Thursday, December 28, 2006

Beware of Stern warnings

Nicholas Stern's report on climate change, focuses on reducing emission today, and therefore exposes its political agenda, rather than its economic concern. The present generation cannot help the future by restraining its consumption today. In a free society, increased consumption today triggers the chain of exploration and innovation that will prepare the future generation to deal much better with their present. I look at the key aspects of the Stern Report, in "Beware of Stern warnings" in the Hindustan Times, on 28 December 2006.

During the colonial era, religious missionaries would often try to scare the local population with impending damnation, and then offer possible salvation if the people accepted the wisdom of their Book. Sir Nicholas Stern, the high-powered British bureaucrat and economist, seemed to be on a similar mission to India recently. Only, he predicted economic losses, natural disasters and disease and then offered salvation in the Stern Review on the economics of climate change. Just as the earlier generation of missionaries who clothed political ambition in religious sermons, Sir Stern sought to cover the political agenda with apparently humanitarian economic concerns. But his stern economic warnings are unlikely to find many takers in the harsh political reality of India today.

The Stern Review is a huge exercise undertaken to highlight the potential hazards of global warming in the next 100 years, and the economic cost of actions taken today. The report predicts that there is a 50 per cent chance that the average temperature could rise by 5 degree Celsius, leading to a loss ranging from 5 per cent to 20 per cent of GDP each year. Stern suggests that an average price of 1 per cent of current world GDP could help stabilise the CO2 level in the atmosphere at 450 ppm. Of course, this 1 per cent translates into a whopping $ 600 billion today!

The report paints a grim picture for India, from disturbances in the monsoon pattern, leading to droughts and floods, loss of agriculture production to coastal displacement of population, melting of glaciers to spread of diseases like malaria. This doomsday scenario is then sweetened by the possibility of a larger share of the global climate fund. The scare-mongering is handy in mobilising armchair activists and the chattering classes who are always looking for causes to support. Money, of course, is an attractive magnet for policy makers.

But there is a small problem — the people and their poverty. Parts of India regularly experience floods or droughts, either water or mosquito-borne diseases. For these people, battling such situations is a tragic reality. And the only thing they hope are fruits of basic development — bijli, sadak, pani — with which they can equip themselves to face their adversities.

Coastal populations in India are not vulnerable because they are on the coast; they are vulnerable because they are mostly poor. Their problem is not too much consumption, but too little. Economic development helps the poor by equipping themselves to deal with vagaries of nature. The Stern report fails this test, because it holds the poor, and not their poverty, as the cause of their vulnerability.

About half of Indian homes today don’t have any electricity, and many who do have the connections, don’t enjoy the benefits. It will be politically suicidal for any Indian leader to promote the virtues of low energy consumption to the Indian masses.

Setting country level caps on emission is central to the Stern report, because without an agreement on the caps, setting the target of atmospheric CO2 at 450 ppm by the end of the 21st century would be impossible. Equally, without the caps, carbon trading can hardly take off at the global level.

The Stern report relies heavily on the notion that carbon taxes and carbon trading will generate enough revenue to finance large-scale clean energy projects in India and developing countries. So the report suggests that rich countries make a high emission reduction commitment today, of 60 to 80 per cent by mid-century, and countries like China and India begin to adopt some caps on emission by 2030.

Now, any discussion of emission quota necessarily raises the issue of equity. Should emission quotas be set at the national or per capita level? Should countries accept a common level of quota? Such questions are minefields and very difficult to come to an agreement on at any international forum. More interestingly, the underlying philosophy of the Stern report is that the future generation needs to be saved by the present. This reflects a level of arrogance on the part of the authors. There is nothing in human history to suggest that civilisation a hundred or a 1,000 years hence will be any less capable than we are today in relation to the past millennium.
So the Stern report may already be quite superfluous in achieving the objective of stabilising the proportion of CO2 in the atmosphere. Technological innovations, driven by open and competitive markets, nurtured within rule of law and respect for property rights, are already contributing to a reduction in the ecological footprint of civilisations. Economic progress typically means producing more out of less; this is the core of efficiency and productivity gains.

Advances in methane, hydrogen and nuclear energy would enable us to continue to meet our needs for more energy, and limit environmental impact. If the farmers around the world achieved the best agriculture productivity prevalent today, based on today’s technology, then a hundred years later, the demand for agriculture land could be about half of what it is today, even while feeding 8 to 10 billion.

If the present generation is unable to take care of the present, they will not be able to contribute for the future. The present generation cannot help the future by restraining its consumption today. In a free society, increased consumption today triggers the chain of exploration and innovation that will prepare the future generation to deal much better with their present. The Stern report’s focus on reducing emission today exposes its political agenda, rather than its economic concern.

Monday, December 11, 2006

How healthy is our health care system?

While on a trip to South-East Asian countries, I found that many are looking at India for health care policies. There is a belief among many, that with 97% of medicines in the Indian market being generic, and prices quite low, Indians must be enjoying a very good health. In this article, "How healthy is our health care system?" I look at the grim reality facing patients in India.

International perceptions of India have been radically changing over the last few years, whether for her higher economic growth rate, the extraordinary rise of her IT sector or her potential as an emerging super-power.

However, during recent trips to south-east Asia, this writer suddenly became aware of yet another perception of India. From Thailand to Malaysia to Philippines and Indonesia, it seems many people in Asia are looking at India as a model for health-care policy.

This came as a surprise, given that commentators in India are generally united in the belief that the two areas where India faces the biggest challenge are education and health care. At about 60% literacy rate, with life expectancy hovering around 64 years, infant mortality rates persisting at 60 for every 1, 000 live births, and a maternal mortality rate between 400 and 500 per 100,000, among the worst health indicators in Asia, the question is: how healthy is the Indian health care system? Can Indian health care policies really serve as a model for south-east Asia?

