pursuing the goals of the Convention on Bio-diversity (CBD), the Convention on Climate Change (CCC), and others.
Today, the developed countries are pressing for greater discussion on environment with the aim of creating an environmental agreement under WTO. The developing countries, like India, are clearly against any such linkage between trade and environment, and consider the attempt of the developed countries to relate the two as protectionist.
Likewise, the developed world interprets sustainable development to mean maintaining the status quo, and thus focus attention on climate change, ozone hole, extinction of species, and similar broad issues. Developing countries believe different issues should be covered by sustainable development - poverty, inequity, disease and mortality.
Much of the time, discussions boil down to political negotiations to strike a deal between the environmental and trade goals on the one hand, the political and economic costs on the other hand, and who will bear which costs. Needless to say, without the discipline of market forces, the efficiency of allocation and utilisation of economic and environmental resources is greatly undermined. Often defeating the very objective.
There are two basic flaws to this line of thinking. One, it presumes that economic and environmental goals necessarily conflict with each other. This ignores the fact that environmental degradation is primarily the result of the “tragedy of the commons”, where the incentive to define property rights and restrict access to the resource in concern are lacking. Therefore, there are no mechanisms to internalise the so-called externalities on economic grounds.
Secondly, rather than looking at this basic problem, the strategy adopted so far has been to provide funds to make alternative technological quick-fixes accessible. This approach is a repeat of the old discredited system of foreign aid and technology transfers, and cannot be expected to perform any differently. Because of lack of clarity on the first point, it attempts to bypass the normal trade route, and considers the disciplining influence of the price signal under the market mechanism avoidable.
For instance, much of the funds under GEF dealing with CBD in India seeks to wean people away from the natural resources around them by providing them alternative sources of income and sustenance. Instead of creating the institutions under which the economic potential of local resources can be harnessed by the people themselves, and therefore develop a stake in those resources, they are being subsidised out of their own surroundings.
Such an approach is clearly unsustainable without perpetual outside support. Apart from loss of local culture and knowledge bases, this approach tells the people that the so-called resources are actually of no value. No resources, environmental or economic, can be protected and conserved under such an incentive structure.
If we are really concerned about environmental degradation, then it is time we realised that free trade and open market are the best friends of the environment. Voluntary exchange at a marketplace is not a zero-sum game. Free trade is a win-win, for both the participants otherwise they would agree to trade. Competition in the marketplace provides the incentive to producers to continually enhance their competitive advantage by improving their products at lower prices. On the other side, this process improves productivity and therefore the purchasing power of the consumers. Consequently, consumers can afford a wider range and better quality of products.
Environmental quality is no different from all other products in the marketplace. Improvement in environmental quality is a value-added product that becomes affordable as one goes up the economic ladder. Rather than restricting trade and seeking to put environmental resources outside the scope of the marketplace, we ought to strive to bring these resources under the discipline of the marketplace. Rather than restricting consumption, under the belief that resources are scarce, we ought to try and bring all these resources under the institution of property rights. Then we will discover that more we consume, the more there is to consume.
Rather than market failure, it is the failure to bring environmental resources under the economic laws of the marketplace that is at the root of all environmental problems. If we concerned about our environment, we must embrace the market.
Monday, November 1, 1999
India is that sacred land of cultural union which never sent anyone back
My article titled "India is that sacred land of cultural union which never sent anyone back" was published in November 1999.
"India is that sacred land of cultural union which never sent anyone back", the Prime Minister quoted this line from Tagore, live on national television recently, on the occasion of the release of a special CD containing recitals and songs by the poet himself. It is ironic that the same Prime Minister also wants a "national debate" on whether any foreign-born person should be allowed to hold highest political offices in the land.
One does not know whether the PM has lately read that poem of Tagore from Gitanjali (1910). Because just prior to the lines which the PM quoted, the poet says "hethai arya, hetha anarya, hethai dravir o chiin, shok, hun dal, pathan o moghoul, ek dehe holo leen". That is the Indian civilisation has successfully assimilated the aryans, the non-aryans, the dravidians, the chineese, the shaks, the huns, the pathans, the moghuls. The CD has the poet himself reciting these famous lines.
The poet ends this stirring poem by inviting all - the aryans and the non-aryans, the hindus and the muslims, the English and the christians, the brahmins and the untouchables - to join hands and together fulfill the promise of this holy union. Of course, the poet did not foresee the Italian!
While Tagore represents the very best strands of Indian heritage, like all cultures, the Indian heritage also has some very dark shades. And true to the latter, like their predecessors at the battlefield of Kurushetra, the political gladiators of today often seek to put up a Shikhandi to hide their real motives. Bereft of any other achievements, the issue of Sonia Gandhi's foreign origin is clearly aimed at camouflaging their own failures.
The Sonia factor
If Sonia is a dumb doll, as the critics say, who cannot say a word without a written script before her, how can she get elected, leave alone help her party to victory, and then hope to become the PM?
This debate truly reflects the status of the political leadership in the country today. The pretenders to the throne are mortally scared and incapable of fighting politically the "mere housewife", and "the political novice", despite decades of real politick behind them!
She, a "foreigner", is hardly responsible for the state of the nation, fifty years after our "tryst with destiny" when the country was in the able hands of the native born. Particularly in the last eight years the country has had the privilege of being led by people from different regions and with diverse backgrounds and vast experiences.
The Indian Voter
Much more importantly, behind this veneer of concern for the future of the country in hands of one "foreign born", the true sovereign in any democracy - the demos, the voting citizens - is being subjected to an ultimate insult. What these self-proclaimed champions of national self-respect are saying is that the voters are politically too dumb, emotionally too naive and therefore prone to being swayed by just one inexperienced foreigner.
This is the same voter who has single handedly ensured that since the general elections of 1971, not one ruling party or coalition returned to power at the Centre but once, and that was in 1984 in the aftermath of the assassination of Indira Gandhi.
Not very surprising, since statistics at the election commission show that legislators in India have one of the lowest re-election rates among world's major democracies. Barely a third survive battle of the ballot, and return to the hallowed precincts of the Parliament. Illiterate and undernourished the voter may be, but in political savvy they are second to none. It is the leadership that has constantly failed to get the message that the electorate has been sending - either deliver or you will be delivered.
Today, this gap has widened to such an extent that the political leadership is desperately trying to clutch at any straw that might help them tide over the electoral battle, and enable them to once again settle down to self-serving, rapacious ways till the next elections. Like the issue of Ram temple earlier, Sonia's foreign origin has come handy when no other visible issue could be found.
Leader in a Democracy
Apart from the obviously obnoxious racist underpinnings of the foreign-born debate, there is another equally important question. Should those aspiring to hold high offices need to have a certain level of experience and expertise so as to tackle the enormous "complexities" of governance that any leader of such a large and diverse country would face? Rajiv Gandhi was sworn in as Prime Minister in 1984, when he was not even a Member of Parliament, and had only spent about a couple of years as an office bearer of the party. Nevertheless the country overwhelmingly endorsed this inexperienced man in the general elections of 1984. Just as it decisively rejected him the next time he went to seek a mandate from the people in 1989. His five years of experience as Prime Minister did not impress the voters!!
A democracy is different from all elite forms of government - be it the Ram Rajya, the benign and benevolent dictatorship, or the socialistic dictatorship of the proletariat. The members of the Constituent Assembly had after prolonged debates, accepted the idea of universal adult franchise irrespective of social, educational or economic status. It was felt that although many voters may be materially deprived, illiterate and driven by many passions, nevertheless, still possessed the basic wisdom and therefore, fully capable of participating in the political processes, and shaping the destiny of the nation.
By demanding a qualification for holding political office, we are rejecting this most fundamental principle of adult franchise. And this franchise does not end with casting of the ballot alone. It includes the right to contest in elections, win the support of ones fellow countrymen, get elected, and hold an office where possible, at every level of government. Indeed, it may be argued that the present "complexities" of governance are a creation precisely to deprive the proverbial common man a say in the affairs of the state although it affects him the most.
Opposition to the Congress Party
Opposition to the Congress can be on many counts. It was the socialistic pattern of development followed by Nehru that is responsible for perpetuating our poverty and laid the seeds of corruption by institutionalising controls over the marketplace. Indira Gandhi sought to subvert the democratic process itself, and contributed significantly to lumpenisation of politics. Rajiv Gandhi frittered away the unprecedented parliamentary majority and goodwill of his fellow countrymen in only three years by gross insensitivity and ineptitude.
Likewise, opposition to Sonia could be wide ranging: her policies, her actions, her inexperience, her dependence on the coterie, her attempt to sideline mass leaders and undermine second rung leadership and concentrate all powers in her hands like her mother-in-law, and so on.
Ideological common ground
But, no doubt the Congress is changing. It was the Congress that initiated the steps towards economic reforms, howsoever reluctantly and surreptitiously that may be. And the opposition has changed too. Given an opportunity, it walks the road to reform, however slow that may be, while continuing to talk of a return to the old socialist moorings. This shows the enormous ideological common ground that exists, cutting across all party lines. This also explains the reason for the apparent animosity between parties and leaders. Unable to provide a broad alternative vision, the political actors have to stoop to the lowest levels in order to highlight their differences with the rest.
The real tragedy of our democracy is that despite an apparently vibrant and diverse polity, a large political space has remained unexplored. Hardly any one think that the idea of less government, faster reforms, accelerated development is politically viable, economically sensible and electorally saleable an option.
This narrow vision has also helped us escape some of the distinct political possibilities. Congress may not win, and people may through the exercise of their democratic rights reject Sonia and her party. Even if the party emerges as a major political player, out of sheer political necessity it may have to decide on someone as politically insignificant as I. K. Gujral in order to be able to form a government with the support of others. Or even if the party wins, Sonia could opt to stay out of the PM's office and help Congressmen rediscover the art of leadership and good governance.
Politics of Exclusion
Instead we have the issue of political exclusivity. For a diverse and pluralistic society such as India, any attempt to draw boundaries to exclude some will logically lead to ever-narrower boundaries, and could ultimately end in a tragic fragmentation. The tragedy of the Balkans should be fresh in our minds.
Moreover, will the line end at geographic or biological boundaries? What about the influence of foreign ideas and religions? What about the linguistic and ethnic diversity that might be engulfed in this game of drawing boundaries? What about exclusion on caste lines? What about the different historical experiences?
A maratha leader today has raised the banner of revolt in the Congress party against the "foreign hand". But just a couple of hundred years ago, marauding hordes of marathas used to periodically descend on Bengal and Bihar to loot and pilfer. So traumatic that it has left permanent marks on Bengali folklore and even children's rhymes. Do we really need to relive the tragedies of the past? Or should we accept that the only lesson we can draw from history is not to repeat the same mistakes.
Future at Stake
By raising the issue of Sonia's foreign birth, we are putting at stake much more than the futures of the Congress party and its leader. At stake is the future of our civilisation, our identity itself. Will we rise to our best point, as Tagore had hoped, and continue to assimilate all in our fold, or discard the poet and accept the politics of exclusion and travel on the road to 'where the world is indeed broken up into narrow domestic walls'.
There cannot be a starker choice. It is time we saw through this game of political brinkmanship. There are times when the domestic hand turns out to be much more insidious than a foreign one.
"India is that sacred land of cultural union which never sent anyone back", the Prime Minister quoted this line from Tagore, live on national television recently, on the occasion of the release of a special CD containing recitals and songs by the poet himself. It is ironic that the same Prime Minister also wants a "national debate" on whether any foreign-born person should be allowed to hold highest political offices in the land.
One does not know whether the PM has lately read that poem of Tagore from Gitanjali (1910). Because just prior to the lines which the PM quoted, the poet says "hethai arya, hetha anarya, hethai dravir o chiin, shok, hun dal, pathan o moghoul, ek dehe holo leen". That is the Indian civilisation has successfully assimilated the aryans, the non-aryans, the dravidians, the chineese, the shaks, the huns, the pathans, the moghuls. The CD has the poet himself reciting these famous lines.
The poet ends this stirring poem by inviting all - the aryans and the non-aryans, the hindus and the muslims, the English and the christians, the brahmins and the untouchables - to join hands and together fulfill the promise of this holy union. Of course, the poet did not foresee the Italian!
While Tagore represents the very best strands of Indian heritage, like all cultures, the Indian heritage also has some very dark shades. And true to the latter, like their predecessors at the battlefield of Kurushetra, the political gladiators of today often seek to put up a Shikhandi to hide their real motives. Bereft of any other achievements, the issue of Sonia Gandhi's foreign origin is clearly aimed at camouflaging their own failures.
The Sonia factor
If Sonia is a dumb doll, as the critics say, who cannot say a word without a written script before her, how can she get elected, leave alone help her party to victory, and then hope to become the PM?
This debate truly reflects the status of the political leadership in the country today. The pretenders to the throne are mortally scared and incapable of fighting politically the "mere housewife", and "the political novice", despite decades of real politick behind them!
She, a "foreigner", is hardly responsible for the state of the nation, fifty years after our "tryst with destiny" when the country was in the able hands of the native born. Particularly in the last eight years the country has had the privilege of being led by people from different regions and with diverse backgrounds and vast experiences.
The Indian Voter
Much more importantly, behind this veneer of concern for the future of the country in hands of one "foreign born", the true sovereign in any democracy - the demos, the voting citizens - is being subjected to an ultimate insult. What these self-proclaimed champions of national self-respect are saying is that the voters are politically too dumb, emotionally too naive and therefore prone to being swayed by just one inexperienced foreigner.
This is the same voter who has single handedly ensured that since the general elections of 1971, not one ruling party or coalition returned to power at the Centre but once, and that was in 1984 in the aftermath of the assassination of Indira Gandhi.
Not very surprising, since statistics at the election commission show that legislators in India have one of the lowest re-election rates among world's major democracies. Barely a third survive battle of the ballot, and return to the hallowed precincts of the Parliament. Illiterate and undernourished the voter may be, but in political savvy they are second to none. It is the leadership that has constantly failed to get the message that the electorate has been sending - either deliver or you will be delivered.
Today, this gap has widened to such an extent that the political leadership is desperately trying to clutch at any straw that might help them tide over the electoral battle, and enable them to once again settle down to self-serving, rapacious ways till the next elections. Like the issue of Ram temple earlier, Sonia's foreign origin has come handy when no other visible issue could be found.
Leader in a Democracy
Apart from the obviously obnoxious racist underpinnings of the foreign-born debate, there is another equally important question. Should those aspiring to hold high offices need to have a certain level of experience and expertise so as to tackle the enormous "complexities" of governance that any leader of such a large and diverse country would face? Rajiv Gandhi was sworn in as Prime Minister in 1984, when he was not even a Member of Parliament, and had only spent about a couple of years as an office bearer of the party. Nevertheless the country overwhelmingly endorsed this inexperienced man in the general elections of 1984. Just as it decisively rejected him the next time he went to seek a mandate from the people in 1989. His five years of experience as Prime Minister did not impress the voters!!
