WTO ministerial meeting was being held in Hong Kong, this month, and as in the past, this time too, anti-trade and anti-globlisation groups were protesting outside on the streets. In this article, "What can India learn from Hong Kong", published in the Far Eastern Economic Review, in December 2005, I look at the experience of Hong Kong, a city that has thrived on an unilateral free trade policy, and was not even negotiating at WTO!
There is more than a little irony that the World Trade Organization ministerial is being held in Hong Kong this month. Hong Kong is the epitome of the success of unilateral free trade policies: A few pieces of rock, devoid of any natural resources, the territory today ranks among the most prosperous places on earth. Hong Kong’s success is rooted in the institutions of rule of law and economic freedom. The territory did not negotiate any free trade deal. It just declared it unilaterally, and the rest is history. Yet the contrast between the success of Hong Kong’s unilateral free trade policy and the current deadlock in wto negotiations could not be more glaring.
The WTO’s troubles started at its birth 10 years ago. The hazards of multilateral trade negotiations were exposed quite early on the streets of Seattle in 1999. The next ministerial in Doha, Qatar, which came soon after the 9/11 tragedy, launched a new round of negotiations—but this small success was short-lived. Long before they landed in Hong Kong, the multilateral negotiators have been trying to navigate the turbulent sea of different issues and interest groups since negotiations collapsed in Cancun, Mexico in 2003.
Freedom to trade is a cornerstone of human civilization. It gave rise to cities which provided a platform to engage in trade. It created an opportunity to specialize and improve productivity, and exchange the surplus of one’s produce with others in the marketplace. Two lessons follow from this very brief summary. Free trade is undertaken voluntarily, and consequently it is a win-win situation for both parties engaged in the exchange. If the deal was not mutually beneficial, trade would take place. Secondly, it is people who engage in trade—not countries.
The fatal flaw of multilateral trade negotiations lies in the fact that since national delegates are engaged in the negotiations, they increasingly fall under the sway of vested interests who seek to use the trade talks to protect their own privileges, or at the very least to delay the process of trade liberalization. The multilateral approach to trade replaces the natural win-win situation of voluntary trade between private parties with the flawed assumption that trade is a “zero-sum” game.
National negotiators use this as a cover, finding justifications to protect apparent “national interests.” In reality, they aim to protect vested commercial interests, be they farmers or manufacturers, from competition. Inevitably, the result is deadlock as presently witnessed at the WTO. To a large or even greater extent, the same tendency applies to bilateral and regional trade negotiations.
Thus, the location of Hong Kong as the venue for the present WTO ministerial meeting is more than mere coincidence. By all accounts, the trade negotiators are unlikely to achieve any substantive breakthroughs apart from renewing their commitment to continue the negotiations.
But should the wto fail in Hong Kong, this could only help to bring focus back to the benefits of real free trade. The trade negotiators, policy makers and the international media now have a unique opportunity to learn from the unilateral free trade policies of Hong Kong, and experience the rich dividends such a policy has yielded.
Two economies that starkly demonstrate the effect of unilateral trade policy are India and Hong Kong. Half a century ago, these two poor countries in Asia decided to travel two distinct economic paths.
India, a nascent democracy, decided to shape its destiny by isolating itself from the international economy, adopting the philosophy of “self-sufficiency.” It sought to build its future by harnessing its own domestic resources and promoting infant domestic industries. The international community looked favorably upon this new experiment with democratic socialism in India, and provided assistance to help the country on its way. India’s fiscal and regulatory policies aimed to make international trade irrelevant. Sky-high tariffs were backed by nightmarish procedures, and the public sector was commanded to scale the economic heights. When combined with
India’s historical tendency toward food shortages and famine in the first half of the
20th century, these restrictions paralyzed India’s economy and perpetuated poverty.
By the mid-1970s, agriculture (which was predominantly in private hands) was helped by the hybrid seeds of the first green revolution technology. This moved India away from being a “basket case” to being a “bread basket.” But otherwise, India’s huge endowment of natural resources could hardly be harnessed efficiently in this system. Even the country’s democratic foundations were shaken by the emergency rule in 1975-77. Through sporadic attempts at reforms in the 1980s, the economy fell to the depths of despair in 1991, with an unprecedented foreign-exchange crisis. The crisis triggered the economic reforms of the 1990s, which have succeeded in reigniting the belief that India could soon be an economic power on the world stage.
During the period that India unilaterally shut itself out of the world, Hong Kong unilaterally adopted free trade policies and maintained the institutions of economic freedom. It did this partly out of necessity. At the same time, it carved out a special economic niche for itself, taking advantage of its precarious geographical proximity to China, which had adopted closed-door socialist economic policies in the aftermath of the communist revolution. Chinese entrepreneurs went into overdrive, seizing every opportunity that China and the region provided. The British government in the territory had a policy of benign neglect—keeping economic interventions to a minimum, while maintaining the critical institutions like the rule of law. Yet this was hardly a conscious decision of the colonial masters, since the United Kingdom itself did not adopt the same approach.
Though Hong Kong comprised a few fishing villages and was devoid of any natural resource base, its unilateral approach to trade combined with its protection of market institutions enabled the country’s economy to flexibly grow and adapt to global change. Consequently, while the Indian economy stagnated, Hong Kong economy skyrocketed. In fact, India’s share in global trade declined continuously between the 1960s and the 1980s. Despite its much smaller size, Hong Kong’s international trade (including re-exports) remained at a much higher level. Since its economic reforms in 1991, India’s economic growth rate has increased as compared to that of the 1970s and 1980s. But even after the reforms since 1991, India’s average tariffs remain relatively high—in the range of 25% to 35%—while Hong Kong’s are still zero. While Hong Kong consistently remained in the top position in terms of overall economic freedom consistently over the years, India’s freedom has improved only marginally by some measures. Despite appreciable improvement over the last decade, the level of economic freedom in India is much lower than in Hong Kong.
