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‘’’’’’’’’’ A CITIZEN’S GUIDE TO
To my son, Gaurav. And to his entire generation: THE PRECIOUS KNOWLEDGE OF FREEDOM. Now first study it and convince yourselves that you need Liberty in order to flourish. And that without Liberty, you are doomed. Then, put everything else aside and fight for freedom, obtain it, and carefully preserve it. Thereafter, hand it down to those who come after you. With these words: ETERNAL VIGILANCE IS THE PRICE OF LIBERTY
© Sauvik Chakraverti, 2005
40/25, CR Park, New Delhi – 110 019, INDIA Phone: 91-11-51603974 Mobile: 91-11-98108 43891 E-mail: email@example.com
Teach your children well… GRAHAM NASH
And if I don’t make it, You know my baby will… BOB DYLAN
If you are a big tree, We are a small axe… BOB MARLEY
There are three things we leave behind us after we die: Our knowledge Our charity And our righteous children. THE PROPHET MUHAMMAD Peace be upon him
May you grow up to be righteous, May you grow up to be true… BOB DYLAN
Push the tempo FATBOY SLIM
The great Bonny Thomas, on illustrations,
(Kind courtesy The Economic Times)
Our very own Dorothy Parker, Varuna Mohite, with her wicked verse, Poornima Joshi, who created the design and layout, and Bhuvana Anand Priyanka Chauhan Tappi Koppikar Sujatha Muthaiya Steven Rudolph & Sudha Shenoy all of whose comments helped develop the script.
Introduction Chapter One: Know Thyself On Kaka… and my Enlightenment! Chapter Two: Population Causes Prosperity Liberals Must Dump Gandhi! May Our Tribe Increase! On Menger’s Law… and Children The Reverend Thomas Robert Malthus’ “Dismal Science” Chapter Three: Why Political Markets Don’t Work Statutory Warning! Socialist Democracy Is Very Bad For Your Health! (You’d Be Better Off Chain Smoking!) Chapter Four: Public Goods And State Failure Chapter Five: The Case For Unilateral Free Trade Weird Scenes Inside The Gold Mine: “The Wall” in Mangalore On Scarcity… and Abundance Chapter Six: Sound Money – 1 How Humans – And Not Governments – Invented Money Chapter Seven: Sound Money – 2 Credit Creation And The Evil That Is Political Banking How an important lesson was taught Chapter Eight: Employment
Broken Windows: Anatomy Of Public Enemy #1 Caste… And The Market Economy Chapter Nine: Poverty Chapter Ten: Environment Chapter Eleven: Bureaucracy And The Future Of Public Administration Guildhalls First! Reconstructing Westminster-style Democracy
Jai Vyapari? Or Jai Jawan? (Plus 3 great songs from the 60s – and one lesser known Floyd)
Chapter Twelve: Knowledge Liberty First! We Don’t Need No Education! The Book… And The Cook! Glimpses of Real “Knowledge” Grossly Undervalued A Man Needs A Maid Chapter Thirteen: Public Goods – 2 How To Beat The Trap And Get Them Free Chapter Fourteen: Morality & Secularism Chapter Fifteen: Liberty & Equality Freedom As The Supreme Political Value When George Orwell Found Socialist “Equality” Chapter Sixteen: Politics Ten Libertarian Principles A Prayer Before Dawn
Who is this book meant for? This book is written for those who wish to be well-informed citizens of the world’s largest constitutional democracy. The purpose of a constitution is to limit the powers of the government and make it function as per set laws, so that the people are possessed of security of life, property and, most importantly, they have the liberty to ‘pursue happiness’, as the US Constitution puts it. Indeed, the most important rights a constitution must secure for the citizenry are Liberty and Property: the King, his officials, tax collectors, and judges (and, of course, our fellow citizens) – none of them should be able to take away our Liberty or our Property arbitrarily: that alone is the true purpose of The Law. The Magna Carta was originally simply called “The Charter of Liberties” and the hapless King John, “Softsword”, as he was known, was forced to sign on the dotted line that no taxes would be imposed ‘without the common assent of the whole kingdom and for the common benefit’, that no one would be imprisoned or executed without the ‘legal judgement of his peers or by the law of the land’, and that the City of London, and all other boroughs and ports would have all their ‘ancient liberties and customs’ as well as the freedom to trade by land and sea. From that humble beginning in 1215, which evoked basic principles of the Common Law that had just begun evolving in England, that there eventually came about a Rule of Law Society, parliamentary democracy of the ‘Westminster model’ and, what is more, it was this common law that went on the build America, Canada and Australia. Succeeding English monarchs were called upon to confirm their acceptance of the Magna Carta: eventually it was confirmed at least 30 times before the close of the Middle Ages. Each confirmation was an expression of the fact that the English people wished to invoke the principles of the Common Law, which evolved out of people’s actions and the courts, under which the King would rule and they would live: in short, the fact that, like all his subjects, the King was under The Law. Over the succeeding centuries, even the few ‘royal prerogatives’ granted then were taken away. The Indian constitution, however, gives unbridled powers to the government and does not even guarantee the property rights of its citizens. Indira Gandhi could ‘nationalise’ Air India, all the banks, all the insurance companies, the coal mines and so on simply because the Constitution of India does not protect private property. This is ‘legal plunder’. When you study Civics, all that you get to know are all the POWERS OVER YOU: that is, how all the HIGH & MIGHTY OFFICES exist in The Law. There is, for example, an Article in the Constitution of India according to which officers of the Indian Administrative Service and the Indian Police Service (and the Indian Forest Service as well!) exist. Indians do not possess Liberty by The Law of the Land! They are not secure in their properties either. And, judging from the fact that death lurks at every corner on the streets and ‘highways’ of India, they are not very secure in their lives as well! This book is written especially for young readers. Anyone around the age of 14 can understand this book, perhaps with a little assistance. The purpose of aiming this book at the very young is to educate them prior to their getting the right to vote. However, this book will be useful to all citizens, be they dentists, shopkeepers or autorickshaw-wallahs: anyone who wishes to understand how the politico-economic system works will benefit from this book. It
will be of great use to managers – who need to guide a firm’s interactions with the political world. And teachers, who need to be conversant with the essential errors of socialism. Why do you REALLY need to read this book? Government-approved textbooks teach you CIVICS and INDIAN ECONOMICS. These subjects, as they are taught today in both ICSE as well as CBSE schools, do not give you a critical understanding of contemporary reality. They teach you what the socialist state wants you to believe. It would benefit you if you looked at things from a different perspective: that of the free market. This is the very opposite of state socialism. This school of thought has a very well developed critique of state socialism, which should be of interest to all citizens. For, above all, education must be liberal. That is, educators must teach the value of freedom. Only when people learn why it is in their interest to be free will they value their constitutional freedoms and seek to protect them. Freedom does not just refer to political freedom or ‘democracy’. It also refers to ECONOMIC FREEDOM, or the freedom to earn your livelihood and keep what you earn. India is ranked 120 in the 2002 World Economic Freedom Index: “mostly unfree” is the category in which we are placed, bare notches above the ECONOMICALLY REPRESSED. This is the most important cause of mass poverty. A tribal in the jungles of Central India cannot eat his vote or feed it to his family; but if he has the LIBERTY to sell the marvellous drink mahua, which is a product of his traditional knowledge, come down to him from his ancestors, he can survive pretty well. If there was free trade, then after selling a few gallons of mahua everyday for a few months, he could buy a second-hand Pajero. The dancing girls of Mumbai cannot dance to earn money, but they can vote. What is more important? The vote? Or Liberty? This book will teach you why you should be economically free and how, thereby, you yourself and the entire country will be prosperous. Remember: a free society rests on three pillars: • • • The economic freedom of the FREE MARKET The political freedom of DEMOCRACY And LIBERAL EDUCATION: that which teaches the value of freedom.
We have, in India, just one of these pillars. 1 This book is intended to strengthen the other two. What is so important about the knowledge in this book? Abraham Lincoln wrote a letter to his son’s teacher in which he asked: Teach him to listen to all men But teach him to filter all he hears
It must be noted that the Representation of Peoples Act restricts electoral competition to socialist parties only. Liberal parties are not allowed. This is, therefore, not a liberal democracy. It is a ‘socialist’ democracy of a very peculiar sort; and many ‘recognised’ parties like the BJP or the Shiv Sena have nothing to do with ‘socialism’. Officers of the Indian Administrative Service have run the entire country to the ground – but are very proud of being able to conduct elections! The Chief Election Commissioner is the only IAS officer who can lay claim to being able to do a good job! I wonder how much public money is spent on all these elections? 7
On a screen of truth, And take only the good that comes through. This book will help your mind obtain a ‘screen of truth’ with which to ‘filter’ all the information that is given to you – by the government. You will soon realize that much of what is taught to you as ‘knowledge’ is really nonsense. Let us proceed to the first instance:
CHAPTER ONE KNOW THYSELF
If you look at yourself and your friends, you will find that you have a special ability that separates you from all other living things. It is the ability to trade. In other words, the ability to barter and exchange things. This is an innate ability. Even little children who have never seen even kindergarten school, engage in gainful trade: Give me some of your chips and take a sip of my cola. This ability to trade is a gift from God to all human beings. No one has to be taught how to trade. Dennis the Menace is often found running a lemonade stall with his friend, Little Joey! Without any Bschool degree, without even kindergarten in fact, the two manage to sell lemonade @ 5 cents a glass – and make profits! On a cold and rainy night, Dennis offered Mr. Wilson a frog in exchange for a cup of hot chocolate! The ability to trade is far superior to the ability to use tools and manufacture things. Weaverbirds manufacture excellent nests but we do not see them operating construction sites for early birds in exchange for the worms the latter are so adept at collecting. THE ABILITY TO TRADE MAKES US ‘ECONOMIC’. Human beings therefore have an economy. No other creature has an economy, because no other creature has the ability to trade, although many can actually ‘manufacture’ something or the other as, for example, weaverbirds. We are therefore also called Homo Economicus. We are the planet’s only ‘economic’ creatures. We are, each of us, animals specially programmed to create wealth.
YOU ARE BORN TO BE RICH!
A weaver bird might dine Off caviar and wine If he could trade his lovely nest For gourmet food – the very best. Alas! the little worm is his fate For lack of just this little trait.
POINTS TO PONDER At what age does a human infant display the ability to trade? Can monkeys, our closest cousins, trade? Why do monkeys steal bananas while humans pay for them?
ON KAKA… AND MY ENLIGHTENMENT!
This story dates back several years. My friends, Mr & Mrs X, had to visit Hyderabad for a few days and asked me to mind their kids for that period. I shifted into the X residence, said goodbye to the X’s, and inspected my temporary charges: Master X, 5; and Miss X, 2. That afternoon, when I was curled up on the sofa with an Orwell and a beer, the little girl came up to me and said: Kaka Aya. I understood it to imply that a certain gentleman named Kaka was at the door and asked her to call him in. The kid looked dumbfounded at me and repeated, this time with some passion in her voice: Kaka Aya. And again I asked her to invite Kaka in. It was when she said Kaka Aya the third time, choking with emotion and frustration, that I got the message and hurried her into the loo and placed her on the throne. I was back on the sofa when Miss X shouted: Ho Gaya: It’s done. I said: Then flush and come out. But she persisted with the Ho Gaya until it dawned on me that she was asking me to wash her up. I did the needful and was back on the sofa when something extraordinary happened. The very same little girl who could not perform her ablutions without foreign aid leaned over to her older brother and said: “Bhai, give me some of your chips and I’ll give you a sip of my cola.” I was enlightened! I saw in a flash what Adam Smith had meant when he said that we humans are all gifted with “a natural propensity to truck, barter and exchange”. The ability to trade is inborn: a gift from God. No one has to be taught how to create wealth. Homo Economicus’ “natural” environment is the free market economy where he/she can, by virtue of the ability to exchange, participate in the division of labour and create wealth. In a flash, I saw the eternal truth in the first chapter of The Wealth of Nations. If India is poor, it has nothing to do with population but with policies that restrict our ability to freely use our God-given talent to create wealth for ourselves and society. We need to kill the thieving hand of the State and replace it with the “invisible hand” of the market. There is another observation worth making from this incident which, let me assure my reader, played a major part in shaping my beliefs: that Homo Economicus comes equipped with a built-in moral code. Miss X, aged only 2, believed in property rights. She understood that the chips belonged to Bhai and that the only moral means of getting a bite was by offering something of her own in exchange. Miss X, aged 2, was a human being. She was not a little monkey who can only snatch and steal because it cannot exchange and hence does not require a moral code that respects property rights. Fifty years ago, the socialists created a political and economic system that did not take note of either the inborn talent or the inborn morality of our children. Their Constitution does not recognise property rights and is therefore based on the immorality of thievery: what Bastiat called “legal plunder”. What else is nationalisation? Or land reform? And their economic system places restrictions on trade at every level: we are what Deepak Lal called a “repressed economy”, ranked 120 in the World Economic Freedom Index 2001. We, the bhatijas of Chacha Nehru, should not allow socialism to hinder the development of our children, who come to us equipped with Divine Faculties. Our generation’s growth – and that of our parents – were severely stunted by socialism, and we should not allow the same fate to befall our lovely children. Very few things are required to make India a “developed country”. Lord Bauer’s mantra is: free trade, sound
money (a freely tradeable currency of stable value) and property rights. These should be worked into a new, liberal constitution that kicks socialism out of India and ushers in a Second Republic. PS: Miss X is now in an elite school being taught, through state-approved textbooks, about the “population problem”. Bhai is currently studying “the vicious circle of poverty”.
POPULATION CAUSES PROSPERITY
Having said that Homo Economicus is an animal programmed to create wealth, it becomes necessary to examine the argument taught in Indian Economics that India’s huge human population is a cause of poverty. If humans are the only species capable of creating wealth, then how can more of their numbers cause poverty? What is the truth? The truth is that every dot on the map, representing a city or a town, is densely populated with human beings – and is rich. There are more millionaires, cellphones, Mitsubishi Lancers and swimming pools in crowded Delhi than in vacant Jhoomritalaiya. Why is this so? For the answer, we must turn to Economics, which is the study of the creation of wealth. Because we can trade, we SPECIALISE in doing what we do best and exchange with others for the things that they do best. Unlike animals, human beings are not self-sufficient. Instead, they tend to find specialised niches in which to work. From these niches they produce goods and services which they exchange in the market economy. Thus you have farmers, fishermen, goatherds, journalists, dentists, washermen and so on. No other species specialises in this manner because they do not have our special ability to trade – and hence no market economy to trade in. This is how wealth is created by human beings alone, of all of God’s creatures. Remember, when we specialize, we no longer produce for ourselves; rather, we produce for others: our customers. The owner of a chai-shop may knock back a few cups of tea every day, but he produces hundreds of cups for other people. He sells these to them, makes a profit over his costs, and with that profit he gets his needs satisfied by others, like the Ganesh Beedi Company which sells him the beedis he is so fond of. He buys rice, dal, vegetables, fish, meat, clothes, shoes, spices and so many other things (like a little of that horrible local arrack 2 once in a while) from so many other people. All these people are also producing for others: their customers. When we produce for others, we create a marketable surplus. When lots and lots of people are all busy producing marketable surpluses, the markets are all full of all kinds of goodies on offer for all of us: THAT IS WEALTH. I don’t think anyone in any city or town produces either cotton or wool; but all of us have clothes – because they are somebody else’s marketable surplus. We are wealthy – we have clothes – only because of the exchange economy of the market. All other animals are naked simply because they cannot trade, hence cannot specialize, and hence cannot produce surpluses for others of their species. They are all poor, with no wealth whatsoever, only because they are all SELF-SUFFICIENT! Human beings, being ‘economic’, should never be advised to be ‘self-sufficient’. Imagine your plight if you decided to opt out of the exchange of goods and services and had to do everything yourself. Imagine what would happen if your family became ‘self-sufficient’; and then your village, or your town. This would mean that not only would you be compelled to grow your own food and wash your own clothes, it would also mean that you would have to learn to build your own house and learn surgery. At no level does self-sufficiency improve the lives of those who practice it. All it does is to divert your productive energies from those areas which you are most competent to those where you are relatively unskilled. If it
I simply LOVE Sri Lankan arrack, which comes branded and in lovely bottles, the best ones including a velvet bag for the bottle. This local stuff the poor people of South India drink is some complete rubbish. Another good reason for free trade. 12
is bad for a person, a family, a village or a town to practice self-sufficiency, surely a great nation like India cannot gain by pursuing such a path.
SELF-SUFFICIENCY IS ECONOMIC SUICIDE!
A little experiment can be attempted: Go to a kindergarten class and ask the little children what they want to be when they grow up. They will answer: actor, dancer, policeman, and so on. I’ll bet that not a single little child will say: “I want to grow up and be self-sufficient.” If it goes against the logic of little children, why should the entire nation practice self-sufficiency? When we specialise in the market economy, a phenomenon occurs which economists call The Division Of Labour. ECONOMICS IS THE STUDY OF THE CREATION OF WEALTH THROUGH THE DIVISION OF LABOUR. 3 The division of labour into innumerable specialised roles is best possible in an urban area – denoted by a dot on the map. It is extremely difficult in a rural area where there are very few people, and thus, very little scope for being, for example, a successful dentist or even a dhobi. 4 How do we decide which specialisation to take up? Should I be a musician, doctor, engineer, or businessman? How do human beings take this decision? This decision is taken by each individual according to his or her own estimation of where COMPARATIVE ADVANTAGE lies. That is, I am a very good cook, gardener and driver. But since I have decided that my COMPARATIVE ADVATAGE lies in being a writer, I have employed a cook, a gardener and a chauffeur. The fact is that I am a much better cook than my cook; a much better gardener than my gardener (whom I have to constantly supervise!); and much better and safer behind the wheel than my speed maniac of a chauffeur. I have ABSOLUTE ADVANTAGE over each of them in all three areas. But since I have opted to write, they now possess COMPARATIVE ADVANTAGE over me in their respective areas: they perform these jobs for me because they outcompete me, for it would cost me far more, in terms of time lost – time that could have been spent more profitably in writing – were I to do these jobs myself. This also shows that in a free market economy, it is not just the fittest who survive. Everybody survives. If there is free trade, it is not just Americans who will gain. Every small African, Asian, and Latin American will also gain. Since people and regions are differently endowed, each will specialise in a peaceful and prosperous free global market economy and society. While assessing his personal “comparative advantage”, it must be emphasized that VALUE IS SUBJECTIVE. Everything is not based on “strict economic rationality”. Human beings do a zillion diverse things, from climbing mountains to roaming the Himalayas naked and unshod (and very stoned too!) – like our sadhus. Some women become nuns, some housewives, some hookers and some sweepers.
VALUE IS SUBJECTIVE
It will later be argued that the division of labour is accompanied by the division of knowledge. Or washerman. The various sub-castes that exist prove that India was and is an urban civilisation. A rural world of selfsufficient villages would not have produced sub-castes marked by the division of labour, like dhobis, mochis, toddytappers, doms, and so on. 13
This is something very important to keep in mind because ONLY LIBERTY allows each and every human being the possibility of attempting to realise whatever is his personal Utopia or Arcadia – or die trying. As Robert Nizick put it: “The Utopian society is a society of Utopianism.” No “ideal system”, either “political” or “economic” (like Central Planning), can replace free individual decision-making in a free market and free society and obtain greater “happiness’ for its members. To quote the great Adam Smith himself: The man of system… is apt to be very wise in his own conceit 5 , and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it…. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chessboard. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it. It is sometimes alleged that Adam Smith’s “Wealth of Nations is a stupendous palace erected upon the granite of self-interest.” As Professor Sam Fleischacker points out 6 , quoting the Nobel laureate George Stigler as well as the above quote from Smith, that Adam Smith should be remembered more what he said about human cognition (and its limits) than human motivation. Adam Smith was a Professor of Moral Philosophy in an age during which it was deemed important that government take up such an education of the common people by their “betters”. The common people were seen to be drinking too much, indulging in frivolous spending and, of course – something that so upset the Reverend Thomas Robert Malthus that he raised a huge alarm that is yet to subside – having too much sex! Adam Smith thought it of the “highest impertinence” of such people to think that the common man would head towards moral degradation and economic doom without his interference. “They are themselves always, and without exception, the greatest spendthrifts in society. Let them look well after their own expense, and they may safely trust private people with theirs.” Look at the budget deficits of the central and state governments, and the losses of the PSUs – do we need The State to promote private savings? Mark Skousen’s great new book, a history of economic thought from a libertarian perspective, The Making of Modern Economics: The Lives and Ideas of the Great Thinkers is a delight that I recommend to all. This simply marvellous new boon for all students of economics (and for serious laymen) has an unusual aspect in that each thinker is introduced with a piece of classical music that best represents his ideas. For Adam Smith Skousen recommends Aaron Copeland’s Fanfare for the Common Man. I was in the audience when Skousen released the book in Delhi. A bust of Adam Smith graced the lectern; and he actually played a lot of music, starting with this glorious fanfare! [Well, there has for long been a ROCK VERSION of Fanfare for the Common Man, by Messrs. Emerson, Lake and Palmer. Put it on real loud – the only way to hear ROCK – and install a bust of Adam Smith in every market, in every city and town, and even in every village haat and bazaar. Please also install alongside a bust of Peter, Lord Bauer, for it was he who sang the same fanfare for those common people who have been the victims of “systems” of all kinds for so long – The Common People Of The Third World who, during the last 50 years, have had their governments,
Friedrich Hayek used the same word later to describe socialist central planners: Fatal Conceit: The Errors of Socialism. The article is on www.econlib.org, a great online library of classic texts. 14
democracies and elections, bureaucracies and judiciaries and schools and colleges and hospitals, “planning”, “healthcare”, “poverty alleviation”, “development programmes” funded by the World Bank, and on top of that the huge United Nations bureaucracy that has been working so hard for so long everywhere in the Third World with tax-free dollars and Mitsubishi Pajeros – all this from the “system”, but No Free Market! All this time, till he died in 2002, no one, save Bauer, said Natural Liberty is what the ordinary people of the Third World need. He denied that there was anything called a “population problem”. 7 He looked around carefully all over the Third World, from India and Pakistan to Malaysia (in the old days) to various parts of Africa, and detailed the beneficial effects of trade and traders, how cash crops were a boon to all poor farmers, and the “natural propensity” of the poor in the Third World to take sensible economic decisions with ease. He showed how every supposedly beneficial intervention by the state, including marketing boards for cash crops and immigration restrictions, harms the poor farmers and traders of the Third World.] This great discovery, that value is subjective, to each his own Utopia or Arcadia, which Adam Smith could have easily stumbled upon, had to wait till Carl Menger a century later. In the meanwhile Marxists propagated their “labour theory of value” to “scientifically” prove that “capitalists exploit labour” by misappropriating the “surplus value of labour”. Such “theories” cause more harm to the organic body of human society than even “communalism” – which the Indian Left claims to oppose strongly with its “secularism”, which is really not even the atheism that Marx championed, but rather Devil Worship, for they worship The State. Such “theories” tear apart the “economic body” of society by making it seem to the working classes that economic freedom and Liberty is not something in which they can live in harmony with those for whom they work – and they get out of the “economic body” to create “political bodies” with something to fight for which they claim as their “rights”. They declare a “class war”. There ensues enormous disharmony (as in West Bengal till recently) and this departure from seeking survival in honest, industrious labour to seeking survival through political activity designed to actually “destroy capitalism” beggars society not only economically, but also morally. Bengal in the old days bred bhadralok. Under the Marxists it has been goonda raj: every parra in Calcutta has its mastaan. Adam Smith was one who clearly recognised how participation in the market economy builds human character. It is when we employ ourselves in the market as, for example, by holding on to a job, we are not really “self-absorbed” or acting in our “selfish self-interest”; to the contrary, we have to co-operate with many other strangers, from colleagues to customers to employers or bosses, and it this school of practical life in the market economy – very different from the molly coddling at home or the “discipline” in school – that both Adam Smith and Samuel Smiles after him believed to be the most important institution that exists for the moral upliftment of Man. When Smith said that we get our lunch from “the butcher, the baker and the brewer” – a steak, a loaf and a glass of ale – not out of their “benevolence” (it is this quote that has always been used by those who say that the “Wealth of Nations is a stupendous palace erected upon the granite of self-interest”) but from their “self-love”, he adds how “we address ourselves” to seek their co-operation. That is, we do not tell them of our needs and wants; rather, we point
And the fact that Bauer was right in saying that population was not a problem has been reluctantly acknowledged by Amartya Sen in his foreword to Bauer’s last book, From Subsistence to Exchange. As the very title suggests, Bauer thought that the route to prosperity for the poor in the Third World lay in giving up ‘subsistence farming’, and opting for the urban exchange economy of the global free market. 15
out to them how they will be of advantage in giving us what we want. In other words, we grow out of our own “self-love” and come to appreciate the needs and wants of others, and how we can interact in mutually beneficial ways with them: how the “other” can also gain. This is certainly not selfishness or pure self-interest. Adam Smith called it “self-command”. I must compliment Professor Fleischacker for pointing this out; though his notion that Adam Smith’s idea of “public goods” would include something like “universal education” is something I will challenge in a later chapter on public goods, as also in the one on knowledge. He is the author of On Adam Smith’s Wealth of Nations: A Philosophical Companion (Princeton: 2004), and I look forward to reading it as soon as I can lay my hands upon it. While Marxists attack and even destroy the body economic with the VIOLENCE of their body politic 8 , ending up harming every poor worker in the long run, in reality, there is COMPLETE HARMONY in the interests of both workers and employers in a completely free, unregulated market: The daily wage earner is quite sure of what he will earn at the end of the day; his employer may have to wait months to receive profits, and may even make losses. When businessmen invest in big machines in factories and construction sites employ daily wage earners, they do not “exploit” them, nor do their machines “displace labour”; the investments in capital actually help workers improve their productivity and thereby increase their wages. Labour unions only benefit the select few, and they too use VIOLENCE. When we visit a big city and gape in awe at the throngs of busy people rushing about their businesses, what we see is only DIVISION OF LABOUR based on COMPARATIVE ADVANTAGE. Each individual is engaged in the division of labour based on his or her own conception – a Subjective Valuation – as to where comparative advantage lies. Key points to note are: • THIS IS ALL BASED ON INDIVIDUAL DECISION-MAKING (That is, liberals do not accept the ‘polylogic’ of socialism: no ‘classes’, and certainly no ‘class war’; no ‘labour’ vs. ‘capital’ scenarios.) THIS IS THE LIBERAL THEORY OF SOCIETY BASED ON INDIVIDUAL HUMAN ACTION (That is, socialists insist there is something called ‘society’, and of course, that their ‘party’, and its ‘leader’, represent the ‘will of society’ – especially true in a democracy. Liberals reject the notion of a monolithic society, and call for individual liberty and individual rights: the smallest minority being the individual. How many friends do you have? Isn’t everybody else a total stranger? What is ‘society’?) • WHAT EXISTS IS BECAUSE OF HUMAN ACTION, BUT NOT HUMAN DESIGN (That is, no ‘central planner’ has ‘planned’ anything about what goods will come to market, what will get sold or bought. Each and every decision was made by separate individuals. There is no ‘mastermind’, and certainly no need for one.) • SUCCESS IS NOT ASSURED (That is, we may make mistakes. I have myself changed professions many times before settling down to write. Many businesses fail. But when they do so, labour and capital and land are freed up for better,
It must be noted that every Utopian idea employed by The State, and not by the free individual, is based on VIOLENCE. Mr. Gandhi may have advocated non-violence, but prohibition in Gujarat is still enforced by The State with VIOLENCE: The Armed Might Of The State. 16
profitable uses. Because I quit a sarkari job, I was free to try something else! Kanwal Rekhi, Silicon Valley millionaire, often says that the best thing that happened to him was getting fired – for it made him an entrepreneur!) • EVERYTHING IS VOLUNTARY, WITHOUT FORCE OR VIOLENCE (that is, it is the voluntary co-operation between INDIVIDUALS in the market than enables all of humanity to co-exist peacefully and with mutual gain in a FREE SOCIETY. The State, with democracy, bureaucracy, politics and diplomacy claims to be THE COLLECTIVE or SOCIETY, but in reality it is supposed to be only that part of the collective which acts against wrongdoers. In other words, it is the Market that exists for Society, while The State exists only for the Outlaws.) • A FREE SOCIETY IS NOT A “PERFECT” SOCIETY (that is, since no one is given the authority to impose his own Utopia on anyone else, each and every Individual is free to pursue “happiness” his own way, while obeying the laws of Justice towards his fellow-beings – and in such a scenario there will certainly be people whose ideas of “happiness” will not be shared or even approved of by others. Drinkers will drink, smokers will smoke, and prostitutes will prosper. In such a “Haven of Freedom”, it is Individual Responsibility that will matter. Mr. Big Brother, The State, is not looking after you; you must look after yourself: Zara Hutt Ke, Zara Bach Ke, Yeh Hai Bombay Meri Jaan! Further, there is no “perfect competition” either. The market is an imperfect institution, just as humans are imperfect too. The teaching of “perfect competition model” in schools actually distorts the student’s understanding of the market.) CITIES AND THE DIVISION OF LABOUR It is simply because of greater division of labour that every dot on the map (representing a town or city) is densely populated and quite rich. Wherever human beings are densely crowded, as in a city or a town, there is greater prosperity than in any vacant countryside simply because there is greater division of labour. The only factor that limits the division of labour is the size of the market. For example, if you wanted to open a Thai restaurant and you needed 100 diners a day to break even; and if one out of every 100 people wanted Thai food on any given day, you would have to set up shop in a town where there are at least 10,000 potential customers. This is why crowded cities are rich: there is greater division of labour. This is a universal phenomenon: Not just Delhi and Bombay, but London, Tokyo, New York and Paris are densely populated and rich. Cities and towns are the anthills of human colonists. It is futile to pursue ‘development’ while cities face ruin. The world is 50 per cent urbanised today: half the world’s population lives in towns and cities. India is far below the world average at about 30 per cent; but the richest states of India, Gujarat and Maharashtra, report urbanisation levels close to the world average of 50 per cent. The poorest states of India, like Assam and Bihar, report urbanisation levels below 10 per cent. It is important to note that the word ‘civilisation’ has its root in the Latin word civitas, which means ‘city’. The story of civilisation is the story of great cities coming up around the Mediterranean and linking up supplying goods and services to each other: the small, safe sea providing the most efficient
means of transport through which trade could take place: ships carried much more than camels, and were faster too. So we see the 3T’s of Prosperity immediately: Trade, Towns and Transport. Mohenjodaro and Harappa were great cities, linked to the Mediterranean through the port of Lothal. The Indus was also a means of transport for these cities. Across the world, urbanisation causes prosperity by aiding division of labour. Countries like India would therefore be better off pursuing urbanisation as a means to prosperity instead of doing what our government has been doing all these 50 years – spending money uselessly on ‘rural development’. A recent Arthur Andersen-Fortune survey of cities world-wide found Indian cities to be the worst in the world! This is not the way to become a prosperous country. Apart from general misgovernance, one of the prime reasons for the ruination of our urban areas is the undersupply of roads. We shall later discuss this issue in greater detail. For now, let it be understood that there are over 400 names in the STD code-book but most of urban India (62.5 per cent by some estimates) is focussed in a handful of huge metros, which are growing every day. Urban geographers, those who study the geography of towns and cities, call this phenomenon primacy. Primacy occurs when the primary city bloats up because it is not properly linked to the surrounding towns. If there had been proper roads, (and tramways, railways and underground railways), satellite towns would have blossomed, and each of the 400 names in the STD code-book would have become a GREAT CITY. [There is an old Ashok Kumar song called Rail Gaadi, Rail Gaadi dating back to the days of Black & White. In the song, many, many satellite townships of Bombay are named, then organically linked to the main city. Railways came to India, starting with Bombay, more than a decade before Japan had railways! The automobile was not invented till the early 20th Century. Socialist never expanded the railways. They never built roads. No trams or undergrounds. They made automobile ownership almost impossible. (Even now most people ride two-wheelers.) And that is really how they made urban property, especially in the metros, (fantastically valued properties in absolutely lousy cities and towns!), so expensive.] The British built many fine cities and countless ‘hill-stations’ in their time. And with so much urban property development, getting a nice piece of urban property was within the reach of even the lower middle classes. Everybody had a little cottage or a bungalow somewhere nice to retire in. In Poona, there is a magnificent bungalow on Ganesh Khind Road that was built by a retired (and long expired) general. Poona, till recently, was called a “pensioner’s paradise”. A recently retired general I met, however, has managed for himself just a flat in a ‘complex’ of highrises not only a considerable distance from town, but also linked to it by a really horrible road, which must be damaging his car! (Besides, during the drive he risks his life far more than he ever did on the battle-field!) In the last 50 years our urban areas have all been ruined. In British India, the hill-stations were all linked to a metro: the Darjeeling-Shillong belt to Calcutta; the Poona-Mahabaleshwar belt to Bombay; the OotyCoonoor belt to Madras; and the Simla-Mussoorie belt to Delhi. With such strong links to urban metropolises, all our urban centres can become GREAT CITIES! Maybe some will even will even become one of THE GREATEST CITIES OF THE WORLD!
Because of the under supply of roads there is urban overcrowding in India, but that does not mean the country is ‘overpopulated’. Travel by train or plane around India and you will see vast open spaces. I have been travelling the Konkan Coast from Mangalore to Goa, by road and by rail, and the entire area is completely UNDERPOPULATED. Yes, the little towns, like Karwar or that horrible Gokarna, are all overcrowded: we now know why; but just see the vast open spaces, the long, long stretches of natural mountains untouched by man – this is a HUGE COUNTRY WITH LOTS OF SPACE FOR ALL; as they say, Allah Has Been Bountiful! Just stand on the beach in Karwar and look at the vast spaces available to the citizens, who are unfortunately cramped together in an extremely ugly town built on an absolutely BEAUTIFUL spot. Or, for that matter, look out of the window at Karwar station, which is 7 km from the town: see the open spaces, gape at the beauty of nature, and then go and visit the ugly town. It is the headquarter of Uttar Kannada District. An IAS officer is in charge! They are, as I said, only good at conducting elections! And then ‘serving’ the ‘socialist’ masters they themselves have got elected! They are not ‘public servants’; rather, they are the servants of their ministers. India’s population density (number of people per square kilometre) is LESS than that of Japan, Germany, Holland and Belgium. And these countries do not report urban overcrowding. The solution to urban overcrowding lies not in birth control, but in transport connections that will allow many more towns to come up and link up with the main city. With more urban areas – 400 Great Cities – Indians will have sufficient living space and overcrowding will end. Mangalore offers an excellent location for such development, because the city is already possessed of many, many satellite towns: Moodbidri, Karkala, Manipal, and so on. This city has not yet become a complete and total disaster like all the other metros, including the once beautiful Bangalore. It is obvious that if excellent highways and railways and tramways were built from Mangalore to all these towns, there would be all-round ‘development’ in the true sense, including, of course, real estate development. If this is done RIGHT NOW, the City of Mangalore will never ever become a hell-hole like all the metros, because population will spread out, and the main city will never, ever, get overcrowded. Urban geographers, those who study the growth of cities and towns, predict that the Earth will be 85 per cent urban by 2050 – living on 7 per cent of the land!