A democracy is different from all elite forms of government - be it the Ram Rajya, the benign and benevolent dictatorship, or the socialistic dictatorship of the proletariat. The members of the Constituent Assembly had after prolonged debates, accepted the idea of universal adult franchise irrespective of social, educational or economic status. It was felt that although many voters may be materially deprived, illiterate and driven by many passions, nevertheless, still possessed the basic wisdom and therefore, fully capable of participating in the political processes, and shaping the destiny of the nation.
By demanding a qualification for holding political office, we are rejecting this most fundamental principle of adult franchise. And this franchise does not end with casting of the ballot alone. It includes the right to contest in elections, win the support of ones fellow countrymen, get elected, and hold an office where possible, at every level of government. Indeed, it may be argued that the present "complexities" of governance are a creation precisely to deprive the proverbial common man a say in the affairs of the state although it affects him the most.
Opposition to the Congress Party
Opposition to the Congress can be on many counts. It was the socialistic pattern of development followed by Nehru that is responsible for perpetuating our poverty and laid the seeds of corruption by institutionalising controls over the marketplace. Indira Gandhi sought to subvert the democratic process itself, and contributed significantly to lumpenisation of politics. Rajiv Gandhi frittered away the unprecedented parliamentary majority and goodwill of his fellow countrymen in only three years by gross insensitivity and ineptitude.
Likewise, opposition to Sonia could be wide ranging: her policies, her actions, her inexperience, her dependence on the coterie, her attempt to sideline mass leaders and undermine second rung leadership and concentrate all powers in her hands like her mother-in-law, and so on.
Ideological common ground
But, no doubt the Congress is changing. It was the Congress that initiated the steps towards economic reforms, howsoever reluctantly and surreptitiously that may be. And the opposition has changed too. Given an opportunity, it walks the road to reform, however slow that may be, while continuing to talk of a return to the old socialist moorings. This shows the enormous ideological common ground that exists, cutting across all party lines. This also explains the reason for the apparent animosity between parties and leaders. Unable to provide a broad alternative vision, the political actors have to stoop to the lowest levels in order to highlight their differences with the rest.
The real tragedy of our democracy is that despite an apparently vibrant and diverse polity, a large political space has remained unexplored. Hardly any one think that the idea of less government, faster reforms, accelerated development is politically viable, economically sensible and electorally saleable an option.
This narrow vision has also helped us escape some of the distinct political possibilities. Congress may not win, and people may through the exercise of their democratic rights reject Sonia and her party. Even if the party emerges as a major political player, out of sheer political necessity it may have to decide on someone as politically insignificant as I. K. Gujral in order to be able to form a government with the support of others. Or even if the party wins, Sonia could opt to stay out of the PM's office and help Congressmen rediscover the art of leadership and good governance.
Politics of Exclusion
Instead we have the issue of political exclusivity. For a diverse and pluralistic society such as India, any attempt to draw boundaries to exclude some will logically lead to ever-narrower boundaries, and could ultimately end in a tragic fragmentation. The tragedy of the Balkans should be fresh in our minds.
Moreover, will the line end at geographic or biological boundaries? What about the influence of foreign ideas and religions? What about the linguistic and ethnic diversity that might be engulfed in this game of drawing boundaries? What about exclusion on caste lines? What about the different historical experiences?
A maratha leader today has raised the banner of revolt in the Congress party against the "foreign hand". But just a couple of hundred years ago, marauding hordes of marathas used to periodically descend on Bengal and Bihar to loot and pilfer. So traumatic that it has left permanent marks on Bengali folklore and even children's rhymes. Do we really need to relive the tragedies of the past? Or should we accept that the only lesson we can draw from history is not to repeat the same mistakes.
Future at Stake
By raising the issue of Sonia's foreign birth, we are putting at stake much more than the futures of the Congress party and its leader. At stake is the future of our civilisation, our identity itself. Will we rise to our best point, as Tagore had hoped, and continue to assimilate all in our fold, or discard the poet and accept the politics of exclusion and travel on the road to 'where the world is indeed broken up into narrow domestic walls'.
There cannot be a starker choice. It is time we saw through this game of political brinkmanship. There are times when the domestic hand turns out to be much more insidious than a foreign one.
Taking Advantage of E-commerce
Liberty Institute Briefing Paper on Trade and Development "Taking Advantage of E-commerce" was published in November 1999.
The world e-commerce transaction is said to have touched $500 billion this year according to one estimate (including goods sold and purchased over the internet). There are over 2 million people whose jobs are now dependent on it. And this is just the beginning.
India with a substantial presence in the computer software segment, and a large well-trained manpower, has the potential to gain significantly from e-commerce. However, there are serious bottlenecks. With barely one million PCs and 15 million telephones in India, India needs radical policy reforms in many areas if she is to take advantage of this emerging area of e-commerce. On the other hand, e-commerce has the potential of freeing the Indian economy and her people from the restrictive influence of the state.
1. How can India benefit from e-commerce?
A. India has shown itself to be competitive in information technology and in services. E-commerce dealing in intangibles combines these two together. Solving Y2K bugs was an excellent example of e-commerce. India can be confident of doing well in the service side of e-commerce. After software, e-commerce is likely to be the next wave of information technology business. If India is not actively involved, its famed software industry will become a historical relic.
B. By eradicating the disability of geography, e-commerce allows service providers to compete directly on labour costs and other factors like time difference. India's labour prices are extremely competitive against any Western country. And few third world countries have India's lead in information based services. India is also nicely placed between east Asia, Europe and the Americas to tap time zone difference. Already, Indians work on projects for US companies while the latter sleep.
C. E-commerce greatly reduces transaction costs and overcomes infrastructure failures. For Indian companies, especially small companies, who have a hard time with overhead costs and overcoming infrastructural bottlenecks, e-commerce is a cheap way to become a global market player.
D. E-commerce gives India an opportunity to rebuild a large portion of its economy without the red tape and regulation that strangled its manufacturing sector during the past 50 years. India's software industry has shown how well information based industries can do if the government is not involved. E-commerce could expand that lesson to many other sectors of business including retailing.
2. Few will oppose e-commerce at the WTO. But they will propose regulatory mechanisms that could throttle the business before it starts or, worse, provide means for countries to put up barriers to e-commerce across borders.
A) The European Union has proposed an international regulatory body for e-commerce. But this could easily become hostage to politics, parochial national concerns and rivalries. A multilateral body would tend to seek the lowest common denominator among its members and this is likely to be the most restrictive measure.
B) Countries will try to bring in taxes and tariff systems that mimic those in normal physical trading. This would automatically rob e-commerce of much of the speed and flexibility that is its advantage. It would also bring in an enormous amount of national government regulation that would suffocate e-commerce development.
3. What India should support about e-commerce?
A) It should oppose international regulation. Self-regulation is probably the best way. In other words, beyond a basic legal framework establishing the authenticity of electronic signatures, contracts and so on. Let the market generate the credit rating and security measures in the form of private firms. These themselves will be forms of e-commerce which Indian companies can profit from.
B) There are two types of e-commerce. One is the business of intangible services and products. These should be declared tariff and tax-free. This would encourage such business and remove a major government headache on how to regulate this. The other type of e-commerce will result in the movement of a tangible product or good from one hand to another. India should consider at least introducing a tax and tariff holiday in such services for a few years, if not a total ban altogether. Taxes could perhaps be shifted to consumption rather than transaction based means.
C) India should reassure other third world countries about the importance of e-commerce and the fact all countries will benefit greatly from allowing free trade in cyberspace.
However, to take advantage of this new technology, a new mindset is necessary. First, it would be necessary to realise that the industry grew precisely because the state failed to realise the potential of software and therefore, did not place the kind of obstacles that other sectors of the economy had to go through. But now the state is planning to step in. While it talks of promoting the IT sector, it now seeks to impose a 49% ceiling on foreign investment in e-commerce ventures. Clearly the state has failed to understand that e-commerce operates in a borderless world. A cap on foreign investment will severely handicap the Indian operations right at the dawn of this new era.
E-commerce is a very good example of brain drain in the other direction. Foreign companies setting up in India a range of e-services, data communication, backroom activity, ticketing, data processing, call services, has the potential for a lot of employment, and income. Let us not close this window of opportunity on ourselves.
The world e-commerce transaction is said to have touched $500 billion this year according to one estimate (including goods sold and purchased over the internet). There are over 2 million people whose jobs are now dependent on it. And this is just the beginning.
India with a substantial presence in the computer software segment, and a large well-trained manpower, has the potential to gain significantly from e-commerce. However, there are serious bottlenecks. With barely one million PCs and 15 million telephones in India, India needs radical policy reforms in many areas if she is to take advantage of this emerging area of e-commerce. On the other hand, e-commerce has the potential of freeing the Indian economy and her people from the restrictive influence of the state.
1. How can India benefit from e-commerce?
A. India has shown itself to be competitive in information technology and in services. E-commerce dealing in intangibles combines these two together. Solving Y2K bugs was an excellent example of e-commerce. India can be confident of doing well in the service side of e-commerce. After software, e-commerce is likely to be the next wave of information technology business. If India is not actively involved, its famed software industry will become a historical relic.
B. By eradicating the disability of geography, e-commerce allows service providers to compete directly on labour costs and other factors like time difference. India's labour prices are extremely competitive against any Western country. And few third world countries have India's lead in information based services. India is also nicely placed between east Asia, Europe and the Americas to tap time zone difference. Already, Indians work on projects for US companies while the latter sleep.
C. E-commerce greatly reduces transaction costs and overcomes infrastructure failures. For Indian companies, especially small companies, who have a hard time with overhead costs and overcoming infrastructural bottlenecks, e-commerce is a cheap way to become a global market player.
D. E-commerce gives India an opportunity to rebuild a large portion of its economy without the red tape and regulation that strangled its manufacturing sector during the past 50 years. India's software industry has shown how well information based industries can do if the government is not involved. E-commerce could expand that lesson to many other sectors of business including retailing.
2. Few will oppose e-commerce at the WTO. But they will propose regulatory mechanisms that could throttle the business before it starts or, worse, provide means for countries to put up barriers to e-commerce across borders.
A) The European Union has proposed an international regulatory body for e-commerce. But this could easily become hostage to politics, parochial national concerns and rivalries. A multilateral body would tend to seek the lowest common denominator among its members and this is likely to be the most restrictive measure.
B) Countries will try to bring in taxes and tariff systems that mimic those in normal physical trading. This would automatically rob e-commerce of much of the speed and flexibility that is its advantage. It would also bring in an enormous amount of national government regulation that would suffocate e-commerce development.
3. What India should support about e-commerce?
A) It should oppose international regulation. Self-regulation is probably the best way. In other words, beyond a basic legal framework establishing the authenticity of electronic signatures, contracts and so on. Let the market generate the credit rating and security measures in the form of private firms. These themselves will be forms of e-commerce which Indian companies can profit from.
B) There are two types of e-commerce. One is the business of intangible services and products. These should be declared tariff and tax-free. This would encourage such business and remove a major government headache on how to regulate this. The other type of e-commerce will result in the movement of a tangible product or good from one hand to another. India should consider at least introducing a tax and tariff holiday in such services for a few years, if not a total ban altogether. Taxes could perhaps be shifted to consumption rather than transaction based means.
C) India should reassure other third world countries about the importance of e-commerce and the fact all countries will benefit greatly from allowing free trade in cyberspace.
However, to take advantage of this new technology, a new mindset is necessary. First, it would be necessary to realise that the industry grew precisely because the state failed to realise the potential of software and therefore, did not place the kind of obstacles that other sectors of the economy had to go through. But now the state is planning to step in. While it talks of promoting the IT sector, it now seeks to impose a 49% ceiling on foreign investment in e-commerce ventures. Clearly the state has failed to understand that e-commerce operates in a borderless world. A cap on foreign investment will severely handicap the Indian operations right at the dawn of this new era.
E-commerce is a very good example of brain drain in the other direction. Foreign companies setting up in India a range of e-services, data communication, backroom activity, ticketing, data processing, call services, has the potential for a lot of employment, and income. Let us not close this window of opportunity on ourselves.
International Trade and Child Labour: The role of the market
Liberty Institute Briefing Paper on Trade and Development "International Trade and Child Labour: The role of the market" was published in November 1999.
Social and labour conditions have become a highly charged subject, particularly after attempts to link trade and social conditions under the auspices of the WTO. On the one hand, lower labour conditions, including the use of child labour is said to give economic advantage to some countries, and therefore there is a demand for protection in some other countries. On the other hand, these poor labour conditions are said to be the fallout of market reforms and free trade, and therefore there is a demand for restricting trade. No doubt child labour provides an emotive shield for a range of other agendas.
However, rather than a restrictive linkage between trade and child labour, historical experience clearly shows that an open market and free trade are the best instruments for improving the labour conditions, including elimination of child labour.
The Problem
Estimates of child labour in India range from 17.5 million to 200 million. The enormity of the situation is well known to social activists, governmental and intergovernmental agencies. In this regard, many well-meaning initiatives have also been undertaken. The Indian agenda is to end child labour in hazardous industries by the year 2000 and all child labour by the year 2010. But how serious are we? And what can the international community do to help the process?
The existence of child labour is a part of our everyday reality. In spite of restrictions in most nations, children continue to work. This has been so throughout history. Indeed, children as an integral part of the family have always worked, and will continue to work for various reasons, as they do currently even in the developed countries. However, the situation in developing countries needs special attention. A holistic analysis of the contemporary society and choices before the children and their families needs to be undertaken.
The Causes
Policy planners agree that a significant reason for child labour is poverty. Though children are not paid well, they nonetheless contribute to the family income. They are often prompted to work by the parents. Lack of schooling opportunities is a contributing factor. But the reasons are also social and cultural. Many children work because it is an accepted norm within the social structure. Acceptance of such traditional factors as expecting the lower castes or classes to perform manual labour leads children of these classes and castes into manual work at an early age. Rapid migration to the urban areas has further aggravated the situation. However, much of child labour today exists either in the informal or the illegal sector. The laxity of officials in enforcing existing labour restrictions perpetuates child labour. The hard fact is that in developing countries, subsistence and survival takes primacy over anything else.
Good Intentions and Tragic Outcomes
Past experience has shown that where governments implemented a policy of banning child labour under international influence, severe negative and unintended consequences followed. In Bangladesh, for example, a boycott of garments made by child labour caused 50,000 children to loose their jobs. These children then took up even lower paid jobs in other industries, or other demeaning jobs, some even being pushed into prostitution. Clearly, a focus on particular export sectors may lead to an effective political campaign, but does very little to address the real issue. Most children who work do not belong to such sectors but are spread across the spctrum from agriculture to small-scale manufacturing to informal trade and services. An immediate abolition of child labour appears neither practical nor even desirable.