So here we have two countries that followed two very different policies, quite unilaterally, and achieved two opposite outcomes. The numbers say it all: The per capita income of Hong Kong is $27,179 using purchasing power parity, and India’s is a meager $2,892. Two global indices—The
Heritage Foundation’s Index of Economic Freedom and the World Bank’s Doing Business 2005—indicate that the divergent outcomes in Hong Kong and India are not mere coincidences. These indices show that restrictive and bureaucratic economic policies contribute to delays and bottlenecks which adversely affect the performance of businesses of all sizes. The contrast is equally glaring in the two countries’ trade regimes. While Hong Kong averages close to the rich countries in all categories, India takes almost three times as long to complete import and export procedures.
As for international trade, India’s problems stem not from too much trade in goods and services, but too little. In 2002, India’s total exports and imports stood at $87.7 billion and $74 billion respectively, in 1995 dollars. For tiny Hong Kong, the corresponding export and import figures were $321 billion and $301 billion respectively. Clearly the problem of any poor country is not that it trades too much, or is flooded by foreign imports, but that it trades too little. Even in relative terms, India’s share of world trade has fallen to 0.8% today from 1.5% in 1950. This brings us to the current Doha Round of WTO negotiations, due to end by 2006, where agriculture has become the major sticking point. The agitation of so-called “development” organizations around the touchy issue of agricultural subsidies has led many to argue that if the rich world does not reduce or eliminate its agriculture subsidies, then the poor countries should not open their markets to produce from the rich countries. But this argument misunderstands the fundamental purpose of trade, and demonstrates ignorance about the progression of economies.
After relying on a policy of economic self-sufficiency for decades, India had very little economic diversification. This explains why today, India’s agricultural sector produces approximately one-quarter of India’s gdp—and 70% of India’s population is involved in farming. The majority of India’s farmers are poor smallholders who have extremely low productivity, which relates to a variety of government-imposed barriers inside India: taxes between states, which leads to corruption and bribery among low-level bureaucrats; extremely poor infrastructure; and a range of price regulations that do not allow prices to reflect the true supply and demand situation.
Smallholder farmers are the victim of these policies—since they cannot attain a better price for their produce, they cannot afford technologies to improve productivity, or find alternative nonfarm economic opportunities. It is precisely these people—at least 600 million Indians—who would benefit most from unilateral trade liberalization. Why? Because they are farmers out of need: They grow food or primary goods because they have no other choice. For the poor, it does
not matter where the food comes from, if it is accessible at a lower price. From this perspective, cheap and subsidized food from the rich countries would only help stimulate economic growth and improve welfare in poor countries. First, it would induce reforms in the agricultural sector
in poor countries, making it much more competitive. Agriculture will not remain a liability, but become a source of economic strength. Secondly, low-cost imports will only facilitate the transition of poor countries from being dependent on agriculture and natural resources to being more diversified.
Thirdly, this transition from agriculture to manufacturing and to services will actually enable today’s poor countries to graduate out of poverty. Finally, it would serve to harness human potential and unleash human creativity and entrepreneurship, which would spread prosperity
around the world.
Effectively, India adopted this more liberal approach in the trade in services, a sector which has experienced rapid growth since the early 1990s and in the post-WTO period. India’s relative success in information technology-related services is a reflection of the benefits of unilateral economic and trade reforms. Factors such as India’s telecom liberalization acted as a massive
boost for the growth of information-technology services. In sharp contrast to it hardware, and the manufacturing sector in general, which were hobbled by government regulations, India’s it services faced few policy-induced obstacles. Indeed, the outside world now sees India’s trade in services as evidence that the country is escaping the “Hindu rate of growth” that characterized India’s economy for the past few decades. Rather than being ambivalent towards opening other service sectors like banking and insurance, India would do well to unilaterally open all the service sectors.
Again, Hong Kong is an almost perfect example of unilateral free-trade policies cutting across all sectors of the economy. This is why Hong Kong seamlessly managed the transition from being a low-end manufacturing and trading port in the 1960s to being a high-end economy dominated by the service sector. The success of unilateral free-trade policies will also make irrelevant another thorny issue at the wto, that of “special and differential treatment” for countries which are at different levels of economic development.
With unilateralism, entrepreneurs in every country would have the freedom and ability to discover their competitive advantages and to specialize. Otherwise, “special and differential treatment” will, in fact, impose “special and differential punishment” on ordinary consumers. This large group is unrepresented in these international jamborees, but suffers the most from a lack of choice and competition.
India is no stranger to unilateral reforms—the economic situation in 1991 was so dire that only a unilateral approach would suffice. India undertook a whole range of domestic economic reforms unilaterally, reducing tariffs and delicensing large sections of the economy. Today, a unilateral approach to trade would propel India towards becoming a modern, diversified economy. The country would be better able to acquire inputs and capital for all kinds of economic activity, to better utilize its natural and human resources.
Competitive market processes would drive up the value of people’s labor, and would diminish the number of people (mostly farmers) who still live an impoverished existence. Given India’s enormous potential, it is now time for it and other poor countries to take a leaf out of Hong Kong’s unilateral approach to free trade. It would benefit India in the short and long term, by harnessing the great entrepreneurial spirit, vigor and optimism that is now driving India forward.