THERE IS ENOUGH ROOM ON THE PLANET FOR ALL OF US THERE IS NO SHORTAGE OF LAND
This argument therefore generates A Conflict Of Visions. Instead of seeing the future of India in terms of thousands of self-governing and self-sufficient village republics (the Gandhi-Nehru vision), we can see India as an urban civilisation. With 400 excellent cities, all well linked to each other by rail, road and air, a maximum of trade can take place at the least cost. A poor transportation network makes trade slow and expensive. A truck travels 250 km a day on Indian highways; they do more than 800 km a day in the rest of the world! The much-lauded Konkan Railway, for example, covers the 300 km stretch between Mangalore and Goa in almost 6 hours – even by the ‘superfast’ Matsya Gandha. That is an average speed of a little over 50 kmph. I drove down NH 17, and it took a little longer! Suppose the government had not invested in this 19th Century technology railway, and put up a six-laned highway instead, and there was free-trade in
motor vehicles, including second-hand vehicles, would we not be able to cover the distance much, much faster? There are no railways on the California Coast. Or the Australian coast for that matter. It is said that ‘every great city sits like a giant spider on its transportation network’. Not a single Indian city is GREAT only because the socialist planners ignored all the 3T’s of Prosperity: • • • They did not allow us to TRADE They destroyed all the TOWNS (and cities), while pretending to ‘develop’ village India They destroyed the entire TRANSPORTATION SYSTEM – the slowest ports, the worst airports, the most horrible roads, the impossibility of automobile ownership, the slowest trains, and the most expensive civil aviation in the world!
As we saw with the birth of civilisation around the Mediterranean, transport and trade go together. The economics of trade is very simple: buy where the commodity is abundant and cheap; and sell where the same commodity is scarce and dear. There is no point buying apples in Kullu in the season (when they are cheap) and trying to sell them in the market in Kullu itself, is there? If you desire a profit, you must TRANSPORT the apples to a place like Bombay, where apples do not grow, and where they will therefore be prized, and you will make a fat profit. India’s horrible transport system is a curse for all traders, and all trades. With poor transport, the PRODUCTIVITY of every Indian is lowered. That is, given the limited time of a working day – and time is also a ‘factor of production’ – we could produce much more output (and hence increase our earnings), but we waste most of our time only because our means of transport are so INEFFICIENT. The economics of TIME is also simple: If one person keeps 60 people waiting for one minute, he has wasted one man hour. So calculate the millions and millions of man hours wasted in India because of poor transportation. Socialists claim to represent labour; they actually waste labour.
THIS IS A “PLANNED” TRANSPORTATIONAL DISASTER. THE PEOPLE OF INDIA ARE A GREAT RESOURCE.
(A Bania can buy from a Jew and sell to a Scot and still emerge with a profit!)
IT IS OUR GOVERNMENT THAT IS THE REAL PROBLEM!
SINCE HUMANS ALONE ARE ECONOMIC, AND SINCE CITIES ARE RICH, IT MUST BE SAID THAT THE ARGUMENT THAT POPULATION CAUSES POVERTY IS THE DEVIL’S PHILOSOPHY. It makes mothers and fathers ashamed of producing children. It makes children feel that they are not a resource; rather, they are a problem. It makes cynics look at traffic accident statistics and say that our unsafe roads are a means of solving ‘the population problem’. Human beings are the world’s ultimate resource – because they all possess the human mind. You are trying to pour knowledge into that mind. Please make sure that what you feed your mind is the truth. A false philosophy will deaden your mind. It will not make you see that, with your mind, and your innate ability to trade, you can generate wealth by doing what you do best in a free market economy. Instead, it
will train you to look upon yourself and your brethren as a huge problem that requires political action to solve. To understand why political interference in the market economy is very harmful to us and our country, let us now turn our attention to the political market.
I’m off to Bombay Where my fortune awaits I know jobs a-plenty are there – I’ll be a watchman, a waiter, cop Or film star – if ever I dare! I’m off to Bombay A place millions live And where dreams a million come true. My village is poor and has nothing to give So what else is there to do?
POINTS TO PONDER Look around your town and try and find unusual instances of the division of labour. Think whether that particular activity could be carried out profitably in a sparsely populated village. For example: An Institute for Ear Diseases. Try and find some poor people who make a living in the city by participating in the division of labour (for example: a dhobi). Think whether that man would be better off in a village. Ask him too! Per capita income is calculated by dividing the TOTAL WEALTH (or Gross Domestic Product) by the TOTAL POPULATION (of human beings). Now, calculate what happens to the per capita income when, a) a litter of 10 Alsatian pups is born; and b) when you and your spouse are blessed with sextuplets.
LIBERALS MUST DUMP GANDHI
Adam Smith, in 1776, in the very first chapter of The Wealth of Nations, outlined how wealth is created by human beings: through the division of labour, or specialisation. A very good example of the division of labour is this author. What do I do for a living? I write 400 words a day – the length of an Economic Times editorial. I enter the office at 1130 hrs, which is not too early; we hold a meeting till 1300 hrs. Then I break for a smoke and a think. It takes me 30 minutes to write an editorial – and on a hot summer’s day, when the world is sweating it out earning money, I am home by 1430 hrs. I switch on the AC and am fast asleep by 1500 hrs. Although this is all the work I do, I have a house, a car, television, food, booze, smoke and what not. I do not produce any of these things myself. I, on my part, write just 400 words a day. With that I get money – a medium of exchange. I exchange this money in the free market for what others produce. This is what the exchange economy is all about, powered by the division of labour. This makes wealth generation possible. Note that the division of labour is the very antithesis of ‘self-sufficiency’. If I give up my specialised vocation and attempt to produce all my needs myself, I would be much poorer and would also lose all my leisure. Having understood this, let us see how this principle would operate if I was the patriarch of a very large family. Suppose I had 40 wives and 100 children and I, as the patriarch, decided that my family would be ‘self-sufficient’. After all, we are so many, we surely do not need to pay our good money to outsiders! So I farm out activities to each of my wives and children. I say, “You, my good son Sunta, you make shoes for everyone; and you, my good son Bunta, you stitch everyone’s clothes. You, my daughter Dimple, you spin cloth for the clan; and you, my daughter Simple, you look after the fish pond…” and so on. In effect, I, as patriarch, would be telling my very large (and very obedient!) family that they should never go to Connaught Place, Brigade Road, Crawford Market, Chandni Chowk or Orchard Street. Never go to the market would be the motto of my self-sufficient family. Produce for each other and never exchange and integrate with the large market economy outside. What would be the result? Actually, my family would be the poorest family in the world. And I, as patriarch, would soon get overthrown. It is this that has to be done to Mohandas Karamchand Gandhi who, as Father of the Nation, dreamt of an India of ‘self-sufficient villages’. Simple Economics says that selfsufficiency is economic suicide. Simple Economics also says that the division of labour is maximised in cities and towns: you cannot be a taxi driver, plumber, electrician, or Thai chef in a remote, sparsely populated village. The future of India lies in 400-500 free trading cities and towns – all the strange names in the STD codebook should become little Singapores, Hong Kongs and Dubais. The Gandhian vision must be dumped.
[If in doubt, consider my good son Sunta, who was employed in making shoes for my large family. After I am overthrown as patriarch – all my 40 wives divorce me, and all my 100 children disown me – Sunta rushes to Hampankatta, and gets a job in the Reebok shop. Is he better off or worse off? Of course he is better off, for now he is part of the INTERNATIONAL DIVISION OF LABOUR. Till then, he was engaged in the division of labour, yes, but on a very small scale, in a very small “market”, if you can call it that.] I am writing this in a particular context. I heard a talk on liberalism by Babu Joseph (who heads the Kerala Chapter of the Indian Liberal Group). He laced his talk with innumerable Gandhian quotations. I also attended a presentation by Jayaprakash Narayan of Lok Satta. This liberal too had many quotes from Gandhi to buttress his views. I asked Babu whether liberals need to refer to Gandhi who, after all, is responsible for prohibition, liquor deaths, liquor mafia, khadi (Indian Luddism) and the village vision. Babu said we should ‘use’ him if we could. I disagree. For one, the greatest enemy of liberalism in India is the Congress, whose ‘core ideology’ is what liberals must demolish. Gandhianism is essential to this core. Second, we have our own heroes of that era. A book entitled Profiles in Courage: Dissent on Indian Socialism has just been published by The Centre for Civil Society. I think Rajaji, Masani, Piloo Mody, Shenoy – these great men of Swatantra should be our heroes, not a corny Congressman. We do not need a Father of the Nation. At best, the free India of the future, comprising 400-500 free trading and self-governing cities, will need many City Fathers. We have no City Fathers today, and all our cities are in ruin. The state keeps pursuing ‘rural development’ guided by the false Gandhian vision. The trouble with Gandhi is that, if you leave behind you a large volume of sufficiently ambiguous work, anyone can rummage through it and find some quotes to justify himself. A socialist, a liberal, a communist – all can find quotes from Gandhi to justify their positions. If you go into the archives of The Economic Times, you will find that on a Gandhi Jayanti many years ago, I too had contributed an article entitled ‘The Forgotten Gandhi’ in which I had compiled many quotes from Gandhi to justify liberalism. This, we should now avoid. The patriarch has failed his family. It is time to dump him.
MAY OUR TRIBE INCREASE!
This is a tale of two cities. Procreatia was a happy kingdom where the ruling philosophy was Dharma, Artha, Kama, Moksha. The words shubh laabh were inscribed on every wall and the people were materially as well as sexually happy. They sang Aum Mani Padme Hun: The Jewel is in the Divine Coitus. The birth of every child was an occasion of great celebration because the Procreatians believed that God had blessed their people by whispering into the ear of their first chief: May your tribe increase. Since they kept on procreating, their tribe sure enough increased. This caused a problem. Procreatia became a very crowded place. There was no place to walk, there were so many people. The Council of Elders met and petitioned King Mahalingam to take drastic action or there would soon be only standing room left in their fair city. King Mahalingam was a wise man. He said that there was abundant space on Planet Earth and all that needed to be done was to build some more cities for his people. He ordered the construction of a wide road to a green valley 100 km from Procreatia and encouraged his people to shift there and build another city. This they happily did, and called it Reproductia. In this way, many, many new cities came up. The Procreatians gave rise to a great civilisation that was rich and happy and where every child was welcomed into the world and well looked after. With greater economic activity, women began to work outside the house and they decided that they must control their own fertility. Inventors came up with many ingenious devices and these were always in great demand. They had fewer children now, but they looked after them better. They believed that their children were their greatest wealth. Things did not come to such a happy conclusion in neighbouring Fertilia. Here, when faced with the problem of the city overcrowding, the King Bozo took a drastically different course of action. He called in his top officials and ordered them to frame measures that would discourage the people from having children. These children are a problem, he said. We must stop children coming into this earth and crowding up the place. There isn’t enough room. How will we feed them? The officials of the Bozo Administrative Service were a wicked lot, interested only in budgetary grants for their bureaus. They saw in the King’s command a license to raid the treasury. King Bozo had never read The Arthashastra’s warning about officials: that they were like fish swimming in a pond, and it was impossible to estimate how much water the fish consumed. The officials of the Bozo Administrative Service opened innumerable departments and launched a wide variety of programmes to carry out their King’s wishes. The propaganda ministry soon made every Fertilian look with disgust at every new-born child. The health ministry spent a fortune equipping every Fertilian with birth control devices. The police were instructed to clear away all sexually stimulating books and art. Cabarets were banned. A great temple built millennia ago to celebrate the joy of the sexual union was pulled down. In this way, Fertilia became a very
unhappy place. But it remained crowded. The King had spent all the money in his treasury trying to stop children getting born, and so he had no money left to construct wide roads into the surrounds that would enable the city to decongest. The city was soon bursting at the seams; and it was getting poorer. With mass poverty, their children were born into a miserable life. The civilisation soon collapsed. It lies in ruins now, and Procreatian archaeologists are busy reconstructing the great temple celebrating the sexual union. If we look around at the world around us, there are many countries which followed the wise example of the Procreatians under King Mahalingam: Japan, Belgium, Holland and Germany have higher population density than India but suffer no overcrowding. I recently took a morning flight from Geneva to Amsterdam. I looked down at a fantastic spread of population. When we fly Delhi-Bombay we look down only at open spaces. The truth is that this is a vast country. We need to spread out. We need roads, not condoms. And may our tribe increase!
ON MENGER'S LAW… AND CHILDREN
My friend Sunondo has four children. I asked him which one he loved the most and he said the youngest one. Now, this is contrary to Carl Menger's Law Of Diminishing Marginal Utility, which holds that the more we have of anything, the less we love it. So, if it was cake you were consuming, the first slice would be heaven; but by the fourth you would be sick and want to throw the rest of the cake into the bin. How come Carl Menger's Law - and Law it is - applies to cake and to everything else we have, but not children? I ask this question in a particular context: that of the so-called 'population problem' which has had a host of Third World governments, including mine in India, taking out stringent policies in order to limit the number of children people can have. Recently, in India, many states have debarred candidates with more than two children from contesting local elections. If every succeeding child gives us more pleasure, what sense does it make to penalize fertility? In China, they enforced the 'one-child norm' because of which, after a few generations, there were millions of Chinese with no brothers, no sisters, no aunts, no uncles, no cousins, two parents and four grandparents. What is better for a child? A large family? Or a Strong State? At the time he was writing. The Reverend Thomas Robert Malthus had many eminent classical liberal economists opposing his predictions of doom. Jean Baptiste Say and Frederic Bastiat both wrote tellingly on the mistake Malthus was making: assuming technology to be constant. In modern times, Lord Bauer was a prominent critic of the 'population problem' and, after him, Julian Simon proved convincingly that human beings are not a problem, but the world's 'ultimate resource'. The planet Earth is bountiful. There will always be an abundance of resources, including energy, so long as we allow human beings the freedom to utilise the Earth's bounty and serve the needs of mankind through the free market and the price mechanism. However, Third World governments and the United Nations are still on the side of Reverend Malthus. The Indian parliament, in a unanimous resolution passed on the 50th year of independence, asserted that population was India's biggest problem. That is, the representatives of the people were united in saying that their constituents and their children were a problem! The average age of Indian parliament is 68; the average life expectancy in India is 62 - which means we Indians are ruled by dead people! And these dead people are saying that children are a problem! And as for the United Nations: recently a little baby girl named Aastha was born and promptly billed as India's billionth citizen. The United Nations Fund for Population Activities representative in New Delhi said, in a press statement: “This is not an occasion to celebrate.” What should we celebrate instead? The fact that tens of thousands die on our unsafe streets every year? Hooray! We’re dying! Boo! Hoo! A baby is born!
India is a hugely young country. 96 per cent of the people are below the age of 59; 74 per cent are below the age of 39; and 34 per cent are below the age of 15. This young country is ruled by aged rulers who believe that our babies should not have been born. What could be worse than that? And, as far as the UN is concerned: What is its 'knowledge'? Third World governments like those of China and India which endorse the population problem and coerce citizens into having less children should be disgraced. As should the UN. Every couple in the world should be free to decide how many children they can have. And every child should be welcomed into the world. Every birth should be celebrated and every death mourned. And it is not just additional children that give us pleasure: this pleasure is multiplied when we have more and more grandchildren. Carl Menger may have been the Emperor of Economics, but his Law certainly overlooked the issue of reproduction. So let us have more and more children; let every child give us increasing marginal utility; let us have more and more grandchildren too, where marginal utility is even higher, and let us bury the ghost of the Reverend Thomas Robert Malthus who was, after all, a priest who disapproved of poor English people having, according to him, simply too much sex. When he finally married, late in life, most of his friends deserted him! He was, it is reported, “happily married”, fathering 3 children, the first of whom was born 8 months after his wedding, and hence raised many Victorian eyebrows.
THE REVEREND THOMAS ROBERT MALTHUS’ “DISMAL SCIENCE”
The Reverend Thomas Robert Malthus used mathematics to “prove” his argument that population was a problem. He said that food grows in “arithmetic progression” while population grows in “geometric progression”. What do these terms mean? An arithmetic progression @ 2 is: 1, 3, 5, 7, 9, 11, 13… A geometric progression @ 2 is: 1, 2, 4, 8, 16, 32, 64… To appreciate Malthus’ mistake, let us undertake a thought experiment. Take on the one hand 100 seeds of wheat, and on the other, 50 young, married couples. If we plant the 100 seeds of wheat, how many more grains of wheat will we have? Millions? And from the 50 married couples, how many children will be born? A little over 50 at the most. Instead of 100 seeds of wheat we could take 90 hens and 10 roosters. We could take 90 goats and 10 rams. In each and every case we will find that food grows faster than humans. Fruits and vegetables also multiply faster than humans do. Indeed, humans are one of the SLOWEST species in the world when it comes to reproduction. A human baby spends 9 months in the womb, and very rarely do we have multiple births (like twins and triplets). Wheat, rice, chickens, goats… all reproduce faster than we do. Humans reach puberty very late as well. Marriage in the modern world comes long after puberty. In an earlier age, my grandmother was married at the age of 13, and she had her first child at 14. Such early marriages are rare today. When my grandmother died, 9 children (out of 11) survived her. Such fecundity is equally rare today. Do read the chapter on Malthus in Mark Skousen’s book. Malthus was “the most abused man of his age”. He argued AGAINST aid to the poor – as it would enable them to rear more children. It is after reading Malthus that Carlyle dubbed Economics “the dismal science”. Where Adam Smith foresaw “universal opulence”, Malthus predicted doom. William Cobbett exclaimed: “How can Malthus and his nasty and silly disciples, how can those who wish to abolish the Poor Rates, to prevent the poor from marrying; how can this once stupid and conceited tribe look the labouring man in the face, while they call upon him to take up arms, to risk his life in defence of the land?” It is high time Malthus’ ideas were buried. Also, with Malthus, let us bury the interference of mathematics with economics. Malthus was a good friend of Ricardo, who was a good friend of James Mill (father of John Stuart Mill). Ricardo’s “Iron Law of Wages” was based on Malthusian logic. According to this “law”, wages would always remain at “subsistence level”, for if they rose above that workers would have more children, driving wages down yet again. Capitalist profit would also fall in the long run, because of “diminishing returns” on capital. Similarly, more land for agriculture would imply the cultivation of less fertile lands (not “high yielding varieties” of seeds or GM crops) bringing down agricultural productivity and causing famines. These ideas paved the way for Karl Marx, and led to the burial of Adam Smith’s optimistic outlook of “universal opulence” under “natural liberty”. With Malthus, Ricardo and Marx, capitalism and humanity were both doomed. Through his connections with James Mill (who worked for the East India Company) and Ricardo, Malthus was appointed professor of Economics at Haileybury College (where Indian Civil Service officers would later be trained). This is probably the route through which Malthusian ideas began to occupy such a high ground in India, especially among the elite.
CHAPTER THREE WHY POLITICAL MARKETS DON’T WORK
Suppose you went to your town’s main market. You would find plenty of shops selling all kinds of things, and many vendors of food. But you would have only a limited amount of money in your pocket. You cannot buy everything on offer. Because resources are limited and wants are not, you would have to make choices. You would have to decide whether you would prefer to spend on a bar of chocolate and forego a milkshake or the other way around. The central problem of Economics is Choice. There are limited resources and unlimited wants, and so we must make choices as to how to spend these resources. [The freedom to choose is also the most important freedom we possess in a free market; with protectionism and trade restrictions, we lose much of this important freedom, and are ‘forced’ to spend our hard-earned money on goods we would otherwise have rejected (if we had the free choice) – like Bajaj autorickshaws or Old Monk rum or Wills Navy Cut. Do read Milton Friedman’s great book Free to Choose, also available as a documentary.] There are two kinds of choices we make: private choice and public choice. Private choices are made in the private market and the main players in this market are consumers and suppliers. This is how we buy our food, clothes, toys, music, and books. Public choices refer to those made in the POLITICAL MARKET and the main players in this market are POLITICIANS, BUREAUCRATS, SPECIAL INTEREST GROUPS and VOTERS. This is how we get our roads, our garbage clearance, our police and national defense. Remember, even in the political market, resources are limited. If we spend more on defense we have less for education. PUBLIC CHOICE THEORY is that branch of Economics that looks into how choices are made in the political market (in a liberal, democratic setting). In the private market, consumers spend their money and choose between various options. Because they are directly affected by each choice they make – and they suffer if they make wrong choices – they take great care to seek out information and to correct past mistakes. If you had to make an important purchase of a consumer durable like a television, refrigerator or car, you would ask people you know about their experiences with various makes, read product reviews, compare features mentioned in advertisements and so on before making your purchase. You would spend your own hard-earned money very, very carefully. Thus, in the private market, money is usually well spent. If most spending decisions were to take place through the private market, most of society’s money would be well spent. In the Political Market, there are certain reasons why money is not well spent, even in the best of democracies, with the best personnel serving the State:
Politicians are primarily interested in re-election. They will spend a lot of public money in ways that ensure them votes. The 2 rupee per kg rice scheme in Andhra Pradesh is a good example. As is free water and free power to farmers. The huge advertisements that inevitably appear each and every day in the papers featuring politicians are paid for by taxpayers. Such spending cannot possibly be in the public interest. But such spending occurs simply because politicians are more interested in getting re-elected than they are in the public interest! Bureaucrats are primarily interested in Budgets. They will always attempt to ensure that their departments get more money from the tax kitty. The Budget Deficit – which shows how much the government spends ABOVE what it extorts in tax revenue – is not going down because bureaucratic departments at all levels want to go on spending more money. Special interest groups and voters are both interested in free lunches: some gain for themselves at a cost to others. They will look for ways that public money is spent on them – they get something free – while the costs are borne by other taxpayers who are not politically organized. A good example is the high import duties that protect India’s industrialists. They are few, vocal and organized; the consumers are many, but unorganized, and they pay the duties.
It is also important to note that political spending is not directed towards the majority. It is directed towards small and vocal minorities who are all well organized politically. The politician directs spending in favor of these minorities, and the majority pays. A good example is agricultural subsidies in the US, which go to 2 per cent of the population who are farmers, but the costs are borne by 98 per cent of the people, who are unorganized. Another example is the high import duties on steel imposed in the USA recently: it benefits a few uncompetitive American steel producers, but millions of American steel consumers pay. It is best to examine the difference between the way money is spent in political and private markets thus: FRIEDMAN’S 9 LAW OF SPENDING There are four ways of spending money: • • • • You can spend your own money on yourself You can spend your own money on others – buy gifts You can spend others people’s money on yourself – buy things on the ‘company account’ You can spend other people’s money on other people: political spending (or central economic planning).
Milton Friedman, Nobel Laureate in Economics, is one of those three great economists who, in the 1950s, said that India was headed for disaster. The others are BR Shenoy, whom Lord Bauer called ‘hero and saint’, a Konkani, who had the courage of conviction to pen a Note of Dissent to the Second Five Year Plan, the plan with which Nehru began ‘heavy industrialisation’ by setting up a host of steel factories. Shenoy paid for this by being hounded out of academia, and died in obscurity. The third was Peter, Lord Bauer whose dissent on the Second Plan was even published by Popular Prakashan, Bombay, in the 1960s, but never prescribed in Delhi University ever. Not surprisingly, because in the last chapter Bauer uses long quotes from the then Vice-Chancellor of Delhi University, the then Director of the Delhi School of Economics, and some other “eminent” economists of that age, to point out how their ideas will lead India to TOTALITARIANISM! Deepak Lal – Doon School, St. Stephen’s College and the Indian Foreign Service – actually served on the Planning Commission, estimating ‘shadow prices’, before it dawned on him that economic planning cannot work. He converted, and became a staunch advocate of free markets. 30
It follows that maximum reliance on people spending their own money is good for society, in that most of society’s money is well spent. On the other hand, maximum reliance on the state as a means of spending money – economic planning – is bad, because most of the money is not well spent. Economic planning is some people spending other people's money on other people. This is a sure way of spending money badly. Private spending is better than political spending because of the 3I’s: Interest, Incentive and Information. Consumers have the interest, incentive and information to spend money wisely. The political market players do not. Indeed, they have an incentive to spend money unwisely!
Free power Free water Guess who pays for it. Free lunches Free schools Make politicians a hit. Free-handed Free-hearted With money they don’t earn. Free people Free India From those who will not learn.
POINTS TO PONDER What are the incentives for a voter to seek out all relevant information before casting his vote? Are these incentives adequate? That is: Does it make sense for every voter to thoroughly check out each candidate, each manifesto and so on? Do most voters do this? If not, how much reliance should be placed on government, even if democratically elected?
STATUTORY WARNING! SOCIALIST DEMOCRACY IS VERY BAD FOR YOUR HEALTH! (You’d be better off chain smoking!)
Both sides gain in trade. This is easily observable when we, say, buy a book. We say 'Thank You' to the shopkeeper when he hands over the book; and he too says 'Thank You' when he receives the money. The very fact that both parties thank each other shows both gained. Trade is thus a 'positive sum game': win-win. It is the basis of wealth creation. When we buy a book we add to our property and we contribute to the earnings of a long line of people ranging from the shopkeeper to the printer to the publisher to finally the author. There are no losers in trade. Contrast this with democratic politics. Since the state does not create wealth - it only taxes and spends - democratic politics is always a 'zero sum game': some gain; others lose. It is also usually the case that the gainers are small, organised, vocal groups - like, say, the US steel lobby; while the losers are the large, unorganised masses. Thus, politics is usually a 'negative sum game': there are a few gainers, but the majority loses. With trade, everyone gains; with politics, most people lose! Now, democrats always claim to represent the majority, so let us look at the issue of majority representation more closely. If there is 60 per cent voter turnout and four parties share the vote equally, the winner is the chap who gets 15.1 per cent of the total vote! Even when Rajiv Gandhi won his landslide victory, the Congress barely received 40 per cent of the vote. Now look at markets: In the market, there is complete and total unanimity. Since no one used force, both sides of every deal agreed to it. In a free market, not a single buyer or seller can complain that the decision to buy or sell was one with which he was not in complete agreement. In politics, we see millions unhappy with decisions taken. In the market, each decision we take is in complete sovereignty. We are always free to pick and choose between various players. I buy a toothpaste of Brand X, a toothbrush of Brand Y and soap of Brand Z and equip my bathroom. None of these firms can force me to take all three of the same brand. Now contrast this with politics: In politics, we get a 'package deal'. We may like one party's stand on religion, but its economics may appall us. We like another party's economics, but its position on war may be frightening. We cannot pick and choose as we can in the market. This is because, in the market, there is 'continuous competition': every time we visit the market, the vendors fight for our custom. In democratic politics, however, the competition is only periodic. Once every five years we get the vote. Once we have voted, we are saddled with that party, for better or for worse. We may have liked something about the party at election time, but then we may be woefully unhappy with what that party does thereafter. Finally, it must be understood that voters in a democracy do not vote with the same amount of care and attention that they pay to market transactions. When I go to buy a television set, I make sure I get a good one because if I do not I will directly suffer. I check out various makes and prices, read reviews, consult friends and so on before making my purchase. When I go to vote I do not have the incentive to take the same pains, go through every manifesto, hear all the candidates' spiel, check their criminal records etc. Voters display what is called 'rational
ignorance': they find it rational not to know about politics. Informed voting is a 'public good'. Smart editors have found this out and now politics no longer monopolises the front page: The Times of India is an excellent example of this. Voters may also display 'rational absence' and stay away from voting because they know that their one silly vote is not going to affect anything. I have never voted in my life. The lesson to learn is that we Indians must use democracy much less and give full room to markets. For example: Why do we need railways from democracy? Or beershops, as in socialist Delhi, where every liquor-shop is run by the government? Democratically elected politicians and their democratic state should both be cut down to size. The principle of 'subsidiarity' should be invoked and cities and towns given full freedom to conduct their own affairs. In such a scenario the state will be but a common police force, controlled at the local level. The government of India will be but an association of free trading cities and towns and it will look after only those issues that the towns cannot look after themselves - like national defence. My ideal is Switzerland. The Swiss flag is surrounded by the flags of its 26 cantons. And Swiss citizens are proud to say that they do not know the name of their president! There is free trade, sound money, property rights, rule of law, good policing and excellent roads. They are prosperous, peaceful, heterogeneous, landlocked, mountainous country. If we apply their principles, we can be far richer. [I attended the Geneva Motor Show, 2000; the most important motor show in Europe. The Swiss don’t make cars! They don’t make motorcycles either. They make chocolates, watches, cheese; they have huge tourism earnings; they operate banks. During my conducted tour of the city I passed the headquarters of the World Trade Organization; I also passed through the ancient, well preserved market square in the old town, where I learnt that Geneva had always been an important market town, even in Roman times, when Julius Caesar conquered it. I also saw an ancient cannon, bearing the City of Geneva’s own coat-of-arms. One prominent statue in Geneva is of the founder of the International Red Cross: which means that the Swiss are happy to encourage trade, but if you are stupid and go to war instead, they will be quite happy to bandage you up if you survive! Free trade is their motto: at the grand Davidoff tobacconist’s shop in Geneva, I found Mangalore Ganesh beedis selling for 2Fr 30 a bundle. I didn’t buy them, of course; but I bought Turkish cigarettes, Indonesian clove flavoured cigarettes and some Egyptian cigarettes as well. Free trade means excellent shops – a must for any country wanting to keep tourists happy. There is almost no “politics” in Switzerland, with its unique “consociational” direct democracy. Have you ever heard of Swiss elections? Or any Swiss political party? I inquired as to who the main street was named after, and was told that he was a very good city magistrate long, long ago!] "Democracy," Winston Churchill said, "is the worst form of government - except for all the others." The point is, democracy or no democracy, it is still the government. It is still The State. It should be restricted to its proper role, and confined to that role by law, so that citizens are secure and free. We Indians made a horrible mistake when we installed this socialist democracy at the commanding heights. We must now fight to liberate ourselves from this democratic state. A second freedom struggle awaits.
Or look at it like this: You could be a citizen of East Germany, the socialist German Democratic Republic, without a free market but with the vote, or you could be a citizen of British Hong Kong, with the free market but without the vote – which would you choose, and why?
CHAPTER FOUR PUBLIC GOODS & STATE FAILURE
In classical economic theory that stressed the role of the free market and entrepreneurship, there was a recognition of the fact that there are some things that businessmen will not be able to supply, and so it was deemed necessary to provide these from the collective kitty: the tax revenues of the state. Those things that the private market will not step in to supply are today called Public Goods. As Adam Smith put it in The Wealth of Nations, Book IV, Chapter IX, published 1776: “According to the SYSTEM OF NATURAL LIBERTY, the sovereign has only three DUTIES to attend to: • the duty of PROTECTING the society from the violence and invasion of other independent societies; • secondly, the duty of PROTECTING, so far as possible, EVERY member of the society from the INJUSTICE and oppression of EVERY other member of it, or the duty of establishing an EXACT administration of JUSTICE; • and thirdly, the duty of erecting and maintaining certain PUBLIC WORKS and PUBLIC INSTITUTIONS, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain.” The technical term ‘public goods’ came long after Adam Smith, but this is how the Master put it, in his own words. Note: Adam Smith, and people of his time, never ever considered education or healthcare (which, as you will discover, are not ‘public goods’ at all) to be among ‘the duties of the Sovereign’. It may be useful to pause for a moment to take a re-look at some of the words Adam Smith used: • When he says ‘system of natural liberty’ he means living under the Common Law: ‘natural justice’ is a technical term lawyers use for living under the Common Law, which is all that his EXACT administration of JUSTICE refers to. 10 He uses the word DUTIES, when he says that these are all the sovereign MUST do. (But, in the Constitution of India, there is a chapter on the Fundamental Duties of the Citizen! Ha! Ha!) The word PROTECTING occurs twice, indicating that we have a sovereign state and The Law for just this one reason: to PROTECT our lives and our properties better. Of course they are worried about the US selling arms to Pakistan, but we are all dying on the streets on our 100cc motorcycles! Are our lives and properties PROTECTED in socialist India? Remember, the Constitution of India does not recognize property rights! The word EVERY also occurs twice, and indicates a concern for INDIVIDUAL RIGHTS and INDIVIDUAL LIBERTY. And that, indeed, is JUSTICE. When Adam Smith refers to PUBLIC INSTITUTIONS, it should not be mistaken to imply that when the Common Law began its long evolution, these courts were something that the King of
To know more about Common Law, see the companion volume, “Free Your Life: A Citizen’s Guide to Justice & the Law”,. 35
England had set up with either public or his own money. For long, royal justices were unpaid. But the courts collected huge amounts as court fees! • Thus, Adam Smith said that the sovereign has ‘the DUTY of erecting and maintaining certain PUBLIC WORKS’. Roads are the best example. Is our sovereign socialist state performing any of its DUTIES?
Professor Fleischacker, while noting what he thought Adam Smith felt would be “public goods”, gives the completely disastrous example of “universal education”. Education is easily available in the free market, with a wide variety of options, including even learning a phoney American accent to work in a call centre. There are hundreds and more “edupreneurs” in Mangalore, Manipal and the surrounds. Governmentsponsored education worldwide is harmful to the mind. The added fact is that in the market economy, the division of labour is accompanied by the division of knowledge. The knowledge of the VJ, the fashion model, the Udipi cook and the head waiter at a restaurant are all different: they all have to learn different things, often on the job, informally. There is nothing that can or should be universally taught: this is, something as dangerous as the chosen few instructing the whole of humanity. The 3R’s can be learnt on computers at home, through competing private software programmes. And the choice of language will remain with the parent – and hopefully this will be exercised with some consideration for the child’s aptitudes and opinions. The choice of curriculum will remain with parents and children too, and some may drop maths or history. This issue will be further explored in the chapter on knowledge. Getting back to the subject: A public good is one that cannot be bought and sold because its services are available free to all those who want to use it. Examples are a public park or a public road. Everyone will build a house for himself, but no one will individually build a road in front linking all the houses – unless he can charge every road user. This is usually unfeasible. Lighthouses were erroneously 11 listed as public goods in Economics textbooks, which the state must supply because a private businessman will not build one since he cannot charge ships which see the light. The same can be said of streetlights in our cities. It makes sense to spend tax money on public goods because then we could increase the sum total of our consumption. We all live in homes with all the possessions that we afford ourselves: private goods. If we could have more public goods – broad streets of good quality; vast, and clean open market yards where hawkers and vendors could ply their trades; and more public parks where we could roam and play and breathe clean air – we would be better off. It is therefore necessary to question the spending of public money on private goods like cars, steel, hotels, and so on. These are private goods because they can be produced by private businessmen. We do not need to spend the limited amount of tax revenue that we have on building hotels and steel plants. The socialists have invested public money in the largely loss-making public enterprise sector. They make cars but not roads. India suffers from under-supply of roads: a public good. As already discussed, this has caused "primacy" and the mal-development of our urban areas. We now proceed to discuss the "rationality" of our socialist government that is supposedly "planning" the economy. Every Prime Minister of India is the Chairman of the Planning Commission. What is his "rationality"?
Lighthouses in England were and are built and maintained by a private body, Trinity House, which charges fees and consults shippers about placing navigational aids. When lighthouses were first built, the builders simply charged fees to those ships entering the nearest port. 36
RATIONALITY AND POLITICAL ECONOMY In Economics it is assumed that all human beings are "rational". 12 This means that they prefer gains to losses and that they rationally pursue gains and avoid losses. Of course, this does not mean that they always get it right. All of us make mistakes. It is better to look upon human action as ‘purposeful’ rather than strictly rational, because strict rationality implies that we always get it right. (See Footnote for more.) In Political Science, for the most part, it is wrongly assumed that all political society actors – politicians and bureaucrats – are pursuing the public interest selflessly. Political Economy, or Public Choice Theory, takes Economics into Political Science. In Economics we assume that all players in the market are "rational" and pursue their self-interest purposefully. What happens if we carry this assumption forward into Political Science and assume that political market players are also self-interested? The results show that: politicians pursue re-election; bureaucrats pursue budget-maximization and voters and special interest groups pursue free lunches. This is not to suggest that they are corrupt. Public Choice Theory just assumes that they will act in their self-interest and thereafter tries to assess what predictions can be drawn. If these predictions of human behavior in the political market are proved right, the theory is valid. This is also not to suggest that human beings should be selfish always: this is an assumption and not a prescription. Our planned economy would be "rational" if it pursued policies that gained it maximum revenue. Does our collective invest public money in a manner that maximizes revenue? In other words: Does our Prime Minister invest our money such that he keeps earning more and more through taxation? It is worth remembering that Sher Shah Suri – an Afghan soldier who conquered India with the sword – ruled with the intention of raking in the highest tax revenue possible. He thus built roads and serais – the Grand Trunk Road was built by him – for the simple reason that this would encourage trade, which he would tax. The Emperor Akbar personally took 5000 workmen with him to the Khyber Pass and made a road smooth enough to take wheeled vehicles! Why? To tax trade, of course. (Did the Khyber carry more armies than trade? Of course, many armies did cross, like Babar’s. But once in control of the territory, like Akbar 13 was, there was no threatening army across the Khyber, and so, while there was peace, which endured for a long, long time – read Tagore’s Kabuliwallah – all that happened was trade, trade and more trade.)