Good intentions are never a sufficient condition for improving social and economic realities. It will be a tragedy if, as a result of well-meaning but hurried policies aimed at prohibiting child labour, children are further victimised because the policies fail to take into consideration context-specific situations of the developing economies.
Human Rights and the Rights of the Child
Recent efforts to link international trade with child labour are also fraught with negative consequences. Is it fair to link trade with child labour? Is this a trade-related agenda? Is the demand a result of an alliance between the "protectionist" lobbying groups who want to safeguard their economic interests, and the short-sighted "morally driven" human rights groups? One can easily condemn one group and applaud the other, but that would lead us nowhere.
What is important is that this issue, like any other violations of human rights, must be treated in their specific economic, political and social context. The approach must be sensitive to the needs of the working children and their families. So it becomes important not to equate child labour with child abuse.
The Self-Inflicted Wounds
The complete eradication of child labour is a noble goal. As with many other issues of rights abuse, there are two ways of looking at the possible solutions. One is the positivistic way, to rely and emphasize the legal and administrative measures, including economic sanctions. The other is the holistic way, to seek to bring about change through creating a suitable environment and a capacity for sustained effort. Solving the problem requires raising public awareness and fostering public demand for change. The problem of child labour simply cannot be wished away by fiats and dictats.
The Indian government has committed itself to face the challenge. However, it can no longer ignore its own role in promoting policies that have stymied economic opportunities for vast majority of our people and perpetuated socio-economic disparities.
For instance, an inflationary monetary policy and efforts to protect domestic industry, distorted the market, stifled economic growth, induced economic inefficiencies, reduced employment and economic opportunities, and led to politicisation of labour. Consequently, under political patronage organised labour has all but priced India labour out of competition. This is best seen in the fact that economic growth in recent years has hardly led to creation of jobs in the organised sector. As a result, barely 15% of Indian workforce is in organised sectors of the economy, and over a half of that are in bloated public sectors and various quasi-governmental organisations. Most of the remaining workforce has been pushed to the margins of economy and subsistence. Is it any surprise then that so many Indian families continue to depend on their children's contribution to make two ends meet?
Role of the Market
No society in history has been able to develop without the labour of their children. At the dawn of industrial revolution, over 95% of children had to work. In less than two hundred years, today's developed and industrialised countries broke away from thousands of years of human history and made child labour mostly redundant by substantial gains in productivity and incomes. In recent decades, some of the newly industrialised countries compressed this process in to a single generation.
Rather than learning from these recent experiences, most developing countries, like India, pursued policies that prolonged the historical process and agony of their children. Clearly, domestic economic reforms must be expanded and accelerated if we are to avoid wasting our most precious resource, our children.
The international community must aid the process of all round development by encouraging free trade, promoting economic prosperity and economic development, and thereby helping developing nations to eliminate child labour forever. Deep-rooted socio-economic problems cannot be done away by legislation alone, by state intervention, or by international economic sanctions.
The need is to create a situation whereby children in developing countries will no longer have to work, where it would be worthwhile for them to attend school, where the parent’s income alone will be sufficient to provide for the children. We should not need the WTO to tell us to reform if we are really concerned about improving the lot of our own people.
Social and labour conditions have become a highly charged subject, particularly after attempts to link trade and social conditions under the auspices of the WTO. On the one hand, lower labour conditions, including the use of child labour is said to give economic advantage to some countries, and therefore there is a demand for protection in some other countries. On the other hand, these poor labour conditions are said to be the fallout of market reforms and free trade, and therefore there is a demand for restricting trade. No doubt child labour provides an emotive shield for a range of other agendas.
However, rather than a restrictive linkage between trade and child labour, historical experience clearly shows that an open market and free trade are the best instruments for improving the labour conditions, including elimination of child labour.
The Problem
Estimates of child labour in India range from 17.5 million to 200 million. The enormity of the situation is well known to social activists, governmental and intergovernmental agencies. In this regard, many well-meaning initiatives have also been undertaken. The Indian agenda is to end child labour in hazardous industries by the year 2000 and all child labour by the year 2010. But how serious are we? And what can the international community do to help the process?
The existence of child labour is a part of our everyday reality. In spite of restrictions in most nations, children continue to work. This has been so throughout history. Indeed, children as an integral part of the family have always worked, and will continue to work for various reasons, as they do currently even in the developed countries. However, the situation in developing countries needs special attention. A holistic analysis of the contemporary society and choices before the children and their families needs to be undertaken.
The Causes
Policy planners agree that a significant reason for child labour is poverty. Though children are not paid well, they nonetheless contribute to the family income. They are often prompted to work by the parents. Lack of schooling opportunities is a contributing factor. But the reasons are also social and cultural. Many children work because it is an accepted norm within the social structure. Acceptance of such traditional factors as expecting the lower castes or classes to perform manual labour leads children of these classes and castes into manual work at an early age. Rapid migration to the urban areas has further aggravated the situation. However, much of child labour today exists either in the informal or the illegal sector. The laxity of officials in enforcing existing labour restrictions perpetuates child labour. The hard fact is that in developing countries, subsistence and survival takes primacy over anything else.
Good Intentions and Tragic Outcomes
Past experience has shown that where governments implemented a policy of banning child labour under international influence, severe negative and unintended consequences followed. In Bangladesh, for example, a boycott of garments made by child labour caused 50,000 children to loose their jobs. These children then took up even lower paid jobs in other industries, or other demeaning jobs, some even being pushed into prostitution. Clearly, a focus on particular export sectors may lead to an effective political campaign, but does very little to address the real issue. Most children who work do not belong to such sectors but are spread across the spctrum from agriculture to small-scale manufacturing to informal trade and services. An immediate abolition of child labour appears neither practical nor even desirable.
Good intentions are never a sufficient condition for improving social and economic realities. It will be a tragedy if, as a result of well-meaning but hurried policies aimed at prohibiting child labour, children are further victimised because the policies fail to take into consideration context-specific situations of the developing economies.
Human Rights and the Rights of the Child
Recent efforts to link international trade with child labour are also fraught with negative consequences. Is it fair to link trade with child labour? Is this a trade-related agenda? Is the demand a result of an alliance between the "protectionist" lobbying groups who want to safeguard their economic interests, and the short-sighted "morally driven" human rights groups? One can easily condemn one group and applaud the other, but that would lead us nowhere.
What is important is that this issue, like any other violations of human rights, must be treated in their specific economic, political and social context. The approach must be sensitive to the needs of the working children and their families. So it becomes important not to equate child labour with child abuse.
The Self-Inflicted Wounds
The complete eradication of child labour is a noble goal. As with many other issues of rights abuse, there are two ways of looking at the possible solutions. One is the positivistic way, to rely and emphasize the legal and administrative measures, including economic sanctions. The other is the holistic way, to seek to bring about change through creating a suitable environment and a capacity for sustained effort. Solving the problem requires raising public awareness and fostering public demand for change. The problem of child labour simply cannot be wished away by fiats and dictats.
The Indian government has committed itself to face the challenge. However, it can no longer ignore its own role in promoting policies that have stymied economic opportunities for vast majority of our people and perpetuated socio-economic disparities.
For instance, an inflationary monetary policy and efforts to protect domestic industry, distorted the market, stifled economic growth, induced economic inefficiencies, reduced employment and economic opportunities, and led to politicisation of labour. Consequently, under political patronage organised labour has all but priced India labour out of competition. This is best seen in the fact that economic growth in recent years has hardly led to creation of jobs in the organised sector. As a result, barely 15% of Indian workforce is in organised sectors of the economy, and over a half of that are in bloated public sectors and various quasi-governmental organisations. Most of the remaining workforce has been pushed to the margins of economy and subsistence. Is it any surprise then that so many Indian families continue to depend on their children's contribution to make two ends meet?
Role of the Market
No society in history has been able to develop without the labour of their children. At the dawn of industrial revolution, over 95% of children had to work. In less than two hundred years, today's developed and industrialised countries broke away from thousands of years of human history and made child labour mostly redundant by substantial gains in productivity and incomes. In recent decades, some of the newly industrialised countries compressed this process in to a single generation.
Rather than learning from these recent experiences, most developing countries, like India, pursued policies that prolonged the historical process and agony of their children. Clearly, domestic economic reforms must be expanded and accelerated if we are to avoid wasting our most precious resource, our children.
The international community must aid the process of all round development by encouraging free trade, promoting economic prosperity and economic development, and thereby helping developing nations to eliminate child labour forever. Deep-rooted socio-economic problems cannot be done away by legislation alone, by state intervention, or by international economic sanctions.
The need is to create a situation whereby children in developing countries will no longer have to work, where it would be worthwhile for them to attend school, where the parent’s income alone will be sufficient to provide for the children. We should not need the WTO to tell us to reform if we are really concerned about improving the lot of our own people.
Agricultural Trade Can Change the Poverty Ridden Face of Indian Countryside
Liberty Institute Briefing Paper on Trade and Development "Agricultural Trade Can Change the Poverty Ridden Face of Indian Countryside" was published in November 1999
For fifty years India has followed the most restrictive policy regarding agriculture. The result has been that while in 1947, 85% of Indians depended on agriculture which contributed to over 70% of Indian GDP, today the corresponding figures are 70% and 35% respectively. Not surprisingly the face of Indian agriculture we are most familiar with is one of abject poverty.
Ironically, the much promoted India industry under the tutelage of the state while capturing a large chunk of the GDP has remained highly uncompetitive internationally, but Indian agriculture continues to enjoy competitive advantage in many crops despite years of neglect and denial of access to international markets. Opening up trade in agricultural products provides a tremendous opportunity to improve the lot of the farmers in developing countries and consumers around the world.
1. On Exports: Studies show India is export competitive in a number of agricultural products. These include cereals like rice, wheat, maize and sorghum; fruits like banana, grape, lichee and mango; vegetables and tubers like onions, potatoes and tomatoes. India is also competitive in processed foods like tomato paste and mushrooms.
2. On imports: India's domestic agricultural market has been largely protected by quantitative restrictions until now. Because of obligations under the Uruguay round of the GATT these quantitative restrictions are being removed. India's market will open to agricultural imports. Protection will have to come via tariffs. Most of India's tariffs on agricultural imports are very high, between 100 to 150 per cent. It agreed to zero tariffs in some dairy products and rice because at the time it was experiencing a scarcity in those products. Today, it is in surplus so there is a call for renegotiating these tariffs.
What these two issues mean. First, India has great potential as an agricultural exporter. Second, it has little to worry about agricultural imports because it has high tariffs and most market priced agricultural imports will not be able to compete against cheaper Indian products. In fact, Indian agricultural prices are almost all well below world prices. The question of being flooded by imports simply does not arise.
What is the real danger at Seattle? The real danger in Seattle is the problem of export subsidies. If a country subsidizes its agricultural exports it will be able to undercut Indian farm exports no matter how competitive they are. If a country subsidizes its agricultural exports it will be able to flood Indian markets, no matter how cheaply Indian agricultural products are at home.
The European Union is the main country guilty of using massive export subsidies to sell huge agricultural surpluses it generates, the surpluses themselves being the result of input subsidies and protectionism. The US, too, provides some export subsidies and provides quite high degree of protection to some domestic corps. A third agricultural bloc, the Cairns group of agricultural exporters does not use export subsidies at all. The fourth bloc consists of protectionist countries like Japan and China which do not import or export. India used to be in the fourth bloc, but is now moving into the economic position of the Cairns group.
India's key concern should then be export subsidies. If India is to open up on either the import or export front in farm goods, world agricultural trade must be free of export subsidies. Preferably it should be free of input subsidies as well. Because of India's artificially low domestic prices for agriculture, Indian farmers actually receive a net negative subsidy from the government. Consequently, Indian consumers are left with perpetual scarcities, lack of variety and poor quality of agricultural produce.
What about food security? India's present policy of forcing farmers to sell at artificially low prices provides a major negative incentive. It also ensures they never have enough capital to invest in their farms. One result can be seen in the terribly low productivity levels of Indian farmers.
It may be politically and socially necessary to maintain these artificially low prices, but these prices must be compensated with incentives for farmers to grow more and means for them to invest more. If not, productivity will eventually fall behind population growth. The answer to this is to let them export their surpluses. Farmers repeatedly have had harvests of crops greater than the country's domestic needs. These have often gone to waste.
The present policies designed to promote food security do little more than ruin Indian farming in the long term.
Other related agricultural issues India needs to take up at WTO:
• Ensuring phytosanitary measures are not used as hidden trade barriers to keep out Indian farm exports.
• Support use of biotechnology in agriculture. Bans on genetically modified food are based on romantic notions of nature, not science. They are affordable in countries with too much food, but not in developing countries with food scarcity
It has been calculated that if protectionist barriers were to be halved around the world in agricultural trade, the world would be richer by $ 400 billion. India is in an excellent position to get a portion of that money, enriching its farmers, and benefiting its consumers, if it pushes hard for free trade in this area. It need not fear imports. It should embrace exports. It should fight, more than anything else, export subsidies in this sector.
For fifty years India has followed the most restrictive policy regarding agriculture. The result has been that while in 1947, 85% of Indians depended on agriculture which contributed to over 70% of Indian GDP, today the corresponding figures are 70% and 35% respectively. Not surprisingly the face of Indian agriculture we are most familiar with is one of abject poverty.
Ironically, the much promoted India industry under the tutelage of the state while capturing a large chunk of the GDP has remained highly uncompetitive internationally, but Indian agriculture continues to enjoy competitive advantage in many crops despite years of neglect and denial of access to international markets. Opening up trade in agricultural products provides a tremendous opportunity to improve the lot of the farmers in developing countries and consumers around the world.
1. On Exports: Studies show India is export competitive in a number of agricultural products. These include cereals like rice, wheat, maize and sorghum; fruits like banana, grape, lichee and mango; vegetables and tubers like onions, potatoes and tomatoes. India is also competitive in processed foods like tomato paste and mushrooms.
2. On imports: India's domestic agricultural market has been largely protected by quantitative restrictions until now. Because of obligations under the Uruguay round of the GATT these quantitative restrictions are being removed. India's market will open to agricultural imports. Protection will have to come via tariffs. Most of India's tariffs on agricultural imports are very high, between 100 to 150 per cent. It agreed to zero tariffs in some dairy products and rice because at the time it was experiencing a scarcity in those products. Today, it is in surplus so there is a call for renegotiating these tariffs.
What these two issues mean. First, India has great potential as an agricultural exporter. Second, it has little to worry about agricultural imports because it has high tariffs and most market priced agricultural imports will not be able to compete against cheaper Indian products. In fact, Indian agricultural prices are almost all well below world prices. The question of being flooded by imports simply does not arise.