Monday, December 12, 2005
Thursday, June 9, 2005
Getting This Tiger Problem by the Tail
The population of blackbucks and Tigers in many parts of the US are much more than that of India as a whole where hunting is not permitted.A large part of the illegal trade in forest products is from South East Asia. Permitting the creation of tiger parks to breed tigers will solve the problem of extinction of species. Attempts to stop illegal trade has only driven up prices. My article titled "Getting This Tiger Problem by the Tail" was published in TCS Daily on June 9th 2005.
Every time a celebrity is alleged to be involved in hunting in India, the celebrity becomes fair game. Tiger Pataudi, the legendary former captain of Indian Cricket team, is alleged to have been involved in the killing of a blackbuck in Haryana recently. While the celebrity gets all the attention, most ignore the plight of protected species at the hands of the Indian bureaucracy.
If we are really concerned about the fate of wildlife, we need to ask why it is that in the US -- where hunting species such as blackbuck is permitted -- the population of blackbacks in the US state of Texas alone is 40,000, compared to only 25,000 in the whole of India. Equally, where in the US trade of live tigers is permitted, tiger numbers are in excess of 15,000, where in India, their numbers have dwindled to around 3,500.
The problem is that Indian wildlife is seen as nationalised property and placed outside the discipline of the marketplace. While many call for more stringent action to stop the illegal trade in wildlife and for more prosecutions of poachers, this ignores the fact attempts to stem supply have merely driven up price through illegal trade.
The conservation theology imported from Western environmentalists over the past four decades focuses on stopping supply. Hunting and tree-felling are banned, and wildlife sanctuaries created.
Conservationists estimate that the worldwide illegal trade in forest products and wildlife is between USD 10-12 billion, over half of it coming from SE Asia alone. While the total economic output from hunting, fishing and tourism from wildlife in US alone is estimated to be USD 280 billion. Compare this to Indian GDP of USD 650 billion.
Instead of looking at the illegal trade as a problem, it is possible to turn it in to the solution. It is time to permit the creation of tiger parks to breed tigers. This step will unite conservation with commerce. In a competitive market economy, with respect for property rights, every demand is an opportunity for investors to improve supply, making for an abundance that will blow away any threat of extinction.
The tiger breeds very easily, even in captivity. Zoos in India are constantly advised not to breed tigers because being large carnivorous animals, they are expensive to maintain. The tragedy in Nandankanan Zoo in 2000 (where when 11 rare tigers died in a span of four days) was partly caused by the failure to control breeding. But what zoos cant afford, commerce can ensure.
It is not too farfetched to think that a tiger farm would dovetail very well with deer or crocodile farms. This will facilitate the supply of low-cost meat to the carnivores, lowering production costs. There exists already an international market for venison meat and the skin of many herbivores.
Such farm production will ensure reliability and quality of supply of wildlife, at an affordable price, removing any incentive for poachers to seek tigers in the wild. Most importantly, such an approach would provide an economic stake to forest dwellers to conserve wildlife through commerce.
A growing tiger population in the wild would further boost the local economy, by opening up more revenue sources for consumptive and non-consumptive uses. Tourists and professional photographers would happily pay for the non-consumptive uses. Trophy hunters would be willing to pay many times more for the experience of tracking and hunting the tigers in the wild. For instance, in South Africa, trophy hunters pay USD 30,000 to 40,000 for the experience of shooting a wild elephant or a rhino.
The tiger, top of the food chain in its ecosystem, would also be at the top of the economic ladder because of its market value. There is a demand for virtually every part of the tiger. The total value of tiger parts from its nose to its tail could easily come to USD 40,000.
In addition, there is a huge demand for ornamental and decorative usage of tiger skin and claw products. Such a demand for tiger products mean that a tiger is really a king who can easily earn his keep, and thrive.
Under the present system of prohibition, forest dwellers have no interest in protecting tigers, poachers and traffickers have a field day. Unscrupulous traders profit from selling spurious tiger products. The high profitability attracts the criminal mafia.
The Indian experience till a few years ago provides the best illustration of the tragic consequences of dysfunctional economic regulations. The babus wielded the power, smugglers oiled the wheels, blackmarketeers made a killing and the law enforcers took their cut. The poor consumer bore the brunt, as the economy ground to a halt.
However, market economics greatly favour the tiger. The question is: are the environmentalists keen to save to tiger or more interested in expanding regulation and control?
Every time a celebrity is alleged to be involved in hunting in India, the celebrity becomes fair game. Tiger Pataudi, the legendary former captain of Indian Cricket team, is alleged to have been involved in the killing of a blackbuck in Haryana recently. While the celebrity gets all the attention, most ignore the plight of protected species at the hands of the Indian bureaucracy.
If we are really concerned about the fate of wildlife, we need to ask why it is that in the US -- where hunting species such as blackbuck is permitted -- the population of blackbacks in the US state of Texas alone is 40,000, compared to only 25,000 in the whole of India. Equally, where in the US trade of live tigers is permitted, tiger numbers are in excess of 15,000, where in India, their numbers have dwindled to around 3,500.
The problem is that Indian wildlife is seen as nationalised property and placed outside the discipline of the marketplace. While many call for more stringent action to stop the illegal trade in wildlife and for more prosecutions of poachers, this ignores the fact attempts to stem supply have merely driven up price through illegal trade.
The conservation theology imported from Western environmentalists over the past four decades focuses on stopping supply. Hunting and tree-felling are banned, and wildlife sanctuaries created.
Conservationists estimate that the worldwide illegal trade in forest products and wildlife is between USD 10-12 billion, over half of it coming from SE Asia alone. While the total economic output from hunting, fishing and tourism from wildlife in US alone is estimated to be USD 280 billion. Compare this to Indian GDP of USD 650 billion.