It must be stressed that ‘rationality’ does NOT imply that that every decision we take is correct. We all make mistakes: to err is human. A better word for human action than ‘rational’ is the word ‘purposeful’: that is, with imperfect information, we seek goal-satisfaction. But the chance of error is ever present. Every decision is in reality a gamble. Marry in haste and repent at leisure is the best example of this. 13 Babar must be distinguished in history from the likes of Ghazni, Ghori and Nadir Shah, whose armies plundered and left: loot and scoot. He defeated Ibrahim Lodi’s armies, conquered, and stayed to rule – not loot. Indeed, after conquering Agra, Babar’s generals entreated upon him to loot and get back to cooler climes, for the hot summer was simply killing them. Babar insisted upon staying to rule. In Political Science, he makes an excellent example of a ‘Stationary Bandit”. That is, he was NOT a “Roving Bandit”. Even William the Conqueror fits the role of “Stationary Bandit”. As does that great barbarian, Chenghiz Khan. 37
Even that great barbarian, Chenghiz Khan, laid out the Silk Route for all the people in his vast territory, conquered by the sword with brutality, to freely travel and trade! And all roads led to Rome when Roman Emperors were pretty horrible, cruel and decadent! I was in the ancient German City of Cologne, walking past the great cathedral with a local journalist, when I complained of the unevenness of the footpath. He said: “These are the ORIGINAL ROMAN STONES. We are preserving them.” To understand why these predatory autocrats invested in public goods while democratically elected socialist planners did not, it is useful to look at the debate between Deepak Lal and Mancur Olson on the validity of the expression ‘predatory state’. Deepak Lal was probably the first to coin the term ‘predatory state’, intending to classify regimes between two poles: the Platonic Guardians and the Predatory State. George Ayittey has for many years been writing of the ‘vampire states’ of Africa. But these analyses ran into a stumbling block: the great political economist Mancur Olson ruled out the possibility of predatory states existing. Since Olson is not one to look at states with rose-tinted glasses, his objection to the term is worth recounting in detail. Olson's analysis begins by looking at how the state emerges out of anarchy. Under anarchy, what happens is 'uncoordinated competitive theft' by groups of 'roving bandits'. This destroys the incentive to invest and produce. It makes sense for one of these roving bandits to destroy the competition, set himself up as dictator, and 'rationalize theft in the form of taxes'. The state as 'stationary bandit'! In Olson’s words: “In a world of roving banditry there is little or no incentive for anyone to produce or accumulate anything that may be stolen and, thus, little for bandits to steal. Bandit rationality, accordingly, induces the bandit leader to seize a given domain, to make himself the ruler of that domain, and to provide a peaceful order and other public goods for its inhabitants, thereby obtaining more in tax theft than he could have obtained from migratory plunder. Thus we have ‘the first blessing of the invisible hand’: the rational, self-interested leader of a band of roving bandits is led, as though by an invisible hand, to settle down, wear a crown, and replace anarchy with government.” Olson denies that his autocrat, Mr. Stationary Bandit, can be called ‘predatory’: “[The Stationary Bandit]… is not like the wolf that preys on the elk, but more like the rancher who makes sure that his cattle are protected and given water. The metaphor of predation obscures the great superiority of stationary banditry over anarchy and the advances in civilisation that have resulted from it. No metaphor or model of even the autocratic state can therefore be correct unless it simultaneously takes account of the stationary bandit's incentive to provide public goods at the same time that he extracts the largest possible net surplus for himself.” According to Olson, even a stationary bandit would find it 'rational' to invest in public goods. Our socialist Prime Ministers have never believed in trade: that all people are capable of trade. Instead, they restricted trade to promote "industrialization". This, today, is called cronyism. It is a politicoeconomic system in which chosen industrialists – from both the private as well as the public sector – capture an internal market and keep out foreign competition with the aid of the might of the state.
Cronyism should never be called ‘crony capitalism’, for it is pure thuggery that has nothing to do with the morality of capitalist shubh laabh. In fact, those who speak of the blessings of the ‘invisible hand’ of the market and call for laissez faire do not really trust businessmen, or believe that businessmen are intrinsically moral people. Adam Smith, the great man himself, warned that ‘whenever a group of businessmen get together they always emerge with a conspiracy against the public to raise prices’. What is important for the public is that they do not get together, not amongst themselves or with the government, and that they keep on competing amongst each other, including foreigners. After disallowing trade and furthering the fortunes of their cronies, our socialist planners then invested all the public money in private goods. They invested tax money to make cars; they did not invest in roads and allow private businessmen to sell cars. They invested in steel plants, hotels, airlines, Modern Bread, Scooters India, Cycle Corporation of India…!!! They called this a MIXED ECONOMY. It is really a MIXED-UP ECONOMY. It does not make sense. The socialists are not "rational". The manner in which we invest public money must change. Roads must get top priority, because they are public goods. However, highways and expressways can be private goods – through charging tolls – and here it would be better to rope in private investment. Public money should go into funding the best urban and rural roads money can buy. This will make India prosperous. Rural villages, which are unconnected, remote and poor, will get connected to the throbbing economic engines of urban metropolises. Today, despite all this ‘rural development’ for 50 years, village India is not well connected to urban India, and is therefore poor. We have been hearing the term ‘rural-urban divide’ for over 20 years. As Arundhati Roy says: “India does not live in her villages; India dies in her villages.” If India dumps "rural development" and pursues aggressive urbanization, cities and towns will blossom if we focus on interconnectivity, and we will all live in large houses on broad streets as more and more land is colonized by roads: public goods. Remember – and this bears repetition – that Japan, West Germany, Belgium and Holland have higher population densities (number of people per square kilometre) than India, and do not face the amount of overcrowding we do. They also report lower prices of urban property. In India, overcrowding and astronomically high rates of urban property are not caused by the ‘population problem’. They are the result of the undersupply of roads. This is a huge country. Travel by rail or air and you see miles and miles of land without a single house anywhere. This land must be colonised for human habitation. And the way to colonize space is by transportational links, of which roads are the primary means. Connect Village X to Town Y through a tramway – and immediately more land is made available for the citizens of the town. Land prices come down in the city-centre and more people stay a little distance away and commute to work. We therefore suffer irrational government. Our socialist state spends money foolishly – without scientific thinking behind it. This is all because of its false philosophy regarding people: it does not believe in Homo Economicus. PREDATORY STATES AND KLEPTOCRACIES Concluding that the socialist state is irrational is surely not enough. We must inquire into the character of the state. What purposes does it seek to serve? Sher Shah Suri invested in roads and serais, but he was not democratically elected, nor did he plan. His interest lay in raking in taxes – and he achieved this purpose. Democratically elected socialists who ‘plan’ the economy have not shown the rationality of every brutal STATIONARY BANDIT throughout history!
Can this government of a socialist, democratic republic, the “Pride of the Third World”, be a predatory state like, say, Idi Amin’s Uganda? Is Bihar very far away from darkest Africa? In the capital of New Delhi, Prime Minister AB Vajpayee, in a letter to the Lieutenant-Governor of Delhi, accepted the statistic thrown up by Madhu Kishwar of Manushi that police and municipal functionaries there collect over 5 crore rupees monthly by extorting it from street vendors and rickshaw pullers: the smallest players of the market economy. Kleptocracy? Do see Ms Kishwar’s short film on how cycle rickshaw pullers and street vendors are brutalized in the capital of socialist India. Today, it is an accepted fact that the only reason for persistent poverty and degradation is bad government. Bad governments keep people poor. Why do kleptocracies arise? As we saw in the case of the Afghan Sher Shah Suri, predatory states are not new to India. The Mughals who followed Sher Shah Suri were also here to maximise their revenue collection. But these states were rational, and they invested in public goods. The Emperor Akbar took 5000 workmen with him and made a road over the Khyber Pass smooth enough to take wheeled vehicles! In Mughal India, trade was free, as was immigration. Mughal Emperors called themselves Jahanpanah or ‘Refuge of the World’. This was, of course, quite like a ‘welcome to my parlour said the spider to the fly’, but history bears enormous evidence that a great deal of good was accomplished by predatory autocrats who, guided by nothing more than sheer common sense, arrived at policies and laws that were best suited to making the territory flourish. As Friedrich Hayek said, “It is in the ruler’s interest to identify his orders with the universal rules of just conduct, found in the law.” 14 They taxed trade; and if someone left the protection of a neighbouring King and settled down in Mughal territory the Emperor did not object: for he would collect the taxes now. The Mughal Emperor did not consider the immigrant to be the ‘population problem’, but a resource that would generate wealth for himself, his nation, and his Emperor. Free trade and free immigration – along with public investment in public goods – allowed these predatory autocrats to maximize revenue and obtain the public interest. This is again a question of economic rationality on the part of a political ruler. The ruler, say, a small prince, would first maximise his tax revenue by encouraging trade. Then, he would spend AS LITTLE as possible of that revenue on the people, so that he could pocket the surplus and spend it on himself: his palaces and his banquets. Thus, he would spend on only those things that the market cannot provide. You will see these instances of rational spending throughout India. For example, in most of the old markets of North India, you will find a clock-tower. This would be taken to be a public good in the days before
After British rule, India became a Common Law country. Common Law EVOLVED in England, a nation still without a written constitution, from the decisions of the Royal Courts of the Angevin monarchs, especially Henry II, who was just descended from a Stationary Bandit himself. It is their rationality that enabled them to FIND the just law. With just law, the English had LIBERTY and PROPERTY – and JUSTICE. To the English, thereafter, freedom meant living under the Common Law. In a short while, the idea emerged that even the King should be under the law: The King is under God and the Law. After yet some more time, they began saying, “Lex, Rex”: The Law is the King!”: “The Law Makes the King”: “There is no King where Will Rules and not the Law”. The Common Law made America, Australia and Canada what they are today: and all this good happened simply because predatory autocrats “sought to identify their orders with the universal rules of just conduct, found in the Law.” The Royal Courts of the Angevin Monarchs did not “legislate” law; they “found” law. They invented Writs by the hundreds in order to secure remedies for aggrieved citizens. Thus, the Common Law obtained and still receives the respect it does. We in India have the Common Law, yes; but we do NOT live under the FREEDOM it can afford us, and the SECURITY and the JUSTICE. We live, instead, under LEGISLATIVE DIKTAT. To the ordinary, unlettered Englishman, even way back then, it was apparent that legislation was the King’s instrument, the application of FORCE upon him, and that LIBERTY FROM ARBITRARY FORCE meant living under the Common Law. In India, we must strengthen the Common Law and get rid of all the LEGISLATIVE DIKTATS we suffer under. Do read the companion volume to this, Free Your Life: A Citizen’s Guide to Justice & the Law. 40
wristwatches were made. 15 Similarly, Mughal Emperors invested a lot of money on public gardens, another public good. In Mussoorie, on the way to the academy where IAS officers are (mis)trained, there is an example of British spending on public goods: a public library. [As I drove into Goa from Poona, I passed the small town of Sawantwadi. After reading Lives of the Indian Princes by Charles Allen and Sharada Dwivedi, I discovered that the Raja of Sawantwadi ran a model administration: that even Gandhi, who was his Royal Guest during the Quit India Movement, a political position that could not have endeared the Raja to the British, endorsed his regime by calling it Ram Rajya. Gandhi’s father served briefly as the Dewan to the Raja of Porbander. The ruler of Porbandar was always addressed by his people as Bapu. When little Porbandar became one of the ‘basket of apples’ Mountbatten delivered to Sardar Patel, it was “a state without illiteracy and without slums, where its culture and the best of its ancient traditions were respected under a ruler widely regarded as an ideal ruler.” Unlike the Gujarat of today, in little Porbandar, the mixed population of 147,000 people, belonging to many castes, tribes and religions, lived in peace and harmony. Indeed, this was the norm in all the 650-plus Princely States, for ‘communal problems’ happened almost always in British India, especially after the disastrous tenure of that horrible imperialist, Lord Curzon, whose policies would never have been supported by The Honourable East India Company. Curzon divided Bengal in 1905. The Muslim League was set up in 1906 – in Dacca. Curzon sowed the seeds of communalism and ran away with his capital to Delhi in 1911, seeking the grandeur of Mughal Emperors, hosting the Delhi Durbar, inviting all the Princes, Maharajas and Nawabs, with the King-Emperor in tow: a move back from capitalism to feudalism. The weather, of course, nearly killed them – and so we got Simla. The hill-station Chail, above Simla, was built by the Maharaja of Patiala. He had a dalliance with one of the Viceroy’s daughters and was banned from Simla. So he built Chail – and soon the party shifted! These Maharajas were no sycophants.] Of course, in British-built cities and towns, public goods were heavily invested in: the Maidan in Calcutta and the broad Chowringhee; all the ‘Mall Roads’ in the hill stations; Marine Drive in Bombay; and all the public gardens and broad thoroughfares that made Bangalore (in the days of yore). [Note that public goods like broad thoroughfares and vast parks and open market yards are the only real ‘collective property’ we need. It is these public goods alone that are of use to all of us, including visiting foreigners. To socialists, however, ‘collective property’ only means the Public Sector Undertaking. For the suffering street hawkers and vendors of India, what is more useful: a vast, well-laid out market yard? Or Maruti Udyog? The latter, a PSU, is what the socialists believe to be the best kind of ‘collective property’ to invest in!]
There is an interesting story of one Lord Mayor of London who began life in the city working in an office – but was soon fired because he invariably turned up late. As Lord Mayor he built a magnificent clock tower atop a chapel and donated it to the City. Big Ben came up much later in the City of Westminster. 41
Contrast both the Mughals and the British (and the Princely States) with the socialist democratic Indian state which does not practice free trade (it prefers cronyism), which does not practice free immigration (it believes migrants are part of the population problem), and which does not invest in public goods. It spends all its tax revenue paying out salaries because it wanted to become the biggest employer in the country. Which rational Maharaja would emerge as the biggest employer in his state? Remember, the Maharaja would know that he does not create wealth; he only taxes and spends. Therefore, he would allow the people the freedom to create wealth. The socialist state thinks that it is a wealth creator, and that the best thing that can be done for the people is to recruit them into government service! This socialist democracy is essentially TOTALLY IRRATIONAL; its character is not that of an enlightened, benign ruler, as a socialist central planner is assumed to be. The Nobel laureate Gunnar Myrdal, high priest of socialist planning in the Third World, had assumed that the planners would comprise an ‘intellectual-moral elite’. They would be experts – hence an intellectual elite – and not driven by the ugly profit motive – hence a moral elite. The very same Myrdal found the ordinary people of the Third World incapable of taking ‘rational’ economic decisions in the marketplace and hence in need of these planners. However, today we must salute the spirit of Friedrich Hayek, who shared the Nobel prize with Myrdal, who said that central economic planning was impossible. Hayek pointed out many reasons why planning is bound to fail, but even he did not say that planners would not display the rationality of stationary bandits! Indeed, a very rare occurrence in Political Science is taking place in India, a situation in which the expression raison d’état or ‘reason of state’ is meaningless, because unreason guides the state!
Let us list some concrete examples of their total irrationality:
They protect inefficient local (swadeshi) businessmen in return for political favours. Just imagine that today, when a host of multinational car companies have entered the country, our politicians want to keep out second-hand car imports! How long will we continue to see a man, his wife, and their two children going about courting death on a scooter? Should every Indian not own a car some day soon? Why does India have such a huge 2-wheeler industry? China must have had a huge cycle industry too in Mao’s times! A second-hand Toyota from Japan or Singapore would cost less than a new Bajaj CNG autorickshaw. Which would cause less pollution? Remember, with autorickshaws, traffic regulation becomes a mess, and traffic slows down, creating more pollution. Also, consider the fact that with import duties of 180 per cent on second-hand automobiles, and even higher on wine, there is NO TRADE AT ALL. Thus, there is ABSOLUTELY NO REVENUE EITHER! So what is the government’s ‘rationality’? Morons? Who pays them to take these stupid decisions? Who benefits? Cuo Boni? Then, the politicians invest in public enterprises so their henchmen can get jobs and loot public money. They are not interested in maximizing the wealth of the nation through free trade, which they can tax. These ‘collective properties’ are all really private properties controlled by persons claiming to represent the public who have rented it from the minister whose ministry actually ‘owns’ the PSU in the name of the People of India.
In Karnataka, for example, the government runs an enormous bus service, all across this huge state – but there are no roads! So, in the old days, when getting a scooter took ten years, the government invested in buses! The villagers remained with their bullock-carts. And some bureaucrat got an extremely large, much-coveted budget for buying thousands and thousands of buses! Recently, they announced the introduction of 100 government buses on the Mangalore-Udipi route: a twolaned narrow, and extremely busy road, with more than enough private buses plying on it. They didn’t think of widening the road instead with tax money. Also, they have made a business out of giving government jobs, for most recruitment boards are corrupt. Why pay money to get a government job – and then loot the people! Why not just get the government out, have a free economy, and all make money honestly under the Common Law? Almost all sarkari jobs involve the (mis)use of powers that The State has armed its personnel with so as to enable them to INTERFERE in the free market. By performing one of these sarkari jobs, a citizen becomes an ENEMY OF SOCIETY, and a SERVANT of The State: all the ministers, all the babus, et. al. He is not a ‘public servant’; he is the minister’s servant. Is such employment a good idea for anyone? Doesn’t life in the free market, earning your keep and keeping what you earn, holding your head high a much better idea? You will possibly end up richer – and all of it will be honest gain. Even the narco cops would be better off as ganja dealers in a free market.
THIS IS A SPOILS SYSTEM
We proceed to discuss the relationship between trade and manufacturing. What would happen to Indian industry if trade were free?
Who’ll build the road? Not I, said the state, For that you must wait. But I’ll build cars’ that are safe for you to drive, Careful of that pothole! Oops! You still alive?
POINTS TO PONDER
Public goods are defined by two characteristics: one, no one can be excluded from their consumption; and two, when some people consume it, there is enough for other people to consume as well. Are education and healthcare public goods? Make a list of pure public goods. What are your views on privatisation of PSUs? What should be done with the money raised by selling all the public sector enterprises?
CHAPTER FIVE THE CASE FOR UNILATERAL FREE TRADE
India restricted trade for 50 years, till the World Trade Organization (WTO) forced change. For 50 years, we could not become "dealers" for foreign manufacturers. Our shops had to stock things "Made in India”. There are still severe restrictions on foreign trade through currency controls and stiff import duties. This is justified by the doctrine of swadeshi, which means that we should manufacture all our needs ourselves. We have already found that self-reliance is economic suicide for a human being. Does it make sense for a nation to practice self-sufficiency? Suppose trade were free and there were open currency competition, and goods from all over the world were available in our markets, would this lead to the death of Indian industry? Or would this lead to the real industrialization of India? When goods are freely traded, many of these items would find loyal customers and secure firm markets for themselves. Traders would procure more and more of these goods from overseas manufacturers and ship them into India. The manufacturers would soon see that the Indian market is quite good, and that it is worthwhile for them to shift manufacturing facilities here and save on transportation costs. A manufacturing base in India could also supply cheaper goods to neighbouring markets like Pakistan, Bangladesh and Nepal. MANUFACTURE FOLLOWS TRADE. Traders create markets and manufacturing follows to service these markets. From the Indian point of view, the best example is of the North-East. It is the most underdeveloped part of India. We want it to be ‘developed’. We want it to be ‘industrialized’. How do we attempt the task? We could close it down to the world outside and attempt to prop up domestic manufacture. Some small factories would come up. Or we could internationalize the economy and let our energetic trading communities flood the region with all that money can buy. Now, the people of the North-East will soon show a marked preference for certain things – say, instant noodles – and the manufacturers of these goods will soon put up plants there. Traders also work both ways, and many would find overseas markets for the produce of the Northeast. There are many examples of this in liberalized India, but perhaps the best example to take is of the DIRECT MARKETING COMPANIES like Amway, Tupperware and Oriflame. They operate on the assumption that each Indian is a trader and they recruit ordinary people to be their dealers and sell their products among their friends and associates. Thus, they build an army of part-time traders. Without any advertising, they manage to secure market shares. Today, all of them are manufacturing in India. It may be that they have been forced to do so by the government, but even if they had been left free, they would enter local manufacturing once the market proved itself. Further, having learnt from these overseas players, an Indian company has begun direct marketing: Modicare. All these positive effects followed from free trade. FREE TRADE IN BRITISH INDIA
This phenomenon also made itself felt in British India. The British operated a free market economy till 1914, the beginning of World War I. In 1914, India was the world’s largest importer, not of British textiles, but British textile machinery! That is, India was becoming a major textile manufacturer! The economic historian, Sudha Shenoy, emphatically states: “In fact, the Indian cotton industry developed before the Japanese. The first Indian spinning mill was opened in Bombay in 1858; the Japanese floundered around – because of government intervention – until the late 1860s. By 1914, Indian textiles were being exported to Asian and African countries; and Indian cotton yarn supplied the Chinese handweaving industry. The real value of free trade was the export of cash crops from Indian farmers: jute, oilseeds, wheat, rice, and hides & skins. India also supplied raw cotton to the Japanese textile industry. India and Brazil were the two largest exporters in the under-developed world. In return, Indians got a wide range of cheap, but good quality, manufactured goods – including British cotton textiles. In fact, there were entire industries in England geared to producing especially for the Indian market and for other LDCs.” The 1919 Report of the British Trade Commissioner noted that many of the great merchant firms of Calcutta which dealt in engineering goods manufactured in Britain had themselves started manufacturing in India, and were now reluctant to sell the products of their principals back home. They had started off dealing in engineering goods made in Britain, but now they had established good local markets, begun local manufacturing, and would much rather sell what they themselves manufactured in India. In the modern, globalizing world economy, free trade will boost India’s chances of becoming a worldclass manufacturing centre. The trend has already made itself felt, as global manufacturers seek the cheapest production locations closest to their biggest markets. Giant toy and athletic footwear companies are maintaining small design and marketing offices in the US and Europe but getting all their manufacturing done by contract in the Far East. Publishers are doing editing and proof-reading at home, leaving labor-intensive typesetting and printing to contracted parties in Taiwan and Singapore. India is a big market. India can become a world manufacturing power. For this, all she has to do is practice free trade and invest in her infrastructure. The Business Process Outsourcing (BPO) boom has already made itself felt: but note that it is happening only in those areas that do not require physical infrastructure – like highways, ports and airports. The BPO phenomenon is restricted to those areas that require only telecom connectivity. If physical infrastructure is built, then all kinds of manufacturing outsourcing will happen in India. To clinch the argument, let us take the case of the laundromat. It exists in every city in the developed world. The laundromat is equipped with a large number of heavy-duty washing machines and many heavy-duty clothes driers. People take their dirty clothes to the laundromat, push coins into the machines, and soon they are back home with everything clean and dry. Now, these heavy-duty machines are not manufactured in India despite the fact that the market for domestic washing machines is one in which there is heavy jostling between many competing players. Instead of laundromats, Indian cities have dhobies. With free trade, including free trade in second-hand goods, India would be flooded with laundromats and most of our dhobies would obtain credit from private banks to own and operate them. People living in high rainfall and humidity areas would come to appreciate the clothes drier and a market for these goods would be created. Not only would our dhobies enter the modern world; very soon, local manufacturing of these goods would start. Today, without free trade, local manufacture is risky. The market is uncertain. Advertising is expensive. If traders are allowed to establish markets for manufacturers, factories would erupt all over India.
Of course we will need sound infrastructure. No one will put up a factory where there are no roads and electricity, and where there are no efficient ports, airports and railways. Big international companies will want to put up manufacturing plants in India because labor is cheap; but the infrastructure will make them run away. Improving the infrastructure requires massive PRIVATIZATION and public investment in PUBLIC GOODS like roads and law and order. Good policing, fast-acting courts, good roads and an excellent privatized public utility sector providing electricity and water will attract the world to set up manufacturing in India. We do not need IMPORT RESTRICTIONS to become a world-class manufacturing country. Swadeshi is economic suicide. We need FREE TRADE and BASIC INFRASTRUCTURE. FREE TRADE AND AGRICULTURE Free trade in agricultural products is opposed by many in the name of ‘self-sufficiency in food’ or ‘food security’. Indian farmers are supposed to produce all of India’s needs. Is this a good idea? Or would we be better off importing those agricultural products which we do not produce efficiently ourselves? Let us examine the issue: If trade were free, there would be many areas where India could gain by importing: for example, cheap wheat from the prairies and cheap sugar from Mauritius and Java. We do not produce wheat and sugar as efficiently as them. What would Indian farmers produce? Indian farmers, with their small farms, would be better off producing fruits and vegetables for the world. An apple sells for Rs. 1500 in Tokyo; a musk melon for Rs. 4000. If Indian farmers specialized in high value fruit and vegetable production and imported wheat and sugar they would be better off. Of course, this would require very good infrastructure, so these farmers could easily send their perishable products to international markets. In my travels around India, I have often found exotic fruit rotting in villages: custard apples in Karnataka; almonds in Himachal Pradesh; peaches, plums and strawberries in Uttaranchal; litchees and mangoes in Bihar; and pineapples in the North-East. Today, there are farmers in Jharkhand wanting to specialize in flowers – but how do they get their flowers to the Amsterdam Flower Market, the biggest flower market in the world? The Western Ghats are also a great place for floriculture: indeed, it has always been so because all the women here wear flowers in their hair, and flowers must have always been a big industry here. How will floriculture here take off to serve the world market? Just transportation. What matters most for farmers is freedom: freedom to access urban markets and freedom to access technology. With modern transportational systems, and freedom, free trade will enable India’s farmers, with their small plots, to participate in the INTERNATIONAL DIVISION OF LABOUR and prosper like never before. Remember another thing: our farmers who produce wheat and sugarcane do so with subsidized inputs like power, fertilizer and water. If these inputs were properly priced, they would be out of business. It makes no sense to freely provide power, water and fertilizers to farmers who use them inefficiently. This also damages the environment. Indian agriculture is also ridden with extreme restrictions: farmers are not allowed to sell wherever they please. These restrictions are extremely harmful to farmers and only benefit the KLEPTOCRACY.
As far as the Western Ghats are concerned, there is immense scope for high value cash crops. Alfonso mangoes, cashew and coconuts are plentiful. Apart from traditional cash crops like coffee, cardamom, pepper and arecanut, many new ones are emerging. Futures markets for these cash crops will insulate farmers from price volatility. As a long time smoker of cannabis, and as an activist for its legalization, I could add that the Western Ghats can also produce some of the finest ganja in the world. If it were legal here, and hence cheap, tourists would come in droves. You now get genetically modified ganja to deliver the highest THC possible – and this is one GM crop that will beat the hell out of the GM cotton or the GM mustard farmers of Gujarat and Maharashtra. Sherlock Holmes used cocaine – but that was fiction. However, Sir Arthur Conan Doyle’s depiction of the detective as a cocaine user implies that many gentlemen in England then were using cocaine. Sigmund Freud used cocaine – and that is a fact. Freud even discovered its use as an eye anaesthetic. Originally, Coca Cola was a drink using the coca leaf and the kola nut. The “pep” in the original Pepsi came from cocaine. Today, doctors believe drinking coca leaf tea is harmless, unlike drinking umpteen mugs of coffee. Native South Americans have been chewing coca leaves (with a little chuna, like our paanchewers) for over 4000 years. Uncle Sam’s “War On Drugs” has been as much a failure as all his other “wars”. In the case of both cannabis and cocaine, Uncle Sam (and all the governments in the world that are allies of Uncle Sam in this “war”) have overlooked both traditional practice as well as medical evidence. Just as sadhus and peasants and rickshaw-wallahs in India – not just the hippie tourists – have always smoked ganja; native South Americans have traditionally chewed coca. The Western Ghats enjoy much the same agro-climatic conditions as the areas of South America where coca is grown. It could be grown here legally – with coffee, vanilla, cardamom, pepper, tea and ganja. Good bye “self-sufficiency in food”! One thing very unusual I found in the Mangalore area is the widespread use of snuff. Well, there can now be something new to put up one’s nostrils if one chooses, though the tea is what doctors recommend, not the white powder. It must also be mentioned that neither ganja nor coca are addictive. Because Uncle Sam’s “War on Drugs” increases the street prices of ganja and cocaine, crooks enter the market with cheaper – but much more dangerous – highs. In India, after the criminalization of cannabis, “smack” entered the market – and destroyed thousands and thousands of lives. Similarly, in the US, a highly destructive and addictive “crack” was passed on to those who could not afford pure cocaine. FREE TRADE AND FISHERFOLK Free trade is also in the interest of coastal fishermen, as it will give them access to modern fishing vessels. Today, if you walk along a beach in Goa, you see fishing boats with technology dating back to 2000 BC! On the drive from Mangalore to Goa, I stopped at many lovely beaches – and all of them sported mandatory Third World ancient fishing boats. At Hangarkatta, where the river just about meets the sea – a beautiful piece of undeveloped real estate (or “unreal estate”) – I came across a small fishing harbour, with about half a dozen little wooden trawlers. (And a small office of the Customs Department!) There was a boatyard where one such boat was being built. And this is the best an Indian fisherman can aspire to! No wonder, those who are in the know say, “fish die of old age in the Indian Ocean.” Coastal fishing will also benefit hugely from good roads, so that highly perishable fish can be taken to market in refrigerated carriers. I took some time to explore the fish market in Karwar, and picked up a
kilo of fairly large prawns for just 110 rupees or $2. If these prawns could be transported to the big city markets, and by this I mean the INTERNATIONAL BIG CITY MARKETS, what price do you think they would fetch? It is simply because of poor transport that seafood is scarcely available in the interiors. You get lobsters, crabs and prawns in Kathmandu because they are flown in; the city has an airport. You don’t get any of these in Mussoorie, Simla and a hundred other Indian cities and towns. I was in a small town in Coorg, where I was taken to a special Kerala breakfast of pattal and fish. But the man said the fish had not arrived from the coast – just 250 km away – and so I had to settle for eggs. The loss to the fishing industry was a gain for the poultry farmer! In Karnataka, fishermen get a diesel subsidy! (Note the ‘zero-sum game’ of the politician.) What do they really need? UNILATERAL FREE TRADE IS THE BEST OPTION What is the need to join the WTO? Why do we need politicians and diplomats meeting every few years to hold ‘trade talks’ and make trade deals? If you pose this question to a politician, he will answer that he is ‘bargaining’ in the ‘national interest’. He will say that he will allow foreigners to trade in India if they remove certain imperfections in their trading systems (for example, agricultural subsidies in the US and EU), or if they, in turn, allow Indian goods into their countries. Politicians and diplomats are going around the world at our expense signing all kinds of ‘free trade agreements’: Manmohan Singh just signed one with Thailand. But who wants to buy anything from Thailand? And who wants to sell anything to the Thais, for that matter? I would rather import Chilean wine. Do I have to wait for the prime minister and his team of diplomats to sign a free trade agreement with Chile? And what about my Moroccan hash? I’d rather order a kilo on the Internet than wait for Manmohan to sign a treaty with King Hassan. It will take hundreds of years to sign free trade agreements with all the countries in the world! Let us forget about the politicians and diplomats for a while, and let us imagine we are all shopkeepers in a big marketplace. I own a bar which also serves non-vegetarian food. Now, the tailor-master next door is a teetotaler and a strict vegetarian. He never gives me custom. The last 20 years that I have known him, he has never spent a paisa in my establishment. But I always go to him to get my shirts and trousers stitched. Am I doing something stupid? After all, he is the best tailor master in town. Should I get my new suit stitched by that very drunken tailor, my very good customer, the last to leave my bar every night, whose hands shake a lot? Similarly, the government of France disallows the entry of the Pride of the Konkan: Alfonso mangoes. Does that mean we should not benefit from being able to import French wines and cheeses? If we unilaterally open up trade, we gain by being able to consume French wines and cheeses; and the French lose by being forced to consume horrible mangoes from Venezuela, thanks to trade restrictions imposed by their stupid government! If politicians and diplomats stall trade in order to ‘bargain’ in the interest of the mango business, they will cause losses to the wine and cheese importers. The terms ‘national interest’, ‘national security’, ‘collective will’, ‘collective property’, and even the words ‘society’ and ‘socialism’ should all be viewed with extreme skepticism, for all those who use these words end up robbing the freedoms of many, many individuals. Economics is about individual human action. And liberty under law is also about individual rights. The collective, society, and even ‘nation’ – all reign in the mind of the socialist. To liberals, only individuals matter. That is, of course, to say that EACH AND EVERY SEPARATE INDIVIDUAL MATTERS.
Similarly, if we import Laila basmati rice from Pakistan, and allow in their delicious mangoes and other fruit, and all the exquisite onyx Pakistan is famous for, we gain. If the Pakistani government does not allow us to sell their people our arecanut, paan masala, tea, coffee, spices, music… it is their people who lose, not us. In the market economy, where we all interact is INDIVIDUALS, the word “reciprocity” is completely meaningless. We are all free to take our custom wherever we please, with no obligation whatsoever to buy from those who buy from us. Would you buy a Nokia mobile phone because the Nokia general manager eats regularly in your restaurant? Can the Nokia general manager even expect you to do so, by insisting that there exists a mutual obligation to be reciprocal in the free market? The word “reciprocity” exists only in POLITICS, and refers to the necessary conditions for establishing diplomatic ties. You open an embassy here, I also open my embassy there. By trying to find reciprocity in the market, diplomats and politicians are extending their legitimate sphere, which is, in this case, international politics, to an area which should not be their sphere, and that is the FREE GLOBAL MARKET. State Politics 16 is about COLLECTIVES, where “reciprocity” matters. Economics is about INDIVIDUALS, where “reciprocity” is meaningless. WE DO NOT NEED TRADE NEGOTIATIONS BETWEEN GOVERNMENTS. WE NEED TO INSTITUTE UNILATERAL FREE TRADE. THERE IS THEREFORE NO LOGICAL REASON WHY POLITICAL POWER SHOULD BE USED TO PLACE RESTRICTIONS ON OUR NATURAL ABILITY TO TRADE FREELY IN THE MARKET ECONOMY AND CREATE WEALTH FOR OURSELVES.
ECONOMIC FREEDOM IS OUR BIRTHRIGHT!
When free trade is mentioned, many people talk of the shortage of foreign exchange. We will find that, if we had SOUND MONEY, we would have no reason to fear the bogey of foreign exchange shortages.
Watch Guptaji’s travelling circus, Manoeuvring through busy streets Higgledy-piggledy perched on a scooter Performing incredible feats. Watch also the state ban free imports That would certainly make used cars cheap And prevent poor old Guptaji’s family From getting crushed in a terrible heap.