In Malaysia, there is a sense among many health care activists, that India’s large, generic industry has successfully met the challenge from innovative pharma multinational companies. With prices in India perceived to be low, it is believed that access is assured.

The reality is somewhat different. The price of medicine does not automatically translate into better access. It is estimated that about 70% of Indians hardly have access to modern health care facilities, or don’t seek such services in their lifetime. This year’s UNAIDS report noted that, although India today is estimated to have about 5.7 million HIV positive people, just about 7% of the estimated 500,000 Indians with AIDS receive any kind of treatment at all.

Another source estimated that well over 60% of generic AIDS medications produced in India are exported, while most Indian patients don’t have access. Although India has thousands of companies manufacturing various kinds of generic medicines, the government is now talking of the need to extend price control on generic medicine from about 70 life saving drugs, to over 300 drugs. In Malaysia, there are demands to restrain prices on innovative patented drugs. In India, though, the talk is on price control over generics, since over 97% of the drugs in the Indian market are off-patents in any case.

Thailand, over the last few years, has tried to emulate the generic drug experience of India. One public sector drug company was entrusted with the job of manufacturing an AIDS retroviral, Gpovir, to help Thai patients with low-cost medication. The drug, it is believed, never passed WHO pre-qualification standard. Last year, some Thai scientists admitted that Gpovir may have contributed to growing drug resistance among Thai patients. Now the demand is that the same Thai company be allowed to manufacture a second-line AIDS drug to help deal with the problem of resistance.

To anyone familiar with the Indian situation, this should sound familiar. The expansion of generic manufacturing has coincided not only with lower prices but also the rapid spread of spurious and adulterated drugs. It is estimated that a perhaps a third of global spurious drugs are manufactured in India. So serious is the problem that, a couple of years ago, the government had proposed death penalty for the guilty.

Indian AIDS activists estimate that a few thousand patients in India today need low cost second line drugs. “Our main effort is to provide basic treatment for millions of HIV- positive people. The second line of treatment is very expensive and we cannot afford to provide it free at this point,” responds National AIDS Control Organisation (NACO). So far, NACO has provided first line medicines for about 100,000 patients in India, about half of whom are under its own treatment programme. NACO is planning a drug resistance assessment programme before changing its treatment protocol.

The Philippines is considering the import of some low- cost drugs from India in the hope of saving patients from patents. However, about 40% of the population in the Philippines reportedly never visit modern health care facility in their lifetime. Yet, like in India, there is a growing segment of medical tourism. Thus, both India and Philippines reflect this glaring contrast – five-star health facilities for the rich and for the foreigner, dismal health service for most of their own citizens. This is not so much because of patents but due to misguided priorities in the health sector.

Patents play a very important role in stimulating innovations and enhancing our knowledge. Without a relevant health care system which attracts investment and looks at patients as customers, taking care of their needs and competing to improve the quality of care, patents or not, patients will continue to suffer. For 35 years, India did not recognise any product patent on medicine, yet its pharmaceutical industry has remained fragmented, its share of the global health sector has remained tiny, and most importantly, the patients have continued to suffer.

Clearly, this focus on patents has diverted attention from the real factors contributing to the health care crisis in India and elsewhere

Thirty-five years ago, an Indian scientist at John Hopkins University had first experimented with oral rehydration solution (a proportion of sugar and salt in clean water), yet today, hundreds of thousands of children in India continue to die each year due to diarrhoea. Even at US cents 2, the ORS pouch does not reach the people who need it the most.

Recently, there was a report from a rural district in the western India that over a few weeks 18 AIDS patients had died, because they were too poor to travel to the nearest AIDS clinic for their medication every month.

Since 1988, WHO is running a campaign to rid the world of polio. Vaccination is simple, and available for free in India. Yet, UNICEF estimates that 58% of children received the vaccine this year, a drop from 70% coverage in 2004. What is particularly tragic is that 70% of the incidences of polio have occurred among Muslim children, although they constitute 13% of the population. World wide, polio has resurfaced in about 25 countries, in the last few years, from a low of 7 in 2003. Some believe that a campaign by Islamic clerics who are warning people against the vaccine, painting it as a US conspiracy to sterilize the youth and perhaps even spread AIDS. The terrible disease has now jumped from Nigeria to Yemen to Indonesia.

The price of medicine is only one component of the total health care system. Health care delivery depends on a range of related resources – trained manpower, diagnostic facilities, pathological laboratories, treatment, monitoring of medication, supply of medication, access to health clinics, insurance, logistics such as cost of transportation, etc. In the absence of this functioning chain, it is folly to believe that medicine, or its price, is the magic bullet for patients. Some health experts are beginning to realise that even if medicines are available for free, these would still not be accessible to many who need it the most.

India’s health care sector is sick. No amount of politically convenient assaults on multinational pharmaceutical companies will help improve the health of health care system in India or other developing countries. Over 80% of drugs sold in the Indian market are made by local companies, yet 70% of Indians have no access to them. We need to ask why a bottle of Coca Cola is more easily available in some of the remote villages in India than a pouch of ORS.

Friday, December 1, 2006

IPN to Participate In Montreal COP-11 Climate Meeting: 'Global Climate Control Not Cost Effective– Will Undermine Sustainable Development'

My IPN Press release titled IPN to Participate In Montreal COP-11 Climate Meeting: 'Global Climate Control Not Cost Effective– Will Undermine Sustainable Development' was published on International Policy Network on December 1 2006

London, 1 December: Environment ministers from around the world will gather in Montreal, Quebec, next week at the COP-11 climate change meeting.

International Policy Network will send four individuals to Montreal to participate in COP-11 from 5 to 9 December:

• Kendra Okonski, Environment Programme director of IPN
• Oliver Hartwich, Research Fellow, IPN
• Barun Mitra, director of the Liberty Institute in New Delhi, India
• Juan Carlos Hidalgo, Costa Rican- based policy analyst and IPN Research Fellow.