What is the real danger at Seattle? The real danger in Seattle is the problem of export subsidies. If a country subsidizes its agricultural exports it will be able to undercut Indian farm exports no matter how competitive they are. If a country subsidizes its agricultural exports it will be able to flood Indian markets, no matter how cheaply Indian agricultural products are at home.
The European Union is the main country guilty of using massive export subsidies to sell huge agricultural surpluses it generates, the surpluses themselves being the result of input subsidies and protectionism. The US, too, provides some export subsidies and provides quite high degree of protection to some domestic corps. A third agricultural bloc, the Cairns group of agricultural exporters does not use export subsidies at all. The fourth bloc consists of protectionist countries like Japan and China which do not import or export. India used to be in the fourth bloc, but is now moving into the economic position of the Cairns group.
India's key concern should then be export subsidies. If India is to open up on either the import or export front in farm goods, world agricultural trade must be free of export subsidies. Preferably it should be free of input subsidies as well. Because of India's artificially low domestic prices for agriculture, Indian farmers actually receive a net negative subsidy from the government. Consequently, Indian consumers are left with perpetual scarcities, lack of variety and poor quality of agricultural produce.
What about food security? India's present policy of forcing farmers to sell at artificially low prices provides a major negative incentive. It also ensures they never have enough capital to invest in their farms. One result can be seen in the terribly low productivity levels of Indian farmers.
It may be politically and socially necessary to maintain these artificially low prices, but these prices must be compensated with incentives for farmers to grow more and means for them to invest more. If not, productivity will eventually fall behind population growth. The answer to this is to let them export their surpluses. Farmers repeatedly have had harvests of crops greater than the country's domestic needs. These have often gone to waste.
The present policies designed to promote food security do little more than ruin Indian farming in the long term.
Other related agricultural issues India needs to take up at WTO:
• Ensuring phytosanitary measures are not used as hidden trade barriers to keep out Indian farm exports.
• Support use of biotechnology in agriculture. Bans on genetically modified food are based on romantic notions of nature, not science. They are affordable in countries with too much food, but not in developing countries with food scarcity
It has been calculated that if protectionist barriers were to be halved around the world in agricultural trade, the world would be richer by $ 400 billion. India is in an excellent position to get a portion of that money, enriching its farmers, and benefiting its consumers, if it pushes hard for free trade in this area. It need not fear imports. It should embrace exports. It should fight, more than anything else, export subsidies in this sector.
Costs of Protectionism:How Indian Consumers & Workers Lost Out
Liberty Institute Briefing Paper on Trade and Development titled Costs of Protectionism:How Indian Consumers & Workers Lost Out was published in November 1999
In 1947, India's share of the world trade was 1.5%.
In 1998, it was estimated to be 0.8%.
Per capita income in 1998 was approximately $400 ($900 under PPP)
Indian Economic Philosophy for the Past 50 years
• National self-sufficiency
• Import substitution
• Trade is a zero-sum game
Basic rationale for restricting trade:
• Protecting domestic manufacturers
• Encouraging domestic manufacturing and employment
• Ensuring quality and safety for the benefit of consumers
• Promoting indigenous growth of knowledge and technology
Consequences of protectionism:
• High price, low quality
• Low levels of competition
• Technological stagnation
• Knowhow dependent on policy of subsidies
• Smaller market, lower volumes
• Perpetual Scarcity
Loss to consumers - Choice, Price, Quality, Access
Characteristics of the Protected Domestic Market:
Organised sector -
o Entry barrier (licence and permit raj or rule, now being partly dismantled)
o Higher fiscal and regulatory costs of operating in the formal market (while tariffs and taxes may be falling, regulatory, legal and transaction costs are increasing)
Growth of small / informal and even illegal sectors (particularly in established manufacturing areas) (fly-by-night operators)
o Policies induce companies to stay small!!
o Fewer people are employed, minimal benefits accrue to communities
o Companies avoid regulatory costs incurred by those that play by the rules
o - Low quality
o - Low price
o - High transaction costs for consumers
Rise of vested interests
• Formal sectors - seek legal protection
• Informal sectors - seek administrative collusion
• Illegal sectors - seek continuation of protectionist policies to ensure their own high profits
Consequences of distorting trade -
• International Trade: Smuggling
• Domestics market: Black-market
• International relations: Political tension is common among countries that do not trade. (India and Pakistan barely trades, and are permanently under the cloud of war.)
Result:
• Social level:
- Loss of respect for laws
- Creation of established channels of smuggling, black marketing and racketeering
- Use of these same channels for many other more insidious activities (terrorism)
• Economic level:
- Economic inefficiency
- Flouting of economic regulations - loss to exchequer
• Environmental level:
- Environmental inefficiency / degradation
- Flouting of environment regulations, free riding
Trade Restriction is a Negative Sum Game
• Consumers lose out on better quality, lower prices and low transaction costs associated with brand products.
• Manufacturers lose out by failing to capture larger markets with better share, having less opportunities to innovate or introduce new products Traders lose out on account of small size of the market
• Service sector lose out for similar reasons
• Workers lose out as there are fewer jobs on offer
Required Policy Direction:
If the interest of consumers are to be paramount, and since all parties in an economy are also consumers in their private capacities, then policies must reflect the following objectives.
• Free trade
• Elimination of tariffs
• Reduction of regulatory costs
• Unrestrained imports (even second hand goods or waste products)
Economic consequences of Free Trade:
• Advantages of economies of scale
• A more dynamic and competitive domestic economy
• Inflow of new innovations and technology
• Economic efficiency will boost environmental quality
• Realisation that domestic manufacturing are not the prime source of employment
• More employment in the area of trade and services outside the organised sectors
• Substantial investments are attracted to open and expanding markets
Conclusion:
• Free trade is a positive sum game.
• Producers compete to improve their products at lower prices
• Consumers have a wide range of choices.
• A competitive market economy improves the social and environmental conditions.
• Free trade is fair trade
Consumer is truly the King in an open market. Greater the choice, the more powerful the consumer becomes.
In contrast, creating protectionist barriers, at the international and domestic levels, have led to high cost and inefficient economy, where the consumer has become the pauper.
In 1947, India's share of the world trade was 1.5%.
In 1998, it was estimated to be 0.8%.
Per capita income in 1998 was approximately $400 ($900 under PPP)
Indian Economic Philosophy for the Past 50 years
• National self-sufficiency
• Import substitution
• Trade is a zero-sum game
Basic rationale for restricting trade:
• Protecting domestic manufacturers
• Encouraging domestic manufacturing and employment
• Ensuring quality and safety for the benefit of consumers
• Promoting indigenous growth of knowledge and technology
Consequences of protectionism:
• High price, low quality
• Low levels of competition
• Technological stagnation
• Knowhow dependent on policy of subsidies
• Smaller market, lower volumes
• Perpetual Scarcity
Loss to consumers - Choice, Price, Quality, Access
Characteristics of the Protected Domestic Market:
Organised sector -
o Entry barrier (licence and permit raj or rule, now being partly dismantled)
o Higher fiscal and regulatory costs of operating in the formal market (while tariffs and taxes may be falling, regulatory, legal and transaction costs are increasing)
Growth of small / informal and even illegal sectors (particularly in established manufacturing areas) (fly-by-night operators)
o Policies induce companies to stay small!!
o Fewer people are employed, minimal benefits accrue to communities
o Companies avoid regulatory costs incurred by those that play by the rules
o - Low quality
o - Low price
o - High transaction costs for consumers
Rise of vested interests
• Formal sectors - seek legal protection
• Informal sectors - seek administrative collusion
• Illegal sectors - seek continuation of protectionist policies to ensure their own high profits
Consequences of distorting trade -
• International Trade: Smuggling
• Domestics market: Black-market
• International relations: Political tension is common among countries that do not trade. (India and Pakistan barely trades, and are permanently under the cloud of war.)
Result:
• Social level:
- Loss of respect for laws
- Creation of established channels of smuggling, black marketing and racketeering
- Use of these same channels for many other more insidious activities (terrorism)
• Economic level:
- Economic inefficiency
- Flouting of economic regulations - loss to exchequer
• Environmental level:
- Environmental inefficiency / degradation
- Flouting of environment regulations, free riding
Trade Restriction is a Negative Sum Game
• Consumers lose out on better quality, lower prices and low transaction costs associated with brand products.
• Manufacturers lose out by failing to capture larger markets with better share, having less opportunities to innovate or introduce new products Traders lose out on account of small size of the market
• Service sector lose out for similar reasons
• Workers lose out as there are fewer jobs on offer
Required Policy Direction:
If the interest of consumers are to be paramount, and since all parties in an economy are also consumers in their private capacities, then policies must reflect the following objectives.
• Free trade
• Elimination of tariffs
• Reduction of regulatory costs
• Unrestrained imports (even second hand goods or waste products)
Economic consequences of Free Trade:
• Advantages of economies of scale
• A more dynamic and competitive domestic economy
• Inflow of new innovations and technology
• Economic efficiency will boost environmental quality
• Realisation that domestic manufacturing are not the prime source of employment
• More employment in the area of trade and services outside the organised sectors
• Substantial investments are attracted to open and expanding markets
Conclusion:
• Free trade is a positive sum game.
• Producers compete to improve their products at lower prices
• Consumers have a wide range of choices.
• A competitive market economy improves the social and environmental conditions.
• Free trade is fair trade
Consumer is truly the King in an open market. Greater the choice, the more powerful the consumer becomes.
In contrast, creating protectionist barriers, at the international and domestic levels, have led to high cost and inefficient economy, where the consumer has become the pauper.
Tuesday, October 12, 1999
Celebrating 6 Billion
Celebrating 6 Billion: More the merrier
When political freedom is secured and the market is unrestrained, more people increases demand, and therefore also the supply, and at the end there is more available for consumption than ever before. People are the ultimate resource, they just don't come with a mouth alone, but also a mind and a pair of hands. It is time to party and cut the cake on the arrival of the 6 billionth person on this planet, writes Barun Mitra. A shorter version of this article title "6 Billion and Growing" in The Economics Times, on 12 October 1999.
• Problems of Plenty!
• More people, Higher consumption, Falling prices!
• Free but expensive to priced but cheap
• Rising value of labour
• Policies, not population, responsible for poverty
• Breeding inequality
• More the merrier!
• History of World Population
Birth of baby is usually a source of great joy. Therefore, on October 12, the date symbolically designated to mark the arrival of the 6 billionth person on this planet there should have been a grand party to celebrate the momentous event. This is the first time in history that the human population reached this figure. In the last quarter of a century, the population has increased by 50% from 4 billion. A four fold increase in just this century! Before that it had taken about 400 years for the population to triple to about 1.5 billion in 1900. And in the preceding 500 years, between 1000 and 1500 AD, the population is estimated to have merely doubled from around 250-300 million to 500-550 million. (See here for an historical estimate of world population)
Clearly, the mankind in the last 200 years can be said to have at last begun to grasp the secrets of mother nature and succeeded in harnessing those for his own betterment as never before.
Today, there is so much concern about extinction of species. This suggests that if the number of any species increased, then it is an indication of the quality of the environment. Ironically, this is not applied to the most successful of all species - the Homo sapiens. Far from celebrating this success, today the population is commonly held as the problem.
In India, in the past 50 years, production has increased four-fold, faster than population growth. And still productivity in the best parts of the country is substantially lower than what has been achieved in other parts of the world. In Punjab, yield of wheat is about 3500 kg per hectare, is half of what has been achieved in some other countries.
Truly, the world is faced with the problem of plenty!
Oil is thought to be one of the critical natural resource in today's economy. Yet, real price of crude oil today is lower than the peak after the first oil crisis in 1973. The recent relative increase in prices is due to OPEC trying to cut its production in order to prop the prices up, and not because of any physical shortage of oil. Amazingly, a litre of mineral water costs more than a gallon of petrol in the US.
It is said that the high consumption pattern in the developed world is depriving the poorer countries. But falling prices clearly indicate that there is no scarcity of natural resources. After all, humans don't just consume they also produce. In fact, greater the number of people, greater the demand for goods and services. But, in an open market characterised by free trade and competition, this also provides incentives to producers to discover new knowledge and innovate cheaper and better means of meeting the demand. And then as economics of scale strikes from this larger demand, the prices per unit of the product fall. Consequently, more people lead to increased demand, but also an opportunity to produce more. It may seem paradoxical, but the more we consume, more there is to consume.
The error lies in our inability to grasp that people don't just come with a mouth for consumption, they also come with a mind and a pair of hands to produce. In fact, given the freedom to operate, people generally produce more than they consume, otherwise civilisation would have remained where it was 10,000 years ago.
From that era, the history of civilisation is that of privatisation. Access to resources were restricted to only those who invested their time and energy on developing those resources. This opened the door for trade among people. Goods were no longer "free", but they became enormously "cheap". This is the story of market economics, it puts a price on goods, and makes it abundant. By the same token all attempts to keep things "free", creates the condition of perpetual shortages.
As the nineteenth century economist, Henry George, used to say, more foxes leads to less chicken, but more people mean more chicken.
Clearly, most of the things that we take for granted today, would not have been accessible to such wider sections of the populations if the population had remained what it was one hundred years ago, and much less so two hundred years ago.
It would worth noting that 6 billion can fit in less than a thousand cities like Hong Kong, if the people were free to urbanise. And that would leave over 90% of the planet available for agriculture, resource extraction, recreation and wilderness. More than enough to meet the needs of a much larger population at much higher levels of consumption than currently accessible even to richest.
More significant than 6 billion, perhaps is the period sometime in the middle of the next decade, when 50% of the world's population is projected to be living in urban areas. Urbanisation not only improves the quality of life, mortality and infant mortality is much better in cities than in the countryside, for instance, but it also help in increasing the rural productivity as fewer people depend on land for their survival. Labour becomes more mobile and therefore, available for more productive purposes.
If there are no physical shortages, why does poverty persist? The answer lies in the policies. It is not population but policies that are the cause of poverty. These have curtailed people's opportunity to seek newer, better and cheaper economic options. The resulting misallocation of resources is manifested in the problem of poverty amidst plenty.
Rather than reevaluating their own policies, this focus on population, lets the elite and those in authority to be contemptuous towards the poor and those in lower strata of society. Domestically, this leads to political and social inequality, and economic discrimination. Internationally, such an approach implies pure racism.
To do this, the people need freedom and peace to operate. So let us strive to ensure that political and economic freedoms are not curbed. Such curbs are a reflection of our lack of imagination, because of which we devise policies that restrain freedom, curtail choices, and dampen the spirit of inquiry and enterprise. This leaves everyone poorer, economically and politically. India is perhaps the best illustration of the consequences of trying to divide freedom - fifty years of self-imposed deprivation and stagnation. The country prided itself in being the largest democracy, and yet held its own people to be unfit to decide on some their own economic interests. This pushed hundreds of millions to perpetual destitution. It is difficult to imagine a more criminal wastage of the most precious resource, its people. Freedom is indivisible, one cannot be sustained without the other.