In a subsequent chapter, we will discuss the alternative to State Politics, and that is Free Politics. 49
POINTS TO PONDER Swadeshi would imply a cosy inter-relationship between the government and Indian manufacturing interests. Would this relationship be honest or corrupt? Customs duties are levied on almost all goods imported into the country. Do these taxes make any sense to consumers? • If the customs department was abolished (along with all internal octroi), the Indian sub-continent would be the world’s largest duty-free trading area, and every shop – even the paan-cigarette shop – would be a duty-free shop. Would this make Indians rich? What kind of shop would you like to open then? Do some research on the Internet and find out the budget of the US Drug Enforcement Authority. Has it been going up steadily, or down? Try and also find data on the street prices of cocaine and marijuana in New York City. Have these prices been rising? Or falling? What conclusions can you draw on the benefits derived from the huge public spending on the DEA?
WEIRD SCENES INSIDE THE GOLD MINE “The Wall” in Mangalore
Our adversaries rail at us liberals for being ‘ideological’; they say we are full of empty ‘theories’. So here is a simple travelogue. For some months now, I have been living in Mangalore, an ancient city on the west coast. A thirteenth century Kannada poet has marvelled at the fact that as many as 38 different kinds of coinage circulated in the city’s markets then. It becomes obvious that the city owes its existence to overseas trade: at the centre of the old city is the Bunder – the port. It is another ancient trading city that came up by the sea, like Alexandria or Venice. They were all glorious centres of civilization although there were no economists then. In modern Asia, Hong Kong and Singapore are thriving port cities and neither has produced a single economist of note. The other day I was taken to a beach just beyond the New Mangalore Port Trust. What struck was The Wall. The entire port is surrounded by a 20 ft high wall. So, because of some ‘theory’, Mangalore has moved away from having a port open for the citizens to trade, and now possesses a walled port to which citizens are denied entry. The gates to the walled port are manned by armed guards paid for by the taxpayer. Also at the taxpayer’s expense are a whole lot of customs officials who do not let trade occur without prohibitively huge exactions. All this must be justified by reams of economic ‘theory’, for there is an Economics Department in St. Agnes’ College here: the oldest women’s college in South India. There is a Mangalore Economics Association. Driving along The Wall, I passed some towering examples of ‘industrialisation’: Nehru’s ‘theory’. A phenomenal amount of prime beach-side land is occupied by a phenomenally ugly public sector iron ore exporting plant. There is a fertilizer factory which surely survives on production subsidies. So the ‘deal’ between New Delhi and Mangalore is clear: we stop you trading and then we give you ‘industrialisation’: big factories owned by us (but paid for by you!). There is, at the taxpayer’s employ, an entire Indian Economic Service wedded to this ‘theory’. [This is the Kudremukh company. They mine the ore from within the Kudremukh National Park. They have dammed a river within the park to get water to wash the ore; and they have exported a quite a few entire mountains – all within the ‘national park’! To drive through the park, you need a paper from the guards of the Forest Department. It mentions the time of entry, and their rules say that if you do not exit the park within two hours of entry, you will be fined 100 rupees – so no picnic. And no stopping at the small bar in the poverty-stricken village just beyond the Kudremukh plant. There is a waterfall on the way, but forest guards charge tourists 30 rupees per head to enter the pathway leading up to it. They said it takes a 15 minute walk to get to the waterfall, which meant 30 minutes both ways. What was the point of paying 30 rupees, walking half an hour, steep uphill and steep downhill, and then having just 15 minutes to enjoy the spectacle. Who owns the forest? Who owns the iron ore? The river that is being dammed? The waterfall? It is an important question, because people who have been living within this area for generations are denied property rights, labelled “Naxalites” by the Karnataka government, and some of them have even been killed by the police.]
The Wall is bad for sailors as well. I was drinking toddy with a ship’s engineer when he suddenly announced his departure, saying that if he did not return by 10 pm, he would get into trouble with the personnel manning The Wall. He said that even an ordinary sailor spends at least 20 dollars a day while ashore – but here The Wall keeps them on board! Mangalore is a dream city for eating and drinking out, famous for its cuisine. Seafood is superb, and much, much cheaper than Goa. Mangalore also possesses many establishments where what is offered might be called ‘cabaret’. If Hamburg had such port officials, there would have been no St. Pauli’s. (And probably no Beatles either, because they got one of their first breaks to play in a bar in St. Pauli’s.) Surely my reader will realize that we do not need economists to know what is good for Mangalore. What sense does The Wall make? The path to commercial success and the regaining of the city’s old glory should be obvious even to barbers and plumbers, butchers and cooks. The citizens of Mangalore should do to The Wall precisely what Berliners have done to theirs. Then, as with the old Bunder, they should set up a big market there. After all, didn’t God promise Jerusalem greatness by making her ‘a mart for all nations’? The Mayor of New Jerusalem should issue externment orders to all the customs officials and the armed guards. The prime land occupied by the ugly iron ore plant and the fertilizer factory should be seized and auctioned so that hotels, shopping malls and beach resorts take over the landscape. Within a decade, this will be India’s leading city, especially considering the fact that all the others, including Bangalore, have perished. The New Jerusalem economy will grow so fast that even the best statisticians will not be able to measure it. Good-bye growth rate. To unravel the sophisms in the ‘theories’ justifying The Wall, I recommend Frederic Bastiat, who did not suffer formal education in Economics, who never taught at university, and who was just a journalist and pamphleteer. In one essay he put the point across thus: There is this steel magnate in France. He sees cheap steel imports coming in from Belgium and this threatens his profits. He now has two choices. One, he can hire a posse of men and arm them with guns, with instructions to shoot anyone who brings steel into France from Belgium. But such a course is highly inadvisable. So there is the other option: Go to Paris and pay some politician there to do it for you. He will deploy armed men at the borders at the taxpayer’s expense. And the two of them will share the profits, while the taxpayers who paid for the guards will now pay out even more for steel! After reading Bastiat I arrived at a conclusion: We don’t need the WTO; we need unilateral free trade. Get every government out of trade. And every trade economist too. The late Professor B R Shenoy, a classical liberal who studied under Hayek himself, was the only economist to officially dissent with Nehru, and in writing. His daughter, Sudha Shenoy, an eminent liberal economist 17 , in a recent interview, said that ‘nearly every economics department in the world could be shut down without having an ill-effect on the world of ideas.’ Strong words indeed. She bemoaned the sad fact that economists do not study the real world of human action any more; they are all lost in ‘theories’ and ‘models’ and mathematics and statistics. I entirely agree. The Wall proves it.
After reading this, Sudha protested, writing: “Please!! I *reformed over 30 years ago – saw the light and became an economic historian!” 52
ON SCARCITY… AND ABUNDANCE
Ever wondered why, when we go to the capitalist west, we see supermarkets with shelves overflowing with every possible goodie the heart may desire. This phenomenon occurs despite the fact that they have lower population densities, and hence less customers. On the other hand, here in socialist, swadeshi India, where the density of population is high, there are no supermarkets at all! What explains this curious phenomenon? I searched high and wide for a possible answer – and finally found it in my good old friend, Frederic Bastiat. Batsiat’s logic goes something like this. Whenever we go to the market as sellers of a product or service, we desire a situation in which we do not face competition. Thus, we ask for laws that outlaw foreigners and seek high tariff walls against them. We thereby invoke the doctrine of scarcity. On the other hand, when we go to the market as prospective buyers of a product or service, we seek a situation in which there are huge numbers of competing sellers of the product or service in question, so that there is keen competition, and we can arrive at attractive bargains and thereby obtain both better prices as well as quality. In this capacity, we welcome free trade, for it gives us the best the world has to offer. Thus, as buyers, we invoke the doctrine of abundance. From the preceding logic it becomes fairly clear that, if the state frames policies that are in accord with our instinct as sellers, then there will be high tariff walls and all of us will feel happy when we go to the market with our offerings. However, this means adherence to the doctrine of scarcity and so, after we have sold our product, when we go to exchange what we have received to satisfy our consumption needs, we lose terribly. Thus, in the good old days of socialism, Rahul Bajaj must have been happy to see people queue up for ten years outside his scooter factory in what was still Poona; but when he himself went to Dorabjee’s on Main Street, Poona, to get, say, cheese, he could buy only Amul: The Taste of India. He could forget a nice Camembert, an Edam, or an Emmentaler. 18 The doctrine of scarcity means that, as buyers, we fail as economic agents. The Nehruvian, socialist state wholeheartedly supported all of us in our instinct as sellers, and thereby invoked the doctrine of scarcity. So, when we went to the market as buyers, we found nothing much. Food, toiletries, cosmetics, wine, beer and spirits, cigarettes, clothes, shoes, motor vehicles – in every area we found shoddy swadeshi goods. There was all round scarcity. Hence no supermarkets with overflowing shelves. Obviously, from an economic point of view, this was a huge mistake. There are two aspects to economic achievement: one is selling; but the more important one is buying. We produce in order to consume. If we succeed as producers and lose as consumers there is scarcely any point. What is the point in working hard for this newspaper and not being able to use my sizeable salary (in irredeemable rupees) to throw a lavish wine and cheese party for my friends? The state must correct itself and now fully support our instinct as consumers – and this means free trade. That will bring all round abundance. We will all make significant economic achievements. We will eat better, drink better, smoke better, clothe ourselves better and also drive modern automobiles. When an American comes across us we too will be smoking Marlboro Lights, drinking Kentucky whisky, wearing Levi’s and driving second-hand Ford Mustangs. That is, to this American, we will not look poor; we will look like him: we will look ‘rich’. India will be a rich country. All Indians will make superlative economic achievements as buyers – and become rich. In our socialist heydays, when the Yankee saw us, we looked poor: smoking Charminar, driving a Bullet, eating Amul cheese, drinking Old Monk rum and wearing Jean Junction jeans. We were poor because we failed as consumers. This should never be allowed to happen again. Ever. Of course, today it must be realised that these scarcity invoking policies were designed to keep clients happy. These clients prospered while the people stayed poor. This wasn’t Economics. It was cheap, thieving politics.
Dorabjee’s in 2004, after 10 years of voodoo liberalization, does stock many exotic European cheeses. Anyone want the old Amul: The Taste of India days back? 53
CHAPTER SIX SOUND MONEY – I HOW HUMANS – AND NOT GOVERNMENTS – INVENTED MONEY
Money is one of the greatest inventions of the human mind. It was not invented by the state. Today, we simply accept government paper as money and think that is all there is to money. The fact is, this government paper is not good money. If you look closely at a rupee note, you will see that it bears a promise ‘to pay the bearer a sum of X rupees’. But if you take a 100 rupee note to your bank and ask for dollars in exchange, they will refuse; and if some friendly, underground ‘dealer’ does it for you, the law of the land decrees that both of you should be jailed! To understand the difference between good and bad money, we must look into the history of the development of money. Money solves a specific problem in barter: THE DOUBLE CO-INCIDENCE OF WANTS. If you want apples and you have potatoes, you must find someone with apples who wants potatoes. If you find someone with apples who wants onions, you cannot arrive at a deal. Money evolved naturally to solve this problem. It was not created by the government. What happened was that certain goods were seen by all to be MOST SELLABLE. These were the goods that moved fastest in the market; which most people would accept at a known ECONOMIC PRICE. That is, all commodities can be ranked according to how easy it is to sell them. If you took 100 stereo systems to market, it might take you a few weeks to sell all of them. If, on the other hand, you took 100 potatoes, or marbles, or cigarettes, you would get rid of your stock within hours. THE MOST SELLABLE COMMODITY AUTOMATICALLY BECOMES MONEY. 19 Many commodities have played the role of money in the past, the role of being the ‘most sellable commodity’ as well as a ‘store of value’ with a ‘stable price’. Cowrie shells, tobacco leaves, animal skins (the word ‘buck’ comes from that), scarab beetles, salt (the word ‘salary’ and the expression ‘not worth his salt’), small bags of cocoa beans, and finally metals, ending with the precious metals. And the role was simple: it transformed the DIRECT EXCHANGE of barter into INDIRECT EXCHANGE. That is, you have apples and you want potatoes. You do not waste time looking for someone with potatoes who wants apples, someone with the ‘direct coincidence of wants’. Instead, you simply offload your apples for the ‘most sellable commodity’ of that market, and then, with that ‘most sellable commodity’, you head for the guys offloading potatoes. Money emerges naturally out of trade. I remember how, in my boarding school, glass marbles played the role of money, and we were just kids between 6 and 8. And different kinds of marbles had different values: the big steel ones commanding the highest price, followed by the opaque, cloudy ones, the cheapest being the ordinary, clear glass ones. We kids invented our own money! In Nazi concentration camps, prisoners used cigarettes as money.
This was first propounded by the great Carl Menger, for whom Skousen’s piece of music is, deservedly, The Emperor’s Waltz. The simplicity and clarity in the works of people like Adam Smith, Bauer and Menger is a striking contrast to the hugely complicated “theories”, “models”, and “maths” and “stats” economics students all over the world have to suffer today. 54
It is very important to note that all these are HARD MONEY. They are not TOKEN MONEY. The object in question that serves the purpose of money has its own intrinsic value: the money itself is worth something. Paper money is token money. Paper money was invented by goldsmiths. At first, the goldsmith would stock your gold for you and give you a signed paper receipt. So, when you had to make a purchase, you would carry that receipt to the goldsmith, collect your gold, and head for market. Thus, this note was a PROPERTY TITLE. Hence the promise on the note. Under the Common Law, such a promise was taken very seriously. The Writ of Debt is one of the oldest remedies instituted by the Common Law. So, in England then, if the goldsmith did not redeem his note, he would end up in a debtor’s prison. Of course, if the Common Law remedy of the Writ of Debt did not exist, no note would be accepted by the public! Operating in London with these first paper notes was cumbersome. Imagine having to head to the goldsmith every other day through the foggy, unsafe streets of London. To solve the problem, goldsmiths came out with BEARER NOTES. Anyone could take the note to the goldsmith whose signature was on it and collect the gold. This made it possible for people to freely use token money. The notes were passed around in the market, and these bearer notes of innumerable private goldsmiths were money. There were competing private note-issuers issuing money, with no government control. This was the period of "free money". And of course, you were free to reject the notes of a goldsmith you didn’t trust. Government control over money issue gives rise to the problem of DEBASEMENT. To understand this phenomenon, go back some centuries in time and imagine yourself as the King of Shangri-La. If you were a Good King, you would mint coins of the highest purity so that your face would travel to all parts of your Kingdom – and to the world beyond – and symbolise honesty and integrity. The Hapsburgs of Austria minted a pure gold coin called the Reichsthaler. It was the most popular coin in circulation in North America, and it is from the ‘thaler’ that the word "dollar" is derived. It is also perhaps not a coincidence that it is the Austrian school of economists that is most concerned with “sound money”. If you were a Bad King you would mix some BASE METAL like brass into your coins and / or reduce their weight marginally. This is DEBASEMENT. The immediate effect of debasement is to increase the number of coins you can issue. Instead of 5 tonnes of pure gold coins you would issue 6 tonnes of debased coins. The Bad King of Shangri-La would spend his extra coins on wine, women, palaces and war. History is full of examples of governments issuing bad money: The Roman Empire collapsed because of debasement. Roman soldiers would accept their wages only in salt because they did not trust the Emperor’s coinage. 20 In all these cases, the government acts like a gang of counterfeiters! Debasement, by increasing the QUANTITY OF MONEY (from 5 tonnes to 6 tonnes) raises prices and causes INFLATION. To understand how, let us travel back even further in time and imagine ourselves in
Sudha Shenoy clarifies: “After the price controls of Diocletan failed to check inflation, the emperors that followed resorted to higher and higher taxation – including taxation in kind (like the ‘annona’ or direct delivery of grain to the tax collector). The general result was a retreat to autarky, especially on the larger estates, where labourers were ‘tied’ to their jobs..” The money economy ceased to exist. 55
a South Indian village where cowrie-shells serve as money. Now, imagine that, walking on the beach one day, you discover an enormous trove of cowries washed up by the sea. Suddenly, all your dreams have come true. You can go out there to the Village Square and buy all that money can buy. You rush with your cowries to the market and spend a lot of them. You get land, a house, food, drink and cattle… whatever you wish. But, consider the LONG-TERM EFFECT. Your good fortune would be everyone’s good fortune. Landowners, labourers, cattle-ranchers, agriculturists, merchants – all would rake in the money you have spent and then go out themselves, making their own increased purchases. The DEMAND for everything would rise. SUPPLY would remain the same. PRICES would thus rise – of everything: INFLATION. In effect, the price of cowries would go down because there would be a greater abundance of them. If, instead of cowries, you had found a hundred crabs and took them to market, the price of crabs – in terms of cowries – would fall. Similarly, when you find cowries, the price of cowries – in terms of crabs (or anything else) – falls. Inflation is the fall in the value of money due to increases in the quantity. This is known as the "quantity theory of money". 21 There are two characteristics of sound money: Stable value (or the absence of inflation) and free convertibility. On both counts, the Indian rupee falls flat, as do the currencies of most Third World countries. Nowadays we keep hearing of currency collapses. All these are currencies issued by Third World governments. All this is unsound money. The socialist Indian State destroyed the Indian rupee by printing it in excess. They call this DEFICIT FINANCING. This means that, when they are short of tax revenue to meet their expenditures, they simply print extra notes and issue them: they create property titles without property! This naturally causes INFLATION: the quantity theory of money. The state thereby rakes in the INFLATION TAX, for when it spends the extra money prices are as of today and the state gets real goods from people at today’s prices. However, when these people take this money to the state, prices have risen, and the state has to fork out less real goods. The inflation tax is a way the state cheats us out of our pension and provident funds. We invest, say, a lakh of rupees in the Public Provident Fund at 10 per cent interest. The state causes 7 per cent inflation. In effect, therefore, it pays out only 3 per cent interest. The rest is the inflation tax. Now, most of this money is spent on bureaucratic budgets, which refuse to climb down because bureaucracies rationally maximise budgets: as already discussed. This money is also spent on the lossmaking public sector. It is not spent on public goods. But there is something worse. Our banking system is entirely politicized. Most Indian banks are government-owned and they report huge losses. We turn to how this affects the soundness of the rupee.
Note that when the quantity of money is increased, prices do not rise proportionately. Rather, there is put into play a slow, step-by-step process by which the new money is expended by each successive recipient. The first guys who get to spend the new money get goods at current prices; the last guys lost the value of their money because when they get to spend the new money, it is already quite old, and prices have risen. There is thus a redistribution of wealth, from the last guy to the first. And this is how the poor are ‘taxed’. 56
Once cowrie shells Kingsize cigarettes Even potatoes Paid off your debts. Now paper does – Rupee, mark and pound. But the million dollar question is: Is the money sound?
POINTS TO PONDER Do some private research into the various commodities that have played the role of money throughout human history. Do some research also into Greek history, inquiring into the first city-state to mint coins, and study the effects this had on the commercialisation of society. Do some research into debasement: by the Romans for example. Are there any instances of foolish monetary experiments in Indian history? How many instances of ‘hyperinflation’ can you find in history? What happens to a society in times of hyperinflation? Construct a flow chart to explain how the inflation tax works.
CHAPTER SEVEN SOUND MONEY – II CREDIT CREATION AND THE EVIL THAT IS POLITICAL BANKING
Having understood the origins of money, let us proceed to CREDIT. Creditworthiness is something real and tangible: some possess it; some don’t. When I go to my neighbourhood market, where all the shop-owners know me, I often get credit. The fish merchant is happy to push a big ilish on to me – even though I have not gone to buy fish – knowing well that I shall pay up some day. The cigarette vendor knows me and gives me my cigarettes when I have no ready cash. Not everyone gets this credit, because not everyone is creditworthy. The same applies to a credit card. When I was a freelance journalist, no credit card company would grant me membership; when I had a regular job they were all falling over backwards to make me a cardholder. When credit goes to the creditworthy, all is well, and the economy gallops along. This, however, is not the happy outcome when governments interfere in the banking system and direct the allocation of credit. Then, credit goes to the preferred clients of the finance ministry. These are not so creditworthy. The nationalized banking system is thus heavily burdened with NON-PERFORMING ASSETS (NPAs). These should simply be called BAD DEBTS. When a bank has too many bad debts, it goes bankrupt. But here, money is pumped in (as in the case of Indian Bank) from the exchequer. This is LOOT. When too many banks are burdened by bad debts, and the central bank has issued too much currency, there is no choice before the government but to keep the currency inconvertible. If India wants sound money – that which is freely convertible and of stable value – she has no choice but to privatize the banking system and take the finance ministry out of the allocation of credit. Credit raj is worse than the license-permit raj because it can lead to currency collapse in the case of an open economy. Private allocation of credit is not only efficient, it promotes moral behaviour. To continue to enjoy credit from the cigarette vendor and the fish merchant, I have to ensure that I clear all my debts in time. If I fail, credit can be suddenly withdrawn. If I do not clear my credit card dues every month, the card-issuing company will cancel my card. On the other hand, with political allocation of credit, money is diverted to those who have ‘links’ with the politico-bureaucratic power structure. This promotes bribery and corruption. It also weakens the banking system, making it prone to collapse. In the recent East Asian currency crisis, it was CRONYISM that caused their central banks to fail. Their banks had lent heavily to ‘friends’ of those in power. When these firms collapsed, they took the entire banking system, and the currency itself, down with them. India’s socialists have always justified government banking on the grounds of being able to direct credit to the needy, while at the same time portraying the private money lender as usurious and malevolent. Even the Hindi movies were full of this in the old days. But note once again the use of VIOLENCE to accomplish some imagined positive end. They took all the private banks BY FORCE. Private moneylenders, however usurious they may be, use no force on anyone, and perform a very important function in society. Small moneylenders finance the hawkers and vendors on our streets. In an extreme emergency, I had to pawn this laptop that I am working on in Bangalore for 10,000 rupees on the assurance that I would pick it up for 11,000 rupees a month later. I was extremely lucky that these pawn brokers existed in that city – for they are a very rare tribe indeed today – and was very pleased to
conclude the deal with one who claimed to be “more honest than the RBI” when I told him that the laptop contained very valuable material and he should be careful with it. Credit cards are a big boon for small businessmen, even if the default rates of interest are extremely high. There are thus pressing reasons for getting governments out of the banking system and the issuing of currency. They misallocate credit and they debase currencies. Since ours is a democratic state, there is all the more reason to take away its ability to print money and allocate credit to itself. Democratic governments are supposed to represent taxpayers. “No Taxation without Representation” has always been the rallying cry of democracy. But democrats cease to represent taxpayers when they have the ability to produce money out of a hat. When they can do so, they no longer care about their taxpayers and instead use the printed money to cultivate VOTE BANKS and CLIENT GROUPS. The most critical problem facing the globalizing, borderless world that is emerging is that of sound money, which naturally implies good banking. “Prudent private bankers,” said the Nobel laureate Friedrich Hayek, “are overseers of the market economy.” The critical word to note is ‘prudent’. Bankers who take foolish, excessive risks play havoc with the savings of the people – savings that should have gone into productive, profit-making investment and also earned the banker some interest. The world monetary system, as it is structured today, does not encourage such prudent banking. With central banking in place everywhere, all bankers possess a statutory ‘lender of last resort’. The very existence of this ‘lender of last resort’ creates, for the banker, what economists call a moral hazard: that is, he takes extra risks simply because the central bank is there to back him up. Note that the central banker too is relying on the International Monetary Fund to back him up if things go wrong! So the IMF creates an ‘international moral hazard’! Central banks like the Reserve Bank of India, administer what is called a fractional reserve system: that is, the member banks are required to deposit a portion of their deposits with the RBI, and are free to lend the rest, subject, of course in socialist India, to various ‘lending norms and priorities’. To understand the pitfalls of fractional reserves, imagine yourself as a London goldsmith in the days of yore, with free private money. In the early days, before bearer notes were invented, you would never issue more notes than the gold you got. After all, why issue a note to anyone who hasn’t got any gold belonging to him in your vault? Once bearer notes came about, and your note gained some amount of currency, you were faced with a strong temptation: you could issue some extra notes to those who took loans from you – and earn interest by just giving out pieces of paper! That is, you would issue property titles without property! By doing this, your reserves would become a ‘fraction’ of the value of your note issue. Of course, if many of these loans are indiscreet, you will go bust. You have not been a prudent banker. You have also been a bit of a cheat. So how can we legally have free private banking, free private note issue, and yet ensure banking morality? The solution to this extremely perplexing problem was given by Professor Jesus Huerta de Soto in a paper presented to the Mont Pelerin Society in Rio de Janeiro some years ago. The solution lies in laissez faire banking, with the essential proviso that all private bankers, without exception, be subject to basic civil and mercantile law. Citing many precedents in banking law, Professor de Soto recommends the treating of bank demand deposits as cases of ‘custody’ or ‘safekeeping’ and prosecuting bankers who lend out any portion of these as ‘misappropriation’ in law. This will lead to 100 percent reserve banking, and an end to the fractional reserve system. All banks will be well run, and all depositors will be secure.
With fractional reserves, quite apart from the moral hazard and the ever threatening scepter of bank collapse, what also transpires is inflation. Just as the cunning goldsmith in foggy London of yore found out he could earn interest lending out pieces of paper, so too does the fractional reserve system create credit out of thin air. Those who benefit from this credit are those who take the loans, when prices are low; those who lose are the depositors who take out their money to make purchases many years later, when prices have risen. The legal solution offered by Professor de Soto takes care of everything, for no longer can anyone issue property titles without property. This will end inflation forever. It will legally compel moral banking. There will never again be either inflation or depression, and, without any IMF or any central bank, without any ‘monetary policy’, the world economy will grow smoothly – from here to eternity. Of course, as Professor de Soto points out, what is happening today is legal fraud. The socialist, swadeshi arguments that free trade will affect ‘precious foreign exchange reserves’ is complete and utter nonsense. If you gave up your gold and imported a Ferrari, the deal was worth it to you. It is your money that went out. It is your Ferrari that proudly stands in your driveway. When money is sound, it does not matter where it is going as long as real goods are coming in. The "precious foreign exchange" argument is only used by those who have issued so much local currency that they do not have reserves to back it. Our Reserve Bank is actually quite broke. Thus, laws like the draconian FERA (Foreign Exchange Regulation Act) are immoral. When the central banker cannot convert his paper notes into the underlying asset, as solemnly promised on the note, it is the central banker who should go to prison: a debtor’s prison. What else is meant by the promise on each note? To understand this better, look sometime at the vegetable vendor who takes his cart from locality to locality. He ultimately gets rid of all his vegetables and makes off with his customers’ money. Is he a public enemy? After all, he is making off with public money. But the answer is clearly “No”. He has taken money, yes, but he has left vegetables behind. The customers are all better off because they prefer possessing vegetables to money and the vendor is also better off because he prefers holding money to vegetables. Trade is a positive sum game: both sides win. Go to any market and you will see hordes of people coming in with money, leaving the money behind, and walking off with a host of goods. Are all the shopkeepers in these markets enemies of society? Certainly not. In an internationalized economy with free trade and sound money, a lot of money will go out, but a lot of goods will come in. Both sides will gain. No one will lose. When you go to a shop and buy something, say a book, you say “Thank you” to the shopkeeper when he hands you the book. The shopkeeper also says “Thank you” to you when you hand him the money. The very fact that both sides thank each other shows that both sides gain. Trade is a positive sum game. Always remember that.
When generous loans are not returned Nobody really cares. They’re simply running the banks you know – The money isn’t theirs
POINTS TO PONDER
Examine the truth in the statement: Banks create credit. Why are there so little repayment defaults in car and housing loans? Try and imagine a situation when everyone has the power to issue IOUs. Whose IOUs would you accept? What would you expect the IOUs to be redeemed in?
HOW AN IMPORTANT LESSON WAS TAUGHT
Most economists do not understand how free money works. Somehow, their minds are trained to look at the world from a central banker’s perspective. As one quipped when I said private money was the only sound money – “Then everyone will be able to issue IOUs. How will that work?” Let me show you how. Hassan Balakrishna Soumya is a bright girl who has just received a Master’s degree in Economics from the Delhi School of Economics and has gone to the US to get a PhD. This incident took place a few years ago, shortly after she had graduated in Economics from Delhi University with a first division. At a dinner with many students from my private seminars, I casually mentioned to Soumya that I had a small research project in mind, and was looking for someone to do it. She e-mailed me a few days later, volunteering to do the work. I gave her all the research material, the necessary instructions, and offered to pay her 3000 rupees for her efforts. A few months later, Soumya called to say that the job was done. When I went to collect the completed project, I said that something was amiss with my finances and asked whether she would accept IOUs worth 3000 rupees from me instead. She sounded surprised, but agreed. I promptly wrote out 6 IOUs of 500 rupees each and handed them over to her. When she accepted them I gave her the first lesson in monetary economics: “When you accept someone’s note, you extend credit to that person. Always remember that.” When we accept RBI notes we extend credit to the State. Soumya was extending credit to me by accepting my note. I asked if she thought I was creditworthy – and she laughed! About a month later, Soumya called to say that she had offered my IOU at a cinema hall but was refused. She thought it all rather funny, and me rather peculiar, I guess. I told her that even RBI Governor Jalan’s notes are not accepted almost everywhere in the world. If she had given my IOU to someone who knew and trusted me, it would definitely have worked as money. She hesitantly agreed. A full three months later, I called Soumya and said that I was ready to redeem my IOUs. What would she like me to redeem them in? I offered her gold or silver – or Governor Jalan’s irredeemable notes. She chose silver. As I said, she’s a smart girl! I phoned a jeweller I know and ordered 6 silver coins worth 500 rupees each. They were to have SAUVIK BANK, FIVE HUNDRED RUPEES and 2002 engraved on them. When the coins arrived, the jeweller inquired as to what my purpose was. I explained that I was a teacher trying to explain to my student how private money works. He said that, in the market, plastic coins denoting large denominations like 1 lakh rupees and above, do circulate and are redeemed in paper. I drove over to Soumya’s house to hand her the coins. She handed over my IOUs and I tore them to shreds. This, I explained to her, was the destruction of credit. She had created credit by accepting my note. Now, I was repaying, and destroying the credit. She got the point.
Next, I explained to her that, with private money, the mode of account and the mode of redemption are separate. The rupee retains its notional value, but the hard money underlying it could be gold, silver, platinum, or even tobacco. I could have redeemed my notes in packets of India Kings. Any commodity acceptable to the noteholder becomes hard money when money is free. The central reason why private money will work better than fiat money is because people will choose which notes to accept. They will accept notes only of creditworthy individuals and institutions. Beyond my immediate circle, my IOUs will not be accepted. But if Bhola Unlimited Ltd. issues notes redeemable in packets of Bhola Spliffs, (Ganesh Ka Baap Ka Beedi!) they are sure to be accepted. Credit will go only to the creditworthy. Such a world will be free from inflation because no one will keep money which is depreciating in value constantly – like Governor Jalan’s rupee. In such a world, pink newspapers will be widely read and, just as many follow share values today, masses will follow money values and adeptly switch between currencies. It is currency competition and choice that will rid the world of the scourge of inflation. Today, many continue to believe in a falling rupee as being advantageous to exporters. This, of course, is a refrain I have been hearing from my student days, but exports are yet to take off. The greatest utility of a falling rupee is to those who stash their money overseas. I have some £200 in a London bank, left over from my student days. Then, in 1990, the pound was worth less than thirty rupees and my £200 was worth less than 6000 rupees. Today, the pound is worth 75 rupees and my £200 is worth 15,000 rupees. Those who run the economy are switching currencies when it suits them. That is why there is hawala. Only they are benefiting from a constantly depreciating fiat currency. The rest of us are losing – because it is the value of our savings in rupees that is going down in terms of other, more stable currencies. Suppose I have saved a few lakhs to send my son abroad for higher studies. When the rupee depreciates, my savings are eroded, and are now insufficient to cover the costs of my son’s education. It is in every person’s interest to keep as much power as possible to himself and hand over very little to the State. The greatest economic power is that of being able to issue currency monopolistically. This power cannot be given to the State without open currency competition: that is, full convertibility. When fiat currencies from all over the world are competing, there is no reason to keep private money out. There is already e-gold: an internet-based private gold currency. Let these multiply. The important point to note is that, if we are all free to issue notes, then we are all theoretically able to get as much credit as we can from the market. Those who are very creditworthy will be able to issue masses of notes; those who are not so creditworthy will be able to issue less. But as long as people are free to accept or reject notes, sound money will prevail. Money was not invented by governments: no King suddenly decided to issue coins. Money was already in use when some kings decided to standardise coinage. Since then, the state has played such havoc with the monetary system that it simply cannot be entrusted with the task anymore. So, instead of ‘legal tender’ legislation, let the law justly recognize the property claim that every currency note must be. Let every note legally stand for some property to be given on demand. Once this is the legal viewpoint in society, and judges comply with this ethic, the banking system will adjust. Today, under the leadership of central banks that issue fiat currencies that are all irredeemable, the banking system is best described as a corrupt cartel.
With free banking there will emerge a more moral as well as responsible banking. It is such prudent bankers who will be what Hayek called “caretakers of the market economy”.
CHAPTER EIGHT EMPLOYMENT
A: EMPLOYMENT GENERATION The Government of India spends a great deal of money on EMPLOYMENT GENERATION. This is really how a KLEPTOCRACY diverts money from public goods. Note that the money is spent by bureaucrats on politicians’ "projects". They are spending tax money (and dishonestly printed money: deficits) ostensibly fruitfully. The truth is that these "employment generation schemes" are nothing but schemes by which public money is stolen by the major players of the political market. Government spending cannot create more employment than private spending. If taxpayers had kept the money (instead of paying taxes) and spent it, the same amount of employment would have occurred. If taxpayers had saved the money in private banks, which then made sound commercial loans with the money, the same amount of employment would occur. KLEPTOCRATS, instead, print money to finance these "schemes". They rake in the INFLATION TAX. They are not helping anyone, least of all the poor. These schemes should be stopped and all public spending focussed on public goods. We do not need this great conspiracy of thieves called "employment generation". In reality, such policies of the socialist government actually hurt poor workers in the long run. The money that the government spends comes from taxing the rich, who are the biggest savers. These savings of the rich would definitely have gone into investments. Now when the government takes these savings away and spreads it thin amongst masses of poor people, all the money goes into consumption, none of it is saved, and so none invested. Workers earn wages. Wages rise only when productivity increases, and productivity increases only when capital is employed alongside labour. Because of these socialist ‘redistributive’ policies, investments in capital do not occur, and wages stay low, hurting poor workers in the long run. In the short run too, the benefits to the poor are really small – for how many poor people have really emerged from poverty thanks to the efforts of the socialist government in the last 50 years? The Manmohan Singh government has just passed legislation guaranteeing 100 days employment for one in each family in all our ‘rural areas’. What a cruel joke! In Mangalore, as in ever Indian city and town, poor people who have left their villages far behind and are gainfully self-employed as street-vendors or hawkers, face constant harassment from the local authorities. Should we send them back to their villages so that Manmohan Singh can give them ‘employment’ – with our tax money? All these street-vendors categorically state that they want NOTHING from the government: no subsidies, no cheap loans, NOTHING. All they want is to be left alone! Indeed, they survive quite well with the help of the very small financiers who operate amongst them. In fact, what I informed the hawkers here in Mangalore, is that they are all BIG TAXPAYERS: they pay indirect taxes like sales tax and excise on everything they buy, including matchboxes and beedis. Further, since they save less of their income and spend most of it as compared to a wealthy shopowner, they fork out a GREATER PERCENTAGE of their income in taxes than the wealthy shopkeeper does.