These individuals share the view that attempting to control the climate through mandatory restrictions on carbon emissions, through the Kyoto Protocol or similar measures, would be harmful and counterproductive for both wealthy and poor countries.

Ms Okonski explained, “Democratically deficient organizations such as NGOs, the EU and the United Nations continue to claim that we must have climate control through the Kyoto Protocol or ‘a son of Kyoto’. But as EU countries have already experienced, attempts at climate control increase the price of energy, which harms the poor and vulnerable, and reduces economic growth. Climate control causes more harm than good.”

Barun Mitra concurred: “Poor countries, such as my native India, are being pressured by unaccountable bureaucrats and green organisations to sign up to ‘climate control’. But India, China and other poor countries are ill-advised to sign up to emission restrictions through the Kyoto Protocol, or any other agreement.”

Mitra explained: “Restricting greenhouse gas emissions in poor countries would not save lives. Instead, it would cause economic stagnation, which would perpetuate poverty and exacerbate current environmental problems in poor countries. For the benefit of people and the environment, poor countries must urgently develop their economies, which will require consuming more – not less -- energy. “

Ms Okonski concluded: “Adaptation is a better policy to address climate change. It would deliver short- and medium- term benefits – especially for the poor -- while reducing our vulnerability to climate-sensitive problems in the future.”

Tuesday, August 15, 2006

Sell the tiger to save it

WHICH country is thinking about applying free-market principles to wildlife preservation and, in the process, improving the survival chances of a long-endangered species while giving its economy a boost? Communist China, of course. In this article, "Sell the tiger to save it", published in the New York Times, on 15 August 2010, I propose that we harness the power of commerce for the cause of conservation of tigers.

China joined the international effort to protect the tiger in 1993. But today there is a growing recognition among many Chinese officials that a policy of prohibition and trade restrictions has not benefited the tiger as much as it has helped poachers and smugglers of tigers and tiger parts.
Conservationists say the worldwide illegal trade in forest products and wildlife is between $10 billion and $12 billion, with more than half of that coming from Asia.

Of the planet’s estimated 5,000 wild tigers, about 75 percent are in India, which, like most nations, believes that commerce and conservation are incompatible. Only a relative handful of tigers — probably a few dozen — can be found in China’s forests. (The United States is home to some 10,000 tigers, owned by zoos and private citizens.) The tiger, in short, is still staring at extinction.

But like forests, animals are renewable resources. If you think of tigers as products, it becomes clear that demand provides opportunity, rather than posing a threat. For instance, there are perhaps 1.5 billion head of cattle and buffalo and 2 billion goats and sheep in the world today. These are among the most exploited of animals, yet they are not in danger of dying out; there is incentive, in these instances, for humans to conserve.

So it can be for the tiger. In pragmatic terms, this is an extremely valuable animal. Given the growing popularity of traditional Chinese medicines, which make use of everything from tiger claws (to treat insomnia) to tiger fat (leprosy and rheumatism), and the prices this kind of harvesting can bring (as much as $20 for claws, and $20,000 for a skin), the tiger can in effect pay for its own survival. A single farmed specimen might fetch as much as $40,000; the retail value of all the tiger products might be three to five times that amount.

Yet for the last 30 or so years, the tiger has been priced at zero, while millions of dollars have been spent to protect it and prohibit trade that might in fact help save the species. Despite the growing environmental bureaucracy and budgets, and despite the proliferation of conservationists and conferences, the tiger is as close to extinction as it has been since Project Tiger, a conservation project backed in part by the World Wildlife Fund, was launched in 1972 and adopted by the government of India a year later.

If we truly value the tiger, this crisis presents an opportunity to help it buy its way out of the extinction it now faces. The tiger breeds easily, even in captivity; zoos in India are constantly told by the Central Zoo Authority not to breed tigers because they are expensive to maintain. In China, which has about 4,000 tigers in captivity, breeding has been perfected. According to senior officials I met in China, given a free hand, the country could produce 100,000 tigers in the next 10 to 15 years.

(Disclosure: I have been writing on tiger conservation for more than 10 years, and over the course of that time have suggested using the power of commerce to save the tiger. Earlier this year, I was invited by the State Forestry Administration of the People’s Republic of China as part of an international group to learn about the Chinese perspective on the issue; the agency paid for my airfare and accommodations.)

Wildlife farming and ranching could potentially break the poverty trap that most forest villagers find themselves in. In Zimbabwe, before the current spiral into chaos, villagers had property rights on the wildlife in the forests around them, and they earned revenue by selling a limited number of hunting licenses. They had a stake.

At present there is no incentive for forest dwellers to protect tigers, and so poachers, traffickers and unscrupulous traders prevail. The temptation of high profits, in turn, attracts organized crime; this is what happens when government regulations subvert the law of supply and demand.

But tiger-breeding facilities will ensure a supply of wildlife at an affordable price, and so eliminate the incentive for poachers and, consequently, the danger for those tigers left in the wild. With selective breeding and the development of reintroduction techniques, it might be possible to return the tiger to some of its remaining natural habitats. And by recognizing the rights of the local villagers to earn legitimate revenue from wildlife sources, the tiger could stage a comeback.
Market economics greatly favor the tiger. If China decides to unleash the tiger’s commercial potential, the king of the forest might be more secure in his kingdom.

Barun Mitra is the director of Liberty Institute, a research organization that promotes free-market economics.

Sunday, July 23, 2006

Reviving classical liberalism

Sweeping through 2,000 years, Deepak Lal performs the vital task of making history relevant for contemporary world. I look at Prof Lal's "Reviving the Invisible Hand: The case for classical liberalism in the twenty-first century" in the Financial Express, on 23 July 2006.

The trade negotiations at WTO are stalled. Clearly, ten years on, the multi-lateral platform provided by WTO has run out of steam. The focus has shifted to bilateral or regional trade talks, but this is fraught with many pitfalls. So, a few people, including this author, have been calling for unilateral trade liberalisation and economic reforms as a way to capitalise on the economic follies of nations who prefer protectionism.