Instead of looking at the illegal trade as a problem, it is possible to turn it in to the solution. It is time to permit the creation of tiger parks to breed tigers. This step will unite conservation with commerce. In a competitive market economy, with respect for property rights, every demand is an opportunity for investors to improve supply, making for an abundance that will blow away any threat of extinction.
The tiger breeds very easily, even in captivity. Zoos in India are constantly advised not to breed tigers because being large carnivorous animals, they are expensive to maintain. The tragedy in Nandankanan Zoo in 2000 (where when 11 rare tigers died in a span of four days) was partly caused by the failure to control breeding. But what zoos cant afford, commerce can ensure.
It is not too farfetched to think that a tiger farm would dovetail very well with deer or crocodile farms. This will facilitate the supply of low-cost meat to the carnivores, lowering production costs. There exists already an international market for venison meat and the skin of many herbivores.
Such farm production will ensure reliability and quality of supply of wildlife, at an affordable price, removing any incentive for poachers to seek tigers in the wild. Most importantly, such an approach would provide an economic stake to forest dwellers to conserve wildlife through commerce.
A growing tiger population in the wild would further boost the local economy, by opening up more revenue sources for consumptive and non-consumptive uses. Tourists and professional photographers would happily pay for the non-consumptive uses. Trophy hunters would be willing to pay many times more for the experience of tracking and hunting the tigers in the wild. For instance, in South Africa, trophy hunters pay USD 30,000 to 40,000 for the experience of shooting a wild elephant or a rhino.
The tiger, top of the food chain in its ecosystem, would also be at the top of the economic ladder because of its market value. There is a demand for virtually every part of the tiger. The total value of tiger parts from its nose to its tail could easily come to USD 40,000.
In addition, there is a huge demand for ornamental and decorative usage of tiger skin and claw products. Such a demand for tiger products mean that a tiger is really a king who can easily earn his keep, and thrive.
Under the present system of prohibition, forest dwellers have no interest in protecting tigers, poachers and traffickers have a field day. Unscrupulous traders profit from selling spurious tiger products. The high profitability attracts the criminal mafia.
The Indian experience till a few years ago provides the best illustration of the tragic consequences of dysfunctional economic regulations. The babus wielded the power, smugglers oiled the wheels, blackmarketeers made a killing and the law enforcers took their cut. The poor consumer bore the brunt, as the economy ground to a halt.
However, market economics greatly favour the tiger. The question is: are the environmentalists keen to save to tiger or more interested in expanding regulation and control?
Wednesday, April 13, 2005
India and Kyoto
The Kyoto protocol results from the flawed reasoning that there is a conflict between commerce and conservation. The Kyoto protocol would only throw the world's poor to a life of even more poverty. The usual victims of natural disasters are the poor as of their vulnerability. Contrary to the popular belief, they consume too little energy. My article titled "India and Kyoto" was published in TCS Daily on April 13th, 2005.
Among environmentalism's most fundamental flaws are the beliefs that commerce is the enemy of conservation and that energy conservation will automatically lead to a cleaner environment.
The Kyoto Protocol is the epitome of this flawed thinking. It seeks to promote energy efficiency and alternatives to fossil fuels by insisting on reductions in the emission of greenhouse gases in the industrialized world. The hope is that this will help stabilize climate.
Even Kyoto proponents, though, admit that meeting the protocol's emissions' targets will barely make a dent in humanity's greenhouse gas emissions. The agreement's only chance to have a real impact is if it leads to ever stricter emissions limits. And it seeks to do that by seducing poor countries, exempt from the first round of emissions' cuts, into supporting such limits on themselves by demonstrating that the rich world is willing to pay for its past polluting sins.
What is left unsaid is that Kyoto's policies will only trap the poor in perpetual poverty.
Kyoto supporters argue that unless energy consumption is curtailed, climate change will lead to dramatic events such as droughts or floods. And they also argue that the poor are the most vulnerable to natural calamities.
Yet the poor have always been the biggest victims of natural calamities, not because nature is biased against the poor, but because poverty makes the poor vulnerable. That is why annual tropical hurricanes kill thousands in Bangladesh, while in Florida the death toll rarely reaches double digits.
The Kyoto protocol retards the economic growth that would enable the poor to leave poverty behind and adapt better.
It may be counterintuitive but there is only one economic lesson from history: increased consumption stimulates efforts at improving productivity and efficiency, which in turn can contribute to conservation.
The Kyoto protocol seeks to reverse this relationship by focusing on reducing consumption through punitive taxes and so on, which will not ultimately help conservation goals.
What goes on in the developing world shows why.
In India, like in many other parts of the Third World, unreliable energy supplies coupled with high prices and low consumption stop us from using greener technologies rather than resort to excessive energy consumption.
Why do polluting and inefficient machines continue to be used in India? Because high taxation, coupled with a maze of bureaucratic regulations, increase the cost of doing business in India. Domestic industries are less competitive, as they must deal with trade restrictions and tariff barriers. This effectively discourages business from improving production processes or making their products cleaner and more efficient. In short, the distortion in businesses' incentives discourages the replacement of older, inefficient technologies with more modern technologies.
A vivid illustration of this phenomenon is India's automobile sector. High tariffs make imports prohibitive while high auto and fuel taxes also have stymied the domestic industry. The result is one of the lowest vehicle densities in the world, which environmentalists applaud. But by making new transportation expensive, they have forced people to persist with old vehicles well beyond their lifespan. Estimates in the United States are that the oldest 10 percent of vehicles produce 90 percent of the air pollution. India has nothing but old vehicles, so, perversely, its policies have created more environmental pollution, not reduced it.