Let freedom reign. Let us celebrate arrival of the 6 billionth person. More the merrier!
Historical Estimates of World Population
Year ----- Population Estimates in million
8000 BC -- 5
5000 BC -- 5-20
1000 BC -- 50
500 BC --- 100
1 AD ----- 170-400
500 AD --- 190-206
1000 AD -- 254-345
1500 AD -- 425-540
1700 AD -- 600-679
1800 AD -- 813-1,125
1850 AD -- 1,128-1402
1900 AD -- 1,550-1,762
1930 AD -- 2,070
1950 AD -- 2,400
1974 AD -- 4,000
1999 AD -- 6,000
Source: UN and US Census Bureau
When political freedom is secured and the market is unrestrained, more people increases demand, and therefore also the supply, and at the end there is more available for consumption than ever before. People are the ultimate resource, they just don't come with a mouth alone, but also a mind and a pair of hands. It is time to party and cut the cake on the arrival of the 6 billionth person on this planet, writes Barun Mitra. A shorter version of this article title "6 Billion and Growing" in The Economics Times, on 12 October 1999.
• Problems of Plenty!
• More people, Higher consumption, Falling prices!
• Free but expensive to priced but cheap
• Rising value of labour
• Policies, not population, responsible for poverty
• Breeding inequality
• More the merrier!
• History of World Population
Birth of baby is usually a source of great joy. Therefore, on October 12, the date symbolically designated to mark the arrival of the 6 billionth person on this planet there should have been a grand party to celebrate the momentous event. This is the first time in history that the human population reached this figure. In the last quarter of a century, the population has increased by 50% from 4 billion. A four fold increase in just this century! Before that it had taken about 400 years for the population to triple to about 1.5 billion in 1900. And in the preceding 500 years, between 1000 and 1500 AD, the population is estimated to have merely doubled from around 250-300 million to 500-550 million. (See here for an historical estimate of world population)
Clearly, the mankind in the last 200 years can be said to have at last begun to grasp the secrets of mother nature and succeeded in harnessing those for his own betterment as never before.
Today, there is so much concern about extinction of species. This suggests that if the number of any species increased, then it is an indication of the quality of the environment. Ironically, this is not applied to the most successful of all species - the Homo sapiens. Far from celebrating this success, today the population is commonly held as the problem.
Problems of Plenty!It is believed that the food production may fail to meet the demands from a growing a population. If this comes true, then at least farmers of the world would have something to celebrate because of the rising food prices. However, today, farmers' world over are more concerned about falling prices of their produce! In some parts of the world, governments are paying farmers not to produce. Among current arguments against biotechnology lies the fear that productivity may increase still further and force the prices down even more.
In India, in the past 50 years, production has increased four-fold, faster than population growth. And still productivity in the best parts of the country is substantially lower than what has been achieved in other parts of the world. In Punjab, yield of wheat is about 3500 kg per hectare, is half of what has been achieved in some other countries.
Truly, the world is faced with the problem of plenty!
More people, Higher consumption, Falling prices!The falling-price syndrome has affected virtually every aspect of life. Prices of most natural resources are at their historic lows. This was best brought out dramatically, when the late economist Julian Simon won his famous bet on the future of the planet with environmentalist Paul Ehrlich and others. In 1980, Simon had challenged anyone to accept a bet on the falling prices of natural resources. Ehrlich and others accepted the challenge and claimed that the prices of the chosen resources would rise due to increasing demand from the growing population. When the bet was settled in 1990, Simon won hands down. The real prices of the resources had almost fallen through the ground, although the population had increased by nearly a billion during the decade, and Simon would have won even without adjusting the prices for inflation.
Oil is thought to be one of the critical natural resource in today's economy. Yet, real price of crude oil today is lower than the peak after the first oil crisis in 1973. The recent relative increase in prices is due to OPEC trying to cut its production in order to prop the prices up, and not because of any physical shortage of oil. Amazingly, a litre of mineral water costs more than a gallon of petrol in the US.
It is said that the high consumption pattern in the developed world is depriving the poorer countries. But falling prices clearly indicate that there is no scarcity of natural resources. After all, humans don't just consume they also produce. In fact, greater the number of people, greater the demand for goods and services. But, in an open market characterised by free trade and competition, this also provides incentives to producers to discover new knowledge and innovate cheaper and better means of meeting the demand. And then as economics of scale strikes from this larger demand, the prices per unit of the product fall. Consequently, more people lead to increased demand, but also an opportunity to produce more. It may seem paradoxical, but the more we consume, more there is to consume.
The error lies in our inability to grasp that people don't just come with a mouth for consumption, they also come with a mind and a pair of hands to produce. In fact, given the freedom to operate, people generally produce more than they consume, otherwise civilisation would have remained where it was 10,000 years ago.
Free but expensive or priced but cheapThroughout much of human existence on this planet, most of the things man needed for survival were freely available in nature. He could just go out and get it - fruit from a tree, animal for meat. But ironically, while being free, these were not cheap. He was completely dependent on the vagaries of nature, danger stalked him on each step. The enormous price that man paid for these "free" items is reflected in the small population. The population simply had no opportunity to grow.
From that era, the history of civilisation is that of privatisation. Access to resources were restricted to only those who invested their time and energy on developing those resources. This opened the door for trade among people. Goods were no longer "free", but they became enormously "cheap". This is the story of market economics, it puts a price on goods, and makes it abundant. By the same token all attempts to keep things "free", creates the condition of perpetual shortages.
As the nineteenth century economist, Henry George, used to say, more foxes leads to less chicken, but more people mean more chicken.
Clearly, most of the things that we take for granted today, would not have been accessible to such wider sections of the populations if the population had remained what it was one hundred years ago, and much less so two hundred years ago.
Rising value of labourThe only thing, which in a free market actually appreciates in value, is the price of human labour. More number of human beings - free, enterprising and skilled - far from lowering the wage rate actually pushes it up. The reason we see a rising standard of living.
It would worth noting that 6 billion can fit in less than a thousand cities like Hong Kong, if the people were free to urbanise. And that would leave over 90% of the planet available for agriculture, resource extraction, recreation and wilderness. More than enough to meet the needs of a much larger population at much higher levels of consumption than currently accessible even to richest.
More significant than 6 billion, perhaps is the period sometime in the middle of the next decade, when 50% of the world's population is projected to be living in urban areas. Urbanisation not only improves the quality of life, mortality and infant mortality is much better in cities than in the countryside, for instance, but it also help in increasing the rural productivity as fewer people depend on land for their survival. Labour becomes more mobile and therefore, available for more productive purposes.
Policies, not population, responsible for povertyNo doubt there are many problems. Environmental problem is at the top of the agenda today. But environmental quality is just like any other valuable resource. The problem, therefore, stems primarily from the failure to bring environmental resources to the discipline of the market forces by instituting property rights and market prices.
If there are no physical shortages, why does poverty persist? The answer lies in the policies. It is not population but policies that are the cause of poverty. These have curtailed people's opportunity to seek newer, better and cheaper economic options. The resulting misallocation of resources is manifested in the problem of poverty amidst plenty.
Breeding inequalityTherefore, blaming population growth for the problems help in diverting attention from the policy instruments. Much more significantly, by holding population growth responsible for the economic problems, we are also questioning the basis of political freedom. Since, if a person, particularly a poor person, is considered incompetent to decide on his or her own family size, then he can never be trusted to make sound political choices. Logical consequence of this is that universal adult franchise, or democracy, the most cherished political instrument to have evolved, based on the premise that all humans are fundamentally equal, comes under question.
Rather than reevaluating their own policies, this focus on population, lets the elite and those in authority to be contemptuous towards the poor and those in lower strata of society. Domestically, this leads to political and social inequality, and economic discrimination. Internationally, such an approach implies pure racism.
More the merrier!At the dawn of the new millenium, it is time we realised that the ultimate resource is people. As Prof Julian L. Simon would say, "The ultimate resource is people, especially skilled, spirited, hopeful young people, who will exert their will and imagination for their own benefit, and in doing so will inevitably benefit the rest of us as well."
To do this, the people need freedom and peace to operate. So let us strive to ensure that political and economic freedoms are not curbed. Such curbs are a reflection of our lack of imagination, because of which we devise policies that restrain freedom, curtail choices, and dampen the spirit of inquiry and enterprise. This leaves everyone poorer, economically and politically. India is perhaps the best illustration of the consequences of trying to divide freedom - fifty years of self-imposed deprivation and stagnation. The country prided itself in being the largest democracy, and yet held its own people to be unfit to decide on some their own economic interests. This pushed hundreds of millions to perpetual destitution. It is difficult to imagine a more criminal wastage of the most precious resource, its people. Freedom is indivisible, one cannot be sustained without the other.
Let freedom reign. Let us celebrate arrival of the 6 billionth person. More the merrier!
Historical Estimates of World Population
Year ----- Population Estimates in million
8000 BC -- 5
5000 BC -- 5-20
1000 BC -- 50
500 BC --- 100
1 AD ----- 170-400
500 AD --- 190-206
1000 AD -- 254-345
1500 AD -- 425-540
1700 AD -- 600-679
1800 AD -- 813-1,125
1850 AD -- 1,128-1402
1900 AD -- 1,550-1,762
1930 AD -- 2,070
1950 AD -- 2,400
1974 AD -- 4,000
1999 AD -- 6,000
Source: UN and US Census Bureau
Sunday, May 16, 1999
Tagore: "India is that sacred land of cultural union which never sent anyone back"
[A shorter version of this article titled “Who is a foreigner?” was published in The Economic Times, on 22 May 1999.]
One does not know whether the PM has lately read that poem of Tagore from Gitanjali (1910). Because just prior to the lines which the PM quoted, the poet says "hethai arya, hetha anarya, hethai dravir o chiin, shok, hun dal, pathan o moghoul, ek dehe holo leen". That is the Indian civilisation has successfully assimilated the aryans, the non-aryans, the dravidians, the Chinese, the shaks, the huns, the pathans, the moghuls. The CD has the poet himself reciting these famous lines.
The poet ends this stirring poem by inviting all - the aryans and the non-aryans, the hindus and the muslims, the English and the christians, the brahmins and the untouchables - to join hands and together fulfill the promise of this holy union. Of course, the poet did not foresee the Italian!
While Tagore represents the very best strands of Indian heritage, like all cultures, the Indian heritage also has some very dark shades. And true to the latter, like their predecessors at the battlefield of Kurushetra, the political gladiators of today often seek to put up a Shikhandi to hide their real motives. Bereft of any other achievements, the issue of Sonia Gandhi's foreign origin is clearly aimed at camouflaging their own failures.
This debate truly reflects the status of the political leadership in the country today. The pretenders to the throne are mortally scared and incapable of fighting politically the "mere housewife", and "the political novice", despite decades of real politick behind them!
She, a "foreigner", is hardly responsible for the state of the nation, fifty years after our "tryst with destiny" when the country was in the able hands of the native born. Particularly in the last eight years the country has had the privilege of being led by people from different regions and with diverse backgrounds and vast experiences.
This is the same voter who has single handedly ensured that since the general elections of 1971, not one ruling party or coalition returned to power at the Centre but once, and that was in 1984 in the aftermath of the assassination of Indira Gandhi.
Not very surprising, since statistics at the election commission show that legislators in India have one of the lowest re-election rates among world's major democracies. Barely a third survive battle of the ballot, and return to the hallowed precincts of the Parliament. Illiterate and undernourished the voter may be, but in political savvy they are second to none. It is the leadership that has constantly failed to get the message that the electorate has been sending - either deliver or you will be delivered.
Today, this gap has widened to such an extent that the political leadership is desperately trying to clutch at any straw that might help them tide over the electoral battle, and enable them to once again settle down to self-serving, rapacious ways till the next elections. Like the issue of Ram temple earlier, Sonia's foreign origin has come handy when no other visible issue could be found.
A democracy is different from all elite forms of government - be it the Ram Rajya, the benign and benevolent dictatorship, or the socialistic dictatorship of the proletariat. The members of the Constituent Assembly had after prolonged debates, accepted the idea of universal adult franchise irrespective of social, educational or economic status. It was felt that although many voters may be materially deprived, illiterate and driven by many passions, nevertheless, still possessed the basic wisdom and therefore, fully capable of participating in the political processes, and shaping the destiny of the nation.
By demanding a qualification for holding political office, we are rejecting this most fundamental principle of adult franchise. And this franchise does not end with casting of the ballot alone. It includes the right to contest in elections, win the support of ones fellow countrymen, get elected, and hold an office where possible, at every level of government. Indeed, it may be argued that the present "complexities" of governance are a creation precisely to deprive the proverbial common man a say in the affairs of the state although it affects him the most.
Likewise, opposition to Sonia could be wide ranging: her policies, her actions, her inexperience, her dependence on the coterie, her attempt to sideline mass leaders and undermine second rung leadership and concentrate all powers in her hands like her mother-in-law, and so on.
The real tragedy of our democracy is that despite an apparently vibrant and diverse polity, a large political space has remained unexplored. Hardly any one think that the idea of less government, faster reforms, accelerated development is politically viable, economically sensible and electorally saleable an option.
This narrow vision has also helped us escape some of the distinct political possibilities. Congress may not win, and people may through the exercise of their democratic rights reject Sonia and her party. Even if the party emerges as a major political player, out of sheer political necessity it may have to decide on someone as politically insignificant as I. K. Gujral in order to be able to form a government with the support of others. Or even if the party wins, Sonia could opt to stay out of the PM's office and help Congressmen rediscover the art of leadership and good governance.
Moreover, will the line end at geographic or biological boundaries? What about the influence of foreign ideas and religions? What about the linguistic and ethnic diversity that might be engulfed in this game of drawing boundaries? What about exclusion on caste lines? What about the different historical experiences?
A maratha leader today has raised the banner of revolt in the Congress party against the "foreign hand". But just a couple of hundred years ago, marauding hordes of marathas used to periodically descend on Bengal and Bihar to loot and pilfer. So traumatic that it has left permanent marks on Bengali folklore and even children's rhymes. Do we really need to relive the tragedies of the past? Or should we accept that the only lesson we can draw from history is not to repeat the same mistakes.
There cannot be a starker choice. It is time we saw through this game of political brinkmanship. There are times when the domestic hand turns out to be much more insidious than a foreign one.
A few related articles in the media:
Tagore's India"India is that sacred land of cultural union which never sent anyone back", the Prime Minister quoted this line from Tagore, live on national television recently, on the occasion of the release of a special CD containing recitals and songs by the poet himself. It is ironic that the same Prime Minister also wants a "national debate" on whether any foreign-born person should be allowed to hold highest political offices in the land.