It is perhaps a coincidence that Deepak Lals latest book Reviving the Invisible Hand: The case for classical liberalism in the twenty-first century appeared at this time. Lal, a renowned development economist, has given a clarion call for unilateral trade and economic reforms. Sweeping through 2,000 years of history, particularly focussing on the past two centuries, Lal performs the vital task of making history relevant for the contemporary world

In Chapter Three, looking at the history of trade, Lal divides the past 200 years into four stages. In the 19th century, the case for free trade was seen as a special case of the argument for laissez faire. In the first half of the next century, the case for free trade was increasingly qualified, and numerous arguments for protectionism emerged. Since the late 1950s, in the third stage, the link between trade and laissez faire was broken with the rise of social democratic idea. Today, Lal argues that the time for the fourth stage has come with the need to restore the case for laissez faire along with free trade.

Ridiculing the idea of fair trade, Lal outlines how the idea arose in the US in 1970 to counter Japans rise, and the same notion is being used by many others to counter the rise of China and other developing countries. Lal explodes the myth of the race to the bottom, and strongly endorses the demand for social standards in the WTO as just high-minded arguments for protectionism.

Lal acknowledges that despite the economic illogic of the GATT and WTO processes, based on looking at trade as a zero sum game, it has been able to remove some of the worst forms of protection. But he credits this to the US support for multilateralism. Lal explains this shift in sentiments in many developed countries to the shift in labour laws and demographics. This has made the workforce more rigid, unable to quickly acquire the skills necessary to keep pace with competition induced by trade, and technological change. Consequently, political opposition to liberalisation has risen in the West.

Lal devotes two more chapters to explaining this opposition to trade and globalisation. In Chapter Seven, he argues that with the collapse of socialism in 1989, an insidious collectivist virus has spread across the world seeking to destroy capitalism by providing it with human face.

He draws a distinction between the classical liberal tradition of English Common Law and the infinitely expansive Continental (European) Public Law tradition. In the former, rights arise as the other side of a voluntary agreement between two parties, where the list of prohibited actions are limited to those causing harm to the other side, therefore limiting the scope of disputes over the permissible actions by one or the other side. In contrast, the Continental tradition requires agents to get permission to undertake feasible actions, and since the possible feasible actions are infinite, such a system of endless rights inevitably leads to endless disputes. Lal concludes that these socialist impulses are atavistic. He urges the state to restrict itself to providing public goods which are essential part of the infrastructure for efficient globalisation, upholding its citizens liberty to undertake any feasible action which does not do anyone else any harm, and which does not renege on obligations. All other aspects of morality are best left to the family and other civil society institutions.

The only point I may add to this very limited yet powerful recommendation is that with the advances in economics and technology, the scope of public goods tend to shrink, while expanding the scope for private action even more.

In Chapter Eight, Lal goes to battle against a myriad of non-governmental organisations (NGOs), the storm troopers of the anti-globalisation movements. Tracing the roots from De Tocqueville view that voluntary civil society associations were identified as being the most important for maintaining democracy in America, Lal notes Mancur Olsons criticism of the benign pressure groups. He accuses them for reflecting the ideals of the global rich even while claiming to speak for the poor. Buying respectability with the enormous funds at their disposal, and without being accountable to the people whose interest they claim to champion, Lal writes that the interests of these NGOs lie in creating scares to maximise their income. Lal spends a few pages looking at various environmental scares from DDT to global warming to genetically modified crops and concludes that the green movement is a modern secular religious movement engaged in a worldwide crusade to impose its habits of the heart on the world. Its main target is to prevent the economic development which offers the worlds poor any chance of escaping poverty.

Lal continues to provoke throughout the book. To this reviewer, one such question is in Lals conclusion, democracy may be a preferred form of government as it promotes the valuable end of political liberty, its instrumental use to promote prosperity may well backfire. To Lal, who traces the relationship between good governance and prosperity to the classical liberal fathers (David Hume and Adam Smith), what matters for development is not political but economic liberty, and for that a state which views itself as a civil association.

Democracy and marketplace need not be viewed in isolation. If economic liberty is not manipulated to accommodate an inflation of pseudo-political rights, and political freedom is not sacrificed for the sake of personal economic aggrandisement, then in the convergence of political freedom and economic liberty, the 21st century might be seen to be the true progeny of the 19th century classical liberalism.

Those who fail to appreciate history are prone to repeat the same mistakes, whose costs are rising and the poor are paying with their lives for the follies of policy makers.

This book should help clear away the intellectual cobwebs and empower policy makers to initiate some of the pressing reforms with conviction. The book brings crucial economic history back to life.

Friday, April 7, 2006

Submission To DFID Consultation

My article titled Submission to DFID Consultation on International Development was pubilshed on International Policy Network on April 7, 2006.

1. What determines economic success and promotes economic growth in poor countries?
¡ñ How do factors such as a government¡¯s macroeconomic policy, investment, trade, the environment, or regional markets and institutions affect the private sector¡¯s ability to raise the levels of growth?

¡ñWhat are the obstacles to growth and how can they be removed?
9. How can the UK Government make sure that international trade negotiations deliver the benefits needed for developing countries?

¡ñHow can trade barriers be broken down so that developing countries get better access to regional and international markets?

The three factors that primarily affect economic performance in poor countries are weak rule of law and enforcement of property rights, rising levels of regulations that reduce competition and increase the cost of entrepreneurship, and finally, the institutionalization of political patronage and inevitable ensuing corruption. All the three factors are related in the sense that one invariably leads to the others.

At the root of this triad, is the belief that coercive power of the government needs to be mobilised to direct economic relief to the poor. This provides the basis for political intervention in the economy in order to correct for perceived inadequacies. This creates an environment where businesses must respond by seeking political patronage or protection, which encourages the spread of corruption, depending on the degree to which political intervention encroaches economic affairs. Political interventionists seek to overcome the resultant economic inefficiencies through macro-economic intervention.