The problems of poor and rural Indians are even more acute. Even today fewer than six in 10 of Indian households have electricity. About 150 million households rely on fuels such as firewood, dry cow dung cake and agriculture waste for cooking. These fuels are 20 times less efficient and that many times more polluting than electricity or gas. When they are used in poorly lit and unventilated rural dwellings, they contribute to one million premature deaths each year.
Not surprisingly, Kyoto does not sound convincing to the world's poor. For what this present debate over climate change has done is to divert attention from the core issue of mankind --- poverty.
Today, about one-third of the planet's population does not have access to any modern fuel, and another third consumes very little of whatever comes their way. Today, indoor air pollution, because of burning of wood, agriculture waste, and cow-dung, is the single biggest cause of chronic illness among rural populations in India, and elsewhere. But Kyoto promises to take care of their health problems decades later.
The poor are the victims not of too much energy consumption, but too little. In an open and competitive economic environment, higher consumption provides the incentive to innovate and find more efficient ways of utilising energy.
And it is energy efficiency that leads to a cleaner environment. While the poor may need -- and stand to benefit the most from -- efficiency gains, it is no coincidence that almost all the energy efficient devices have originated from wealthier countries where consumption is much higher. Open commerce encourages consumption, but ends up promoting conservation.
The poor cannot stand to be victimized by the ecological colonisers who are pushing the Kyoto protocol.
Among environmentalism's most fundamental flaws are the beliefs that commerce is the enemy of conservation and that energy conservation will automatically lead to a cleaner environment.
The Kyoto Protocol is the epitome of this flawed thinking. It seeks to promote energy efficiency and alternatives to fossil fuels by insisting on reductions in the emission of greenhouse gases in the industrialized world. The hope is that this will help stabilize climate.
Even Kyoto proponents, though, admit that meeting the protocol's emissions' targets will barely make a dent in humanity's greenhouse gas emissions. The agreement's only chance to have a real impact is if it leads to ever stricter emissions limits. And it seeks to do that by seducing poor countries, exempt from the first round of emissions' cuts, into supporting such limits on themselves by demonstrating that the rich world is willing to pay for its past polluting sins.
What is left unsaid is that Kyoto's policies will only trap the poor in perpetual poverty.
Kyoto supporters argue that unless energy consumption is curtailed, climate change will lead to dramatic events such as droughts or floods. And they also argue that the poor are the most vulnerable to natural calamities.
Yet the poor have always been the biggest victims of natural calamities, not because nature is biased against the poor, but because poverty makes the poor vulnerable. That is why annual tropical hurricanes kill thousands in Bangladesh, while in Florida the death toll rarely reaches double digits.
The Kyoto protocol retards the economic growth that would enable the poor to leave poverty behind and adapt better.
It may be counterintuitive but there is only one economic lesson from history: increased consumption stimulates efforts at improving productivity and efficiency, which in turn can contribute to conservation.
The Kyoto protocol seeks to reverse this relationship by focusing on reducing consumption through punitive taxes and so on, which will not ultimately help conservation goals.
What goes on in the developing world shows why.
In India, like in many other parts of the Third World, unreliable energy supplies coupled with high prices and low consumption stop us from using greener technologies rather than resort to excessive energy consumption.
Why do polluting and inefficient machines continue to be used in India? Because high taxation, coupled with a maze of bureaucratic regulations, increase the cost of doing business in India. Domestic industries are less competitive, as they must deal with trade restrictions and tariff barriers. This effectively discourages business from improving production processes or making their products cleaner and more efficient. In short, the distortion in businesses' incentives discourages the replacement of older, inefficient technologies with more modern technologies.
A vivid illustration of this phenomenon is India's automobile sector. High tariffs make imports prohibitive while high auto and fuel taxes also have stymied the domestic industry. The result is one of the lowest vehicle densities in the world, which environmentalists applaud. But by making new transportation expensive, they have forced people to persist with old vehicles well beyond their lifespan. Estimates in the United States are that the oldest 10 percent of vehicles produce 90 percent of the air pollution. India has nothing but old vehicles, so, perversely, its policies have created more environmental pollution, not reduced it.
The problems of poor and rural Indians are even more acute. Even today fewer than six in 10 of Indian households have electricity. About 150 million households rely on fuels such as firewood, dry cow dung cake and agriculture waste for cooking. These fuels are 20 times less efficient and that many times more polluting than electricity or gas. When they are used in poorly lit and unventilated rural dwellings, they contribute to one million premature deaths each year.
Not surprisingly, Kyoto does not sound convincing to the world's poor. For what this present debate over climate change has done is to divert attention from the core issue of mankind --- poverty.
Today, about one-third of the planet's population does not have access to any modern fuel, and another third consumes very little of whatever comes their way. Today, indoor air pollution, because of burning of wood, agriculture waste, and cow-dung, is the single biggest cause of chronic illness among rural populations in India, and elsewhere. But Kyoto promises to take care of their health problems decades later.
The poor are the victims not of too much energy consumption, but too little. In an open and competitive economic environment, higher consumption provides the incentive to innovate and find more efficient ways of utilising energy.
And it is energy efficiency that leads to a cleaner environment. While the poor may need -- and stand to benefit the most from -- efficiency gains, it is no coincidence that almost all the energy efficient devices have originated from wealthier countries where consumption is much higher. Open commerce encourages consumption, but ends up promoting conservation.
The poor cannot stand to be victimized by the ecological colonisers who are pushing the Kyoto protocol.
Friday, January 28, 2005
Misdiagnosing the diseases of the poor
India's compliance with TRIPS will not hinder the poor's access to essential medicines; rather, it is the government's hold on the healthcare sector that makes equitable healthcare impossible.
My article titled Misdiagnosing the diseases of the poor was published in The Indian Express on January 28 2005.