It is time to see who are the real enemies of the poor, and how free enterprise, in a free market, under Common Law, is in the best of the poor: especially the poor who are already so enterprising as to survive under this goonda raj. B: THE KHADI FALLACY Most members of India’s political class wear khadi to show their allegiance to a philosophy which holds that machines cause unemployment and, therefore, if we use LABOUR-INTENSIVE methods of production we can maximize employment. They also believe that this method of employment creation, through avoiding the use of modern machinery, makes sense in a country which they see as overpopulated. This argument neglects PRODUCTIVITY & EFFICIENCY. Division of labour is the method of producing wealth. It creates niches in which we operate. In each of these niches we try to produce the most with the least application of labour: this is rational, industrious Man pursuing wealth. If it makes sense for him to use a machine to help him in his task, why should the nation lose? Do machines cause unemployment or do they create more wealth by producing more and more goods with less and less effort? What is the truth? What do you think, looking around you? Would we all be better off in the Stone Age – all gainfully employed using stone implements? Machines produce more and thereby cause ABUNDANCE. This lowers the price of the good produced and more and more people can afford it. The market expands and employment is finally higher than it was at the point before the machine was introduced. When poor workers get the opportunity to work with machines invested in by entrepreneurs, their PRODUCTIVITY increases – and they ear more and more over time. The machine is not an enemy of the worker, but his friend, the tools of his trade, his Vishwakarma. The best example of how machines affect workers is the automobile industry. When Henry Ford began his assembly line method of producing cars, he pursued PRODUCTIVITY. He produced more cars in the same amount of time using more machines and less labour. Soon, cars became cheap and more people could afford them. The market expanded. Today, most automobile plants, all over the world, including India, are highly automated. Yet, employment in the automobile industry is far more than it was in Henry Ford’s day. More and more people own cars; indeed, universal automobile ownership is well nigh. Should all the robotics in car factories be chucked out? And replaced with pre-Henry Ford methods of manufacture? A little joke is told about this fallacy: One day, two workers were watching a giant earthmover scooping out mounds of earth in its giant maws. Said one: If it were not for this machine, a thousand of us could have done this work with spades. Said the other: Or a million, with spoons. ECONOMIC FREEDOM MAXIMISES EMPLOYMENT Employment occurs when real goods and services change hands. The government cannot create employment: it can only tax and spend. Employment will occur, then, only if the economy is free and people are not obstructed in their economic activities by government babus. Trade restrictions, currency restrictions, license-permit raj – all these should go. Instead of living under LEGISLATIVE DIKTATS
Indians should just live under the Liberty of the Common Law. In a poor country, people must be free to make money honestly, satisfying the needs of their fellow beings. What about unemployment in ‘rural’ areas where there are lots of ‘landless labourers’ and ‘marginal farmers’? Well, the truth is that these people are living in self-sufficiency and are doomed to remain forever poor. They have no surpluses which they can take to market. It makes no sense to spend money ‘generating’ employment in rural India. It makes far more sense to build a nation of 500 free trading cities and asking these poor people from the villages to migrate to the cities and take part in the greater division of labour possible there. The share of agriculture in national income will always decline as the country advances, and services and manufacturing overtake agriculture. If more and more people are left dependent on agriculture, they will be doomed to eternal poverty. They will remain peasants and serfs, cheap labour for landlords. Urbanisation is the best thing that can be done for the rural poor. With free trade, even if they run little roadside shops, they will find ‘employment’. Today, we have a ministry of urban development and poverty alleviation and the system extorts money from street hawkers and vendors. The freedom to operate in urban markets is all that the poor really need. For the sake of the poor, the state must get out of the market.
Beaten, harassed, hounded, robbed – The system is out to get him. How can the hawker earn a living When the predatory state won’t let him?
POINTS TO PONDER
If you were the Mayor of a town, what policies would you put in place to ensure that the people were employed? Would you print money and spend it? Would you start giving out a dole to the unemployed? Or would you maximise economic freedom and let people attempt to look after themselves? Consider the vast improvements that have taken place in textile technology. Is the khadi philosophy good for the country? Do some research into the Luddites who used to go about smashing textile machinery in England during the Industrial Revolution in the belief that these machines were the enemies of the poor.
Anatomy Of Public Enemy #1
I love my car. I do not appreciate the fact that our lousy pot-holed roads damage it. I was cribbing about the cost of a suspension overhaul the other day when an unsympathetic friend quipped: “At least the bad roads are good for our mechanics.” What does an economist have to say about a statement like that? Let us turn to Frederic Bastiat’s famous example of the broken window. A hoodlum smashes a shop window. The townspeople gather, survey the damage, and conclude that their settlement is not worse off because the town glazier has just got some business. Bastiat says this view is complete nonsense: the townspeople are fools who do not see the economic effects of the incident on all the town’s economic actors. They only see its immediate effect on the glazier. If a wider view of society were taken, then the townspeople would see that the shopowner will have to forgo a new suit in order to pay for the new window. The tailor’s loss of business is something the townspeople have overlooked. Thus, the town is actually worse off. Property has been destroyed. Similarly, in the case of my damaged suspension, my unsympathetic friend was missing out the numerous CDs I would have bought if Indian roads were smooth. If I did not have to fork out huge sums at the garage, I would have been able to indulge my passion for music to a much greater extent.
There are numerous examples of broken windows in India. All our generators, inverters, UPSs and CVTs are broken windows: these are not industries. Similarly, our water pumps and water storage tanks are not industries. They are also broken windows. If electricity was of good quality in terms of voltage and frequency, and if supply was reliable, we would have spent a lot of money on other things: clothes, books, music, food and drink. All these industries are losing out because of bad quality electricity. If water utilities were properly run and if we had 24-hour supply at correct pressure, we would not have a plastic water tank and domestic water pump industry. Instead of these broken windows many real industries which contribute to our quality of life, would gain. These poorly-run public utilities and our horrible roads are not promoting any economic activity whatsoever. They are simply destroying our property. In the case of my car, I do not take the damage lightly. As I said: I LOVE my car! I do not wish to pay any taxes to a regime that systematically causes major damage to my most treasured private property, earned the hard way. Through the example of the broken window, Bastiat wanted to teach a very important lesson to all budding economists: that they should look at the effects of any policy on all economic actors and not just focus on the immediate benefits to a few. Henry Hazlitt’s famous textbook, Economic in one Lesson, now in its 50th year of publication, begins with an exposition of Bastiat’s broken windows. Yet there are many who ignore this important lesson. In India, the greatest example of a massive broken window is one that is actually perpetrated by the state’s economists on the gullible public. This is the charade known as employment generation schemes. Crores of rupees are spent in this way, and the state’s economists, these sophists, these con-artists, would have us believe that, by spending money in this way, gainful employment is being generated. We, the gullible public, see a district collector spend huge funds in the countryside ostensibly employing people in constructive activity and conclude that employment is actually being generated. We are making a big mistake. We are not looking at the effect of the policy on all economic actors. If we looked at all the economic actors in society, we would quickly see through the state’s cunning. Somehow, in this scenario, we are missing out the taxpayer. It is his money that the district collector is spending. Would not the same amount of employment occur if the taxpayer had spent the money himself? We are also missing out the fact that much of the district collector’s loose spending is financed through deficits. We are missing out the fact that the resulting inflation will be a tax on the poor. These schemes were originally thought of by the Congress. But the BJP continues with the charade. Indeed, the NDA government recently announced an additional employment generations schemes by setting up a ministry for urban
employment generation. (And they harass street hawkers!) All this is nothing by grand larceny on a grand scale. So, who is Public Enemy #1? I do believe I have identified him as the Government of India. Instead of protecting our lives and properties, its minions are actually destroying our most precious assets. The mismanaged utilities and the corrupt public works departments force us to spend huge fortunes on repairing the damages caused to us. And, as if this was not enough, the state spends taxpayers’ money on the politics of spoils while basic issues of governance lie neglected. We must realise that, with socialism, we do not have a democracy; we have a kleptocracy. True democrats represent taxpayers and see to it that tax revenues are well invested. The socialists loot the treasury, and when that is not enough, they print money. Public money is systematically stolen and the lives and properties of the taxpayers are not looked after. Every scheme, every PSU, every plan is just another way of stealing public money. This must end, and soon.
CASTE… AND THE MARKET ECONOMY
It was my first day in London, my first visit to the ‘developed’ world. I had been invited to a pub in Leicester Square by a former girlfriend who wanted to show off her brand new husband. So there I was, spending an evening with a completely estranged woman and a complete stranger. The pub was quite full but I managed a bar-stool when suddenly there entered a handsome young man in a black suit accompanied by three extremely attractive young women. They ordered drinks and, as luck would have it, I had to pass their glasses on to them, being closest to the bar. I noticed that the pale yellow drink had a familiar aroma and inquired of the man as to what he was drinking. He said, “Pernod” and added that it was a French drink flavoured with anise (saunf). This got us talking and the group and I exchanged pleasantries for a while. The conversation then turned to occupation. I said I was there as a student at the LSE. The man said he was a ‘sanitary worker’. I couldn’t get what that meant and he explained: Every morning, he puts on his overalls, boots and gloves, gets into a truck, and goes about collecting garbage. I understood immediately that the market could do more to correct casteism than any amount of state action. In my country this handsome young man would suffer caste discrimination. In Margaret Thatcher’s England he was entertaining not one, not two, but three lovely women in a pub in Leicester Square. An he was not drinking ‘country liquor’; he was imbibing Pernod. I must say that I learned more Economics living in London and observing life than I did in the classrooms of the LSE. When I lived in Hammersmith, I used to pass an undertaker’s shop every day on my way to the tube station. I used to think: In my country, this man would be a dom – the lowest of the low. I moved to West Hampstead and took up a room in a house run by an Indian landlady where many students stayed. Once a week, an English maid would come and vacuum the entire house and clean the loos. She came in her own car. In New Delhi, anyone in such an occupational class lives in a jhuggi and does not even dare to dream of car ownership. A recent television debate on caste featured a Dalit leader who kept talking about carriers of night-soil. Obviously, this is an urban phenomenon. There cannot be such a caste in underpopulated villages, where you just go out into the fields and do it. With open markets and urbanisation, this caste would prosper and get absorbed in the larger, more prosperous, and more cosmopolitan society. Very few people had flush toilets in the USA in 1900. One good thing: the Dalit leader was making noises in favour of globalisation. I suggest Dalit leaders get interested in the Economics of prosperity. We urban liberals dream not just of making India prosperous; we dream of making India obscenely rich. The Dalits
will gain enormously from open markets, economic freedom and urbanisation. As they claim, in their respective economic niches, a greater share of a rapidly growing pie, and as they mingle with caste anonymity in bustling metropolises, they will find the old caste equations disappearing. This is already happening: At the TV debate, when the issue was opened up to the audience, many urbanites responded saying that caste was a factor that never entered their lives. The socialist state’s response to the caste question has been insincere. Politicians have used the state’s powers of patronage to promote clientelism. By refusing to urbanise, and by throttling urbanisation, they have reinforced and perpetuated the ‘rural-urban divide’. There is thus an India where caste does not matter; and there is a Bharat where caste is the basis of identity. With free markets and urbanisation, India will take the lead. Dalit leaders should also read Thomas Sowell’s slim book: Preferential Policies: An International Perspective. It shows how reservations have destroyed societies. And this, from an African-American scholar. In free market India, the state will be so small that reservations will be unnecessary. Instead of the clientelism and tokenism that reservations represent, Dalits should opt for the prosperity that economic freedom will bequeath to them and the caste anonymity that will certainly follow urbanisation.
CHAPTER NINE POVERTY
For decades, Economics in India has been a study of poverty. When I started studying Economics in college way back in 1974, the first thing I was taught was The Theory of the Vicious Circle of Poverty. This says that poverty is inescapable. Poor people and poor nations are doomed to remain poor. Of course, this is nonsense. If this were true, the world would still be in the Old Stone Age. The history of biography is full of rags-to-riches stories. Bill Gates and Dhirubhai Ambani both started of poor, as did most movie stars. J Lo claims she’s “still Jenny from the block”. America was built by poor immigrants – as was Hong Kong. Poor people struggle hard – and usually succeed. At least I know of one prosperous shopkeeper in Delhi’s posh Defence Colony market who started off 20 years ago selling hot roasted peanuts from a pushcart in that very market! MTR must have simply started of as Mavalli Tiffin Room, a small, simple establishment I visited in 1980. It is also a fact that rich people get lazy and hooked on to luxury: Rayees baap ka bigra beta. If we study the history of immigrant communities in America, we see that the first generation started off poor, worked hard, and succeeded – and, that usually by the third or fourth generation all the wealth was frittered away! There is actually a vicious circle of prosperity! The Theory of the Vicious Circle of Poverty is now taught in ICSE and CBSE schools. The textbooks which contain this nonsense should be immediately discarded. Economics is not a study of poverty. It is a study of the production of wealth. Adam Smith, in 1776, wrote An Inquiry into the Nature and Causes of the Wealth of Nations. It is the causes of wealth that Adam Smith studied. It is this that his free market followers study today. However, India is said to be a poor country and its poverty often calls for POLITICAL ACTION to solve. The politicians spend crores of rupees on POVERTY ALLEVIATION. Should this continue? Let us take a closer look at the symptoms of poverty we see, like beggars. I often travel between Delhi and Dehra Doon by car. After Roorkee, the road passes through a dense forest. Thousands of monkeys line the thoroughfare waiting for the scraps of food that Hanuman worshippers throw at them. Does this prove that the forest is poor and resourceless? Or does this show the role of INCENTIVES (or what psychologists call POSITIVE REINFORCEMENT)? The monkeys have learnt that hanging around by the side of the road is an easy mode of existence. The same is true of beggars. Long ago, the great dissenting development economist Peter, Lord Bauer, of the London School of Economics and Political Science, made the observation that the widespread beggary that exists in the cities and towns of India and Pakistan is not a proof of poverty; but rather, the result of the fact that the predominant communities in both countries, Hindus and Muslims respectively, believe that they earn spiritual merit by giving alms to the poor. There are no Parsi, Jain and Sikh beggars in these very countries because these communities practice charity differently and encourage self-help.
[In Poona, just behind Dorabjee’s, there is a very big, old house bearing the title: Parsee Home for the Parsee Poor.] In India, there is legislation against the maiming of children for pushing them into beggary. THE EXISTENCE OF THIS LEGISLATION PROVES THE EXISTENCE OF THIS VILE PRACTICE. THIS IS WHY MOST BEGGARS ARE HORRIBLY CRIPPLED. It is quite likely that the petty kleptocracy of municipal and police officials view beggary as an activity that generates a good income for themselves. BEGGARY IS AN INDUSTRY. IT PROVES ONE THING ONLY: THAT WE SHOULD RETHINK CHARITY. We must not give to beggars; rather, we should encourage competing private charities. THERE IS THEREFORE NO REASON TO ALLOW KLEPTOCRATS TO SPEND TAX MONEY HELPING THE POOR. COMPETING PRIVATE CHARITIES IS THE ONLY WAY. How would you rather spend your money in order to help the poor in a truly useful manner: • • • Pay taxes to the socialist state? Give alms to every beggar on the street? Contribute to Mother Teresa’s Missionaries of Charity?
Note that there are no Sikh or Parsi beggars in India. The Sikhs practice and encourage self-help. Anyone who gets a free meal at a Gurudwara langar is motivated to go out, work, earn a living and himself contribute to a langar for others some day. Samuel Smiles’ Self-Help is a book every Indian should read. Written in the 1860s, it was translated into Turkish, Arabic and Japanese within a few years and sold millions of copies worldwide. In Victorian England, it was second only to the Bible in every home; and in Meiji Japan it spread the firm belief that the Japanese could catch up with the rest of the world if they worked hard and conscientiously, with the least government interference. The book promotes one’s belief in oneself; only one who believes in himself will practice selfhelp and thereby maximize his human potential. The notion of the WELFARE STATE does not encourage such a point of view. It looks at the poor as hopelessly so, and in need of charity via
the state. In India, Rajiv Gandhi himself commented that 80 per cent of the money spent on POVERTY ALLEVIATION SCHEMES do not reach the targeted poor. They are swallowed up by the kleptocracy. “There is a hole in your bucket, dear Eliza!” Self-help is an ethic which holds that help from outside weakens a person. It should only be sought by the desperate – and that too, from private charity, or from friends and family. We all have the moral sentiment of SYMPATHY and we all have the virtue of GENEROSITY. That is, we all sympathize with those who are in suffering, and we all possess a generous and giving disposition: that is why beggars are multiplying. They are a living and growing testament of public sympathy and generosity. Their existence proves that well organized and well-directed private charity is the best idea; preferable to state taxation in order to help the poor; and much better than unorganised individual aid encouraging beggary. There is no need, in a free market economy, for state action in aid of the poor. Instead, there is an urgent need to spread the idea that PROSPERITY LIES IN ECONOMIC FREEDOM. Today, the poorest of the poor players in the market economy have their lives ridden with economic controls and are preyed upon by the petty officialdom. The transportation industry is extremely unfree. There is, of course, exchange control; which makes every Indian incapable of participating freely in the globalizing world economy. Indian agriculture is also under an inordinate amount of government restrictions. If all these controls were abolished; and if there was ECONOMIC FREEDOM, the country would immediately prosper. There would be very few poor people, and they could be helped through competing private charities. Beggary would be discouraged by society. The state would tax us all minimally, and invest these proceeds in the best PUBLIC GOODS – especially roads and law and order – and this would allow India to urbanize aggressively: the 400 free trading cities vision. Villagers would increasingly prefer to migrate to towns and cities and participate in the greater DIVISION OF LABOUR there. There would be no population pressure on land and Indian agriculture would achieve greater efficiency. Land reforms and land redistribution would be unnecessary. With private property rights under the Common Law, land – that is, the vast territory of India – would actually become a “factor of production” – to be bought, sold, mortgaged and leased freely – contributing not just to agriculture, but every other use as well, from real estate to manufacturing, and from forestry to animal ranching. We must promote the ethic of self-help by encouraging people to create wealth in freedom. Today, we are only encouraging dependence, and hence stifling the full development of India’s human potential. This gives an excuse to the kleptocracy to preach in favour of pro-poor socialistic policies. These can never help the poor in any meaningful way. These should all be abolished. No ration shops. No subsidies. Instead, free trade, sound money, public goods, the rule of law and COMPLETE ECONOMIC FREEDOM. Freedom enables people to make economic achievements without hindrance. The ethic required is that of self-help. I help myself, and I am free to do so. I do not depend on others, least of all the state. If every Indian thinks like this, and if every Indian is economically free, there will be no poverty.
The MOST IMPORTANT aspect of freedom is a FREE MARKET, because that is how human beings survive. Homo Economicus is not a hunter-gatherer or nomad tied to Nature. Homo Economicus survives through an economy. He fails to survive only is the economy he is living in is bad. As Lord Bauer said: “Poverty indicates just one thing – the absence of economic achievement.” He then went on to add:
“Economic achievements are made in markets.”
These two lines say it all. It’s as simple as that: With a FREE MARKET there will be no poverty as everyone will make superlative economic achievements. Adam Smith believed that the System of Natural Liberty would yield “UNIVERSAL OPULENCE”. LET’S ALL GET RICH! TO BE WEALTHY IS GLORIOUS! BUT LET IT BE HONESTLY EARNED IN A FREE, COMPETITIVE MARKET.
Poverty of rights, Poverty of freedom, Poverty of truth, Poverty of wisdom, Poverty of good policies Poverty of good sense Poverty of public goods, The poverty’s immense.
POINTS TO PONDER If the Theory of the Vicious Circle of Poverty is untrue, what explains mass poverty in India? How can India become a prosperous nation? What are the ways by which we can meaningfully help poor people? If the unemployed got dole from the state, would this weaken or strengthen the family? Think deeply: Would we be in need of family and friends if we were on the dole? Do some private research on The Economic Freedom of the World Index. Compare it with the Human Development Index which UN agencies, the World Bank, and the socialists all talk about. What should come first: Human Development or Economic Freedom?
CHAPTER TEN ENVIRONMENT
SLUMS AND RENT CONTROL We have already noted that urban beggary is not a proof of poverty. Let us now look at something else that is a blot on the urban environment: slums. Note that there are no slums in Kathmandu, Nepal, although the per capita income is lower there than in Indian cities. There is only one reason for this phenomenon: rent control. There is no rent control in Kathmandu, so landlords build houses and let out rooms to poor people who cannot afford to buy or build themselves their own houses. There is rent control in India, so private landlords do not offer cheap housing on rent. The poor typically rent property. They do not buy. They cannot buy. For their benefit, therefore, it is essential to have a vibrant rental housing market: As, for example, in London, where you get furnished rooms by the week affordable even to poor students like me. Why? Because if you don’t pay the rent or damage the furniture the Bobby will take the side of the landlady, as will the court! Hence there are so many landladies in London willing to rent out rooms. Because of rent control, the cops in Bombay or Calcutta do not side with landladies, nor do the courts of law, of course. I know, for my poor grandmother suffered 20 years of litigation to get a tenant out – and by the time the tenant finally left, my poor grandmother had gone even further – to the next world! If this is what happens to landladies, who will build houses and rent out rooms to anyone? Without rental housing from the market, the urban poor are forced to go to politically sponsored slumlords, and this adds to THE CRIMINALISATION OF POLITICS. AN ECONOMIC EVIL CREATES AND PERPETUATES A POLITICAL EVIL. Why is rent control an economic evil? Because it is a GROSS VIOLATION OF PROPERTY RIGHTS. The property belongs to the landlord. If the tenant can legally take it away, it means that the law is promoting theft. THE LAW IS LEGAL PLUNDER. When plunder is legal, the market cannot operate. Property rights are fundamental to the morality of the market. Unless it is clear as to what is ‘mine’ and what is ‘not mine’, no trade, not even barter, is possible. No rental market can come up if it is legal to plunder the landlord’s property. This must be clearly understood. With property rights, a big blot on the urban environment will disappear. 22 Let us now turn to another problem area: clean air. CLEAN AIR
Citing observations made in Australia, Sudha Shenoy adds: “Slums are also caused by the lack of building land and secure title to it. Even in Australia, in the 19th century, when municipal governments refused to give secure title to land, people built only the most appalling, ramshackle hutments. I saw one, inquired, and found out why.”
The air in our cities is not clean for a wide variety of reasons, foremost being the use of inefficient vehicles and poor traffic management. Even a cycle rickshaw causes pollution when it occupies the bus lane and forces the bus to swerve into the main body of traffic. Every other vehicle user has to change gears and pollute the air. The cycle rickshaw has transferred the costs of his inefficiency onto other vehicle owners. They have to slow down, change gears and swerve – this costs money as well – only because the cycle rickshaw is slow and inefficient. Free trade is the cure. With free trade in second-hand vehicles, the Indian transportation industry would arrive into the modern age. With free trade in used vehicles, the cycle-rickshaws, auto-rickshaws, pygmy trucks and buses, the Ambassador taxis and other polluting relics of socialism would be history. With better roads and traffic regulation, pollution would lessen and the air would be much cleaner. Thereafter, taxation can be used to keep the air clean. If we tax heavy polluters heavily, and impose no taxes on clean technologies, people will be encouraged to switch to clean technologies and the air would remain clean. Collective action is required in traffic management, an essential part of law and order: a PUBLIC GOOD. Socialist India has neglected both roads as well as traffic management. With better roads and scientific traffic management, free trade in second-hand vehicles and taxation to encourage clean technologies, we will obtain much better air in our cities [In Poona, at least two two-wheeler deaths are reported in the papers every single day. The air pollution must be tremendous because all the girls on scooters wear head scarves that fully cover the entire face, leaving just the eyes – making them look like terrorists! Poona is a student town, and all students drive two-wheelers. A former Director-General of the Armed Forces Medical College in Poona told me that at least two of his students had motor-cycle accidents every week. The war is on the streets, for these army doctors! The sign outside Fergusson College says: Established 1885. Try crossing the Fergusson College Road today: it is an extremely risky business.] As far as clean air for rural India is concerned, the main problem there is indoor air pollution, caused by the domestic stoves using primitive fuels. The solution lies in modern sources of energy, like electricity or gas. In a free market, all energy sources compete, and new ones are found. So, free power to farmers is nonsense, for with reliable, paid-for power, it is the farmer’s wife whose lungs would be saved. Whenever I meet farmers intent on lobbying for free power, I remind them that it is ancient Indian tradition to light a lamp in every house at sundown. How come we are all still able to light these oil lamps but cannot obtain light from Thomas Edison’s electric bulb? Because we pay for the oil in the lamp, while we do not pay for the electricity for the bulb. It is as simple as that: no free lunches.
CLEAN WATER Picture our situation: the earth is made of seven parts of water, but water is scarce. The earth has very little oil, but diesel and petrol are available in plenty. What explains this curious phenomenon? The only reason is that there is a market for oil, but there is no market for water. The state owns all the water and distributes it as it sees fit. Farmers in Punjab get free water with which to grow rice (which needs 21 waterings) but water is scarce in Delhi, although there is willingness to pay.
I was in Dehra Doon once and heard complaints about water shortages. The town has the mighty Ganges flowing on one side, and the mighty Yamuna flowing down the other. Why is there no water in Dehra Doon? To find the answer, visit Dakpathar, an irrigation town 40 km from Dehra Doon. There you will find that the state is damming river water and dispatching it free to Punjab farmers. The town of Dakpathar is also a ghost town amidst beautiful landscape because the irrigation department is broke and makes no profits from water. The townspeople of Dehra Doon would pay for water, but the state is not interested in water markets. The solution, again, is PROPERTY RIGHTS. If we had shared property rights to river water and ground water we could sell surplus water in a water market. Someone would be buying river water in Punjab and selling it in Delhi. The Punjab farmer might also find it preferable to sell his water rather than use it to grow rice (when the water is free of cost). The Narmada Dam agitation also showed that big dams are a technology promoted by the state. The tribals have no property rights on river water, and the water is stolen by the state and diverted to those the state feels need it more. If there were property rights on water, the dam owner would have to pay tribals for the water, and he would then have to sell that water to those who need it. The absence of free water might make big dams uneconomical. It might make desalination plants economical and, instead of big dams, we might have hundreds of desalination plants all over the coast, huge water pipelines (like oil pipelines) all over the place, and a general abundance of fresh, clean water that everyone would willingly pay for. The Vajpayee government trumpeted the case for a mammoth project to interlink all Indian rivers. Thankfully that is now on hold. But if ever revived again, do remember what Milton Friedman once said: “If we hand over the Sahara Desert to the government, there will be a shortage of sand in 5 years.” If the government of India takes over all the water, no one will get any. The history of China contains many tales of cruel Emperors who took over all the sources of water. Historians call this ‘hydraulic despotism’ for the power was used to subjugate the people. If any village or town threatened to rebel, water supply was stopped. Government should never be given complete control over such a vital resource, for they will definitely misuse this power. With private property rights, and innumerable private proprietors and sellers of water, such a concentration of power is avoided. And anyway, water is abundant on the Konkan Coast. There are innumerable perennial rivers, and rainfall is plentiful. Agumbe boasts the second highest rainfall in India after Cherrapunji. And then there is the vast ocean, if desalination is deemed economical by some entrepreneur. If this region thought for itself, then it should not be bothered about the prospects of water problems, ever. NEITHER IN HOUSING, AIR OR WATER IS THERE ANY NEED FOR STATE ACTION. THERE IS NEED FOR FREE TRADE AND THE PRESERVATION OF PRIVATE PROPERTY RIGHTS ACCORDING TO THE COMMON LAW. SPECIES EXTINCTION Note that tigers need state protection but goats, chickens, pigs and cattle do not. They survive and face no threats to their survival simply because they occupy NICHES in the market economy. They are not subject to poaching, they are governed by property rights (someone owns them) and, although they are killed aplenty to feed human beings, they are assured of survival. Similarly, fruit and vegetable species in
use in the market economy survive. Rare plants would survive if the pharmaceutical industry could use them, or if they could be used to decorate our gardens. Emus and ostriches survive today on poultry farms. Crocodiles have been saved from extinction just because they are now farmed: you can order crocodile jerky at www.gatorbob.com, and it tastes pretty good! Crocodile meat and kangaroo steaks are becoming very popular in Europe. Such ideas would help species survive better than the approach so far taken: having laws against trade and placing sanctuaries under government ownership and control. For example, Veerappan could have been a sandalwood farmer and an elephant rancher. In the Western Ghats, nature’s bounty includes not just sandalwood, but also mahogany, rosewood, teak and ebony. But all these are state property! Hence these woods are scarce. If they were farmed, with private property rights, these trees would be abundant – and survive aplenty. There are more trees in Canada now than there were when the first white settlers came – because of the timber companies! [With state ownership of all trees, good timber is scarce and expensive. If we could farm timber and sell it, timber would be cheap and plentiful. One extremely unfortunate result of state ownership of all timber is what I heard has been happening to palm trees in and around Mangalore. Since these palms are no longer usable and profitable because of the restrictions on toddy, many are being cut down for use as roofing rafters! A toddy palm takes ten years to mature. It is a very useful tree. If sal was cheap, who would cut down a palm tree? Do note how INTERFERENCE by The State dislocates all PRICES and makes people take decisions that go so completely against economic logic. The palm tree is considered sacred in Islam, with the Prophet forbidding its destruction even during war.] On elephants: Zimbabwe was the only country in Africa that refused to sign the international treaty banning the ivory trade. Instead, they simply handed over the forests, with the elephants, to the jungle people. Soft-headed environmentalists predicted doom. But even these jungle people were smart enough to know not to kill the goose that laid the golden egg. They allowed in hunters – with a $50,000 fee. And when the mad big game hunters from Texas came, they made sure they shot only the old ones, or the rogues. They farm ivory. And Zimbabwe is the only country in Africa whose elephant population is growing! Note that wilderness is also a commodity that can be sold for tourism and nature study and photography. Hunting can be a sport if there are ranches which breed species and allow recreational hunting. There are more blackbucks in Texas, USA, than the whole of India because Texans ranch blackbucks and allow recreational hunting. I enjoyed a venison steak at the canteen of an Ikea store in Germany. And I noticed that in their supermarkets you get rabbit, quail, partridge and other game, including wild boar. In the Konkan, wild boar are a menace, kept out with electric fences. Freedom will allow this pest to become a resource. Wilderness can also be preserved as private property, of those who value wilderness. In the USA there is a private nature conservancy organisation that collects funds from members and simply buys up millions of acres of forest. It then preserves the wilderness as its members’ private property. Thus, those who value wilderness ‘put their money where their mouths are’. On the other hand, when the state takes over forests, the poorest pay the price: the tribals who have been living there for generations, or the ‘Naxalites’ in Kudremukh.
Further, government owned sanctuaries are prone to a particular economic problem, to which we now turn our attention: THE TRAGEDY OF THE COMMONS If there is a common pasture, over which there is no ownership, and if there are a few shepherds who graze their sheep there, theory predicts that they will each overgraze rationally and ultimately destroy the pasture. This is because each will think that, if he does not let his sheep eat the grass, the other shepherd’s sheep would. This sort of rational behaviour by each of them will ultimately destroy the pasture. Or, to take another example, suppose there was a large pond with plenty of fish in it and there were a few fishermen who lived nearby. When no one owns the pond and all the fishermen are competing for the fish, theory predicts that they will rationally destroy the pond. Let us see how. Suppose a fisherman were to net a small fish, ideally he should throw it back into the water. But in the above situation he will not do so because he will think that if he does not get the fish, the other guy will. Thus, with each fisherman thinking this way, the pond will soon have no fish left – simply because it is a common resource, with no owner. Property rights are essential for looking after the environment. If we could establish property rights over forests, water, rental housing as with everything else, the environment will be better preserved because each threatened good – housing, drinking water, plant and animal species, forests, the continental shelf – would find a niche in the market economy and survive. Today, each is suffering from a ‘tragedy of the commons’. THE MARKET IS GOOD FOR THE ENVIRONMENT IF PROPERTY RIGHTS ARE PRESERVED AS PER THE COMMON LAW. ALL ENVIRONMENTAL PROBLEMS ARE CAUSED BY THE TRAGEDY OF THE COMMONS. It is common property – like the air, the river, the forest, the tiger – that gets destroyed or polluted. Property rights are the cure. You can either sell the common property or else charge a fee for using it – a tax, for example, to spew smoke from an industrial chimney or discharge effluents into a river. These taxes would make people switch to cleaner technologies. The tragedy of the commons would be averted. THE ‘POLLUTER PAYS’ PRINCIPLE Suppose you are the King of Benares, and all the citizens are inordinately fond of Benarasi paan. They chew paan and naturally spit all over the place. This is a problem of pollution. This is also a tragedy of the commons: they spit in public places which no-one owns. How are we to cure it? Choice 1 is to ban paan. But those who believe in liberty do not believe in bans. A ban would take away freedom. We must therefore think of a better way. (Let us also not forget that if a Maharaja of Benares were to ban Banarasi paan in Benares, there would be a public revolt!) The polluter pays principle says that a tax should be levied on anyone who spits paan juice in a public place. What would happen if this tax was imposed (and collected)?
Within days, paan chewers would go around with spittoons. They would be possessed of the basic economic rationality to adopt environment-friendly technology. Similarly, if vehicles were taxed according to the pollution they cause, those who own old vehicles – the relics of socialism – would be encouraged to switch to Euro II compliant new models – which should not be taxed at all.
THE ‘SHORTAGE OF NATURAL RESOURCES’ BOGEY When people like us say that population is an obvious cause of prosperity – humans are the only species capable of creating wealth, and every dot on the map is densely populated and rich – people like them talk of the ‘scarcity of natural resources’. They say that more people on the planet means all the ‘scarce’ natural resources will be used up. The question of natural resource scarcity was taken up most thoroughly by Julian Simon. He studied longterm price trends and came up with a curious finding: that the prices of all natural resources, indexed to wages and inflation-discounted, have been steadily falling over the past 200 years despite the fact that, during this time, the population of human beings on the planet has more than quadrupled. This was indeed a curious find. If the argument being doled out by those who believed that more human beings meant a strain on natural resources was true, then the prices of all natural resources should rise, not fall. But they were indeed falling, and that too, very steeply. For example, see copper prices over the past 200 years.
Copper is a widely used metal. It is available only in a finite quantity in nature. Human population has quadrupled. What explains the fall in copper prices? It is after coming up with a host of price graphs (not only for metals, but also for food items like wheat, and even going on to cotton and coal) like the one above that Julian Simon came to an amazing conclusion: That more human beings mean more resources, not less. Accordingly, in 1980, Julian Simon did something very unusual for an academic: he put his money where his mouth was and offered a bet. Select any 5 natural resources and let us make a basket worth $1000 comprising $200 of each resource. Then, let us take up the value of the basket in 1990 (after 10 years). If the prices rise, you win. If they fall, Julian wins. Paul Erhlich, author of The Population Bomb, accepted Julian’s bet. And lost $576.07. The combined basket, which was worth $1000 in 1980, was worth only $423.93 in 1990. The five natural resources Erhlich had selected were: Copper, tungsten, chrome, nickel and tin. These are all heavily used. How come their prices fell so much? The reason is again a ‘conflict of visions’. Erhlich is a biologist with a simple theory: the world is made up of finite resources and if Man multiplies too much, there will be less to go around. There will be shortages. Julian Simon, on the other hand, was an economist who carefully studied long-term price trends. His vision was of a huge planet with abundant resources. These resources come into play only when humans use them. Thus, the more humans there are, the more resources. Human beings are ‘the ultimate resource’. Indeed, it is also true that although humans have quadrupled in the last 200 years, the price of human beings – wages – has gone up! All natural resource prices have gone down, but the price of human beings has gone up! To understand the fatal flaws in the natural resource scarcity argument, let us take the case of oil as a source of energy. Its prices are artificially high only because a cartel is cutting down supply, otherwise they too would fall. Is this wise on the part of OPEC? For, after all, when oil prices are high, then economics is on the side of those who search for substitutes. And sure enough, I saw fuel-cell cars on display at the Geneva Motor Show, 2000. This technology will make itself felt within a decade. General Motors has announced it will start commercial production of fuel-cells that will run offices and homes by 2006. Long before the world runs out of oil, humanity would have moved on to cheaper alternatives. Human beings are not a problem. Human beings are resourceful. The human mind, as Julian Simon said, is the ultimate resource. It brings in more and more resources in play from the Earth’s bounty. Take the history of energy. When Britain began industrializing, charcoal was used to make iron. Then, whale oil was used for lighting lamps. Whales were hunted to near extinction and whale oil prices naturally rose. The human mind responded to the challenge by discovering oil under the ground. (So Rockefeller saved the whale, not Greenpeace!) With the invention of pumps which could suck water out of mine shafts, charcoal was replaced by coal. And the landowners who farmed trees for charcoal were out of business! Then came electricity. Today, you can take coal to Newcastle. There is no mining, (after Margaret Thatcher), but there is still coal under the ground. It has not been exhausted. There are still lots of trees for charcoal; there are still whales; there is still a lot of peat left, which no one wants to use. Simon notes that in Roman times there was a scare that the world was running out of flint – and in the ensuing panic to hoard flint, the price of this common stone rose spectacularly! My Zippo lighter uses flint; there is no shortage of flint; you can buy a pack of Zippo flints anytime, anywhere. Similarly, there will always be oil and natural gas, for the human mind will come up with alternatives. Even these non-renewable sources of energy will not be completely exhausted, ever. The price of energy will prompt the search for substitutes.