The resulting inflation becomes a hidden tax on the poor to perpetuate privileges of the elite. Inflation on a large scale discourages investment climate and promotes capital flight. Without the ability to invest, the private sector can no longer promote economic growth. As political intervention is now firmly entrenched, the typical reponse is to impose further restrictions on capital movement and also increase trade restrictions, both of which only further distort the economy.

Technically, it is possible to argue that insulating the economy from political intervention will go a long way in eliminating these obvious distortions and pave the road for economic growth. However, without popular mandate, political authorities have neither the incentive nor the ability to break cosy relationship with vested interests. Therefore it is important to have a competitive political democracy, where political authorities must seek the mandate of the people and the political space exists for more creative political entrepreneurs to reach out to the people and build new political constituencies in support of the necessary reforms.

Without this political space, the sustainability of economic reforms will always remain in doubt. Therefore, it is important to understand the political economy of reforms, and factors that may shape an environment conducive for economic growth.

On the subject of trade, the WTO Ministerial Summit in Hong Kong provides another opportunity to examine what factors stimulated economic growth in the Special Administrative Region (SAR) area. The comparison with India have useful illustrations. While Hong Kong has far fewer natural resources than India, it is a far wealthier economy and boasts far more diverse sources of wealth creation and economic development. Hong Kong unilaterally embraced free trade and opened its borders to the outside world, based on the understanding that trade between people is not a zero sum game, but a process that leaves both parties, engaging voluntarily, better off.

However, India toyed with the belief that it had to develop internally before it could integrate itself with the outside world. After decades of attempts at self-sufficiency, Indian policymakers made substantial reforms after 1991. The reforms admitted that high trade barriers depressed growth and proved that attempts through government-supported industrial development to alleviate the country¡¯s substantial population living in absolute poverty were counterproductive.

Trade barriers are gradually coming down through the multilateral WTO process and entrepreneurial Indians are beginning to seize the opportunities a stable economic environment can bring. The benefits of lower trade barriers accrue not just to the entrepreneurial class, but to all Indians engaging in wealth creating activities. These are reducing poverty and providing more opportunities in order to ensure the Indian economy becomes less reliant on basic agriculture and is able to move into higher value-added economic activity. This proves the benefits of trade liberalisation are greatest for the 600 million Indians who currentlyhave no other choice but to rely on basic agriculture both as employment and subsistence.

Freer trade is a necessary but not a sufficient condition for sustainable economic development. The success of Hong Kong, which embraced unilateral free trade and other economic freedoms, as compared to India, which did not, not only illustrates this but also provides a guide for how trade negotiations should proceed at the bilateral and multilateral level. The free trade policy of Hong Kong was backed by a respect for the rule of law, strong and well-defined property rights, macro-economic stability, and minimal political intervention in the economy.

As one of the most influential countries in trade discussions, the UK has the opportunity to transfer this empirical evidence to the poorest ¨C and most protected ¨C countries in the world.

Friday, March 24, 2006

In abundance, scarcity

My article titled In abundance, scarcity was published on International Policy Network on March 3, 2006.

ONE fifth of Earth's inhabitants lack access to safe drinking water and two fifths lack adequate sewerage.

But it is neither scarcity nor overpopulation that makes this abundant natural resource an increasingly scarce commodity: it is the heavy hand of government.

Even India's north-eastern state of Assam - one of the wettest places on earth - suffers periodic bouts of government-induced water scarcity.

Yet Australia, the driest place on Earth, exports agricultural produce.
People are paying the price for this, and the poorest are paying with their lives.
For the past week, thousands of officials, researchers, businesses and international agencies have been meeting at the fourth World Water Forum in Mexico City.

This year's slogan is "local action for global challenges" and it might contain the beginnings of a push for local initiative to replace government monopoly.

These global jamborees do at least draw attention to the size of the crisis at hand and we hear that water scarcity will cause an increasing number of local conflicts around the world.
But wars aside, dirty water and bad sewerage contribute every day to the diarrhoea and malaria that kill more than three million people, mostly children, each year.

Blaming everything from population growth to commercial interests, those attending frequently exhorted governments to show leadership and galvanise political will to ensure more equitable access to water.

But few noted that government control itself has caused and perpetuated scarcity.
Mexico City faces an enormous water crisis, like many other cities in poor countries.
Their pipes are decrepit and failing, leading to huge losses, both financially and physically.
The systems do not generate enough revenue to cover their costs, so they cannot maintain their infrastructure, let alone invest in wastewater treatment or resource conservation.

At the same time, many cities provide a subsidy to households: most cities in Mexico charge a price which is ten times less than their costs; New Delhi's water is free, when you can get it.
Yet these subsidies do not help the poorest.

They may help wealthy people with swimming pools but the poor are lucky to get one hour of municipal water a week.

Many individuals, entrepreneurs and communities are refusing to wait for government to fulfil its empty promises and fill their empty pipes.

Countless private initiatives in India, Africa, Latin America and Asia are already sustaining local markets and improving access to water for millions of people, including the poorest.
For instance, farmers in Coimbatore district, in the southern Indian province of Tamil Nadu, sell water to the clothing industry in Tirupur.

This town has over 9 000 small textile units and contributes 56 per cent of India's cotton-knitwear exports.

It is no surprise that farmers are happy to sell groundwater to industry: they earn more money by selling water than they earn from producing crops.

But this is a rare instance of poor people owning their own water and being free to use it to their best advantage.

In Delhi's slums, "informal" entrepreneurs have responded to the demand for reliable water, supplying water from a borehole through a small pipe network which connects 50 to 100 dwellings.
The households pay a fee to the supplier, who assures water half an hour at least twice daily.
These informal local water entrepreneurs could easily become the nodes for the city's water authority to distribute water more widely, collect the rates and prevent leakage - around 40% of municipal water in Delhi's gravity-fed system is wasted or lost.