The present debate over the Indian patent law, despite the passion, is underscored by the desire to score political points. Consequently, most of the arguments have been disconnected from reality. India has been a proving ground for those who oppose patents on pharmaceutical products. We scrapped all product patents in 1972. As a result, India is now home to over 20,000 pharmaceutical companies producing copies of drugs developed óand patentedó elsewhere. However, access to medicines remains pooró suggesting that patents are not the key determinant of access that their opponents claim.
In India, medicine represents between 10 and 15% of total health care costs. This will not rise substantially when product patents are introduced, for two reasons. First, over 90% of the medicines in the Indian market are now off-patent globally. Second, for most of those that would be patentable, there are close alternatives available which provide effective competition. Poverty and associated malnutrition dramatically exacerbates the incidence of Malaria and TB, preventable diseases that continue to play havoc in India decades after they were eradicated in rich countries. Poor sanitation and polluted water sources prematurely end the life of about 1 million children under the age of five every year.
The real reason for the lack of access to medicines and other forms of healthcare is the prevailing stranglehold of government regulation of health sector. The public sector healthcare provision is a sick joke, characterised by shortages of hospitals, beds, equipments, medicines, and manpower. Claims of medical negligence and malpractice are frequent. Hospitals in India are often dangerous places. In spite of the risk of infection with HIV, the government of India recently admitted that 69% of injections administered in public hospitals could be unsafe.
In the face of poverty, inadequate health care delivery systems, and grossly inadequate sanitation systems, patents should at best be at the periphery of the health care debate, not at its centre. Yet many have argued that the introduction of product patents will undermine access by driving up prices of medicines. Several Health NGOs have claimed that AIDS patients will be particularly adversely affected by the introduction of product patents, saying that the price of medicine in India is likely to shoot up.
The New York Times added its weight in a recent editorial which argued that the poor in India and elsewhere will be denied access to AIDS medicine if India amends its patent laws to include product patent. Yet it is conveniently ignored the fact that barely 1% of the estimated 3.5 million Indians with AIDS receive any kind of treatment at all. Some international NGOs have added their voice, saying that poor countries in Africa that import cheap generic medicines from India may suffer. It is ironic that these activists think Indian generic producers could save lives in Africa, when the same companies fail to reach out to patients at home. Clearly, for many NGOs, ideological antipathy towards MNCs, patents and profitability in the health sector takes priority over issues that actually affect health care for the poor.
This debate over patent has done a disservice to the poor patients by shifting the focus away from the more serious illness that afflicts the health care system in India. Proper delivery of medicine is dependent upon a lot of factors- access to and availability of appropriate medical personnel, diagnostic facilities, treatment regimen, regular monitoring, diet and nutrition, etc. Without this basic infrastructure, health care can hardly be delivered effectively nor can medicine be administered properly. Patent or not. Priced or not.
Left wing political parties have also been vocal opponents of pharmaceutical product patents warning about the danger of the Indian health care sytem falling prey to profit seeking multinational corporations. Yet, they ignore the fact that most Indians dread the day they visit a public health facility. By contrast, some of the private healthcare sector in India is so well regarded that it is attracting ëëhealth tourists'' from overseas. The policies of the leftists would, ironically, perpetuate this two-tier system, instead of enabling every Indian to access high quality healthcare.
Political expediency is at the fore among other mainstream political parties. The present UPA government promulgated an ordinance to amendment that would make the Indian patent law compliant with WTO obligations in January 2005. The previous BJP-led NDA government had accepted the WTO obligations. Ironically, the then Commerce Minister who had originally introduced the amendment in Parliament, in December 2003, now says that he was misled about the implications of the bill, and has come out in opposition. The Indian pharma sector claims that its price competitiveness will be compromised by the new patent law. Yet, many of them complain that they need protection from Chinese generic and bulk drug manufacturers. It should not come as a surprise that some of the Indian companies showed more interest in producing generic lifestyle drugs like Viagra, rather than meet the basic health care needs of Indians.
With globalisation, several of the major India pharma companies, including Ranbaxy and Dr Reddy's, are seeking to break out of this mould and rub shoulders with the best in the world. This move is to be warmly welcomed- but will only happen once the companies are able to obtain patent protection for their product locally. Then, the pharma industry will attract investors from around the world. A deregulated and competitive health sector will stimulate research and innovation, and make quality service accessible to Indians. This will facilitate more private sector provision of hospitals, laboratories, manpower, insurance, and investment in R&D. Like in case of software, this will optimise the utilisation of Indian manpower in the pharma sector, and consequently the cost of drug development and research will fall.
My article titled Misdiagnosing the diseases of the poor was published in The Indian Express on January 28 2005.
The present debate over the Indian patent law, despite the passion, is underscored by the desire to score political points. Consequently, most of the arguments have been disconnected from reality. India has been a proving ground for those who oppose patents on pharmaceutical products. We scrapped all product patents in 1972. As a result, India is now home to over 20,000 pharmaceutical companies producing copies of drugs developed óand patentedó elsewhere. However, access to medicines remains pooró suggesting that patents are not the key determinant of access that their opponents claim.
In India, medicine represents between 10 and 15% of total health care costs. This will not rise substantially when product patents are introduced, for two reasons. First, over 90% of the medicines in the Indian market are now off-patent globally. Second, for most of those that would be patentable, there are close alternatives available which provide effective competition. Poverty and associated malnutrition dramatically exacerbates the incidence of Malaria and TB, preventable diseases that continue to play havoc in India decades after they were eradicated in rich countries. Poor sanitation and polluted water sources prematurely end the life of about 1 million children under the age of five every year.