Thus, ‘sustainable development’ is nonsense. There is no shortage of resources, including land, and there is no ‘population pressure’. There is no need to SLOW DOWN PROGRESS in order that some future generation can benefit – the chief ethical argument of those who call for ‘sustainable development’. We do not need to leave the tigers and the trees and the rivers and the oil for the future. There is enough of all of these things and if we need them today, we should use them today. The way to ensure that all of these survive and are passed down to future generations is to ensure that the market, with property rights, be allowed to govern resource use today. In fact, rather than conserve oil, we should actually use more of it: if we have a real automobile revolution in India, with duty-free second-hand car imports, and every Indian has a real car, and our oil consumption hits the roof, and the price of oil also shoots – only then will fuelcells become economical! And there will be a huge market for them, which will make them cheaper still as time goes on, simply because we had used the opportunity TODAY to use resources TODAY to create wealth TODAY so that we could buy fuel-cell cars TOMORROW. If we just hang around today, with our Bajaj scooters, we will not create the wealth to leave behind to our children (our immediate future, not some distant generation) so that they will be able to afford fuel-cell cars tomorrow. Remember: we still read frequent reports in the papers about ‘new oil and gas finds’. That is, we do not even know how much oil there really is out there! There are vast known oil basins which are not being utilised today as they are not economic; there are also many basins which are unknown to man, which are yet to be discovered. By the time fuel cell cars become the norm, which will not take too long, there will still be lots and lots of oil left, which no one will even want. So even the CLIMATE CHANGE chaps who want all countries to lower emissions are dead wrong – especially as far as poor countries are concerned. For the poor countries, what is needed TODAY is modern energy. Poor countries need free trade, sound money, property rights and the rule of law – and with these they will attain prosperity, with which to harness more and more modern sources of energy which will increasingly cause less pollution and produce less emissions – like fuel cell cars. If they have gas and electricity, they will not use firewood. It is also very important to note that when climatic disasters occur, like hurricanes, rich societies suffer far less damage than poor societies. A hurricane in Haiti kills thousands; the same just across on the coast of Florida kills just a handful. When cyclones hit Hong Kong, people hole up in the hotel bars, and survive; while in coastal Orissa, thousands and thousands perish for, with poverty, they do not even possess concrete buildings to seek shelter in. NGOs are going about building ‘cyclone shelters’ (just ugly concrete building) in ‘villages’ with populations exceeding 1600 situated just 25 kms from the overcrowded Cuttack (but no road, of course). With good roads, this ‘village’ would be real estate: lots of concrete, including concrete bars and concrete ganja-smoking joints. [In the village square, under a mighty banyan, I joined a group of over 20 locals smoking ganja in big chillums: ‘smoking in a public place’? Ganja is legally sold in Orissa, where it has been smoked traditionally by the population. But a trade license costs 85,000 rupees, and the dealer in the village was conducting his business “illegally”!] The tsunami that just hit the eastern coast of south India, the Andaman and Nicobar Islands, Thailand, Indonesia and Sri Lanka demonstrated that governments have been more concerned about imaginary future dangers rather than real present ones. Now that we know the ocean’s fury, how can we best insure ourselves against any such event in future? Here are two choices: 1. Ask The State to set up a warning system. 2. Clamour for a Free Market.
Right now, most Indians are choosing Option #1. What will that achieve? Simply this: Some ministers and bureaucrats will get a “budget” to set up a warning system. Maybe it will be a very good one, who knows? Now examine Option #2: If we get a completely FREE MARKET, we can all make lots and lots of money ourselves, which we can spend ourselves, on what ever we deem fit for our own preservation. We will choose better boats to fish in, better and stronger houses to live in, and even sea walls to fortify our own little towns. We will buy insurance policies. We will all buy radios and mobile phones and other kinds of modern communications – and maybe entrepreneurs will come up with the service of relaying seismic warnings in the zones that create tsunamis. So when the wave hits Indonesia, the entire eastern coast of India will be informed. Further, to be safe when a future tsunami strikes, we will need much more than just the early warning from The State. We will need fast transport so we can get to safe areas – and these we will have to buy ourselves. We will need stronger houses – and these too we shall have to build ourselves. We will have to buy our own insurance policies too. The great advantage of the free market is that it enables us not only to earn the wealth required, but also the ability to choose how to apportion our money among the various heads necessary to secure our safety. The State will think of only one area, early warning systems, and spend the money. All other areas, equally important, will remain neglected. We will remain poor. We will die again when the next tsunami strikes – just like the poor people of Haiti or the Philippines who are similarly affected every year. Natural disasters happen. Some areas are prone to them – like California. But when they are rich, thanks to a free market, they can afford earthquake-proof housing – and survive. However, rather than fearing natural disasters, especially natural disasters 100 years hence, which the global warming guys are all so worried about, mankind needs to urgently wake up to the fact that many, many more people die annually from acts of The State, including war. More people have died in Iraq since the US occupation began than died in the tsunami. How many died in World Wars I and II? Vietnam? How many were killed to make communism happen in the USSR and China? The columnist Swaminathan Aiyar, has taken the opposite view in his Swaminomics of January 2, 2005. He lists huge disasters that have happened in the past, from ice ages to volcanoes to epidemics as evidence of Nature being the biggest enemy of mankind. He lists various natural disasters waiting to happen, including a possible comet or meteorite smashing into our planet. But surely a rich population will be better able to handle any of these eventualities. A rich population in the modern world will easily survive an ice age, which will not happen overnight, and will take a long time progressing, so giving us adequate time to get everything organised to face it: it costs us 3 crores a day to keep soldiers in Siachen! A rich population will send nuclear missiles into space and blast the comet or meteorite heading our way into smithereens. A rich population will be better able to handle any epidemic that breaks out in the future. Of course millions died in natural disasters in the past – mainly because they were poor nomads and hunter-gatherers as, say, during the last Ice Age. Plague killed millions in Europe in the Middle Ages, but in modern times it is only in a poor country that the plague strikes – as in our very own Surat a few years ago. And since Surat is a rich city – centre of the diamond-cutting industry – it quickly recovered. I visited Ahmedabad a year after the great Gujarat earthquake – and this prosperous city had completely recovered from the damage. I think if we go to poverty-stricken Latur in Maharashtra today, where an earthquake struck a few years ago, we will still find signs of devastation – because of local poverty.
Aiyar begins his column saying that the tsunami killed more than the bomb on Hiroshima. But that was just ONE bomb! WW I and II, communism, fascism, the partition of India, and all the wars that continue in the name of whatever great ‘value’, like democracy – all acts of The State – kill many, many more human beings all the time, each and every bloody day. NATURE SHOULD NOT BE FEARED. WITH WEALTH, WE CAN ALL PROTECT OURSELVES BETTER. IT IS THE STATE THAT IS THE BIGGEST DANGER TO OUR HEALTH. IT IS POVERTY THAT IS UNSUSTAINABLE, NOT DEVELOPMENT. THIS POVERTY IS CAUSED BY THE GOVERNMENT. THE ‘SUSTAINABLE DEVELOPMENT’wallahs AND THE ‘CLIMATE CHANGE’wallahs WANT TO GIVE MORE POWERS TO THE VERY SAME GOVERNMENT! YOU DECIDE: LIBERTY? FABULOUS PROSPERITY? A MIND WITHOUT WORRIES? NO FEARS? OR GIVING IN TO THESE PROPHETS OF GLOOM AND DOOM AND GOING TO THE GOVERNMENT FOR THE SOLUTION TO THESE IMAGINARY PROBLEMS. On the Konkan coast there are virgin mountains by the thousands: mountains, mountains and even more mountains. If roads are built and some of these mountains became hill-stations, have we ‘lost Nature’ or have we made it possible to enjoy Nature? Coffee estate owners in Chikmagalur and Coorg complain that the Forest Department often accuses them of ‘encroaching’ forest lands. If some estate has genuinely done so, should we pull out the coffee bushes and let the jungle take over that land? Is there some ‘economic value’ to The Jungle? Let tigers and lions breed on your farm Crocodiles and antelopes too. Endangered species will be safe from harm (I’m not quite so sure about you). POINTS TO PONDER There are no high rise buildings in Kathmandu. Can you guess how this is related to property rights again? What can be done about shopkeepers who pay tiny rents for properties that are worth millions today and therefore oppose the lifting of rent control?
CHAPTER ELEVEN BUREAUCRACY & THE FUTURE OF PUBLIC ADMINISTRATION
Bureaucracy is a an organisational system designed to SERVE THE MINISTER: not “the people”, nor “the Law”. Bureaucrats are not “public servants”: they are only the “minister’s servants”. As an organizational system, bureaucracy is based on four principles: • • • • Hierarchy: which means that you will always work under those who are senior to you in age, irrespective of MERIT. This promotes the RULE OF THE AGED. In bureaucracies, youth sacrifices itself to the aged. Impersonality: which means that it is the desk – the BUREAU – which takes decisions as per rules and not the officer on the basis of his personal bias. Another word for impersonality is impartiality. Career: a lifelong commitment to serve the order. Expertise: it is supposed to provide RATIONAL, KNOWLEDGE-BASED GOVERNMENT. Judging by the traffic in our cities, Indian bureaucrats do not possess the knowledge with which to conduct our common affairs. This is also known as FUNCTIONAL ILLITERACY.
The characteristics of bureaucracy are easily remembered by the acronym HICE. It is the chosen method of organising government services worldwide, but it has its disadvantages, which must be understood in a KLEPTOCRACY. Bureaucracies are careers in which youth sacrifices itself for the old. Bureaucracy therefore promotes the RULE OF THE AGED. Since we wish to change India, it is essential that our intelligent youth do not sacrifice themselves in careers that prop up the misrule of the aged. There is an alternative to bureaucratic organisation: THE NEW PUBLIC MANAGEMENT OR FREE MARKET PUBLIC ADMINISTRATION. Free marketeers believe in very limited government, dedicated solely to the provision of PUBLIC GOODS AND SERVICES. These can be provided much more easily if there were to be a sole official CONTRACTINGOUT the job to competing private suppliers. For example: garbage collection. If we do it bureaucratically we put an official in charge of a monopolistic DEPARTMENT which recruits sweepers, purchases trucks and brooms and so on. We notice that the BUREAU CHIEF spends most of his time processing BUREAU INPUTS: he looks into the personnel problems of his staff (leave, discipline, promotions and so on); he looks into the purchase and maintenance of trucks and brooms. He has little time to process BUREAU OUTPUT: to see to it that the town is actually being cleaned up.
If we apply NPM and CONTRACT-OUT garbage collection, the sole official we need will actually be able to see that the work is being carried out as per contract. Thus, we will get efficient public services. There is also the strong possibility that, with COMPETITION AND CHOICE, there will be many bidders for the service and the actual costs will come down. This will help control the FISCAL DEFICIT and thereby help to usher in SOUND MONEY. There is a lot of literature on NPM and it is a growing movement in public administration worldwide. Young Indians who wish to work in administration in the future should explore this PARADIGM and study further. The essential point to note here is that it is possible to have a lean government that is not bureaucratic and which provides public goods and services with high cost efficiency. Such a system of public administration is what our young people should usher into India. Sudha Shenoy, however, advises some caution: “Some Canadian cities tried contracting-out garbage, with the result that the contractor got a virtual monopoly. US cities have several competing services, who deal direct with the householder. The results are marvelous: dustbins are disinfected, deodorized and perfumed, and you have a choice of three scents! Similarly, in Britain, ‘contracting-out’ results in a cosy relationship between the official(s) involved and the contractor(s).” The essential point is that there is no ONE CORRECT WAY in either Public Administration or its sister-subject, Business Management. (Just as there isn’t one correct way to make tea: as the English say, “Not my cup of tea.” Is there one correct sambar or coconut chutney in South India?) Perhaps competing garbage companies can deal directly with all householders. But what about the construction of urban roads and footpaths, street-lighting, signage, sewage and other collective needs of an urban agglomeration. What is really needed in this area is EXPERIMENTATION with TRANSPARENT DOCUMENTATION, so that these can be studied by academics and the media. Such studies will not only lead to the blossoming of the subject of Public Administration, in a woeful condition today under the IAS; such studies will also provide BENCHMARKING: that is, comparing costs in different cities will indicate which cities are managing their affairs well, and which are not. DEMOCRATIC SELF-GOVERNMENT OF URBAN INDIA The 400 free trading cities we look forward to seeing in India in the future will all require excellent urban management systems. Instead of panchayati raj 23 nonsense, India will urgently have to re-invent urban local self-government. These do not really exist in urban India today. Self-governing cities and towns, the world over, are run by Mayors. The Mayor of Shanghai is a very senior functionary of the Chinese Communist Party.
The horrible town of Gokarna is run by a panchayat! They charged me 10 rupees to drive into a town without any roads whatsoever! I wanted to see the famous Om Beach, reputed to be the prettiest in India, but was advised that my car would break down if I tried the road. Similarly, the little town of Kalasa is run by a panchayat. But these are towns, not villages, and should get Mayors.
Mayoralties are a very old institution: the Lord Mayor of London was established before the Magna Carta! The Mayor was the head of a body of sworn citizens called a commune. (So it is interesting that the word ‘commune’, on which ‘communism’ is based, has its origins in an urban association of businessmen!) The history of constitutional development in Britain shows the important role played by institutions such as that of the Lord Mayor of London. Then, the King was just a tyrant with a sword: like, say, William the Conqueror in 1066 AD, of Viking descent. The King wanted money: taxes. Who could pay these taxes? Apart from the feudal landlords, only the wealthy merchants, who made money. Thus came the Magna Carta – and the merchants secured LIBERTIES from arbitrary government and onerous taxation. Clause 13 of the Magna Carta specifically mentions the City of London and grants it all its ‘ancient liberties’ including the freedom to trade by land and sea. The lesson to learn is that we must have genuine self-government of our cities and towns. Central economic planning requires a strong centre. The free market and liberalism does not. Centralisation has been the bane of India. For example: The budget of the Corporation of Mangalore is about 60 crore rupees, of which about half is raised locally, from property taxes, billboard advertising rights and so on. The rest comes from Bangalore or Delhi, and for getting these funds, the Mayor of Mangalore has to make many long-distance calls, mail letters and appeals, and even make personal visits. But Mangalore collects income tax every year worth 600 crores! If we add sales tax and excise duties, this city coughs up more than 1500 crores to the exchequer every year. What is the point in sending all the money to Delhi and then waiting in vain for Delhi to think about the plight of Mangaloreans and send some money back? (Like the central tourism minister announced a 37 crore project the other day!) Dilli Door Ast! If 1500 crores was given to the Mangalore City Corporation, the footpaths of the city could be paved with gold. Instead of one showpiece concrete road, every street could be re-laid to the highest international standards of road-building. New Public Management must therefore be accompanied by a New Public Finance, so that each city can be economically independent of higher levels of government. The future requires self-governing cities and towns, well managed, economically viable and independent, with Mayors using New Public Management. To conclude: Frankfurt-am-Main began as a Freireichstadt: a free city. In Germany, there is a long history of free cities, including the Hanseatic League cities which were self-governing and practiced free trade amongst themselves: all these cities still call themselves Hansastadt or ‘Hansa City’, like Lübeck. The great port city of Hamburg is a Hansastadt – and the city enjoys the full powers of a state government, or Lander! The City of Hamburg is one of the states of federal Germany! (Perhaps like Delhi is today. But does Delhi have a Mayor? Is the government of Delhi really ‘local self-government’ or is it arbitrary central rule and interference? Chief ministers of cities like Delhi or small towns like Pondicherry mean nothing to urban government. Mayors will
matter if urban India is to be saved. Narayan Moorthy 24 of Infosys really put his foot in his mouth when he suggested that all Indian cities be handed over to the central government. It is the central government that ruined Delhi. Just as the state government of Karnataka ruined Bangalore. Mayors running free cities is the only way out for India.) Finally: I was standing in the great open square of the old city of Frankfurt, looking at the impressive old building of the mayoralty: the burgermeister. I noticed three flags atop. The first was the flag of the City of Frankfurt. The second was the flag of Germany. The third was the flag of the European Union. Thank God they didn’t put up a flag of the United Nations too! But the freireichstadt of old is still flying its own flag. So, my message to every city and town in India is: Get a flag! Then get a Mayor – a good one. (And how do you get a Mayor? Get a Guildhall first. Read the next essay.) Then get ahead.
When age matters - and not merit What earthly good can come of it? So don’t get on the bottom rung, pal, For there’s only a very old man on top!
POINTS TO PONDER
What are the services that you expect from your local government at the municipal level. Are any of these services being performed satisfactorily today? How can NPM make things better? If you were to become a public official – either elected or appointed – how would you deal with the problem of massive overstaffing in government departments?
This also shows the pitfalls of relying on the views of a ‘successful’ man in business for all the problems of the world. A more modest man would have pleaded ignorance of the subject of local self-government, refused to comment, and thereby saved himself some ignominy.
GUILDHALLS FIRST! Reconstructing Westminster-style democracy
They lie when they say we follow ‘the Westminster model of democracy’. Let us begin in the year 1066 AD, when William the Conqueror took Britain. Of Viking descent, William was just another Hagar the Horrible – and the English had to organize themselves to fight absolutistm. The first to do so were the merchants of the City of London, then just one square mile in area. Henry FitzAilwyn was the first Lord Mayor of London, who took office in 1189: the Magna Carta was yet to come. And he and his friends must have been really wealthy, for it is they who paid the ransom for Richard the Lionheart when he was captured on his way back from the Third Crusade. Then, the King very often did not have money: for example, on February 29, 1286, King Edward had a balance of £2 8s. 1d.; and again on July 16, 1289, Edward had £2 13s. 8d. Almost every Lord Mayor of old lent large sums of money to the Crown, and one, William Joynier, was financially ruined by the enormous debts owed to him by the King – so much so that he himself ended up in a debtor’s prison! Lord Mayors not only loaned money to the Crown, they even paid the salaries of select royal servants. Andrew Buckerel, while Lord Mayor of London, paid the expenses of the Coronation of Queen Eleanor when she married Henry III in 1236. Mayors also held high office under the King, serving as Royal Chamberlain and Keeper of the Exchange in charge of the Royal Mint. Their financial expertise made then invaluable to the conduct of government. What these wealthy merchants of London did way back then in 1189 offers pointers on how our socialist democracy, which is but a kleptocracy, can be re-invented. The merchants of the City of London organized themselves into ‘guilds’, one for each trade. Each guild formed itself into a ‘Livery Company’. The richest Livery Companies in London then were those of the Fishmongers, Grocers, and Fruiterers; but the Vinters, who traded in wine, were also very rich. Dick Whittington was a Mercer. All these ‘worshipful’ Livery Companies met once a year in Guildhall, their ‘parliament’, to elect a Lord Mayor and two Sheriffs. To use the hallowed word ‘parliament’ for a mere municipal assembly may shock, but the word itself was imported from France by the Normans. It simply means ‘speaking place’, with its root in the French word parlez. Once elections were over, it was business as usual for all Londoners, except these public officers, who were the suckers chosen to manage collective affairs. These gentlemen could no longer ‘mind their own business’. Monetarily, they invariably lost. These were never ever offices of profit. Lord Mayors have always served a term of 1 year only because serving longer was unaffordable: history bears out that many elected to the office would refuse, preferring to pay the heavy fines then imposed. When Mansion House, which now houses the mayoralty, was built, many quipped that it was “built for those who wanted to be Lord Mayor out of the pockets of those who did not”!
The greatest expense was on entertainment, for the Mayor was expected to keep an open house and offer the most lavish hospitality. A year of magnificent living was enough for even the richest man It is also on record that when men would hesitate to take office, their wives would egg them on, for they coveted the title of ‘lady’. As Chaucer put it: They had the capital and revenue, Besides their wives declared it was their due, And if they did not think so, then they aught, To be called ‘madam’ is a glorious thought, And so is going to church and being seen Having your mantle carried like a queen. There is a simple reason why the richest merchants of London had to go on, for over 800 years, volunteering to undertake this important civic responsibility: because feudalism demanded all this pomp and pageantry. They could certainly not impress the King with military might; but they could certainly startle him with their Wealth. Hence the lavish banquets, all the finery, the gold and glitter, the fabulous Lord Mayor’s Barge to take him to Parliament by river, the great annual Lord Mayor’s Banquet, which still continues, whose turtle soup was famous till the environmentalists, I suspect, stepped in. The only desire of these merchants was just laissez faire: leave us well alone. Apart from the grand scale of expenditure holding the Lord Mayoralty involved, an added problem was that, while serving as mayor, it was impossible to ‘mind one’s business’ for the duties of the office were onerous and time-consuming. As first citizen, the preservation of peace and the maintenance of law and order in the City was his responsibility. He had to supervise the work of all elected officials. He was also chief magistrate and judge, dealing not only with law-breakers but also the most complicated commercial cases: even under the Common Law, the burghers of the boroughs were free to practice their own ancient laws and customs in their own courts. But if a wealthy man gave his time and his money for the public affairs of this great city, even for just a year, the non-monetary rewards were considerable: the Lord Mayor of the City of London ranked as an earl ‘as well as in the King’s presence as elsewhere’. In the City he had right of precedence over all save the King. Now, Hagar the Horrible, and his successors, were men of the sword. Their only comparative advantage lay in war. To get money, they needed these wealthy city merchants – and it is in exchange for this money (taxes) that the Westminster model of democracy eventually took shape. (The modern form of the Westminster model did not appear until the Glorious Revolution of 1688. When the Protestant King William, imported from Holland, summoned parliament then, the Lord Mayor of London and all the aldermen took separate seats in the house as the only body in the country to be possessed of constitutional government. It is from the Magna Carta that Parliament claimed its right to vote taxation: and that was what all it did till very recently: till recent times, Parliament in
England did little law-making, or LEGISLATION: the law of the land was the Common Law. Much of the LEGISLATIVE DIKTAT the Western world suffers under would be unthinkable under the Common Law.) By 1215, it was abundantly clear that Hagar the Horrible had to be tamed. The rebellious barons of England, along with the Londoners, without whose active support they would not have succeeded, extracted King John’s signature on the Magna Carta, ‘the First Statute of the Realm’. Clause 13 of the charter specifically refers to the City of London and grants it liberty to self-government as well as trade by land and sea. Originally, the Magna Carta was simply called “The Charter of Liberties”. Willam Hardel, Lord Mayor of London then, was on the committee of 25 barons set up to execute the terms of the charter. When parliament finally came into being, it was built in the City of Westminster, which lies outside the ancient City of London. For the merchants of London, Guildhall was their own parliament, often contemptuously referred to as ‘a parliament of shopkeepers’. The palace of Westminster was to them the King’s parliament, where they were represented in the House of Commons. Over centuries, we see the system evolve into what it is today, with the House of Lords as irrelevant as the monarch. How? Symbolism is very important to understanding feudalism. And the symbols used by the City of London till today tell us a great deal about how these wealthy merchants, who had no skills on the battleground – one Lord Mayor even fell off his horse at a ceremonial and died; and another had to be supported by two servants as he rode his ceremonial mount – could tame the King. Back in the old days, the King traveled continuously between his various castles, closely guarded. The Lord Mayor lived in the city, amidst the citizens. Even his title ‘Lord’ was not granted by Royal Letters Patent; it is a title of tradition, given by the Londoners themselves. The system of government, after 1688, came to be called ‘King-inParliament’, with the King, his officials and judges, having their budgets and powers conferred upon them by the house. While all this happened in the City of Westminster, if by chance the King had to come to London, certain important ceremonials were followed: the King would be received at Temple Bar by the Lord Mayor. There, the Lord Mayor would ceremonially surrender the Civic Sword: that is, I, Lord Mayor, upholder of the Civic Sword of the City of London, accept you as King. So, in the City, the Lord Mayor ranks in precedence above all save the King 25 . At the grand funeral of Lord Nelson in St. Paul’s, the King was too sick to attend, and the Prince of Wales attempted to take precedence over the Lord Mayor but was prevented from doing so! Observe the ceremonials held in the City of London even to this day: the Lord Mayorelect, in all his finery, walks in procession with the Swordbearer ahead of him holding aloft the Civic Sword. Behind him is the Macebearer holding the Civic Mace. All these
This tradition dates back to when Henry V borrowed money from the City to go fight the Battle of Agincourt. At his farewell, Henry asked the Lord Mayor of London to sit at his right. Since then, this position in the protocol has been maintained.
symbols go to uphold the power of the Mayor as head of civic government. This ceremony must be dating back to 1189! The ‘common law’ that the King of England cannot march his army through the City of London without the permission of the Lord Mayor is an ancient custom. When Robert Peel set up the London Metropolitan Police in the 1830s, the ‘Bobby’ was not allowed entry into the ancient city of one square mile! Till today, the ancient city has its own police force. That is civic independence! (And the London ‘Bobby’ is a pretty good policeman, in a world of pretty horrible police forces: “uniforms of brutality”.) Feudal society of Old England believed in the theory of the ‘body politic’ which assigned to all the classes of society their respective functions: the king was the head, giving direction; the soldiers were the arms, providing strength; the peasants, ‘ever cleaving to the ground’, were the feet, etc. It is only with the evolution of the institution of the Lord Mayor of London that we see another ‘body politic’: that which is representative of business interests in a city. That is, a ‘politician’ of capitalism, not feudalism. For the future of India, we will need ‘politicians’ of this type, who each make up such a ‘body politic’. With socialist democracy, ‘politicians’ are all pirates, devoid of any ‘body politic’. 26 Their political parties are all ‘pirate ships’. The bureaucracies they run are also all ‘pirate ships’. With mayoral politicians of the capitalist sort, all taking leave of their own vast, honest businesses to donate some time to collective matters, we will soon be able to distinguish the merchant ships from the pirates. It is very easy to make out the difference between a ‘politician’ of capitalism and socialism: the question to ask will be “How do you earn your money, Mr. Politician?” Lord Mayors of London have been amongst the greatest businessmen in history! Among the wealthiest men in their times! They were benefactors to their cities, apart from fulfilling all their civic duties admirably well; they were not ‘pirates’! The extraordinary wealth of the mayors was the stuff of legend. For example, when Bartholomew Rede was Lord Mayor in 1502, an Italian merchant attended one of his lavish banquets and offered him a precious stone for 1000 marks and, while making the offer, commented that the stone was beyond the purse of the King. Rede immediately bought the stone, had it ground to dust and drank it with his wine, telling the Italian, “Speak honourably of the King of England, for thou hast now seen one of his subjects drink 1000 marks in a draft.” Valerie Hope, whose My Lord Mayor (London: Weidenfeld & Nicolson, 1989) is my principal source, says this about these great mayors: Their active promotion of trade and exploration and their spirit of adventure in these matters made them instrumental in the founding of the British Empire.
Sagarika Ghose toured Amethi with Rahul Gandhi when he was there campaigning for the 2004 election and wrote about it in The Indian Express. Amethi, which has been returning the Gandhi family for long, is a MESS! Chikmagalur returned Indira Gandhi – so what? Any ‘body politic’?
Through their legacies they made a huge contribution to the care of the poor and the sick and with the founding of schools they influenced the development of education all over the country. They built chapels and churches. They provided for road and bridge repairs, for the provision of water, for the cleansing of ditches. They founded hospitals and almshouses. History bears this out. Rowland Heyward, Lord Mayor in 1598, chaired the meeting held to discuss the formation of the East India Company. Sir John Swinnerton, Lord Mayor in 1612, was one of the founder members of the East India Company in 1599, and the Company’s offices were initially located in the house of Christopher Clitherow, Lord Mayor in 1635. Most Lord Mayors during the days of the Empire were on the boards of firms like the East India Company, the Muscovy Company, the Levant Company, the Merchant Adventurers, and all the various other firms that had opened to trade with the Far East, the Middle East and the new colonies of America. The Virginia Company, for example, could only succeed because the Lord Mayor, Sir Humphrey Weld, ventured seven ships. On their role in promoting education, three examples stand out: one, the expression “The Three R’s” was coined by a Lord Mayor of London, Sir William Curtis; two, the case of Hugh Clopton, Lord Mayor in 1491, who hailed from Stratford-upon-Avon, and left behind a large sum of money for the school where, 100 years later, William Shakespeare was to study; and three, the case of Ann Radcliffe, widow of Thomas Moulson, Lord Mayor in 1634, who was the first major donor to Harvard, and after whom Radcliffe College is named. Of this era of great Lord Mayors, there are three stories which speak tellingly of their position vis-à-vis the King. One is the story of Sir Robert Vyner, Lord Mayor in 1674, who was a goldsmith-banker and had lent considerable sums to the Crown. It is said that at his inaugural banquet he got drunk and ‘overfond’ of the King, Charles II. When the King got up to leave, Sir Robert seized his arm and insisted, “Sir, you shall stay and finish t’other bottle.” Charles had to give in, but with good humour, saying, “He that is drunk is as great as a King.” There is also an interesting story of a Lady Mayoress: when Sir William Humfreys was Lord Mayor during the reign of George I, he had the honour of entertaining the King and the Royal Family at his feast. It had been a custom that the Lady Mayoress receive a kiss from the first royal lady on this occasion, so when the Princess of Wales failed to deliver this salutation, the furious Lady Mayoress ordered one page to pick up her train, threw her bouquet to another, and stormed out. Perhaps the most interesting story is of William Gill, Lord Mayor in 1789, during the reign of George III. A great thanksgiving service was held in St. Paul’s when the King recovered from his first attack of madness. The Lord Mayor received the King at Temple Bar and, as is custom, surrendered the Pearl Sword. The King returned it, saying, “My Lord, the sword cannot be in better hands.”
Between 1189 and 1789, exactly 600 years, the ‘body politic’ of Capitalism, the merchants of London, and their ‘politician’, the great Lord Mayor of London, established customs, traditions and mores that enabled business to be represented and consulted in taxation and also gave these urban businessmen freedom to run their cities and their businesses independent of royal authority. It is this task, faithfully performed through centuries, that made it possible for businessmen to flourish in England despite feudalism. When Simon de Montfort called representatives of the towns (merchants) for the first time to his Parliament of 1265, it was unthinkable, even to Montfort himself, that one day merchants would rule the land from the House of Commons. The gradual transition from feudalism to capitalism had a lot to do with this new kind of ‘body politic’ that was emerging under the old feudal one. So let us all raise a toast to the memory of Henry FitzAilwyn, the first Lord Mayor of London, who took office in 1189. Good man. Businessman. Politician. Hero. Looking back, in those days of little hard ‘knowledge’, and even less literacy, all that FitzAilwyn & Co. really did is to get their feudal overlord to sign that they would be possessed of Liberty. The motto of the City of London is, interestingly, Domine Dirige Nos, which translates to “The Lord Guide Us”. When “The Lord” is our guide, there is Liberty. When the King is the guide, as at the square outside the imposing Milagres Church in Hampankatta, Mangalore, at a little after midnight, the little food stall that is open for latenighters – true “social workers”, these hardworking young lads – is FORCED to close down, with VIOLENCE. Under God, we would all be Free. In the feudal world of status, where everyone had to have a Lord – and a ‘freeman’s’ Lord was the King – the word ‘equality’, most fortunately, did not even exist as a political value. Thankfully, in those days, Liberty was highly valued, at least in England: Every Freeborn Englishman Is The King Of His Own Castle! It is because FitzAilwyn & Co. demanded Liberty, obtained it in writing, and Lord Mayors after him preserved it carefully and faithfully all these centuries, that they achieved all the good they did. If Indians want the real Westminster model of democracy, then they must first set up ‘guildhalls’ in every town and city. As with the caste system, urban occupations can easily be organized into guilds, which will represent their interests better than today’s socialist political parties, all ‘pirate ships’. Cities and towns can then elect their own Lord Mayors and Sheriffs, uphold the Civic Sword, and then only will our very own Hagar be tamed.
JAI VYAPARI? OR JAI JAWAN?
The vyapari, or businessman, creates wealth, pays taxes, raises a family, and even employs other people. He is a true social worker, satisfying our needs, honestly and honourably, never stealing, always fair exchange. The jawan, or foot-soldier, is a tax-consumer. His wages come from the tax revenues of the state. Therefore his economic utility is limited. At present, jawans are serving en masse in places like Kashmir and Manipur: fringes of the Indian Empire where the Emperor is a much hated figure. There, the jawan is actually killing Indian people. The Kashmiris and the Manipuris do not really like the jawan. But then, it is for the tax-payers to decide who the tax consumers should be: should our money go to pay for jawans in Kashmir and Manipur, or to build roads, libraries, parks and such other things? The economic cost of holding on to Kashmir and Manipur by military might are extremely high. For one, with a military dispensation in place, the local economy peters out and dies, and the central government is then forced to pay not only for the army, but also for the entire civilian administration, because the state government is unable to raise any local revenue where there is no local economy. The Armed Forces Special Act has been in place in Manipur for over 20 years. Similarly, in Kashmir, I was informed by Muzaffar Beg, the state’s finance minister, that 90 per cent of his annual budget comes from the central government. Add to that the costs of the army, BSF, CRPF, Rashtriya Rifles, Ladakh Scouts and the local police. Add to that the costs of the 20 year-old high altitude war in Siachen, played at the cost of over 3 crore rupees a day, and it would be obvious to any banker that these states are ‘non-performing assets’. Thus, the jawan needs to question the morality of his job today: Is he a patriot? Or a mere mercenary? There were kshatriyas and samurai. But theirs was an order of high chivalry, valour, honour and righteousness. Today, what we have universally are “uniforms of brutality”. The good news is that there are no samurai in Japan any more: they were told that making wealth was the best national service they could perform. Maybe our jawans too should consider defending their own homes and hearths, their own properties, while creating wealth in a free market economy. It does offer a better and more satisfying life than being the smallest cog in a mighty, mean machine. In Karnataka, Coorgis are reputed soldiers, including very senior officers. But should they serve in Kargil or Siachen? I have been to Kargil. The total value of private property there is close to zero. The little town of Kalasa is much, much bigger. If we auctioned the Siachen Glacier, what would it fetch? Zero! Wouldn’t it be better for these brave but misguided ‘officers’ to opt for civilianship and citizenship in their lovely Coorg, so cut off by poor roads: the road from Mangalore, the principal city of the region, to Madikeri, the capital of Coorg and District Headquarters (IAS officer once again!) is HORRIBLE! Similarly, retired soldiers of the Kumaon Regiment survive in Uttaranchal “villages” unconnected by road all these years – so long treks to get anything, including the doctor – by
hawking off their subsidized army rum. What a great king to spend your life fighting for! And what a great disaster of a kingdom as well! Here are three songs, which anyone seeking a career in the military should hear:
By Bob Dylan, 1963 (Available in his recent MTV Unplugged album.) John Brown went off to war to fight on a foreign shore. His mama sure was proud of him! He stood straight and tall in his uniform and all, His mama's face broke out all in a grin. "Oh son, you look so fine, I'm glad you're a son of mine, It makes me proud to know you wear a gun. Do what the captain says, lots of medals you will get, We'll put them on the wall when you come home." As that old train pulled out, John's ma began to shout, Tellin' ev'ryone in the neighborhood: "That's my son that's about to go, he's a soldier now, you know." She made well sure her neighbors understood. She got a letter once in a while and her face broke into a smile As she showed them to the people from next door. And she bragged about her son with his uniform and gun, And these things you called a good old-fashioned war. Oh! Good old-fashioned war! Then the letters ceased to come, for a long time they did not come. They ceased to come for about ten months or more. Then a letter finally came saying, "Go down and meet the train. Your son's a-coming home from the war." She smiled and went right down, she looked everywhere around But she could not see her soldier son in sight. But as all the people passed, she saw her son at last, When she did she could scarce believe her eyes. Oh his face was all shot up and his hand was all blown off And he wore a metal brace around his waist. He whispered kind of slow, in a voice she did not know, While she couldn't even recognize his face! Oh! Lord! Not even recognize his face. "Oh tell me, my darling son, pray tell me what they done. How is it you come to be this way?" He tried his best to talk but his mouth could hardly move
And the mother had to turn her face away. "Don't you remember, Ma, when I went off to war You thought it was the best thing I could do? I was on the battleground, you were home . . . acting proud. You wasn't there standing in my shoes." "Oh, and I thought when I was there, God, what am I doing here? I'm a-tryin' to kill somebody or die tryin'. But the thing that scared me most was when my enemy came close I could see that his face looked just like mine." Oh! Lord! His face looked just like mine! "And I couldn't help but think, through the thunder, rolling and stink, That I was just a puppet in a play. And through the roar and smoke, this string it finally broke, And a cannon ball blew my eyes away." A cannon ball blew my eyes away! As he turned away to walk, his Ma was still in shock At seein' the metal brace that helped him stand. But as he turned to go, he called his mother close And he dropped his medals down into her hand.