But they are illegal, "informal" and discouraged by government monopolies and the law.
Governments, like any monopoly, have no incentive to preserve, develop or innovate.
People do, given half a chance: that chance means giving them property rights and free markets, causing competition, efficiency and innovation to match local demand.

The end result would be that private entrepreneurs of all sizes and public agencies would compete against each other to provide this most vital of elements - and water scarcity would be no reason for anyone to go thirsty or go to war.

Thursday, March 23, 2006

Water: Scarcity In Plenty

Individuals, entrepreneurs and communities are not waiting for government to fulfill empty promises and fill empty water pipes. Private initiatives in India, Africa, Latin America and Asia are already sustaining local markets and improving access for millions.

My article titled Water: Scarcity in plenty was published in Business Day on 23rd March 2006.

A fifth of the earth's inhabitants lack access to safe drinking water, and two-fifths lack adequate sewerage. But it is neither scarcity nor overpopulation that makes this abundant natural resource a scarce commodity: it is the heavy hand of government.

India's northeastern state of Assam ó one of the wettest places on earth ó suffers periodic bouts of government-induced scarcity. Yet Australia, the driest place on earth, exports agricultural produce.

For the past week, thousands of officials, researchers, businesses and international agencies have been meeting at the fourth World Water Forum in Mexico City. This year's slogan is Local Action for Global Challenges, and it might contain the beginnings of a push for local initiative to replace government monopoly.

Blaming everything from population growth to commercial interests, few noted that government control itself has caused and perpetuated scarcity.

Individuals, entrepreneurs and communities are not waiting for government to fulfil empty promises and fill empty water pipes. Private initiatives in India, Africa, Latin America and Asia are already sustaining local markets and improving access for millions.

Farmers in Coimbatore district, in the southern Indian province of Tamil Nadu, sell water to the local clothing industry. It is no surprise that farmers are happy to sell groundwater to industry: they earn more by selling water than from producing crops. But this is a rare instance of poor people owning their water and being free to use it.

In Delhi's slums, 'informal' entrepreneurs have responded to the demand for reliable water, supplying it from a borehole. These local entrepreneurs could easily become the nodes for the city's water authority to distribute water more widely, collect the rates and prevent leakage ó about 40% of municipal water in Delhi's gravity-fed system is lost. But they are illegal and discouraged by government monopolies.

Governments, like any monopoly, have no incentive to preserve, develop or innovate. People do, given half a chance: that chance means giving them property rights and free markets, creating competition and efficiency to match local demand.

The result would be that private entrepreneurs of all sizes and public agencies would compete against each other to provide this most vital of elements ó and water scarcity would be no reason for anyone to go thirsty or go to war.

Governments Restrict Access to Healthcare and Prevent Medicine Development

My IPN press release titled Governments Restrict Access to Healthcare and Prevent Medicine Development was publishedon International Policy Network on March 23rd 2006.

London: 50 per cent of people in parts of Africa and Asia have no access to medicines due to harmful government policies, reports the Civil Society Report on Intellectual Property, Innovation and Health. The document produced by 16 civil society organizations from around the world, is being released ahead of a report on a similar theme from the World Health Organization.

Examples of harmful government interventions identified in the report are:

Taxes and tariffs of up to 55 per cent on imported medicines price people out of treatment.

Byzantine and costly registration requirements mean many medicines already approved in the US, EU and Japan are simply not registered in most poor countries because manufacturers cannot justify the investment in registration.

Health insurance is hampered by government regulations, so the poor are unable to obtain insurance and are only able to pay for treatments if they have sufficient savings, or must rely on charity or meagre government healthcare provision.

Price controls - which proponents claim benefit the poor - actually reduce the availability of drugs, especially in distant rural regions, by making it uneconomic for pharmacies to stock them. Even in relatively wealthy South Africa, price controls have led to the closure of scores of rural pharmacies - leaving thousands of poor people without any access to medicines at all.

Inadequate protection for intellectual property in poor countries undermines incentives to invest in R&D for the diseases of poverty by making it more difficult to recover costs. The report found no evidence that intellectual property protection had hampered access to medicines.

Low pay and poor conditions at government run hospitals and clinics mean that a large number of trained medical professionals (doctors, nurses, etc.) have emigrated to wealthier countries with better healthcare systems.

The Civil Society report was motivated in part by a concern that the WHO's Commission on Intellectual Property, Innovation and Health, would not address these fundamental issues because of concerns about the response of member governments.

Barun Mitra (Liberty Institute, India), one of the lead authors of the report, said:

"Our report shows that, when it comes to medicines for the diseases of poverty, governments are the main barriers to access and innovation. Intellectual property is an important driver of innovation but in poor countries governments currently prevent people from accessing cheap, generic medicines that could cure many of the diseases they face. In such circumstance, what is the point of producing new drugs for these diseases? Governments must remove the taxes, tariffs and regulations that prevent the sick from getting treatment."

Saturday, January 14, 2006

Recycling: Breaking set notions over ship-breaking

There is a fine difference between a resource and waste. A waste becomes a resource when someone is willing to pay the owner to acquire it; it remains a waste if the owner has to pay someone to dispose of it. I look at the debate over ship-breaking in this article, "Breaking the set notion", published in the Hindustan Times, on 13 January 2006.

More than 150 years ago, the French economist and legislator Frederic Bastiat had written “There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.” The present debate over the decommissioned French aircraft carrier, Clemenceau, being sent to Alang in Gujarat for dismantling and recycling highlights the relevance of Bastiat’s idea of “what is seen and what is not seen”.

Clemenceau is a 265-m long ship, weighing about 26,000 tons. Recycling it could open new opportunity for Indian ship-breakers. And the environmental risks and labour safety can only be dealt with by becoming a more efficient recycler. A portion of the higher productivity and income can be used to take care of the environmental fallout, and protect the workforce.