One does not know whether the PM has lately read that poem of Tagore from Gitanjali (1910). Because just prior to the lines which the PM quoted, the poet says "hethai arya, hetha anarya, hethai dravir o chiin, shok, hun dal, pathan o moghoul, ek dehe holo leen". That is the Indian civilisation has successfully assimilated the aryans, the non-aryans, the dravidians, the Chinese, the shaks, the huns, the pathans, the moghuls. The CD has the poet himself reciting these famous lines.
The poet ends this stirring poem by inviting all - the aryans and the non-aryans, the hindus and the muslims, the English and the christians, the brahmins and the untouchables - to join hands and together fulfill the promise of this holy union. Of course, the poet did not foresee the Italian!
While Tagore represents the very best strands of Indian heritage, like all cultures, the Indian heritage also has some very dark shades. And true to the latter, like their predecessors at the battlefield of Kurushetra, the political gladiators of today often seek to put up a Shikhandi to hide their real motives. Bereft of any other achievements, the issue of Sonia Gandhi's foreign origin is clearly aimed at camouflaging their own failures.
The Sonia factorIf Sonia is a dumb doll, as the critics say, who cannot say a word without a written script before her, how can she get elected, leave alone help her party to victory, and then hope to become the PM?
This debate truly reflects the status of the political leadership in the country today. The pretenders to the throne are mortally scared and incapable of fighting politically the "mere housewife", and "the political novice", despite decades of real politick behind them!
She, a "foreigner", is hardly responsible for the state of the nation, fifty years after our "tryst with destiny" when the country was in the able hands of the native born. Particularly in the last eight years the country has had the privilege of being led by people from different regions and with diverse backgrounds and vast experiences.
The Indian VoterMuch more importantly, behind this veneer of concern for the future of the country in hands of one "foreign born", the true sovereign in any democracy - the demos, the voting citizens - is being subjected to an ultimate insult. What these self-proclaimed champions of national self-respect are saying is that the voters are politically too dumb, emotionally too naive and therefore prone to being swayed by just one inexperienced foreigner.
This is the same voter who has single handedly ensured that since the general elections of 1971, not one ruling party or coalition returned to power at the Centre but once, and that was in 1984 in the aftermath of the assassination of Indira Gandhi.
Not very surprising, since statistics at the election commission show that legislators in India have one of the lowest re-election rates among world's major democracies. Barely a third survive battle of the ballot, and return to the hallowed precincts of the Parliament. Illiterate and undernourished the voter may be, but in political savvy they are second to none. It is the leadership that has constantly failed to get the message that the electorate has been sending - either deliver or you will be delivered.
Today, this gap has widened to such an extent that the political leadership is desperately trying to clutch at any straw that might help them tide over the electoral battle, and enable them to once again settle down to self-serving, rapacious ways till the next elections. Like the issue of Ram temple earlier, Sonia's foreign origin has come handy when no other visible issue could be found.
Leader in a DemocracyApart from the obviously obnoxious racist underpinnings of the foreign-born debate, there is another equally important question. Should those aspiring to hold high offices need to have a certain level of experience and expertise so as to tackle the enormous "complexities" of governance that any leader of such a large and diverse country would face? Rajiv Gandhi was sworn in as Prime Minister in 1984, when he was not even a Member of Parliament, and had only spent about a couple of years as an office bearer of the party. Nevertheless the country overwhelmingly endorsed this inexperienced man in the general elections of 1984. Just as it decisively rejected him the next time he went to seek a mandate from the people in 1989. His five years of experience as Prime Minister did not impress the voters!!
A democracy is different from all elite forms of government - be it the Ram Rajya, the benign and benevolent dictatorship, or the socialistic dictatorship of the proletariat. The members of the Constituent Assembly had after prolonged debates, accepted the idea of universal adult franchise irrespective of social, educational or economic status. It was felt that although many voters may be materially deprived, illiterate and driven by many passions, nevertheless, still possessed the basic wisdom and therefore, fully capable of participating in the political processes, and shaping the destiny of the nation.
By demanding a qualification for holding political office, we are rejecting this most fundamental principle of adult franchise. And this franchise does not end with casting of the ballot alone. It includes the right to contest in elections, win the support of ones fellow countrymen, get elected, and hold an office where possible, at every level of government. Indeed, it may be argued that the present "complexities" of governance are a creation precisely to deprive the proverbial common man a say in the affairs of the state although it affects him the most.
Opposition to the Congress PartyOpposition to the Congress can be on many counts. It was the socialistic pattern of development followed by Nehru that is responsible for perpetuating our poverty and laid the seeds of corruption by institutionalising controls over the marketplace. Indira Gandhi sought to subvert the democratic process itself, and contributed significantly to lumpenisation of politics. Rajiv Gandhi frittered away the unprecedented parliamentary majority and goodwill of his fellow countrymen in only three years by gross insensitivity and ineptitude.
Likewise, opposition to Sonia could be wide ranging: her policies, her actions, her inexperience, her dependence on the coterie, her attempt to sideline mass leaders and undermine second rung leadership and concentrate all powers in her hands like her mother-in-law, and so on.
Ideological common groundBut, no doubt the Congress is changing. It was the Congress that initiated the steps towards economic reforms, howsoever reluctantly and surreptitiously that may be. And the opposition has changed too. Given an opportunity, it walks the road to reform, however slow that may be, while continuing to talk of a return to the old socialist moorings. This shows the enormous ideological common ground that exists, cutting across all party lines. This also explains the reason for the apparent animosity between parties and leaders. Unable to provide a broad alternative vision, the political actors have to stoop to the lowest levels in order to highlight their differences with the rest.
The real tragedy of our democracy is that despite an apparently vibrant and diverse polity, a large political space has remained unexplored. Hardly any one think that the idea of less government, faster reforms, accelerated development is politically viable, economically sensible and electorally saleable an option.
This narrow vision has also helped us escape some of the distinct political possibilities. Congress may not win, and people may through the exercise of their democratic rights reject Sonia and her party. Even if the party emerges as a major political player, out of sheer political necessity it may have to decide on someone as politically insignificant as I. K. Gujral in order to be able to form a government with the support of others. Or even if the party wins, Sonia could opt to stay out of the PM's office and help Congressmen rediscover the art of leadership and good governance.
Politics of ExclusionInstead we have the issue of political exclusivity. For a diverse and pluralistic society such as India, any attempt to draw boundaries to exclude some will logically lead to ever-narrower boundaries, and could ultimately end in a tragic fragmentation. The tragedy of the Balkans should be fresh in our minds.
Moreover, will the line end at geographic or biological boundaries? What about the influence of foreign ideas and religions? What about the linguistic and ethnic diversity that might be engulfed in this game of drawing boundaries? What about exclusion on caste lines? What about the different historical experiences?
A maratha leader today has raised the banner of revolt in the Congress party against the "foreign hand". But just a couple of hundred years ago, marauding hordes of marathas used to periodically descend on Bengal and Bihar to loot and pilfer. So traumatic that it has left permanent marks on Bengali folklore and even children's rhymes. Do we really need to relive the tragedies of the past? Or should we accept that the only lesson we can draw from history is not to repeat the same mistakes.
Future at StakeBy raising the issue of Sonia's foreign birth, we are putting at stake much more than the futures of the Congress party and its leader. At stake is the future of our civilisation, our identity itself. Will we rise to our best point, as Tagore had hoped, and continue to assimilate all in our fold, or discard the poet and accept the politics of exclusion and travel on the road to 'where the world is indeed broken up into narrow domestic walls'.
There cannot be a starker choice. It is time we saw through this game of political brinkmanship. There are times when the domestic hand turns out to be much more insidious than a foreign one.
A few related articles in the media:
- K. R. Malkani, Prof. M.N. Panini, and Mani Shankar Aiyar in the Perspective Page - Does Sonia's birthplace matter? in The Economic Times, 1 June 1999.
- Sashi Tharoor's column "A View of the World" in The Indian Express, 30 May 1999.
- Prof. Mushirul Hasan "She is here to stay", in The Indian Express, 22 May 1999.
- B. Raman in The Statesman, 16 May 1999.
- Saeed Naqvi in The Indian Express, 14 May 1999.
The market is green
The market is the natural ally of the environment. Environmental resources, like other economic resources can be most efficiently allocated if these are brought under the discipline of the marketplace. It is ironic, therefore, that at a time when the economy is being liberalised, rather than creating a market for environmental resources, new restrictions are being imposed on the economy in the name of protecting the environment.
Environmental quality is like a value-added product that becomes economically affordable and technologically viable with economic growth. It is no paradox therefore that the environment is much cleaner and safer in industrially developed countries that adopted a more market-friendly approach, than in centrally planned economies. Clearly, it is policy that is responsible for continued environmental resource depletion or pollution.
Let us take a closer look at some of the policies that have had an impact on our environment. According to the WHO, much more serious than vehicular pollution is the issue of indoor air pollution caused primarily due to poor ventilation and use of firewood, coal and cowdung as fuel in most poor countries.
Energy markets are severely restrained and regulated. As a result, India’s per capita energy consumption is among the lowest, at 1/10th of that in developed countries, and even then there is a substantial shortfall in supply. Energy consumed per unit of goods produced is among the highest–reflecting the inefficiency caused by poverty. Yet, rather than freeing the energy related products market, like lighting and other equipment, we promote the production of inefficient incandescent bulbs, while imposing taxes on the latest and much more efficient compact fluorescent tubes. According to one estimate, replacement of all domestic bulbs by CFLs could at once eliminate the daily shortfall of electricity in Delhi.
(The interesting point to note is that in the past 100 years, energy efficiency of light bulbs have increased nearly 6 times. This was primarily an outcome of relatively competitive market, stimulating the innovative and entrepreneurial spirit, leading to better product. As a result, it contributed to improved environmental quality, as well as better quality of life.)
The story is the same with vehicular pollution. First, state monopoly in the petroleum sector has contributed to poor fuel quality and no variety. Second, the restrictions and taxation policy have ensured that we are saddled with obsolete and polluting automobile technology. The combined effect has been that we have become world leaders in low efficiency, high polluting, and also more accident prone, two-stroke two-wheeler and three-wheeler vehicles.
Let us consider water. Water is life. It has been said that countries may go to war over water in the coming century. Again, the state exercises almost total control over it. The result, over half the people do not have access to safe drinking water, while agriculture and industry continue to consume water most inefficiently. Devoid of any pricing mechanism and a legal market to trade in water rights, water has become the most politicised of all resources.
It is a pity that the idea of a water market is an anathema in India. Around the world, there is an increasing recognition of the role of the market in efficient allocation of water resources. Farmers, for instance, are finding that selling water rights to cities or industries can be more profitable than raising a crop.
The need is to ensure efficient utilisation of environmental resources, like other economic resources, by bringing them under the discipline of the market forces. The market allows the consumer to register his price preference for a particular quality of product, including environmental quality. As the consumer rises up the economic ladder, he is able to afford a better quality of life.
Free trade and open competition provides the necessary incentive to the suppliers of goods and services to continually try to improve their product quality, including environmental quality, at the lowest possible price. Consequently, the economics of the marketplace help create a win-win situation for the consumer, the producer, and the environment.
The environmental cost of restricting the market has become obvious. Let us not succumb to the rising green protectionism from within and without in the name of protecting the environment. By restricting the market, we will only end up obstructing the improvements in environmental quality that we all cherish.
Environmental quality is like a value-added product that becomes economically affordable and technologically viable with economic growth. It is no paradox therefore that the environment is much cleaner and safer in industrially developed countries that adopted a more market-friendly approach, than in centrally planned economies. Clearly, it is policy that is responsible for continued environmental resource depletion or pollution.
Let us take a closer look at some of the policies that have had an impact on our environment. According to the WHO, much more serious than vehicular pollution is the issue of indoor air pollution caused primarily due to poor ventilation and use of firewood, coal and cowdung as fuel in most poor countries.
Energy markets are severely restrained and regulated. As a result, India’s per capita energy consumption is among the lowest, at 1/10th of that in developed countries, and even then there is a substantial shortfall in supply. Energy consumed per unit of goods produced is among the highest–reflecting the inefficiency caused by poverty. Yet, rather than freeing the energy related products market, like lighting and other equipment, we promote the production of inefficient incandescent bulbs, while imposing taxes on the latest and much more efficient compact fluorescent tubes. According to one estimate, replacement of all domestic bulbs by CFLs could at once eliminate the daily shortfall of electricity in Delhi.
(The interesting point to note is that in the past 100 years, energy efficiency of light bulbs have increased nearly 6 times. This was primarily an outcome of relatively competitive market, stimulating the innovative and entrepreneurial spirit, leading to better product. As a result, it contributed to improved environmental quality, as well as better quality of life.)
The story is the same with vehicular pollution. First, state monopoly in the petroleum sector has contributed to poor fuel quality and no variety. Second, the restrictions and taxation policy have ensured that we are saddled with obsolete and polluting automobile technology. The combined effect has been that we have become world leaders in low efficiency, high polluting, and also more accident prone, two-stroke two-wheeler and three-wheeler vehicles.
Let us consider water. Water is life. It has been said that countries may go to war over water in the coming century. Again, the state exercises almost total control over it. The result, over half the people do not have access to safe drinking water, while agriculture and industry continue to consume water most inefficiently. Devoid of any pricing mechanism and a legal market to trade in water rights, water has become the most politicised of all resources.
It is a pity that the idea of a water market is an anathema in India. Around the world, there is an increasing recognition of the role of the market in efficient allocation of water resources. Farmers, for instance, are finding that selling water rights to cities or industries can be more profitable than raising a crop.
The need is to ensure efficient utilisation of environmental resources, like other economic resources, by bringing them under the discipline of the market forces. The market allows the consumer to register his price preference for a particular quality of product, including environmental quality. As the consumer rises up the economic ladder, he is able to afford a better quality of life.
Free trade and open competition provides the necessary incentive to the suppliers of goods and services to continually try to improve their product quality, including environmental quality, at the lowest possible price. Consequently, the economics of the marketplace help create a win-win situation for the consumer, the producer, and the environment.
The environmental cost of restricting the market has become obvious. Let us not succumb to the rising green protectionism from within and without in the name of protecting the environment. By restricting the market, we will only end up obstructing the improvements in environmental quality that we all cherish.
Saturday, May 8, 1999
The Legacy of Hayek
My article titled "The Legacy of Hayek" was published in The Economic Times, 8 May 1999.
Friedrich A. von Hayek, the philosopher of freedom and Nobel laureate economist, was born on 8 May, 1899 in Vienna, one hundred years ago. The man, who went on to become one of the greatest champions of liberty, however, had begun his life as a young soldier in the Austro-Hungarian Empire, and was sent to the Italian front in 1917.