The real reason for the lack of access to medicines and other forms of healthcare is the prevailing stranglehold of government regulation of health sector. The public sector healthcare provision is a sick joke, characterised by shortages of hospitals, beds, equipments, medicines, and manpower. Claims of medical negligence and malpractice are frequent. Hospitals in India are often dangerous places. In spite of the risk of infection with HIV, the government of India recently admitted that 69% of injections administered in public hospitals could be unsafe.
In the face of poverty, inadequate health care delivery systems, and grossly inadequate sanitation systems, patents should at best be at the periphery of the health care debate, not at its centre. Yet many have argued that the introduction of product patents will undermine access by driving up prices of medicines. Several Health NGOs have claimed that AIDS patients will be particularly adversely affected by the introduction of product patents, saying that the price of medicine in India is likely to shoot up.
The New York Times added its weight in a recent editorial which argued that the poor in India and elsewhere will be denied access to AIDS medicine if India amends its patent laws to include product patent. Yet it is conveniently ignored the fact that barely 1% of the estimated 3.5 million Indians with AIDS receive any kind of treatment at all. Some international NGOs have added their voice, saying that poor countries in Africa that import cheap generic medicines from India may suffer. It is ironic that these activists think Indian generic producers could save lives in Africa, when the same companies fail to reach out to patients at home. Clearly, for many NGOs, ideological antipathy towards MNCs, patents and profitability in the health sector takes priority over issues that actually affect health care for the poor.
This debate over patent has done a disservice to the poor patients by shifting the focus away from the more serious illness that afflicts the health care system in India. Proper delivery of medicine is dependent upon a lot of factors- access to and availability of appropriate medical personnel, diagnostic facilities, treatment regimen, regular monitoring, diet and nutrition, etc. Without this basic infrastructure, health care can hardly be delivered effectively nor can medicine be administered properly. Patent or not. Priced or not.
Left wing political parties have also been vocal opponents of pharmaceutical product patents warning about the danger of the Indian health care sytem falling prey to profit seeking multinational corporations. Yet, they ignore the fact that most Indians dread the day they visit a public health facility. By contrast, some of the private healthcare sector in India is so well regarded that it is attracting ëëhealth tourists'' from overseas. The policies of the leftists would, ironically, perpetuate this two-tier system, instead of enabling every Indian to access high quality healthcare.
Political expediency is at the fore among other mainstream political parties. The present UPA government promulgated an ordinance to amendment that would make the Indian patent law compliant with WTO obligations in January 2005. The previous BJP-led NDA government had accepted the WTO obligations. Ironically, the then Commerce Minister who had originally introduced the amendment in Parliament, in December 2003, now says that he was misled about the implications of the bill, and has come out in opposition. The Indian pharma sector claims that its price competitiveness will be compromised by the new patent law. Yet, many of them complain that they need protection from Chinese generic and bulk drug manufacturers. It should not come as a surprise that some of the Indian companies showed more interest in producing generic lifestyle drugs like Viagra, rather than meet the basic health care needs of Indians.
With globalisation, several of the major India pharma companies, including Ranbaxy and Dr Reddy's, are seeking to break out of this mould and rub shoulders with the best in the world. This move is to be warmly welcomed- but will only happen once the companies are able to obtain patent protection for their product locally. Then, the pharma industry will attract investors from around the world. A deregulated and competitive health sector will stimulate research and innovation, and make quality service accessible to Indians. This will facilitate more private sector provision of hospitals, laboratories, manpower, insurance, and investment in R&D. Like in case of software, this will optimise the utilisation of Indian manpower in the pharma sector, and consequently the cost of drug development and research will fall.
Thursday, January 6, 2005
The Politics Of Relief
The world responded actively to the tragedy in South and South East Asia. Aid, financial and otherwise poured in from all parts of the world. Unfortunately, thousands of people perished as the response to the tragedy was not fast enough, and the blame should be placed squarely on the politics. My article titled "The Politics Of Relief" was published in TCS Daily on January 6th 2005.
The tragedy in South and South East Asia has shaken the world. Barely ten days after the tsunami swept thousands of kilometers of coastlines, killing an estimate 150,000 people and displacing millions, world leaders gathered for a mini summit in Indonesia to take stock and promise more money and technology. The UN is to lead the effort. The international community is estimated to have pledged over USD 2 billion in relief and rehab. The overwhelming grief of the victims is being matched by an enormous outpouring of sympathy and support. Money and material are pouring in from all across.
But the response has been too slow, and politics are to blame for that. No one will know how many thousand victims perished either at sea, or of thirst, or for lack of medical attention trapped beneath debris of buildings, because relief did not reach these people in time. Politics is the number one reason for this slow response to rescue and relief operations when it was most needed.
Indonesia, the country most seriously affected by the tsunami, had an insurgency in the Aceh province. Aceh was a closed province where journalists and aid workers need special permission to go. The Indonesian government first wanted relief material for Aceh to land hundreds of kilometers away and then be taken by road on a twelve hour journey to the affected areas. News media reported that when the first foreign doctors reached Aceh, some Indonesian military personnel asked what they were doing there. It took three days for the government in Jakarta to allow international relief to reach the most affected areas.
In India, the government announced its decision not to seek international aid. As an aspiring power she sent relief missions to other affected countries. India said that it was adequately endowed, with money and manpower to deal with this crisis by itself. An official explained that India wanted the international relief to go to areas where relief was more urgently needed, and where local capacity to deal with the crisis was limited.
Perhaps it was the ideology of self-reliance that had a part in the failure to raise an alarm at the onset of the tragedy, even if it was Indian lives that were at stake. Perhaps it was national security concerns, since Nicobar had an air force station, and India is said to be monitoring the region from there. Or the nuclear power plant near Chennai that had to be shut down because of the tidal surges: could military aircrafts from US or Australia be allowed to fly over such sensitive areas?