There is a fine difference between a resource and waste. For instance, most readers of newspapers in India sell old newspapers to local vendors for reuse or recycling. But the same readers have to pay their garbage collectors to clear their kitchen wastes or scraps of paper and plastics. Therefore, a waste becomes a resource when someone is willing to pay the owner to acquire it; it remains a waste if the owner has to pay someone to dispose of it. Generally the volume and utility of the recyclable or reusable material determines the economics of whether it will remain a waste or graduate into a resource.

Ship recycling is a major component of international trade. In the Nineties, Lloyd’s of London estimated that over 7,200 ships, amounting to about 83 million gross registered tons (GRT) were recycled in the decade. Over the past two decades, India, along with Bangladesh, China, Pakistan and a few others, has emerged as one of the major players. But of late, there has been growing pressure on India to restrict this sector. Clemenceau is, of course, only the latest of the ships sent for scrapping that has to negotiate the turbulence created by western environmental groups. A year ago, there was the debate over a Danish ferry that was dismantled in Alang.

Shipyards and labour unions in rich Western countries are understandably concerned that the ship recycling sector has shifted to developing countries where labour costs are much lower. In the Nineties, the US stepped in with billions of dollars in subsidies to help its own shipyards dismantle their own navy ships. Yet by 2000, there were over 400 decommissioned US Navy ships whose fate was undecided. According to a Rand Corporation report a few years ago, the US would have needed $ 3.6 billion in 2000 to recycle these ships domestically. The cost of recycling per ton of light ship weight (LSW) could be as high as $ 680 in US. In contrast, the cost of recycling these ships in developing countries would at most be $ 170. Labour costs in rich and poor countries explain most of this cost differential. While typically, in US shipyards, labour costs range between $ 40-45 per hour, in India wages range between $ 0.25 to $ 1 per hour.

A French company was originally entrusted to clean up the asbestos from the aircraft carrier for a fee of 3 million euros. The company now says that the ship contains much more asbestos, and would have needed 6 million euros to completely remove all the asbestos. Environmental groups have seized on this claim to argue that the ship carries anything between 500 and 1,200 tons of asbestos.

There can’t be a clearer instance of the lure of subsidy uniting a company engaged in the clean-up of Clemenceau, with environmentalist groups. Both are using the loss of French jobs and Indian environmental pollution as fig leaves to cover their own financial and political interests.
Asbestos is a very useful material used for roofing as well as insulation. In its normal usage, asbestos is as safe as any other material. But it could pose a health hazard to workers engaged in removing asbestos from old equipment. But this is not rocket science, and protective gears for workers and containment strategies to hold the asbestos dust can easily be achieved.

Clemenceau could show how both the economic and environmental concerns could be taken care of. Recyclers in India have paid for the steel and other economically valuable material from the ship. And France could, at a fraction of the money it has paid to its own company, get the ship-breakers in India to adopt appropriate technologies to reduce exposure to workforce and lower environmental pollution. Both sides will benefit from such a deal.

Tuesday, January 3, 2006

China and India Move in Radically Different DirectionsThe "Project Tiger" was launched thirty years back. But, there are only a few thousand tigers in

The "Project Tiger" was launched thirty years back. But, there are only a few thousand tigers in the wild, and half of them are in India. The policy of prohibition of trade has hurt tiger conservation in India. The situation is similar in China. The officials of China are are considering harnessing a limited form of commerce for the cause of tiger conservation. At the same time, in India, the tiger crisis has expanded India’s bureaucracy.It is necessary to have a successful wildlife economy to build awareness of the value of environmental resources.This will result in the thriving of legal trade.

My article titled China and India Move in Radically Different Directions was published in Perc in Fall 2006.

NEW DELHI, INDIA—More than thirty years after the launch of "Project Tiger," the most high-profile conservation program in the world, barely 5,000 to 6,000 tigers are left in the wild, over half of them estimated to be in India.

Since the 1970s, India has enacted tough laws and mobilized huge resources to stop hunting and trading in tiger parts. But the policy of prohibition has not secured the future of tigers. "The conflict has led to emotional, seemingly intractable debates over the central question of tiger conservation in India: Can tigers and people live together?" writes Erika Check in the scientific journal

China, too, faces a tiger crisis. During Chairman Mao Zedong’s rule, tigers were considered a great pest, and people were encouraged to kill them. Today, China has only 20 or 30

tigers left in the wild. Yet the demand for tiger parts, particularly the bones, is greatest in China. Tiger bones are used to treat severe arthritis in traditional Chinese medicine, a practice that can be compared to the use of animal-based insulin in the West in the recent past.

For many years, the dominant thinking among conservationists has been that the demand for tiger parts, whether for medicine, fashion, or hunting, is the major cause of decimation of the wild tiger population. Believing that humans and wild animals cannot coexist, conservationists have sought to isolate wildlife in nature reserves, demanded prohibition on hunting and trade, and tried to prevent humans from degrading the reserves.

Reflecting this philosophy, the Convention on International Trade in Endangered Species (CITES) began restricting commerce in many animal and plant species in 1975. Project Tiger, which started in 1972, attempted to enforce a total prohibition on hunting and trade in tiger parts. In addition, it created a system of tiger reserves, beginning with nine sanctuaries, totaling 27 today.

Now, although this policy of prohibition has not worked, many loud voices call for even stricter prohibition and harsher enforcement. Some have urged the Indian government to enlist the army to protect the tigers. Supporters of such policies come from conventional conservationists in the so-called Free World, particularly in countries where tigers never roamed. The Worldwide Fund for Nature and various other wildlife and tiger conservation groups seek to capitalize on the pro-tiger sentiments in rich countries. Indeed, the tiger crisis is a source of funds and prestige for these organizations.