An academic, whose “controversial ideas” were eventually recognised by the Nobel committee in 1974, Hayek was also an activist who was among the founders of the Mont Pelerin Society in 1948, an organisation dedicated to pursue the intellectual battle against all forms of authoritarianism and tyranny.
While we in India were fascinated by government planning, a quarter century ago, the Nobel Academy held that “von Hayek’s analysis of the functional efficiency of different economic systems is one of his most significant contributions to economic research in the broader sense. His conclusion is that only by far-reaching decentralisation in a market system with competition and free price-fixing is it possible to make full use of knowledge and information.”
If, today, the world is witnessing a perceptible change in its mode of thinking, it is in no small amount due to the legacy of Hayek. No wonder commemorative events are being organised in London, Paris, Vienna, Washington DC, Montreal, Eastern Europe, and Central America.
The Adam Smith Institute in the United Kingdom has named him the man of the century. Earlier this year, The Wall Street Journal named him among the most influential economists of this century.
In the 1920s, Hayek was part of that heady circle in post-war Vienna, a group that featured some of the greatest minds of the century. He earned two doctorates, one in law and another in political science. He studied economics under Ludwig von Mises, one of the greatest exponents of the Austrian School. Hayek mainly taught at the LSE, but had short spells at universities around the world including Cambridge, Chicago, Stanford, Tokyo, and Freiburg.
In the 1930s, Hayek was the principal opponent to Keynes. In various scholarly publications – Monetary Theory of Trade Cycle (1933), The Pure Theory of Capital (1941) – he had pointed out that business cycles are caused by monetary mismanagement. Subsequent events have completely vindicated Hayek. Concerned about the stability of value, he wrote a radical essay in 1976, “The Denationalisation of Money”, in which he argued that it was a serious mistake to allow governments to monopolise the legal tender. He called for the freedom of individuals to trade in whatever media of exchange they thought best.
He also published works more accessible to a wider public, which included books such as The Road to Serfdom and The Constitution of Liberty. The former has been nominated by journals like London’s Time Literary Supplement as one the noteworthy books of this century. Dozens of unauthorised editions of it were known to be in circulation among the underground activists in the Eastern block during the cold war.
Unfortunately, Hayek is hardly known in India today, and very few of his titles are available in the market, even though his relevance to us cannot ever be underestimated. Today, we are visibly concerned about corruption and criminalisation of our public life. But over five decades ago in Serfdom, he had outlined how the worst got to the top by taking advantage of the power of patronage vested in political establishments through “legalised” intervention in the economy.
Today, we are concerned that after fifty years of Independence, poverty is so widespread; and as a measure to speed up the process of redistribution of wealth, we thought it prudent to abolish right to property as a fundamental right. Hayek had cautioned all those years ago that “The system of private property is the most important guaranty of freedom, not only for those who own property, but scarcely less for those who do not”.
We want “social justice”, while Hayek warned that “There is all the difference in the world between treating people equally and attempting to make them equal”, and to attempt otherwise would only contribute to social collision.
As we, in one of the last remaining “socialist republics” in the world, grope to find a way to shed the statist mindset, it may be quite illuminating to go back and take a look at Hayek.
While the world marks his centenary, the next century could well belong to him.
Friedrich A. von Hayek, the philosopher of freedom and Nobel laureate economist, was born on 8 May, 1899 in Vienna, one hundred years ago. The man, who went on to become one of the greatest champions of liberty, however, had begun his life as a young soldier in the Austro-Hungarian Empire, and was sent to the Italian front in 1917.
An academic, whose “controversial ideas” were eventually recognised by the Nobel committee in 1974, Hayek was also an activist who was among the founders of the Mont Pelerin Society in 1948, an organisation dedicated to pursue the intellectual battle against all forms of authoritarianism and tyranny.
While we in India were fascinated by government planning, a quarter century ago, the Nobel Academy held that “von Hayek’s analysis of the functional efficiency of different economic systems is one of his most significant contributions to economic research in the broader sense. His conclusion is that only by far-reaching decentralisation in a market system with competition and free price-fixing is it possible to make full use of knowledge and information.”
If, today, the world is witnessing a perceptible change in its mode of thinking, it is in no small amount due to the legacy of Hayek. No wonder commemorative events are being organised in London, Paris, Vienna, Washington DC, Montreal, Eastern Europe, and Central America.
The Adam Smith Institute in the United Kingdom has named him the man of the century. Earlier this year, The Wall Street Journal named him among the most influential economists of this century.
In the 1920s, Hayek was part of that heady circle in post-war Vienna, a group that featured some of the greatest minds of the century. He earned two doctorates, one in law and another in political science. He studied economics under Ludwig von Mises, one of the greatest exponents of the Austrian School. Hayek mainly taught at the LSE, but had short spells at universities around the world including Cambridge, Chicago, Stanford, Tokyo, and Freiburg.
In the 1930s, Hayek was the principal opponent to Keynes. In various scholarly publications – Monetary Theory of Trade Cycle (1933), The Pure Theory of Capital (1941) – he had pointed out that business cycles are caused by monetary mismanagement. Subsequent events have completely vindicated Hayek. Concerned about the stability of value, he wrote a radical essay in 1976, “The Denationalisation of Money”, in which he argued that it was a serious mistake to allow governments to monopolise the legal tender. He called for the freedom of individuals to trade in whatever media of exchange they thought best.
He also published works more accessible to a wider public, which included books such as The Road to Serfdom and The Constitution of Liberty. The former has been nominated by journals like London’s Time Literary Supplement as one the noteworthy books of this century. Dozens of unauthorised editions of it were known to be in circulation among the underground activists in the Eastern block during the cold war.
Unfortunately, Hayek is hardly known in India today, and very few of his titles are available in the market, even though his relevance to us cannot ever be underestimated. Today, we are visibly concerned about corruption and criminalisation of our public life. But over five decades ago in Serfdom, he had outlined how the worst got to the top by taking advantage of the power of patronage vested in political establishments through “legalised” intervention in the economy.
Today, we are concerned that after fifty years of Independence, poverty is so widespread; and as a measure to speed up the process of redistribution of wealth, we thought it prudent to abolish right to property as a fundamental right. Hayek had cautioned all those years ago that “The system of private property is the most important guaranty of freedom, not only for those who own property, but scarcely less for those who do not”.
We want “social justice”, while Hayek warned that “There is all the difference in the world between treating people equally and attempting to make them equal”, and to attempt otherwise would only contribute to social collision.
As we, in one of the last remaining “socialist republics” in the world, grope to find a way to shed the statist mindset, it may be quite illuminating to go back and take a look at Hayek.
While the world marks his centenary, the next century could well belong to him.
Hayek's Road to Freedom
My article titled "Hayek's Road to Freedom-A Centenary that may hold the Key to the Next Millennium-A Tribute to Friedrich A. von Hayek on his Birth Centenary" was published on May 8, 1999.
Introduction
This month marks the birth centenary of Friedrich A. von Hayek, one of the greatest philosopher of freedom and Nobel laureate economist.
While we in India were fascinated by government planning, a quarter century ago in 1974, the Nobel Academy held that "von Hayek's analysis of the functional efficiency of different economic systems is one of his most significant contributions to economic research in the broader sense. His conclusion is that only by far-reaching decentralization in a market system with competition and free price-fixing is it possible to make full use of knowledge and information."
Impact of Hayek
Today, a wide range of people has acknowledged his contribution all over the world. From philosophers like Karl Popper, Robert Nozick and Michael Focult, to political leaders like Ronald Reagan, Margaret Thatcher and Vaclav Kalus, to Nobel laureate economists like Milton Friedman, James Buchanan and Ronald Coase, and countless others. As the iron curtain was being built in the aftermath of World War II, Ludwig Erhard, the finance minister of West Germany turned to Hayekian ideas to rebuild his country. Half a century later when the iron curtain collapsed, leaders in many countries in Eastern Europe again turned to Hayek in their attempt to rebuild their societies. And Hayek is reportedly available on the bookshelf of even the Chinese Prime Minister.
If today, the world is witnessing a perceptible change in thinking, it is in no small amount due to the legacy of Hayek.
Economic historian J. Bradford De Long of University of California at Berkeley, says,
"Hayek's adversaries -- Oskar Lange and company -- argued that a market system had to be inferior to a centrally-planned system: at the very least, a centrally-planned economy could set up internal decision-making procedures that would mimic the market, and the central planners could also adjust things to increase social welfare and account for external effects in a way that a market system could never do. Hayek, in response, argued that the functionaries of a central-planning board could never succeed, because they could never create both the incentives and the flexibility for the people-on-the-spot to exercise what Scott calls metis.
"Today all economists -- even those who are very hostile to Hayek's other arguments -- agree that Hayek and company hit this particular nail squarely on the head. Looking back at the seventy-year trajectory of Communism, it seems very clear that Hayek .. [is] right: that its principal flaw is its attempt to concentrate knowledge, authority, and decision-making power at the center rather than pushing the power to act, the freedom to do so, and the incentive to act productively out to the periphery where the people-on-the-spot have the local knowledge to act effectively."
No wonder commemorative events are being organised in London, Paris, Vienna, Washington, D.C., Montreal, Eastern Europe, and Central America. The Adam Smith Institute in the United Kingdom has named him the man of the century. Earlier this year The Wall Street Journal named him among the most influential economists of this century. The Economist, the weekly journal, has marked the occasion.
Hayek, the academic activist
Hayek was more than a Nobel Prize winning academic. He was an intellectual giant, who was also a gentleman to the core. The man, who went on to become one of the greatest champions of liberty, had begun his life as a young soldier in the Austro-Hungarian Empire and sent to the Italian front in 1917. An academic, whose "controversial ideas" were eventually recognised by the Nobel committee in 1974, Hayek was also an activist who was among the founders of the Mont Pelerin Society in 1948. This was an organisation dedicated to pursuing the intellectual battle against all forms of authoritarianism and tyranny at a time when it was fashionable to call oneself socialist. Today, it has hundreds of members, including many Nobel laureates, spread across all the continents. He inspired many to take up intellectual activism like the late Sir Anthony Fisher, the British businessman who founded the Institute of Economic Affairs in London in 1955. Over the years, IEA, an independent think tank, have produced countless policy papers and books on contemporary issues, and is recognised to have contributed to changing the popular perception that made the Thatcher revolution possible in Britain in the 1980s.
Hayek was born in Vienna, Austria, on May 8, 1899, to August Edler von Hayek & Felicitas von Hayek. Even as a teenager, he was interested in philosophy, economics and ethics. But his studies were interrupted as he was called for military duty in 1917, and saw action on the Italian front. On his return from service he went back to college. In the 1920s Hayek was part of that heady circle in post-war Vienna, a group which featured some of the greatest minds of the century. He earned two doctorates, one in law and another in political science. He studied economics under Ludwig von Mises, one of the greatest exponents of the Austrian School. He left for England in 1931 worried about the rise of the Nazis in Germany. Hayek mainly taught at the London School of Economics, but had short spells at universities around world including, Cambridge, Chicago, Stanford, Tokyo, and Freiburg.
Hayek was one of those few fortunate people who lived to see the tumultuous events that shook the socialist empire, and be vindicated. In a letter written in 1989, he noted, "the ultimate victory of our side in the long dispute of the principles of the free market."5 He must have been saddened at the enormous cost, both human and material, that was paid in pursuit of a doomed experiment. Hayek died in Freiburg on 23 March 1992.
Dispersed knowledge
In the 1930s, Hayek was the principal opponent Keynes. In various scholarly publications - Monetary Theory of Trade Cycle (1933), The Pure Theory of Capital (1941) - he had pointed out that business cycles are caused by monetary mismanagement in. This contribution of Hayek was noted by the Nobel committee. Subsequent events have completely vindicated Hayek. Concerned about the stability of value, he wrote a radical essay in the 1976, "The Denationalisation of Money", where he argued that it was a serious mistake to allow governments to monopolise the legal tender. He called for the freedom of the individuals to trade in whatever media of exchange they thought best.
For a ten-year period spanning over both sides of the Second World War, Hayek developed his ideas about knowledge and its relationship with economics. The papers were put together in Individualism and Economic Order (1948). Apart from questioning the economic basis of central planning, he dealt with "The Use of Knowledge", and "The Meaning of Competition."
Hayek emphasized that division of labour and division of knowledge was complimentary. Every individual possessed some specialised and local knowledge that was particular to his situation and preferences. Yet, the market, through the competitive price system, successfully coordinated all these bits of knowledge. Prices provide the incentive to invest in certain areas, and the information regarding the possible opportunities.6 Hayek explained, "We must look at the price system as such a mechanism for communicating information if we want to understand its real function… … The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action."
Jan Tinbergen, another Nobel laureate in economics, recognising the significance of Hayek's theory of knowledge says, "The key importance of the amount of information available and the frequent lack of relevant information have been dealt with only in the last decades. Ludwig von Mises and Friedrich A. von Hayek can rightly be regarded as pioneers in this connection." 8
Spontaneous order
Hayek also developed the idea of "spontaneous order" to describe the progress of civilisations. Language, customs, traditions, rules of conduct, have all evolved without any conscious design, and without that freedom societies may not have evolved beyond primitive levels, he held. Advancement of society was dependent upon no one overall "plan" being imposed over the actions and plans of the individuals making up the society. Building on Adam Smith's "invisible hand", Hayek showed that planning need not necessarily lead to order and lack of a guiding hand need not degenerate in to chaos.
Hayek argued that the most advanced institution of a modern society - the market - belonged to this third category. Each member of this third group would be bounded by rules, have its own order and increase in complexity in a way that would not be fully understood. According to Hayek, the evolution of language best illustrated this aspect. No single individual or group thought it up. Yet, it has its own rules of grammar, and language continues to evolve as mankind advances. Nevertheless it could not be described in complete detail even with the help of all the modern technology.
Wrote Hayek: "… … it is largely because civilization enables us constantly to profit from knowledge which we individually do not possess and because each individual's use of his particular knowledge may serve to assist others unknown to him in achieving their ends that men as members of civilized society can pursue their individual ends so much more successfully than they could alone."
This characteristic of the market where order seemed to develop quite spontaneously, along with dispersed nature of knowledge, raises one the most fundamental question on the utility of government intervention in the economy to achieve a particular end. The institutions created by government decree to provide direction to such intervention would under the best of circumstances simply be overwhelmed by the sheer volume of knowledge that they will need to process.
In contrast, the market routinely brings to order millions of evaluations undertaken by each individual participant. Hayek showed that progress arises from a continuous process of "discovery" wherein a variety of producers and consumers experiment with a wide range of possible opportunities to make profit.11 Most such experiments fail in the marketplace, and the innovators bear the cost taking the risk. But some succeed, and the benefits are enjoyed by all. That is the reason why in a free market, voluntary trade creates a win-win situation for all participants.