Perhaps there were more practical reasons. At the last major earthquake disaster in Gujarat province, India, in 2001, around 30,000 people lost their lives. There were many reports of international relief and rescue teams stranded at airports, because of logistical and information bottlenecks. By politely refusing foreign assistance this time, the authorities may have been seeking to avoid the same the embarrassment.
The international community too had other priorities. It is not politically correct to blame Mother Nature for heaping this misery. So the search for some other scapegoats was on, and today, the world has a universal punching bag --- the United States. For a couple days, there were headlines that some UN official had called the US `stingy` for failing to open its purse strings enough. Over the week, the US government raised its pledge ten-fold to about USD 350 million.
As for the UN, its record of handing disasters, natural or man-made, is less than impressive. If the oil-for-food scandal in Iraq is any indication, a new UN agency to deal with this disaster will not inspire confidence. Few may remember that the UN had declared the 1990s to be the Decade for Natural Disaster Reduction.
China has over the past week reportedly raised its contribution from USD 3 million to around USD 65 million. China's slow response may have dented her aspiration to be regional political force. On the other hand the Islamic countries of the Arabian Gulf region have received some criticism for exhibiting restraint while the most affected country, Indonesia, is the world's largest Muslim nation.
Europe proposed debt relief for many of the affected countries. Such relief has often helped recipient governments to perpetrate failed policies, and perpetuate poverty; the poor paid the price for those failed economic policies and continue to remain vulnerable to natural disasters.
At the summit in Indonesia, the leaders should seek people-oriented, market-driven diverse operations, much beyond the hands of bureaucrats and professional aid agencies. For instance, direct cash transfer to the victims, either a lump sum through a bank account, or a weekly dispersal, allowing them to decide how and where they would like to begin reconstruction of their lives would be a good start.
The present crisis provides an opportunity to seize the political initiative and push through fundamental reforms. Poor people deserve better.
The tragedy in South and South East Asia has shaken the world. Barely ten days after the tsunami swept thousands of kilometers of coastlines, killing an estimate 150,000 people and displacing millions, world leaders gathered for a mini summit in Indonesia to take stock and promise more money and technology. The UN is to lead the effort. The international community is estimated to have pledged over USD 2 billion in relief and rehab. The overwhelming grief of the victims is being matched by an enormous outpouring of sympathy and support. Money and material are pouring in from all across.
But the response has been too slow, and politics are to blame for that. No one will know how many thousand victims perished either at sea, or of thirst, or for lack of medical attention trapped beneath debris of buildings, because relief did not reach these people in time. Politics is the number one reason for this slow response to rescue and relief operations when it was most needed.
Indonesia, the country most seriously affected by the tsunami, had an insurgency in the Aceh province. Aceh was a closed province where journalists and aid workers need special permission to go. The Indonesian government first wanted relief material for Aceh to land hundreds of kilometers away and then be taken by road on a twelve hour journey to the affected areas. News media reported that when the first foreign doctors reached Aceh, some Indonesian military personnel asked what they were doing there. It took three days for the government in Jakarta to allow international relief to reach the most affected areas.
In India, the government announced its decision not to seek international aid. As an aspiring power she sent relief missions to other affected countries. India said that it was adequately endowed, with money and manpower to deal with this crisis by itself. An official explained that India wanted the international relief to go to areas where relief was more urgently needed, and where local capacity to deal with the crisis was limited.
Perhaps it was the ideology of self-reliance that had a part in the failure to raise an alarm at the onset of the tragedy, even if it was Indian lives that were at stake. Perhaps it was national security concerns, since Nicobar had an air force station, and India is said to be monitoring the region from there. Or the nuclear power plant near Chennai that had to be shut down because of the tidal surges: could military aircrafts from US or Australia be allowed to fly over such sensitive areas?
Perhaps there were more practical reasons. At the last major earthquake disaster in Gujarat province, India, in 2001, around 30,000 people lost their lives. There were many reports of international relief and rescue teams stranded at airports, because of logistical and information bottlenecks. By politely refusing foreign assistance this time, the authorities may have been seeking to avoid the same the embarrassment.
The international community too had other priorities. It is not politically correct to blame Mother Nature for heaping this misery. So the search for some other scapegoats was on, and today, the world has a universal punching bag --- the United States. For a couple days, there were headlines that some UN official had called the US `stingy` for failing to open its purse strings enough. Over the week, the US government raised its pledge ten-fold to about USD 350 million.
As for the UN, its record of handing disasters, natural or man-made, is less than impressive. If the oil-for-food scandal in Iraq is any indication, a new UN agency to deal with this disaster will not inspire confidence. Few may remember that the UN had declared the 1990s to be the Decade for Natural Disaster Reduction.
China has over the past week reportedly raised its contribution from USD 3 million to around USD 65 million. China's slow response may have dented her aspiration to be regional political force. On the other hand the Islamic countries of the Arabian Gulf region have received some criticism for exhibiting restraint while the most affected country, Indonesia, is the world's largest Muslim nation.
Europe proposed debt relief for many of the affected countries. Such relief has often helped recipient governments to perpetrate failed policies, and perpetuate poverty; the poor paid the price for those failed economic policies and continue to remain vulnerable to natural disasters.
At the summit in Indonesia, the leaders should seek people-oriented, market-driven diverse operations, much beyond the hands of bureaucrats and professional aid agencies. For instance, direct cash transfer to the victims, either a lump sum through a bank account, or a weekly dispersal, allowing them to decide how and where they would like to begin reconstruction of their lives would be a good start.
The present crisis provides an opportunity to seize the political initiative and push through fundamental reforms. Poor people deserve better.
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