UNIVERSAL SOLDIER By Donovan
He's five foot-two, and he's six feet-four, He fights with missiles and with spears. He's all of thirty-one, and he's only seventeen, He's been a soldier for a thousand years. He'a a Catholic, a Hindu, an Atheist, a Jain, A Buddhist and a Baptist and a Jew. And he knows he shouldn't kill, And he knows he always will, Kill you for me my friend and me for you. And he's fighting for Canada, He's fighting for France, He's fighting for the USA, And he's fighting for the Russians, And he's fighting for Japan, And he thinks we'll put an end to war this way. And he's fighting for Democracy, He's fighting for the Reds, He says it's for the peace of all. He's the one who must decide, Who's to live and who's to die, And he never sees the writing on the wall. But without him, How would Hitler have condemned him at Labau? Without him Caesar would have stood alone, He's the one who gives his body As a weapon of the war, And without him all this killing can't go on. He's the Universal Soldier and he really is to blame, His orders come from far away no more, They come from here and there and you and me, And brothers can't you see, This is not the way we put an end to war.
I-FEEL-LIKE-I’M-FIXING-TO-DIE RAG By Joe McDonald Country Joe & The Fish (Performed live at the Woodstock Festival, 1968.) Yeah, come on all of you, big strong men, Uncle Sam needs your help again. He's got himself in a terrible jam Way down yonder in Vietnam So throw down your books and pick up a gun, We're gonna have a whole lotta fun. And it's One, two, Three… What are we fighting for? Don't ask me, I don't give a damn, Next stop is Vietnam. And it's Five, Six, Seven… Open up the Pearly Gates, Well there ain't no time to wonder why, WHOOPEE! We're All Gonna Die. Well, come on generals, let's move fast; Your big chance has come at last. Gotta go out and get those reds — For the only good commie is the one that’s dead And you know that peace can only be won When we've blown 'em all to kingdom come. And it's One, Two, Three… What are we fighting for? Don't ask me, I don't give a damn, Next stop is Vietnam. And it's Five, Six, Seven… Open up the Pearly Gates, Well there ain't no time to wonder why WHOOPEE! We're All Gonna Die. . Huh! Well, come on Wall Street, don't move slow, Why man, this is War, so go-go-go. There's plenty good money to be made By supplying the Army with the tools of the trade, Just hope and pray that when they drop the bomb, They drop it on the Viet Cong.
And it's One, Two, Three… What are we fighting for? Don't ask me, I don't give a damn, Next stop is Vietnam. And it's Five, Six, Seven… Open up the Pearly Gates, Well there ain't no time to wonder why WHOOPEE! We're All Gonna Die. Well, come on mothers throughout the land, Pack your boys off to Vietnam. Come on fathers, don't hesitate, Send 'em off before it's too late. Be the first one on your block To have your boy come home in a box. And it's One, Two, Three… What are we fighting for? Don't ask me, I don't give a damn, Next stop is Vietnam. And it's Five, Six, Seven… Open up the Pearly Gates, Well there ain't no time to wonder why WHOOPEE! We're All Gonna Die.
WHEN THE TIGERS BROKE FREE PINK FLOYD
It was just before dawn One miserable morn, In black forty four. When the forward commander Was told to sit tight When he asked that his men be withdrawn. And the generals gave thanks As the other ranks held back The enemy tanks - for a while. And the Anzio Bridgehead Was held at the price Of a few hundred ordinary lives. And kind old King George Sent mother a note When he heard that father was gone. It was, I recall, In the form of a scroll, With gold leaf and all. And I found it one day In a drawer of old photographs, hidden away. And my eyes still grow damp to remember His majesty signed With his own rubber stamp. It was dark all around. There was frost on the ground When the tigers broke free. And no one survived From the Royal Fusiliers Company C. They were all left behind, Most of them dead, The rest of them dying. And that’s how the High Command Took my Daddy from me.
(In the 60s, they said: Make Love Not War. Today, we could say: Make Money, Make Love and Fuck War, which is what dharma, artha, kama, moksha is all about.)
The division of labour is the key to the production of wealth in a free market economy. This division of labour is also accompanied by THE DIVISION OF KNOWLEDGE. This is most visible if you pay a visit to a newspaper office or a modern hospital. In a newspaper office you will find journalists of various types, ranging from those who report on politics to those who write about sports, or films, or business affairs. Similarly, a modern hospital will employ a multitude of specialized doctors. But the division of knowledge is also visible in the humdrum world around us where dhobis, carpenters, plumbers, receptionists and so on work, each with very different kinds of knowledge. A GREAT PROPORTION OF THIS KNOWLEDGE IS UNCODIFIABLE. That is, there is a lot of knowledge that cannot be written down. For example: You buy a coconut in the market. The product also contains the ‘knowledge’ of the man who knows how to climb the coconut tree and harvest coconuts. Can this knowledge be codified? If you want to be a good cyclist, swimmer, pastry chef or violinist, you cannot just read a book and do it. You must have hands-on experience. The market relies on each of us to bring into play his or her own special knowledge. The planner believes he can collect this knowledge and plan the economy. Because the planner cannot collect all the knowledge required – since much of the knowledge is uncodifiable – planning is bound to fail. To prove this point, I often conduct an experiment in my seminars. I ask one student to rise and tell the class the name of a fruit that is in season that she wants to eat RIGHT NOW. So, for example, a girl in Mangalore said, “Apple.” I then ask her whether she will get an apple if she goes to Hampankatta RIGHT NOW. She says, “Yes.” I then ask: “Do any of the fruit vendors in Hampankatta know you? Do any of them love you, or even like you? Does any apple orchard owner in Kullu know that there is a pretty girl in Mangalore who likes apples and he should send some for her? Is there any Minister for Apples?” Quite obviously, she replies in the negative. So how does she never fail to get apples in the season in Hampankatta, Mangalore, so far, far away from Kullu? The answer lies in THE DIVISION OF KNOWLEDGE.
Innumerable apple orchard owners are taking independent decisions on growing apples. Independent wholesalers are buying up these apples and transporting them to sub-wholesalers in cities and towns all over India. These local wholesalers are then selling these to retailers and street vendors, who are all also taking independent decisions as to how many kilos of apples to stock vis-à-vis, say, bananas, oranges, grapes, mangoes, papayas, and so on. It is simply because there are so many independent decision makers, with each decision based on specialized, personal ‘knowledge’, that our student always finds the apple she is looking for. She may not find good ones at the first vendor; she may have to ‘shop around’; but she gets the apple. And not only the apple: when you go to a market like Hampankatta, you invariably get whatever it is you went looking for. (The market may also surprise you with a product that you never knew existed, and that you now decide you desperately need!) As a young lady exclaimed in Main Street, Poona: “You get EVERYTHING here!” Having proved how markets work, I turn to Central Economic Planning, which is based on the CENTRALISATION OF KNOWLEDGE. (PC Mahalanobis, architect of Nehru’s 2nd Plan, was a statistician, not an economist. It is with statistics that he thought he could collect all the knowledge necessary to plan the economy. He set up the Indian Statistical Institute, a far more dangerous organization than the Pakistani ISI!) I ask the same student to answer questions related to things that are being centrally planned: • • • Do you want a six-laned highway to Bangalore? Or even Manipal? Do you want 24-hour electricity? Running water in your tap?
“Of course, I do!” she exclaims. “Then why don’t you get these things?” I ask. The whole class falls silent, and so I give the answer:
YOU DO NOT GET ANYTHING THAT IS BEING PLANNED!
(And Mangalore is NOT on the Golden Quadrilateral: The Central Planner simply FORGOT all about the West Coast. He also forgot about Sikkim.) MARKETS USE DIVERSIFIED KNOWLEDGE WITHOUT ANY CENTRAL POWER OR AUTHORITY. ALL TRANSACTIONS IN THE MARKET ARE VOLUNTARY, WITHOUT ANY USE OF FORCE. PLANNING USES POWER , FORCE AND VIOLENCE (by taxing us to finance these plans) WITHOUT KNOWLEDGE!
The complete definition of Economics is: ECONOMICS IS THE STUDY OF THE CREATION OF WEALTH THROUGH THE DIVISION OF LABOUR AND THE DIVISION OF KNOWLEDGE. There are certain implications of this definition: Economics is not a study of poverty. Wealth is created. It did not exist before in Nature. Even the fisherman ‘creates’ fish by extracting it from Nature. Painters, sculptors, writers, inventors all create furiously. This implies that wealth is not “out there” to be divided equally amongst all members of society, as socialists think. There is no “vicious circle of poverty”. With Liberty, we can all create wealth, and there will be more and more wealth with each passing day. Self-sufficiency or swadeshi is not Economics, because it is not based on the division of labour. Planning is not Economics because it is not based on the division of knowledge.
Thus, with planning, because of knowledge failure, there will be shortages: of power, of water, of housing, of railway berths, of gas, of everything. All these shortages would disappear in a free market which brings in ABUNDANCE. This further implies that, for a closed economy like India’s, free trade will bring with it a knowledge explosion as millions of our people get to learn of new products, processes, techniques and technologies. If the country wishes to get abreast with the knowledge levels in the outside world, it needs to practice free trade. For example: Back in the 70s, a 13-year old boy called Raju used to take apart my Enfield in 30 minutes, give it the treatment, and put it all back together in a jiffy. If there had been free trade, he would have done the same to a Harley or a Motoguzzi. His ‘knowledge’ would have increased. This is counter to the advice given by socialist economists like the Nobel laureate Amartya Sen that the country will lose out in globalisation unless the state first takes up education of the people. Our analysis of what constitutes KNOWLEDGE (and distinguishes it from EDUCATION) suggests that free trade and free immigration are the best ways of allowing knowledge to spread freely through the land. Keeping out the world through trade barriers and promoting state education is a recipe for disaster. It must also be noted that it is dangerous to ask the state for knowledge. The state is not a lamp of learning: its functions are negative – the protection of life, liberty and property. The state is not an university. There is no one in the state – in the political market – who is in the knowledge business. The state does not possess knowledge itself. Our public administration would not be such a mess and our economy would not be such a miserable one if the state had knowledge. Since it is ignorant, the state cannot be allowed to take up the role of Universal Teacher. It must be got out of the knowledge business which must be left free to those with knowledge to impart.
Note that India now exports software engineers. Note also that all these engineers were educated by for-profit private enterprise completely unregulated by the state: firms like NIIT, Aptech and so on. We need private firms setting up chains of schools and universities, bringing in knowledge and disseminating it. The socialist state’s educational authorities are all failed propagandists. Their ‘knowledge’ should be rejected in its entirety. No one should study anything prescribed by the socialist state. The ministry of human resource development should be closed down. With the BJP gone, ‘de-toxification’ of textbooks is on. This means that with government control, politics invariably seeps into the textbooks: these are all ‘official’ textbooks, after all. In the case of History textbooks, what no one has noticed is the DEATH OF HISTORY. Let us see how: For example, every morning I wake up with a desire to know what happened the previous day. I want to know the HISTORY of yesterday. What do I do? I read not one, not two, but three newspapers – the pink paper for business news. I watch not one, not two, but three separate news bulletins on television. I also listen to world radio. I still don’t know EVERYTHING; but I know a lot. Note that all the HISTORIANS I rely on – the editors of the newspapers, TV and radio bulletins – are all SELECTING FACTS out of a UNIVERSE OF FACTS. A newspaper editor gets facts from his reporters and correspondents, from agencies like AP and Reuters and PTI, and other “secret” sources. But he does not put ALL THE FACTS onto his pages. He selects a few that he deems important. For a better HISTORY OF YESTERDAY, therefore, I consult many, many sources, because there are so many different facts that each editor selects. Now think how truly enormous must be the task of writing a History text-book. Further, when we rely on 3 newspapers for yesterday’s history, how many books must we require to know about the distant past. In a free market, including a free market for the KNOWLEDGE OF HISTORY, there will be umpteen histories, and umpteen historians. We can then CHOOSE which histories to read. We can choose to inquire into periods and events we are ourselves curious about like, say, the history of Princely India. I have for long been looking for a history of the city of Mangalore. Will any local historian study the city’s past and write a book about it; and will any local publisher publish it – unless the local schools and colleges were free to choose which books to recommend to students? History, historiography, historians – all will bloom with freedom; and our understanding of the past will improve. To have an OFFICIAL HISTORY is just like having what George Orwell called a “Ministry of Truth”. The government’s history text-book writers are not real historians at all: they are all bureaucrats for, even if they are called “professor” they are not academics; they are government servants, in the employ of The State. 27 They will always serve their political bosses; not the constituency of knowledge. Out will all their history text-books. Manmohan Singh has now announced plans to launch a massive effort on the educational front. For this, the government has also imposed an ‘education cess’, a new tax to fund the programme.
While I was with The Economic Times, a professor at the Delhi School of Economics sent me an article in an envelope that said “On Government of India Service”!
We have been paying a cess on petrol and diesel for many years now, but are yet to see the roads. Should we pay this tax too? Is education what the poor people of India really need? Are the poor people of India completely stupid? And are there very smart people in the employ of the Ministry of Human Resource Destruction possessed of some extremely vital ‘knowledge’ that these poor people need? These questions are answered in the essay that follows.
All knowing, All seeing, Our destiny the state will plan. Not knowing, Not seeing, It’s not a god, but mortal man.
POINTS TO PONDER Think up various examples of uncodifiable knowledge? Consider the restaurant cook: What policies will increase his access to knowledge? Success in the market economy depends on the division of knowledge: specialisation. What curriculum system in schools would you recommend that would facilitate specialisation amongst knowledge seekers? Should political economy be specialised knowledge? Or should it be part of general knowledge?
LIBERTY FIRST! WE DON’T NEED NO EDUCATION
Liberty is one word Indian socialists completely avoid today, although they claim to have fought for ‘freedom’ 50 years ago. Perhaps because Liberty is cheap, and requires no big budget. No gigantic bureaucracy is required to ‘implement’ Liberty. No taxes have to be paid to secure Liberty. All Liberty requires is that legislative and administrative diktats restricting freedom be repealed and meddlesome bureaus be shut down. How will Liberty be superior to the new mantra the socialists have united under: education? In their unanimous opinion, the real problem of India is mass illiteracy, and the solution is bureaucratic spending on education. To ‘implement’ their solution, we have to cough up a new tax. My fellow citizens, do examine the cheaper option: Liberty. To begin, little children who have never been to school are all gifted with the ‘natural propensity to truck, barter and exchange’: Give me some of your chips and I’ll give you a sip of my cola. No one has to be taught how to trade. The Prophet Muhammad, peace be upon him, did not know how to read or write, yet he was not only a highly successful trader but also a great moral leader. Illiterate Indians are great traders – but trade is not free because the government protects its corrupt cronies. If that were not bad enough, illiterate traders have their surpluses robbed by the Great Indian Kleptocracy. Madhu Kishwar has produced a stomach-churning documentary on the inhuman cruelties meted out to street vendors in the Capital itself. The Self Employed Women’s Association organized a seminar where street vendors from every Indian city spoke of the atrocities committed on them by kleptocrats. If you tour any Indian city or town built in British times, you will find big covered markets wherein petty traders, fishmongers, butchers, vegetable and fruit sellers, and the like could operate with property rights: New Market in Calcutta was built by Sir Stuart Hogg, and one section is still called Hogg Market; there is the vast, covered Shivaji Market in Poona Camp, which is the Britishbuilt part of the town, where fishmongers and vegetable and fruitsellers have for long operated with property rights. Under the socialists, these cities and towns have quadrupled in size but not a single new market has ever been built for these, the smallest players in the market economy. They crowd up the footpaths and are treated as a nuisance. In ancient London, the richest Livery Companies were those of the Fishmongers, Grocers and Fruiterers, since they sold something everyone consumed. They were rich because they made their King sign a “Charter of Liberties”. They certainly did not ask their King for education. Not only do poor people possess the ability to trade, they are also possessed of vast amounts of real knowledge that is not allowed entry into the market because of legislative diktats which the socialists have passed. Unlettered tribals in the jungles of central India know how to distil mahua but are not free to sell it. Mahua could take on tequila. Do these tribals need education? Or Liberty? And what about the 2000-mile coastline, where toddy has been brewed for millennia? Millions of poor coastal Indians know how to climb the palm tree and brew toddy. They are poor because they cannot sell the fruits of their traditional knowledge. In Sri Lanka, toddy is touted as the national
drink and sold in Tetrapak. No toddy is sold on Brigade Road, Bangalore: excise department diktat. Branded Sri Lankan coconut arracks are wonderful drinks, (I prefer them to Scotch), while arrack is a state monopoly in India, producing a horrible grog for the poor. There are millions in Bihar and UP who can create an excellent bhang ki thandai, but cannabis is illegal although, in the opinion of the medical community, it is harmless and non-addictive, used traditionally in India for millennia – every sadhu carries his chillum. Professor Devendra Mohan of the All India Institute of Medical Sciences, who headed the Department of Psychiatry and was therefore in-charge of all de-addiction programmes, writing in The Economic Times, said that there is no medical reason why the traditional thandai made out of bhang should not be sold as an alternative to alcohol. Kerala, Manipur, Manali… Indian hemp is famous, but illegal. The Dutch, with no history of cannabis use, have legalized it. The government of India has pushed underground a herb that has been in use here for over 4000 years: The Lord Shiva himself is believed to have been partial to cannabis. There is no word for “Cheers!” in any Indian language I know of, but at least in Bengali and Hindi there are hundreds of salutations to Bhola for lighting a chillum. In Delhi, poor rehriwallahs who walk about pushing a cart selling fruits and vegetables smoke ganja in the hot summer days, because without it they cannot survive in the sun. Ganja is sold in every Delhi slum – but is illegal! Whatever little tourism we get today is actually cannabis tourism – from Goa to Manali. If cannabis were legal, that is, if we applied principles of Common Law and threw out these LEGISLATIVE DIKTATS, think of how much India would gain from tourism alone? They say 1 tourist creates 12 local jobs. Tourism is the BIGGEST INDUSTRY IN THE WORLD! It is 1000 times bigger than IT. Do we need education? Or freedom? Similarly, millions of unlettered Indians know how to sing, dance and play musical instruments. But they languish in poverty because the socialists have outlawed nightlife with more legislative diktats. The poverty-stricken and long neglected North-East is full of potential rock stars – Arun Shourie showcased many great North-Eastern bands in Delhi recently – but where do they perform, given all the restrictions on opening bars and clubs, serving alcohol and so on? In Bombay, entrepreneurs have invested in thousands of dance bars which fork out crores in taxes, but kleptocrats routinely raid bars and arrest these girls who are just trying to earn an honest living with skills they already possess. Here in Maharashtra, legends recount the Peshwa Baji Rao I’s deep love for the dancing girl Mastani. Today, poor Mastani would be in jail – or in a municipal school! Tamasha is an ancient Maharashtrian form of ribald popular entertainment, but it has been legislatively and administratively crushed, and the papers report that tamasha artistes today survive as mistresses of corrupt local politicians. Mujra is banned in Lucknow. In America, the blacks made it big in music. New Orleans produced Satchmo and hundreds of jazz and blues stars not because of ‘education’, but because of Liberty: the liberty to earn an honest living. In India today, music and dance, including erotic dance, is something only seen on television. So a very few women make it – the Bollywood stars. Millions of other girls who are not so good looking or not so talented cannot make it by dancing in nightclubs
instead, for much less money than a star like Madhuri Dixit would charge. The socialist system therefore is for the rich and against the poor. The Bollywood stars, the movie companies, the TV stations… these alone gain. All small players, from dance bar owners to the dancers and musicians themselves, lose. The socialist emphasis on ‘education’ also demonstrates complete ignorance of how ‘knowledge’ operates in the market economy. Main Street, Poona, is a busy market. Walking around, you find hundreds of small bakeries that turn out a dazzling array of breads, buns, biscuits, rolls and so on. There are scores of small jewelers, tailors and ‘expert darners’. Many tiny establishments make picture frames. There are Irani, Parsi, Chinese, Tandoori and Continental restaurants. Budhani’s is famous for its potato chips. There is a popular home-made softy ice-cream joint. There is a vada-pau stall that always has crowds of customers. There are bhelpuri and chaat-wallahs. I even saw a group of acrobats performing for passers-by. The street is lined with hundreds of shops selling diverse products ranging from footwear to sarees, and electronic goods to kitchenware. This is what Friedrich Hayek called the ‘division of knowledge’: every economic actor is operating with distinct know-how. Important implications follow the Hayekian view of knowledge. First, that central economic planning can never work, because knowledge cannot be centralized: “What Cannot Be Known Cannot Be Planned”. The socialist central planner, Hayek said, suffers from ‘fatal conceit’: he does not see the wonder and glory of knowledge, and thinks he knows it all. It is because of knowledge failure that there are shortages of everything that is planned, from roads to power. There are no shortages in the market economy. Second, Hayek showed how knowledge and ‘education’ are entirely different things. Hayek found much of the knowledge used in the market economy to be ‘inarticulate’ and ‘uncodifiable’. The bakers, tailors, expert darners, and bhel-puri wallahs of Main Street possess this kind of knowledge. This shows the limits of formal education as a means to economic achievement. Formal education churns out certain types of economic actors only: bureaucrats, managers, accountants, doctors, lawyers, engineers and so on. The vast majority of successful economic actors get their knowledge elsewhere. That is why VJs, DJs, sportspersons, fashion models, and hotel chefs earn much more than professors of Economics. Even the much touted “literacy” is no guarantee of economic success, for I always find very poor but “literate” people typing applications for the illiterate outside courts and police stations. Kerala has literacy – but has produced mainly typists and nurses. In our editorial office in The Economic Times, both our secretaries were Mallus. Indeed, ‘education’ in India is really a trap for middle class youth. Because medicine and engineering are valued as professions here by parents, we churn out hundreds of thousands of doctors and engineers, and the colleges that train them can charge exorbitant fees. Similarly, today there is stress on management degrees, and so BSchools have mushroomed. But what is better for the youth: A free market in which to
actually run a business, or B-Schools in a closed economy? My uncle studied automobile engineering and spent his who life making Ambassador cars for Hindustan Motors. He could have had a more fulfilling life if he had learnt to make bhel-puri instead. Remember, IIM Ahmedabad was set up long ago in socialist times. IIM Bangalore was originally meant to train managers for the public sector. What good did these institutions achieve? Similarly, the study of law in India is long and arduous, with little reward, for the vast majority of lawyers are poorly paid. They also do not study basic Common Law precepts, and confuse Law with Legislation. They do not see all the ‘legal plunder’ that is socialism. The youth are today misdirected and mistaught through ‘education’. They also spend a great many years dependent on their parents, pursuing all these long studies – and all this in a closed economy where opportunities for both jobs as well as business are limited. Since they are dependents of their parents, they are also unfree. With a free economy, they could find financial independence, artha, much earlier, and also the ‘knowledge’ with which to succeed in whatever they have chosen as their calling. I would therefore like to place on record my total disagreement with the socialist establishment on the need for a role of the state in education. I do not see any knowledge deficit in the poor people of India. I see them all as naturally gifted, talented, hard-working, honest and sincere. I am of the firm conviction that all they need is Natural Liberty. On the other hand, I find a pronounced knowledge deficit in the kleptocratic socialist state. Given the condition of our public administration, from traffic management to municipal organisation, it is the state that consistently shows itself off as utterly ignorant. The Ministry of Human Resource Destruction should be closed down. It is staffed by propagandists of a failed experiment in state socialism. There are no genuine knowledge workers – those who actually produce knowledge – in the entire state-owned educational system: they are all bureaucrats essentially, being permanent government servants. My advice to the citizenry, therefore, is to strongly oppose the imposition of the education cess. We have been paying a cess on petrol and diesel for many years now, but we are yet to see the roads. If there are some decent roads, like the Bombay-Pune or Delhi-Noida expressways, the kleptocracy makes us pay tolls: double taxation. On the drive from Goa to Mangalore, I had to pay tolls twice, for crossing two very old bridges. I bought 60 litres of petrol in all, and paid taxes: for example, sales tax in Karnataka is high, so petrol here cost me 43 rupees a litre while it was about 35 in Goa. These toll-bridges were both in Karnataka. All honest taxpayers must deeply consider what they want the state to provide in exchange for taxes. The state seems to think we pay taxes so that politicians can feign to be philanthropists. With our money, bureaucrats in their employ will go about helping the poor, schooling the unlettered, feeding the hungry and so on. Let us now unitedly call for Liberty and permanently put an end to the false philanthropy of socialism.
THE BOOK… AND THE COOK!
As a member of civil society, I often enter institutions where ‘knowledge’ in Economics and Political Science is purportedly imparted, and make direct interventions. I call it ‘knowledge-based politics without ties to either party or state’. It is politics as ‘the public actions of free people’. In the course of a few lectures, I expose the hollowness, shallowness and falsity of the dead ‘theories’ the textbooks contain: like the Vicious Circle of Poverty and the notion that our population is a ‘problem’. After one such lecture, a student asked me an interesting question: What should we do with our textbooks? I recount my reply for the reader. The word ‘economics’ has its root in Greek, where it meant ‘the science of housekeeping’. This is a sound definition, for no prudent householder would issue more notes than he can redeem. But surely political economy is more than housekeeping, and here the German word for Economics is more useful, for wirtshaft means ‘the science of inn-keeping’. I prefer the German definition because, in a political economy, we all pay taxes for services which the government, like a good inn-keeper, should provide. Political economy is more like inn-keeping or hoteliering than just simple householdering. If we look at Economics in this light, we can arrive at an intelligent judgement as to what should be done to Indian Economics textbooks. Now, suppose you went to a good hotel and ate a fantastic meal. You inquired after the chef, and were told that he had published a book containing his recipes? Would you buy the book? Of course you would, and it would probably be worth it. Now suppose you went to another hotel and ordered a meal with your friends. And it turned out to be a really horrible meal. All of you ended up very sick, and the expenses on medication far exceeded the cost of the meal itself. You inquired after the chef – to shoot him! – and found that this chap, too, had published a recipe book. Would you buy it? Of course not! Well, that is the predicament you are in, dear student. Your textbooks on ‘Indian Economics’ are the product of a very bad inn-keeper. His recipes are all wrong, and the curries he cooks up give guaranteed cholera, or double your money back. His kitchen is full of rats and cockroaches – there is so much corruption. Now, if you study his recipes – First Plan, Second Plan, Third Plan, Fourth Plan, Fifth Plan, Sixth Plan, Seventh Plan, Eighth Plan, Ninth Plan, and now the Tenth Plan – you are not gaining any ‘knowledge’. You are just wasting your time. You would be better off studying ‘American Economics’, ‘British Economics, ‘German Economics’ or ‘Japanese Economics’ than this crap. Better to study the recipes of good hotel chefs, than this lousy one. Maybe you will find out, in the end, that there is only one true Economics, and that a science has no nationality: there is no ‘Indian Physics’ or ‘Indian Chemistry’, is there?
So, what should you do to your textbooks? I say: BURN THEM! As far as examinations are concerned, don’t appear for them. Study other subjects and pass them, get your degrees; but don’t study Indian Economics. If some PhD researcher into Indian Economic History one day wants to study the Plans, let him; but everyone must not be required to study all this rubbish as a part of a degree course in Economics. Since Indian Economics is also taught in schools, it is all the more imperative that it be thrown out and replaced by an enunciation of basic economic principles. A movement within civil society is called for to end this sham education in Economics that our children get. I went through all this myself – I topped Indian Economics in my BA: Dr B M Bhatia was my teacher – and I would not like our children to suffer the same fate and go through the same nonsense about our planners’ pious intentions. It is far more important that they get an insight into the principles of market economics, and take an interest in the underlying philosophical issues: the link between Economics and Political Science. This is where liberalism can challenge socialism and statism. Civil society is looking for an issue to take up: something with which to make a mark. I would suggest: Target the Indian Economics textbook and destroy it. The tiger preys on the weakest in the herd.
GLIMSES OF REAL “KNOWLEDGE” GROSSLY UNDERVALUED
While living in Mangalore and its surrounds for so long, I have discovered that the people here possess intellectual capital of enormous worth. Let us first speak of rice, which is something I love, being a bhetho bangali. If you ever attend a breakfast with Germans in Germany, either at a home or in a village inn, you will be flustered at the table to see over 20 or even more kinds of bread on offer. The conclusion: The western world knows a lot about baking bread from wheat. However, they know nothing about rice. Nothing whatsoever. I recall a Punjabi lady I met in a train who lived in Munich and said she earned a lot of money teaching German women how to boil rice! Actually, Punjabis also know very little about rice! But even then, this lady could earn substantial sums by teaching Germans the basic technique of boiling rice. Let us now turn to Mangalore. All of India knows of Udipi restaurants. Udipi lies on the coast 50km north of Mangalore. But Udipi restaurants have only popularized iddli, dosa and traditional South Indian vegetarian fare. In Mangalore, instead of iddli, we have the great sanna, which is eaten with non-vegetarian food. The sanna is softer and far tastier than the traditional iddli. And eating it with pork baffath is far more interesting than the “same old potatoes and the same old beans” of sambar and chutney. Sanna was always made using toddy, which made it ferment faster, gave it a nice smell, and also enabled it to stay soft longer. Today, toddy is unavailable for the purpose, and yeast is used. This is an example of a very important and valuable piece of real “knowledge” going down the drain because of the VIOLENCE against toddy – by The State. Tapping toddy is also “knowledge” – traditionally the specialization of the Billava community in Mangalore and its surrounds. As I was told, only a Billava knows how to climb the palm and harvest the toddy. By killing toddy they killed this “knowledge” too. Rather than standing up for the Kannada language, and guarding the youth against MTV, the locals here should fight for the preservation of the traditional sanna made with toddy. However, sanna is just one rice item from Mangalore. There are so many more. There is neer dosa, also eaten with fish and meat curries, which I have never encountered anywhere else. It is a soft rice dosa, white in colour, poached in water (hence neer). There is the fantastic shevige, a kind of traditional rice noodle, that I enjoyed with mutton curry for breakfast – something very different from ildi-sambar. There are rice balls made with various different recipes, ranging from the “double-steamed” ones I had in Coorg, to the marvai pundi with clam flesh in it. I had rice dishes steamed in leaves, very different from iddlis, like moodey and kottige. There are many varieties of dosas. Set dosa is rare outside Karnataka. And in a small town in Coorg I had a dosa unique to the district. There are, of course, a wide varieties of biryanis, all very different from North Indian, Hyderabadi, Kashmiri or Mughlai biryanis.
Vegetarian rice dishes include puliyogare, or tamarind rice; pongal, a kind of khichdi; coconut and lemon rice; bisi bele, a Karnataka khichdi; vegetable biryani and various pulaus, including the rich ghee rice. There is also a great appreciation for boiled, unpolished rice, something that has unfortunately almost disappeared among Bengalis, even in Bengal. Unpolished, boiled rice is a great source of nutrition, and this is traditional knowledge widely valued here. It can challenge the pre-eminence of basmati. Since we are on the subject of food, let us digress from rice and wander into the non-vegetarian cuisine here, something Udipi restaurants have never sold. There are pork, fish, shellfish, and beef dishes like sukka, pandhi curry, baffath and sorpotel that could take the world by storm. Goan pork vindaloo is already a household word in England. So, what do the “poor and unlettered” people of this area really need? Is it education? Or Liberty? Last night I had a huge dinner of clams, mussels, fish, mutton, accompanied with neera dosa at an excellent restaurant, reputed for its cuisine in a city with immense competition in the food business. I inquired as to the salary of the chef, and was told he earns about 5000 rupees a month. What would he earn in a London restaurant serving marvai sukka? In 1989, I had a South Indian vegetarian meal at a Woodland’s restaurant in Leicester Square, London. Dinner for two cost 25 pounds then. I do believe that western nations who keep the Third World out with their strict visa regimes and then support “education” for these people do themselves as well as the poor of the Third World great disservice. They lose by not being able to consume whatever these people can sell them with their skills and traditional knowledge. And they themselves display their own ignorance when they think that everyone in the Third World is somehow stupid because he or she cannot read or write too well. They should re-listen to the rock-and-roll classic, “Johnny B. Goode”: Never learnt to read or write too well, But he could play his guitar like ringin’ a bell! Economists like Amartya Sen endorse such a view of the need to “educate” the Third World poor by promoting these ideas in the west. Sen is not a friend of either the poor or the constituency of knowledge; rather, he is a friend of The Ministry of Human Resource Destruction, Government of India, New Delhi. He is a socialist democrat. I also think that paying excessive attention to India’s success in IT and software is elitist, yielding little for the larger society. In my book, the citizens of Mangalore should proceed to showcase their city as a culinary destination of choice. I suggest a massive festival of food, drink, music and dance 28 organized by private entrepreneurs within civil society timed to coincide with the Christmas and New Year, when tourists are escaping the cold north for Goa. Just 300 km down the road, with a minimum of advertising in Goa and Bombay, such a festival can put Mangalore, and its valuable “knowledge”, on the world map – the world tourism map. Soon, restaurateurs and hoteliers the world over will come to recruit chefs from the region. This “knowledge” will find its “market”.
Mangalore too, like Bombay, has many “dance bars” where women dance to the music and song of a live band. Stiff entry fee and very expensive drinks. Cops probably hassle them; and they close down pretty early. This city has produced many Bollywood stars, including Aishwarya Rai, who earn millions dancing, and there is no reason why women here who are not as pretty as Ash or cannot dance as well should not be allowed to enter the market in such nightclubs. Indeed, this city has many talented musicians, singers, dancers of all kinds ranging from the above to the South Indian classical to even one choreographed modern dance that some very talented students put up for their college annual day. Even these talented students can perform alongside their studies and allow their talents to develop and earn money, while also contributing positively to the total “action” in the town.