Increasingly, there is appreciation of the advantages of the dispersed knowledge. In his Nobel Memorial Prize lecture, economist Ronald Coase said, "In fact, a large part of what we think of as economic activity is designed to accomplish what high transaction costs would otherwise prevent or to reduce transaction costs so that individuals can negotiate freely and we can take advantage of that diffused knowledge of which Friedrich Hayek has told us."12
The Road to Freedom
Hayek also published works more accessible to a wider public, which included books such as The Road to Serfdom (1944) and The Constitution of Liberty. The former has been nominated by journals like London's Time Literary Supplement as one the noteworthy books of this century. Dozens of unauthorised editions of it were known to be in circulation among the underground activists in the Eastern block during the cold war. This book has now been published in many languages across the world, In the 50th anniversary edition of Serfdom, Milton Friedman has written an introduction.
Unfortunately, Hayek is hardly known in India today, and very few of his titles are available in the market. While his relevance to us cannot ever be underestimated. Today we are so concerned about corruption and criminalisation of our public life. But over five decades ago in Serfdom, he had outlined how the worst got to the top by taking advantage of the power of patronage vested in political establishment through "legalised" intervention in the economy. After all, as Hayek put it, "From the saintly and single-minded idealist to the fanatic is often but a step."
We are concerned that after fifty years of independence, poverty is so wide spread, and as a measure to speed up the process of redistribution of wealth, we thought it prudent to abolish right to property as a fundamental right. Hayek had cautioned all those years ago that "The system of private property is the most important guaranty of freedom, not only for those who own property, but scarcely less for those who do not."
We want "social justice", while Hayek's warned that "There is all the difference in the world between treating people equally and attempting to make them equal", and to attempt otherwise would only contribute to social collision. "Equality before the law and material equality are therefore not only different but are in conflict which each other; and we can achieve either one or the other, but not both at the same time", wrote Hayek.
The world has had a bitter experience in the 20th Century. The dreams of a socialist-collectivist utopia were shattered by economic collapse and degenerated in to tyrannical police states. According to historian Thomas Sowell, if one was to mark the time when the intellectual tide began to turn against the ideal of socialism then it was with Hayek's Serfdom.
As we in one of the last remaining "socialist republics" in the world, grope to find a way to shed the statist mindset, it may be quite illuminating to take a look back at Hayek. We, at Liberty Institute are brining out small volume soon that will contain Hayek's stimulating essay "Intellectuals and socialism".
Julian L. Simon, the noted economist and a professional colleague of Hayek, recounted the following anecdote that demonstrated why Hayek stood out as an intellectual. "After receiving the Nobel Prize, Hayek wrote that the prize should not be awarded in economics. His reason? Once a person receives the prize, he or she is inevitably asked by journalists about subjects outside his or her special knowledge. And too often the laureate responds to such questions. The answers have a good chance of causing damage because they are taken as statements of expert knowledge even though they are nothing more than uninformed opinions. Hayek's personal modesty, reflected in this view of the Nobel prize, is part-and-parcel of his abhorrence of the "fatal conceit" -- the title of his final book -- that the reasoning powers of clever people are capable of successfully remaking society at will."
While the world is marking his centenary now, the next century could well belong to him. And ideas do change the world. Let us hope that the intellectual tide in favour of Hayek will become a tidal wave in the next millenium. Hayek's Road to Serfdom may actually help pave the road to freedom for all of us.
Introduction
This month marks the birth centenary of Friedrich A. von Hayek, one of the greatest philosopher of freedom and Nobel laureate economist.
While we in India were fascinated by government planning, a quarter century ago in 1974, the Nobel Academy held that "von Hayek's analysis of the functional efficiency of different economic systems is one of his most significant contributions to economic research in the broader sense. His conclusion is that only by far-reaching decentralization in a market system with competition and free price-fixing is it possible to make full use of knowledge and information."
Impact of Hayek
Today, a wide range of people has acknowledged his contribution all over the world. From philosophers like Karl Popper, Robert Nozick and Michael Focult, to political leaders like Ronald Reagan, Margaret Thatcher and Vaclav Kalus, to Nobel laureate economists like Milton Friedman, James Buchanan and Ronald Coase, and countless others. As the iron curtain was being built in the aftermath of World War II, Ludwig Erhard, the finance minister of West Germany turned to Hayekian ideas to rebuild his country. Half a century later when the iron curtain collapsed, leaders in many countries in Eastern Europe again turned to Hayek in their attempt to rebuild their societies. And Hayek is reportedly available on the bookshelf of even the Chinese Prime Minister.
If today, the world is witnessing a perceptible change in thinking, it is in no small amount due to the legacy of Hayek.
Economic historian J. Bradford De Long of University of California at Berkeley, says,
"Hayek's adversaries -- Oskar Lange and company -- argued that a market system had to be inferior to a centrally-planned system: at the very least, a centrally-planned economy could set up internal decision-making procedures that would mimic the market, and the central planners could also adjust things to increase social welfare and account for external effects in a way that a market system could never do. Hayek, in response, argued that the functionaries of a central-planning board could never succeed, because they could never create both the incentives and the flexibility for the people-on-the-spot to exercise what Scott calls metis.
"Today all economists -- even those who are very hostile to Hayek's other arguments -- agree that Hayek and company hit this particular nail squarely on the head. Looking back at the seventy-year trajectory of Communism, it seems very clear that Hayek .. [is] right: that its principal flaw is its attempt to concentrate knowledge, authority, and decision-making power at the center rather than pushing the power to act, the freedom to do so, and the incentive to act productively out to the periphery where the people-on-the-spot have the local knowledge to act effectively."
No wonder commemorative events are being organised in London, Paris, Vienna, Washington, D.C., Montreal, Eastern Europe, and Central America. The Adam Smith Institute in the United Kingdom has named him the man of the century. Earlier this year The Wall Street Journal named him among the most influential economists of this century. The Economist, the weekly journal, has marked the occasion.
Hayek, the academic activist
Hayek was more than a Nobel Prize winning academic. He was an intellectual giant, who was also a gentleman to the core. The man, who went on to become one of the greatest champions of liberty, had begun his life as a young soldier in the Austro-Hungarian Empire and sent to the Italian front in 1917. An academic, whose "controversial ideas" were eventually recognised by the Nobel committee in 1974, Hayek was also an activist who was among the founders of the Mont Pelerin Society in 1948. This was an organisation dedicated to pursuing the intellectual battle against all forms of authoritarianism and tyranny at a time when it was fashionable to call oneself socialist. Today, it has hundreds of members, including many Nobel laureates, spread across all the continents. He inspired many to take up intellectual activism like the late Sir Anthony Fisher, the British businessman who founded the Institute of Economic Affairs in London in 1955. Over the years, IEA, an independent think tank, have produced countless policy papers and books on contemporary issues, and is recognised to have contributed to changing the popular perception that made the Thatcher revolution possible in Britain in the 1980s.
Hayek was born in Vienna, Austria, on May 8, 1899, to August Edler von Hayek & Felicitas von Hayek. Even as a teenager, he was interested in philosophy, economics and ethics. But his studies were interrupted as he was called for military duty in 1917, and saw action on the Italian front. On his return from service he went back to college. In the 1920s Hayek was part of that heady circle in post-war Vienna, a group which featured some of the greatest minds of the century. He earned two doctorates, one in law and another in political science. He studied economics under Ludwig von Mises, one of the greatest exponents of the Austrian School. He left for England in 1931 worried about the rise of the Nazis in Germany. Hayek mainly taught at the London School of Economics, but had short spells at universities around world including, Cambridge, Chicago, Stanford, Tokyo, and Freiburg.
Hayek was one of those few fortunate people who lived to see the tumultuous events that shook the socialist empire, and be vindicated. In a letter written in 1989, he noted, "the ultimate victory of our side in the long dispute of the principles of the free market."5 He must have been saddened at the enormous cost, both human and material, that was paid in pursuit of a doomed experiment. Hayek died in Freiburg on 23 March 1992.
Dispersed knowledge
In the 1930s, Hayek was the principal opponent Keynes. In various scholarly publications - Monetary Theory of Trade Cycle (1933), The Pure Theory of Capital (1941) - he had pointed out that business cycles are caused by monetary mismanagement in. This contribution of Hayek was noted by the Nobel committee. Subsequent events have completely vindicated Hayek. Concerned about the stability of value, he wrote a radical essay in the 1976, "The Denationalisation of Money", where he argued that it was a serious mistake to allow governments to monopolise the legal tender. He called for the freedom of the individuals to trade in whatever media of exchange they thought best.
For a ten-year period spanning over both sides of the Second World War, Hayek developed his ideas about knowledge and its relationship with economics. The papers were put together in Individualism and Economic Order (1948). Apart from questioning the economic basis of central planning, he dealt with "The Use of Knowledge", and "The Meaning of Competition."
Hayek emphasized that division of labour and division of knowledge was complimentary. Every individual possessed some specialised and local knowledge that was particular to his situation and preferences. Yet, the market, through the competitive price system, successfully coordinated all these bits of knowledge. Prices provide the incentive to invest in certain areas, and the information regarding the possible opportunities.6 Hayek explained, "We must look at the price system as such a mechanism for communicating information if we want to understand its real function… … The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action."
Jan Tinbergen, another Nobel laureate in economics, recognising the significance of Hayek's theory of knowledge says, "The key importance of the amount of information available and the frequent lack of relevant information have been dealt with only in the last decades. Ludwig von Mises and Friedrich A. von Hayek can rightly be regarded as pioneers in this connection." 8
Spontaneous order
Hayek also developed the idea of "spontaneous order" to describe the progress of civilisations. Language, customs, traditions, rules of conduct, have all evolved without any conscious design, and without that freedom societies may not have evolved beyond primitive levels, he held. Advancement of society was dependent upon no one overall "plan" being imposed over the actions and plans of the individuals making up the society. Building on Adam Smith's "invisible hand", Hayek showed that planning need not necessarily lead to order and lack of a guiding hand need not degenerate in to chaos.
Hayek argued that the most advanced institution of a modern society - the market - belonged to this third category. Each member of this third group would be bounded by rules, have its own order and increase in complexity in a way that would not be fully understood. According to Hayek, the evolution of language best illustrated this aspect. No single individual or group thought it up. Yet, it has its own rules of grammar, and language continues to evolve as mankind advances. Nevertheless it could not be described in complete detail even with the help of all the modern technology.
Wrote Hayek: "… … it is largely because civilization enables us constantly to profit from knowledge which we individually do not possess and because each individual's use of his particular knowledge may serve to assist others unknown to him in achieving their ends that men as members of civilized society can pursue their individual ends so much more successfully than they could alone."
This characteristic of the market where order seemed to develop quite spontaneously, along with dispersed nature of knowledge, raises one the most fundamental question on the utility of government intervention in the economy to achieve a particular end. The institutions created by government decree to provide direction to such intervention would under the best of circumstances simply be overwhelmed by the sheer volume of knowledge that they will need to process.
In contrast, the market routinely brings to order millions of evaluations undertaken by each individual participant. Hayek showed that progress arises from a continuous process of "discovery" wherein a variety of producers and consumers experiment with a wide range of possible opportunities to make profit.11 Most such experiments fail in the marketplace, and the innovators bear the cost taking the risk. But some succeed, and the benefits are enjoyed by all. That is the reason why in a free market, voluntary trade creates a win-win situation for all participants.
Increasingly, there is appreciation of the advantages of the dispersed knowledge. In his Nobel Memorial Prize lecture, economist Ronald Coase said, "In fact, a large part of what we think of as economic activity is designed to accomplish what high transaction costs would otherwise prevent or to reduce transaction costs so that individuals can negotiate freely and we can take advantage of that diffused knowledge of which Friedrich Hayek has told us."12
The Road to Freedom
Hayek also published works more accessible to a wider public, which included books such as The Road to Serfdom (1944) and The Constitution of Liberty. The former has been nominated by journals like London's Time Literary Supplement as one the noteworthy books of this century. Dozens of unauthorised editions of it were known to be in circulation among the underground activists in the Eastern block during the cold war. This book has now been published in many languages across the world, In the 50th anniversary edition of Serfdom, Milton Friedman has written an introduction.
Unfortunately, Hayek is hardly known in India today, and very few of his titles are available in the market. While his relevance to us cannot ever be underestimated. Today we are so concerned about corruption and criminalisation of our public life. But over five decades ago in Serfdom, he had outlined how the worst got to the top by taking advantage of the power of patronage vested in political establishment through "legalised" intervention in the economy. After all, as Hayek put it, "From the saintly and single-minded idealist to the fanatic is often but a step."
We are concerned that after fifty years of independence, poverty is so wide spread, and as a measure to speed up the process of redistribution of wealth, we thought it prudent to abolish right to property as a fundamental right. Hayek had cautioned all those years ago that "The system of private property is the most important guaranty of freedom, not only for those who own property, but scarcely less for those who do not."
We want "social justice", while Hayek's warned that "There is all the difference in the world between treating people equally and attempting to make them equal", and to attempt otherwise would only contribute to social collision. "Equality before the law and material equality are therefore not only different but are in conflict which each other; and we can achieve either one or the other, but not both at the same time", wrote Hayek.
The world has had a bitter experience in the 20th Century. The dreams of a socialist-collectivist utopia were shattered by economic collapse and degenerated in to tyrannical police states. According to historian Thomas Sowell, if one was to mark the time when the intellectual tide began to turn against the ideal of socialism then it was with Hayek's Serfdom.
As we in one of the last remaining "socialist republics" in the world, grope to find a way to shed the statist mindset, it may be quite illuminating to take a look back at Hayek. We, at Liberty Institute are brining out small volume soon that will contain Hayek's stimulating essay "Intellectuals and socialism".
Julian L. Simon, the noted economist and a professional colleague of Hayek, recounted the following anecdote that demonstrated why Hayek stood out as an intellectual. "After receiving the Nobel Prize, Hayek wrote that the prize should not be awarded in economics. His reason? Once a person receives the prize, he or she is inevitably asked by journalists about subjects outside his or her special knowledge. And too often the laureate responds to such questions. The answers have a good chance of causing damage because they are taken as statements of expert knowledge even though they are nothing more than uninformed opinions. Hayek's personal modesty, reflected in this view of the Nobel prize, is part-and-parcel of his abhorrence of the "fatal conceit" -- the title of his final book -- that the reasoning powers of clever people are capable of successfully remaking society at will."
While the world is marking his centenary now, the next century could well belong to him. And ideas do change the world. Let us hope that the intellectual tide in favour of Hayek will become a tidal wave in the next millenium. Hayek's Road to Serfdom may actually help pave the road to freedom for all of us.
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