Countering this view has been a strong undercurrent of dissent. PERC, for example, has been at the forefront in arguing that with proper incentives, property rights, and markets, commerce could be the biggest contributor to conservation through sustainable use.

China's Emerging Policy

Ironically, although China is still a communist state, its officials are considering harnessing a limited form of commerce for the cause of tiger conservation. Chinese officials have started experimenting with radical policy options. One of these is cap-tive breeding of tigers.

Over the past decade, special tiger breeding bases have been set up under public and private management. More than 4,000 tigers are in captivity in China today, and an effort is underway to build a genetic profile of every tiger in captivity so that the number of pure subspecies can be documented and increased. This will enable breeders to meet the international demand for pure-bred tiger cubs and young adults of particular subspecies such as the South China, Siberian, or Bengal tiger.

China has about twenty tiger breeding facilities today. Most of them are small farms, but even larger ones cannot support the cost of raising tigers through tourism alone. If tigers were bred for markets, the story would be different.

An adult tiger leaves behind about 12–15 kilograms of dry bones, which could sell for US$500–$1,000 per kilogram. Most other parts of the tiger, from its whiskers to its penis, are valuable, perhaps worth another $20,000. Thus, a tiger could generate revenue of $35–40,000 to the breeder. The cost of feeding tigers could be reduced substantially by providing low-cost wildlife as feed, rather than the commercial meat that is used now. Additional revenues could come from zoos and circuses buying pure-bred subspecies.

China has created a legal domestic market for some wild-life products like ivory and musk. A computerized documentation procedure tracks them through their manufacturing and marketing to separate legal and illegal products. China could test the effectiveness of the monitoring system using authorized tiger bones from existing stockpiles and assess the possible impact on wild tigers elsewhere.

China is also experimenting with reintroduction techniques in South Africa under a public-private partnership. With the cooperation of Chinese authorities, Li Quan, director of Save China’s Tigers, has exported a few tigers to a large fenced-in wilderness area in Lohu (Tiger) Valley, South Africa. Her aim is gradually to train the tigers to hunt and rediscover their natural survival instincts. A couple of generations later, the tigers born in this reserve could be released into designated tiger reserves in China. This is a daring experiment considering that there has been only one recorded instance of a captive-bred tiger being released in the wild in India in the late 1970s; the controversy that it generated—over whether the tiger marauded villages and whether it introduced non-native tiger genes into the native tiger population—has still not been settled.

India's Failed Policy

The contrast between China and India could not be more glaring. Rather than causing a reassessment of policies, the tiger crisis has expanded India’s bureaucracy. Egged on by environmentalists, officials are calling for greatly enhancing the policing of parks and for modern equipment to identify and pursue suspected poachers. There are news reports of enlisting even the Indian army to protect the tiger.

The result of this policy has been the loss of tigers, not their protection. According to a recent official report, an estimated 112 tigers were killed by poachers between 1999 and 2003 and the figure may be many times higher, according to environmentalists. During this period, over 411 cases were filed regarding the death of tigers and seizure of tiger-related products, but not one has led to a conviction. Furthermore, the economics of poaching are extremely attractive. A dead tiger fetches between $60,000 and $160,000 at the retail markets in Southeast Asia, and a poacher may secure the help of forest villagers in tracking down a tiger for as little as $25 to $50.

If we truly value the tiger, we need to explore the tiger’s commercial potential. By harnessing the real economic value of tigers and other forest produce, we may make the tiger earn its keep, and avoid the specter of extinction of this magnificent species in the wild.

A tiger farm would dovetail very well with deer or crocodile farms, which already exist in different parts of the world. Indeed, crocodile farming is a multimillion-dollar industry, with an estimated 2 million crocodiles providing leather products each year. The countries that have facilitated commerce in crocodiles have abundant crocodiles. In contrast, India has refused to legalize crocodile farming for almost two decades, and crocodiles continue to live on the edge of extinction in Indian waters.

An integrated approach would facilitate the supply of low-cost meat to the carnivores, lowering the production costs. Such farming could transform the economies of many rural and poor communities, and the pressure on the natural environment of the forests would greatly diminish.

The tiger, which is at the top of the food chain in its ecosystem, would be at the top of the economic ladder because of its market value. Among the results we can expect from breeding tigers to reduce poaching in the wild:

* The pressure on wild tigers will go down, attracting more tourists to sanctuaries to see this majestic animal in its natural setting.
* The sale of farmed tigers will reduce the incentive for smugglers to kill wild tigers.
* Scientists and wildlife managers will improve their breeding, management, and rehabilitation methods for tiger reintroduction; forest dwellers, who have detailed knowledge of their natural surroundings, will facilitate wildlife management.
* Rural populations will change their incentives. Villagers who are often lured by smugglers into killing a wild tiger for a few dollars, will now defend their new environmental assets, because a live tiger will be more profitable to them than a dead one.
* In addition to attracting tourists through reduced pressure on wildlife, the farms can attract sportsmen through selective allocation of hunting licenses.
* As trade and marketing channels develop for both consumptive and non-consumptive use of tigers, investment in better technologies and management practices will take place. National and international brands will appear. Tourism will increase.

A successful wildlife economy will help build awareness of the value of environmental resources. The price of the tiger in the black market will collapse, and legal trade will thrive. Investment will improve the productivity of wildlife farms, and assured supply and low prices will take the pressure of the wild tigers, allowing their numbers to revive.

Nothing would help the tiger and the other resources of our forests more than giving forest dwellers a stake in the resources in their vicinity and the opportunity to make a profit from them. A legal framework for tiger breeding would help resolve the conflict between the people and animals that has contributed to the tiger’s drastic decline. Once people can profit from these resources, they will have the incentive to optimize the use of the resources. It is mostly forgotten that forest and wildlife, including tigers, are renewable.

Under such a framework, rather than being in conflict, humans and animals would both prosper. Commerce could be the most powerful ally of conservation.