Finally, it must be mentioned that when Professor Sam Fleishchacker says that “universal education” is a “public good” that Adam Smith would have approved of, in the article referred to above, he is assuming that there is some “knowledge” that the whole of humanity needs to be possessed of. There is first the belief that there are some who should be entrusted with this enormous task, with public money, and these are those who are in possession of this very precious “knowledge”. There is the flipside assumption that, if left to themselves, people will not find lots of useful knowledge in the world around them without any help at all from The State. I hope Professor Fleischacker is not being racist, but many western academics, thanks to long-term exposure to the likes of Amartya Sen, believe that people in the Third World are devoid of “knowledge”, and hence need “education” – from The State. When Professor Fleischacker says “universal”, it implies that he thinks it is the Third World that needs this “education”, for surely he does not consider the people of the western world to be illiterate. Such a view is in complete ignorance of the huge amount of real “knowledge” that exists in the Third World – denied entry into the first world by the visa regime. It is not only the government of India that is an enemy of its people, all the other governments of the world, especially the developed world, are also enemies of the people of India, and other poor people of the Third World, thanks to the visa regime. In the companion volume on law, I will show how immigration restrictions are a gross violation of Property Rights, and should be deemed illegal under the Common Law. For now, let us just digress a bit to see how these restrictions on freedom also hurt the ordinary people of the first world. I am sure many of you have American, European, Australian, Canadian and other friends. Do tell them how these restrictions hurt them as well, so that they, as citizens, can oppose these most perverse restrictions on all of us. As Bob Marley sang:
Why can’t we roam, This open country, Why can’t we be, What we want to be? We want to be Free! The World Is Our Oyster.
A MAN NEEDS A MAID
Mr. Neil Young, a very great cultural icon of America, sang a plaintive song long ago, that went: A man needs a maid, Someone to keep my house clean, Cook my meals, And go away.
So, is it not ironical that over 90 per cent of Americans, who are among the richest people on Planet Earth, cannot afford to enjoy the services of a housemaid? They did once, as the jazz classic, “Summertime”, shows – but then, they actually captured unwilling Africans and enslaved them for the purpose. Today, there is no need to resort to such brutal, inhuman methods to get help in looking after the baby. Millions of Third World women, all quite talented at housework, suffering today under patriarchy or state oppression or worse, would jump at the chance of going to America or Canada or Australia and working there as housemaids. Why just women, even men would go, and every English gentleman could have a Jeeves. It is only because of policies imposed by the governments of developed countries that this happy outcome does not transpire. Government bureaucrats let in software professionals, doctors, nurses and wealthy businessmen – they “centrally plan” immigration. They don’t mind if Mr. Bill Gates is an employer of foreigners. But they do not allow every American citizen to be an employer of foreigners too. Ordinary Americans could easily enjoy the services of housemaids, chauffeurs, gardeners, delivery boys and the like at a very affordable cost. It is only because of restrictions imposed by Uncle Sam’s bureaucrats that tax paying, wealthy American citizens are condemned to suffer doing their own housework, cleaning their floors and bathrooms, washing their cars and weeding their gardens. Just as one is better off with the consumption of more goods, so too is one better off with the consumption of more services. With free trade, Americans consume goods that come in from every corner of the world. With free immigration, they would also consume much more in terms of labour services, and lead far more happy and productive lives. As per the Principle of Comparative Advantage, wealthy, taxpaying Americans would be able to specialize in what they do best, leaving cooking, cleaning, driving, gardening, carrying and fetching to other people. It
would be win-win all around, as not only would the citizens of wealthy countries be significantly better off, but, more importantly, the long-suffering people of the Third World would get the opportunity to escape the clutches of their predatory states, breathe the air of freedom and prosper. Why does this not happen? Why do we see, instead, the strange sight of a wealthy American or German or Australian housewife labouring over the clearing-up after a great party while, with her tax money, her government has employed hordes of bureaucrats and posted them all over the Third World to ensure that any foreigner willing to work at her house is kept out? In New Delhi, the capital of socialist India, the embassies of capitalist countries have prospective immigrants queuing up from 2 am every day! American citizens pay taxes to employ an entire army to keep friendly Mexicans, with whom they have a much publicized Free Trade Agreement, out. It is their tax money that has paid for the very expensive, high fence that demarcates the US-Mexico border. Are Americans stupid? There is a T-Shirt very popular among Indian youth today which says, “I Was Born Intelligent But Education Ruined Me”. The fault lies in the education in Economics that the citizens of wealthy nations are receiving – much of it from their governments. Many economists hold that what the poor of the Third World need is education. I, for one, hold that proper education in Economics is urgently required by citizens of the First World. It is they who need to see the benefits of open borders, small government, low taxes and freedom. They also need to see the dangers of big government, expensive bureaus and high taxes. It will take eons to get the corrupt, inept governments of the Third World to reform. Indeed, this may never ever happen. However, with proper education in Economics, the tax-paying citizens of wealthy countries could prevail upon their democratic governments to open their borders – and keep them open. When this happens, Third World states will see an exodus of people – an end to the bogus ‘population problem’ they harp endlessly about – and this will force them to reform. When their people flee, these corrupt Third World governments will see a dramatic fall in their tax revenues and a sharp shrinkage in their captive markets. With open borders, governments will compete for tax payers. Corrupt and cruel dictators, socialist, communist and military rulers – all will be brought to book when their suffering citizens ‘vote with their feet’. Uncle Sam will not have to play Global Cop with tax dollars; instead, Uncle Sam will be cut down to size and billions of tax dollars saved. For proper education in Economics, I do not recommend weighty textbooks of the kind written by Mr. Paul Samuelson that have spread economic illiteracy worldwide for decades. Economics is a simple and enjoyable subject that delivers
worthy insights into the most important aspect of life: wealth creation, the very basis of human survival. Economics is not so complicated and confusing as textbooks such as Samuelson’s make it out to be, or children would not enjoy playing Monopoly. To understand Economics and enjoy the read, I recommend Frederic Bastiat – a Frenchman who stood up for freedom over 150 years ago, whose works are not prescribed to Economics students anywhere in the world today. In his classic essay, “Scarcity and Abundance”, Bastiat made the telling point that whenever we go to the market as sellers of a good or service, we wish to outlaw competition and favour closed borders. However, when we visit a market as buyers, we demand wide choice and clamour for free trade. If the state were to support all of us in our instinct as sellers, then borders would be closed, there would be all-round scarcity, supermarket shelves would be empty – and we would suffer as buyers. We would succeed as sellers, yes, but not as buyers – and that is no great success because we produce in order to consume. What Bastiat said about the benefits of free trade also applies to free immigration. With immigration control, what the State is supporting is the instinct of the citizenry as sellers of labour. Therefore, the citizens fail as consumers of labour. Small organized labour unions like those of autoworkers and steelworkers lobby for and support closed borders and a protected labour market. While they benefit, the masses of ordinary citizens suffer from high labour costs and the consequent inability to afford services they desperately need – like housemaids. Bastiat, in another essay, explained the logic of protectionism thus: There is this steel magnate in France. He sees cheap steel imports coming in from Belgium and this threatens his profits. Now, he has two options. One, he could hire a posse of men, arm them with guns, and deploy them along the Franco-Belgian border with instructions to shoot anyone who comes in with steel. But such a course is highly inadvisable. So there is the other option: Go to Paris and pay a politician there to do it for you. Then the politician will deploy armed guards along the border at the tax-payer’s expense, and the two of them will share the increased profits while the tax-payers who paid for the guards will fork out even more for steel! Immigration control can be viewed in exactly the same way, for tax-payers fund the hordes of bureaucrats and armed guards who run the visa regime. This regime is vociferously supported by small groups of labour suppliers like the autoworkers who want their salaries protected. They gain – and the tax-payer who paid for the immigration officialdom finds that he cannot ever afford something so basic and
important as a housemaid! He also pays more for his car, for it would have cost much less if the labour market was free! By reading these short and enjoyable essays of Bastiat, tax-payers all over the developed world will be able to see the benefits of open borders – for goods as well as for labour. They will easily see how minority pressure groups work upon the State in order to promote their selfish interests at the expense of the rest of society. They will also see how wasteful, meddlesome and unnecessary taxconsuming bureaucracies multiply in order to implement the State intervention demanded by these minority interest groups. They will realize in full how their tax money is being totally misspent. And, in the First World, there will be a widespread call for Natural Liberty. Open borders in the developed world are all that the misgoverned and impoverished nationalities of the Third World need. For over 50 years now, they have suffered the attention of innumerable United Nations bureaus, promising them everything from education to healthcare to ‘development’ – and all these bureaus are funded by taxpayers of the First World. Likewise, huge aid programmes have been embarked upon by First World governments which, as Lord Bauer famously remarked, transfer money ‘from the poor of the First World to the rich of the Third World’. All this false philanthropy of statism will end when tax-payers of the First World wake up. After a few hours of enjoyable reading, which is all that the perusal of Bastiat requires, these tax-payers will clearly see that their own interests and those of the people of the Third World coincide perfectly. Then, someday soon, the world will arise to a New Liberty.
CHAPTER THIRTEEN PUBLIC GOODS – II HOW TO BEAT THE TRAP AND GET THEM FREE
We have already examined the proposition that public goods need to be supplied by the collective, through tax revenue. But that should not mean that the market and private entrepreneurs should not be allowed to enter the provision of public goods. Take the case of radio or television broadcasts. They are, according to the standard textbook definition, public goods, because no-one can be excluded from their consumption and, further, when we consume these, we do not reduce the consumption of others. Yet radio and television broadcasts come to us free, without state spending – because they are combined with private goods: advertisements. You see live cricket free because various firms want to catch your eye with their advertisements. Similarly, lighthouses were considered public goods in modern textbooks until economic historians showed that, in England, lighthouses came up in the private sector because they were allowed to share in the tolls charged by nearby private ports: private goods. In this way, by combining private goods with public goods, we can obviate the need for state monopoly on this score. A good example to take is of an underground pedestrian subway. Theoretically, there is no reason why a private entrepreneur should make a pedestrian subway because there is no way he can charge all those who use it. It is possible, but it is just too cumbersome. What is the way out? It could be possible to develop some real estate in the subway to set up cafes and shops. These cafes and shops would be in hot demand because there would be a lot of people walking in front of them: potential customers. (The ‘footfall rate’ is an important term in the parlance of real estate agents!) If private developers are allowed to set up subways with shops in them which they can rent out or sell, this essential public good could be supplied free to pedestrians by the market. It is important to get the private market into supplying public goods, because the political market has too many dysfunctions. It cannot be relied upon. Take the example of the state’s investments in pedestrian subways in Delhi. South Extension is bisected by the busy Ring Road. There are two important markets in South Extension, one on each side of the road, but there is no pedestrian subway; though here, one with shops in it would be a huge hit. However, if you go to the offices of the Times of India on Bahadur Shah Zafar Marg you will find a subway with two large shop spaces in it where the state has set up a state-owned cafeteria: a “Media Café” run by Delhi Tourism! Does this manner of public good provision make sense? For this reason it is important to look for ways by which public goods can come from the market. • Localities – even entire townships – can come up where the developer and the residents pay for the internal roads and internal security.
Intercity expressways can be provided by private sector developers if we combine these with real estate development – townships, supermarkets, malls, eateries, petrol stations and billboard advertising.
In this way, we can build a MINIMALIST STATE and create a large space for FREE CIVIC SOCIETY.
Why depend on the state For what we need When the private sector Can do the deed? Private policing, Roads, subways and more – We can do it all better - Isn’t that for sure?
POINTS TO PONDER Think of all the public goods that can be combined with private goods and supplied by the market: for example: street lighting, or street signs. With a minimalist state, there would be very few tax financed services and hence very few taxes. Can you think of all the tax financed services you would still require? Will these be provided at the local, state or central level?
CHAPTER FOURTEEN MORALITY & SECULARISM
Critics of the free market economy maintain that it is inherently immoral because it is based on GREED: the ugly profit motive. Is this a valid criticism? It is important to understand why because public morality is extremely low under socialism – the word ‘scam’ occurs everyday – and kleptocrats should not be allowed to get away by calling economic freedom immoral. The free market economy is a way in which human beings co-operate with each other. When the division of labour takes place, and we have goatherds, washermen, dentists, plumbers and electricians, we actually find ways in which we ease the burdens of other people. We specialise in the free market economy because we believe that by doing so we can find ways of satisfying the needs of our fellow citizens. Of course, we also benefit. We do so for a profit. But is profit making immoral? Try a small experiment with your lunch. Look at what it contains. Think of those who produced all those ingredients – the rice, the lentils, the vegetables, oils and spices – and consider whether all these people provided you with your lunch because they loved you. Indeed, they do not even know you. If you had to rely on their love for you – that they would, each of them, stock your kitchen with rice, vegetables, spices and lentils – would you get your lunch? You would most likely starve. The profit motive may sound greedy, but it works. We do not get water and electricity because they are being charitably disposed of by the socialist state. Now try another experiment. Think of what you do, or what you would want to do when you grew up. Would you engage in the division of labour out of a love for humanity or out of your own desire to succeed in this difficult world, raise a family, and possess the essential comforts of life? Most people will answer: I specialise in the division of labour in order to extract the maximum benefit for myself. I never refuse a pay hike. Many will answer: I will become a doctor and go out into the wilds of Africa to cure the sick. The latter are gems beyond compare. The free market economy definitely believes in the THIRD SECTOR: the voluntary organisations which do so much good work. But it is mainly based on greed. This greed is a good thing. The good doctor in the wilds of Africa would need modern drugs produced by greedy drug companies. All voluntary work survives on donations from those who work in the market economy and generate profits. The free market economy is moral, even though it is based on greed. The fact is: BOTH SIDES GAIN IN TRADE. The electrician who fixes my fuse charges me fifty rupees and gains, but I pay him fifty rupees and gain as well. To take another example: the vegetable vendor. I buy a kilo of potatoes from his cart outside my house. He gains. He has paid less at the wholesale market. But if I take the trouble and expense to go to the wholesale market and get my potatoes it will cost me far more. Thus, though the vendor gains, I gain as well. TRADE IS A POSITIVE SUM GAME.
[The famous board game, Monopoly, does not illustrate this very important fact: In Monopoly, if you land up at someone’s hotel, it is not an act of choice, but by the roll of dice; and when you pay up, you do not feel that you too gained from the experience: it is like a “fine” imposed on you. However, when you choose to go for a holiday in an exotic resort, and you thoroughly enjoy your vacation, you do feel it was win-win all around. You even make a mental note to return someday soon, and recommend the place to all your friends!] In this way, the free market economy is one of the secular foundations of human morality. This is how morality arose long before religion. In primitive times, when people went to the village square with the little that they had to exchange – some fish, a pumpkin, some meat – they found a moral way of interacting with each other: through GIVE AND TAKE. When they engaged in give and take – a moral exercise since no one is stealing – they discovered that it was only possible if some basic rules were obeyed by all the players: first, an understanding of what is ‘mine’ and what is ‘thine’: property rights; and second, some way of ensuring that anyone who disregarded these rights – who stole – was punished and the goods returned to their rightful owner. That is, ‘thou shalt not steal’ is the basic moral rule of the market economy. In his great essay, Civilisation 29 , Clive Bell refers to Westermarck’s Origin and the Development of the Moral Ideas for characteristics and attributes that we might be tempted to call ‘civilised’ unless, from anthropological studies such as this, we were to discover, to our unpleasant surprise, that even the most primitive of societies have been possessed of these virtues. When listing out the virtues of primitive people, Westermarck begins by asserting that ‘respect for property rights is not peculiar to civilized societies’. Bell says, “Westermarck tells us that numerous savage tribes have as nice a sense of mine and thine as any English magistrate.” Theft was unknown amongst North American Indians before the ‘civilised’ whites came! I lived for quite some time in a hostel in Mangalore, and my room on the ground floor was accessible to all, the door was always open, and even when I was away, my suitcases and other stuff were all lying open. I can say with some confidence that the respect for property rights Mangaloreans show is perhaps not to be found in most places in the ‘civilized’ world! The preservation and protection of private property rights must be the basic law and the essential duty of government. The socialist Constitution of India does not guarantee the property rights of citizens. Socialist law engages is legal plunder: nationalisation, rent control, land redistribution. My son bought me a T-Shirt that says it best:
DON’T STEAL The Government Hates Competition
Reprinted in India by Rupa.
SOCIALIST LAW IS IMMORAL. FREEDOM IS MORAL.
Having shown how the market is one of the secular foundations of human morality, it becomes necessary to proceed further and inquire into whether the main religions of India – Hinduism and Islam – are opposed to the free market. Hinduism was the first religion in the world to discover the morality of the market – in just two little words: Shubh Laabh (or profits are auspicious, profits augur well for society). This is a great philosophical discovery of the Hindus which should be ranked higher than their discovery of the ‘Zero’. The West had to wait for the year 1776, when Adam Smith showed how, when rational self-interest prevails, and is free from state interference, the good of society is promoted by an ‘invisible hand’. He showed how this makes society both prosperous as well as moral. As Lord Acton, also a moral philosopher, later added: Power corrupts and absolute power corrupts absolutely.
POWER CORRUPTS FREEDOM IS MORAL
The fact that freedom is moral can be experienced by visiting any crowded market-place in any city in the world: there are never hordes of armed policemen ‘maintaining order’ on London’s Oxford Street or Delhi’s Connaught Place or Mangalore’s Hampankatta. There is ‘spontaneous order’ in the market because all are there to play the positive-sum game of fair exchange: no one is there to steal, rob, plunder, loot, murder or rape. (And free society can handle the occasional drunk.) If society was composed entirely of profit-seekers in a free market economy, it would be moral. Powerful socialists have corrupted society with their economic restrictions. They imposed these restrictions to protect us from the harmful effects of greed. But greed is better than kleptocracy. Or, to put it another way, the greed for profit is better than the greed for power. You can satisfy your greed for profit only by satisfying more customers; you cannot force anyone to buy from you. But those who are greedy for power don’t want to satisfy anyone: they have the brute force of the state and its legislative and administrative diktats to back them, and they use this power in every possible way to enrich themselves at the expense of the citizenry. State power is also used in the economic sphere by politicians and bureaucrats to RESTRICT THE CHOICES OF THE CITIZENS. Like, in the old days, you could buy only a Bajaj scooter or an Ambassador car. So, both these ‘industrialists’ were CRONIES, and shared their profits with the state and its personnel – those who use the powers vested in them to confer upon these
businessmen their monopoly status. This continues today in many areas, most noticeably in the alcoholic drinks trade, where toddy is kept out, beer is made expensive, and everyone is given the “incentive” to drink hard IMFL drinks, which work out cheaper: “more bang for your buck”. (The poor can only afford the horrible arrack sold by a state monopoly.) Hence, ‘liquor lobby’ and ‘liquor mafia’. With free trade, and no distortions because of excise duties, toddy, beer and wine, and other low-alcoholic beverages would be cheap. Hard liquor would not be preferred. Public health would be better looked after. Today, a small pint of beer in Karnataka is 20 rupees; while a 60 ml large peg of rum is 14 rupees. When I lunch, I often notice that most locals in Mangalore order a 90ml IMFL whisky or rum – and not a small beer as I do, simply because both cost the same and the 90 ml IMFL whisky delivers a bigger “kick”. In Delhi, a bottle of Prosecco at Ritu Dalmia’s Italian restaurant cost 1000 rupees. In Frankfurt, I found Prosecco retailing at €1.79 or about 75 rupees. Prosecco is a sparkling Italian wine, which is half the price, or even less, of a bottle of Old Monk rum. Ritu Dalmia told me she sells $5 wines for $30 dollars – customs duties. Indian wines cost 300 rupees or more – that is, double the price of a bottle of Old Monk. Good wine is cheap in Europe. It is also good for the health. In Frankfurt, the local specialty, apfelwein, sells for €0.50 a litre! Who wants an oil pipeline? Let Mani Shankar Aiyar invest in that! I want to invest in a wine and beer pipeline! Add toddy to the list of light alcoholic drinks available locally cheap and on tap – and let the microbrewery business bloom too – public health will be much better promoted. These guys are actually harming public health by RESTRICTING THE CHOICES OF THE CITIZENRY to promote IMFL hard liquor: the liquor mafia. In a free market composed entire of competing profit-seekers, human society will be much better served than it is today by the players of the political market. This simple fact, that the greed for profit serves society far better than the greed for power is all that the two words Shubh Laabh mean. This is exactly what Adam Smith discovered when he said that, although each one of us in a free market is pursuing his own gain, it is as if by an “invisible hand” that the whole of society benefits. The individual did not go our there into the market seeking anything other than his own gain, but the whole of society gains too when he succeeds. Some say that by “invisible hand” Smith meant the hand of God. I’ll have to confirm that, but Bastiat was one who was possessed of a very strong theological faith in the “invisible hand” (and he had definitely read Smith thoroughly) when he cried: “To believe in Liberty is to believe in God – and have faith in his creation, Man.” Let every man free to pursue his interest without harming others, obeying the natural laws of justice his faith dictate – and that will be God’s world, not only my God, but your God as well, and every other fellow’s God too. As someone quipped about religious rivalries: “It is like saying that my imaginary friend is better than your imaginary friend!” Islam is a religion based on the free market. The Prophet Muhammad, peace be upon him, was a free trader, as was his wife, Khadija: they traded in myrrh and frankincense, exotic ‘spices’. The Islamic calendar begins with an incident of free immigration: the flight from Mecca to Medina. It is also on record that, when the poor Meccan refugees arrived in Medina, they asked of the people of Medina only one form of aid: “Show us the way to the market and we will make our way by working.” Islam actively encourages entrepreneurship, protects property rights, and discovered the theory of free trade long before Adam Smith. Islam also has rules on ‘unjust
profit’. The Prophet Muhammad, peace be upon him, said: “He who makes money pleases God.” Islam is a morality of traders, not soldiers. The Mughals were descended from Mongols, and they adopted Islam to ape the civilization they admired. Thus, they were soldiers from Ferghana, not traders from Mecca or Medina. Every other Mughal Emperor was tolerant of all faiths – Akbar’s Deen-E-Ilahi is well known – and Dara Shikoh even studied Hindu scriptures in Varanasi. Aurangzeb, who ruled for over 40 years, turned out a zealot because Islamic zealots supported him against Dara the Akbarite, and that was the end of their empire – and the rise and rise of the Maratthas, soldiers too. Sikhism, Jainism and Zoroastrianism are also all pro-market. The outer compound of the Golden Temple in Amritsar is a market, and I even saw an ATM machine there! Sikhs are hard-working and entrepreneurial. Their ability to take risks is amply proved by their great success as immigrants. On a TV documentary, I saw a Sardarji operating a tea-stall in Anchorage, Alaska! Jains are all businessmen first and foremost. An ‘atheistic religion’ (or ‘non-theistic religion’ like Buddhism), with no belief in God as such, Jainism fully endorses the Four Ends of Man: dharma, artha, kama, moksha. The mighty Mahavira stands naked. He is not a soldier. Gandhi found his ideal of ahimsa, or non-violence from the Jains. Only traders are non-violent; all trade is voluntary. Note that when the government of Gujarat blocks the trade in alcohol to please Gandhians, it uses VIOLENCE – the force of arms! Parsee surnames are based on the urban division of labour: Screwwallah, Sodawallah, Daruwallah and so on. Parsees are all urban businessmen, specialized in the urban division of labour, and that is why they are well off compared to other Indian communities. Actually, India’s Muslims are also predominantly urban: there are more Muslim businessmen than farmers. Even among the Buddhists, we see Tibetans as hugely successful in the sweater trade conducted on footpaths. It is reported that when poor Indians buy sweaters from the roadside vendors, they prefer to go to the Tibetans. With their little restaurants in our cities and towns, Tibetans have made momos a household word. And, with freedom, they will surely make chhung a hit as well! On a visit to Kushalnagar, the Tibetan colony in Karnataka, I also noticed many establishments specialized in ancient Tibetan crafts, from brocade-making to Tankha painting to woodwork. Tibetans have enough skills and knowledge to succeed in a free market – that is, the global free market. I wonder why Tibetans live in their refuges in India – I have visited Dharamshala too – and all their “politics” is about getting Tibet back. Why don’t they just fight for free immigration? Why live life looking only at the rearview mirror? Momos, thukpa, chhung and all their arts and crafts will fetch them much more in the west. Go west, all you Tibetans! True secularism in India cannot come about without a free market economy. The market is one of the secular foundations of human morality. Both Hinduism and Islam believe in the free market. Sikhs, Parsees, Jains and Buddhists too are all pro-market. All these communities will peacefully co-exist if we stress their fundamental commonness and ignore their differences.
The notion that freedom brings about morality while power corrupts can be best understood by participating in a little thought experiment. Take a tray of bananas and carry it before a group of monkeys. What will happen? The monkeys will steal your bananas. Now take another tray of bananas and go someplace where there are no monkeys but lots of human beings: a market: Connaught Place; Brigade Road; Chandni Chowk… What will happen? No human being will steal your bananas. If they want them they will come up to you and politely enquire as to how much they are worth. Man is a moral creature simply because he has the ability to trade: to take and give in exchange. The monkey steals because he cannot give up anything in exchange for what he takes. Now, to see how power corrupts, hang around in the market-place a while longer and observe who are the monkeys amongst us: you will see policemen and municipal workers extracting goods for free – the huftha brigade. They are the extortionists who operate on the poorest of the poor in the market. This is the cutting edge of kleptocracy. GOOD MANNERS Human beings are not only moral, they all possess what is called ‘the core of all morality’: good manners. These manners have arisen because human beings need to co-operate with each other in the market economy and manners aid us in mutual co-operation. Good manners are the grease which lubricates the wheels of everyday economic exchange. Notice how shopkeepers are always polite and government babus are inevitably rude. In a completely free market, without any state controls, rewards will not go to those with connections or those who use force: dadagiri. They will go to those who work hard to provide for the needs of fellow citizens, and these people will all be well mannered – the only way to succeed in a state of freedom. This is why Lucknow was famous for its manners once and Bengal bred bhadraloks. All manners have been destroyed by practicing socialism for 50 years. REPUTATION Morality, in the free market economy, is in the LONG-TERM INTEREST of all players. In the short-term it may make sense to cheat and steal, but this does not work in the long-run because cheats and swindlers are quickly found out and lose all their customers. Thus, REPUTATION is hugely valued in the free market. BRAND NAMES are all based on reputation. If you take home an unbranded product like, say, loose turmeric (haldi) powder, you may find it adulterated. On the other hand, if a major brand is guaranteeing purity, you are sure of getting value for money because the brand values its reputation highly, and will not tarnish it for short-term gain. Thus, to conclude, freedom brings about morality and good manners. Reputation promotes moral behaviour as being in the long-term interest. On the other hand, power corrupts. It is excessive
power that has created our kleptocracy. These powers must be taken away and the people given economic freedom so that our society may be moral. This morality, based on the secular foundation of the free market, with its respect for property rights, is one that will enable not only Hindus and Muslims, but all other faiths, to co-exist peacefully, as all religions are agreed on the morality of the market.
All their fingers itch To somehow get rich The crookedest, easiest way. Their power will flop, And corruption will stop When free markets come here to stay.
POINTS TO PONDER Conduct some private research into what India’s major religions say on entrepreneurship and profit-making? Does the argument ‘better government can be obtained by putting better people into the government’ hold? Or is power always a corrupting influence?
CHAPTER FIFTEEN LIBERTY & EQUALITY FREEDOM AS THE SUPREME POLITICAL VALUE
Socialists also criticise the free market economy on the grounds that it tends to promote inequalities. They believe that, with state controls, they can promote EQUALITY. This was Jawaharlal Nehru’s grand vision of a ‘socialistic pattern of society’. Those who believe in the market do not believe in EQUALITY. They believe in FREEDOM. FREEDOM FROM THE STATE. That is, let us be as close as possible to a state of nature: what Adam Smith called ‘natural liberty’. If we look at nature, we see a wide variety of plants and animals. We see short grasses and tall trees and all the bushes, creepers and vines that nature will support. We do not see equality. We do not see uniformity. The socialist vision – what Nehru called the ‘socialistic pattern of society’ – was one of uniformly trimmed hedges, with the state acting as gardener. Today, it is obvious that the gardener is ruining the garden in pursuit of his own selfish interests. Society would be better off without this predatory gardener. It would grow free and wild. A free market, without state controls, provides a natural eco-system to the human species in which we can all specialise, find niches, and survive. There will be tall trees and short grasses – and bushes and vines. There will be some who will receive huge rewards for their skills – like Sachin Tendulkar. Let no-one attempt to enforce artificial uniformity. The important point to note is that FREEDOM COMES FIRST. FREEDOM IS THE SUPREME ECONOMIC AND POLITICAL VALUE. When we place freedom first, we are free to be what we want to be and do what we want to do. If we place any other value (like equality) above freedom, we lose our freedoms in a fruitless quest. The socialists never promoted equality, although they took away our freedom. They have created a Ji Huzoor, Mai Baap, VVIP CULTURE in which everyone who is a commoner has to bow and scrape before those in authority. The socialists achieved this through a system of DUAL SUBORDINATION, borrowed from their good friend Stalin. First, the prime minister, who is also party chief, commands the party hierarchy: we often hear the term ‘party high command’. Second, the supreme leader is also simultaneously the head of the bureaucracy, and so in complete command of the state apparatus. Such a system of dual subordination is not even intended to achieve equality. As Roberto Michels pointed out in 1915, in his classic book, Political Parties, “socialism will fail at the moment of its adherents’ triumph”, for a classless society can never be ushered in by a centralized, hierarchical political party!
Young people must also realize that a system of ‘dual subordination’ is fatal for the young, who have no option but to begin at the bottom of one long hierarchy or the other; either in the Party; or in the bureaucracy. Dual subordination, with rigid hierarchies in the state and party organization, inevitably leads to THE RULE OF THE AGED. (The Vatican is a good example.) During the Vajpayee regime, it was reported that the average age of parliament was 68 in a country where the average life expectancy is 62! Which meant, as one wag put it, “We Are Ruled By Dead People!” The average age of parliament has come down somewhat after the last elections, with the Congress fielding many youngsters: the baba log. But all of them are sons of dead Congressmen. They are not really new, young blood. They are just what Congressmen are, and have always been: socialists, of a very horrible kind, championing the cause of the public sector, and government ‘help to the poor’. They all support the education cess. They all believe in ‘equality’. LET US REJECT THE SOCIALISTS’ FALSE VISION OF EQUALITY AND OPT TO BE FREE FROM THEM INSTEAD. FREEDOM FIRST! As Bob Dylan put it, in My Back Pages: A self-ordained Professor’s tongue, Too serious to fool, Spouted out that Liberty, Is just Equality, in school. Equality I spoke the word, As if a wedding vow, Ah! But I was so much older then, I’m younger than that now. Let us not utter the word ‘equality’ anymore, ‘like a wedding vow’. From now on, let us only value Liberty. I don’t need the state to tell me what to do. Mum and dad are quite enough, thank you. POINTS TO PONDER Why to we get together and form a collective like a State? What do we seek from the State? What political value should we uphold if we want to ensure that the State is not too powerful, State personnel are not misusing powers, and that public morality exists? What are the advantages of having inequalities in society?
HOW GEORGE ORWELL FOUND HIS SOCIALIST “EQUALITY” (And how he uttered the word “Equality” just “like a wedding vow”)
Throughout my adult life, George Orwell has remained an enigma and a curious fascination. I have always believed that his stint in the Imperial Police in Burma (recounted in Burmese Days) made him realize what a horrible thing the State is, and inspired him to write such masterpieces against statism as 1984 and Animal Farm. But one question forever remained: How could such a man who could see the State so clearly as evil, ever be a socialist? I finally found the answer during an accidental read of an extract from Orwell’s Homage to Catalonia. Orwell had gone there to fight in the civil war. He describes the battlefield, how the Anarchists and the Fascists and the Socialists were shooting and bombing each other. He describes his own pitiable condition: hunger, thirst, heat, cold, dirt and filth, lice, bad footwear and clothes, and so on. He then says that he has no regrets, for the experience was richly rewarding to him in one special way: it made him even more convinced about socialism. These are his own words, with my emphases: The workers’ militias, based on the trade unions and each composed of people of approximately the same political opinions, had the effect of canalizing into one place all the most revolutionary sentiment in the country. I had dropped more or less by chance into the only community of any size in Western Europe where political consciousness and disbelief in capitalism were more normal than their opposites. Up here in Aragon one was among tens of thousands of people, mainly though not entirely of working class origin, all living at the same level and mingling on terms of equality. In theory it was perfect equality, and even in practice it was not far from it. There is a sense in which it would be true to say that one was experiencing a foretaste of Socialism, by which I mean that the prevailing mental atmosphere was that of Socialism. Many of the normal motives of civilized life – snobbishness, money-grubbing, fear of the boss etc. – had simply ceased to exist. The ordinary class division of society had disappeared to an extent that is almost unthinkable in the money-tainted air of England; there was no one there except the peasants and ourselves, and no one owned anyone else as his master…. However much one cursed at the time, one realized afterwards that one had been in contact with something strange and valuable. One had been in a community where hope was more normal than apathy or cynicism, where the word ‘comrade’ stood for comradeship and not, as in some countries, for humbug. One had breathed the air of equality. I am well aware that it is now the fashion to deny that Socialism has anything to do with equality. In every country in the world a huge tribe of party hacks and sleek little professors are busy ‘proving’ that Socialism means no more than a planned state-capitalism with the grab motive left intact. But fortunately there also exists a vision of Socialism quite different from this. The thing that attracts ordinary men to Socialism and makes them willing to risk their skins for it, the ‘mystique’ of socialism, is the idea of equality; to the vast majority of people, Socialism means a classless society, or it means nothing at all. And it was here that those few
months in the militia were valuable to me. For the Spanish militias, while they lasted, were a sort of microcosm of a classless society. In that community where no one was on the make, where there was a shortage of everything but no privilege and no boot-licking, one got, perhaps, a crude foretaste of what the opening stages of Socialism might be like. And, after all, instead of disillusioning me, it deeply attracted me. The effect was no make my desire to see Socialism established much more actual than it had ever been before. As the italicized portions show, Orwell found his egalitarian Utopia among tens of thousands of people, all peasants, who shared a ‘disbelief in capitalism’ (because they had nothing to sell and nothing to buy anything with either), ‘where no one was on the make and there was a shortage of everything’, where the ‘normal motives of civilized life’ were absent, and hence there was this mystical air of Equality that so attracted him. Here Orwell found genuine, true ‘comradeship’. However, he uses the word ‘strange’ to describe the situation. Why did he use this word? It must have been the most apt. Orwell also shows complete ignorance of the moral basis of market exchange, when he refers to the ‘grab motive’. In market exchange, there is ‘give-and-take’: the only ones who grab are the thieves (who get roundly thrashed) and the cops (who will one day surely get thrashed as well). Orwell uses the word ‘mystique’ to describe the goal of Equality so cherished by the socialists. And he refers to his ideological adversaries as ‘party hacks and sleek little professors’. As someone once told me: “They are wrong but romantic; we are right but repulsive.” There is something seriously wrong with our packaging. Socialists have all these romantic heroes like Che Guevara. Our ‘party hacks and sleek little professors’ have nothing romantic about them. And therein lies the tragedy, for surely the air of freedom can be made to look far more romantic than this romp with tens of thousands of ‘equal’ peasants. We need libertarian rock stars! However, it must be said that chasing romantic utopias has proven to be extremely harmful for every society that did so. Reason is cold, reasoning through is hard work, and it involves reading fat tomes by ‘sleek little professors’. But reason is essential. Reason prevents societies from diving headlong into disaster. Orwell’s ‘air of equality’ is what Jawaharlal Nehru’s ‘socialistic pattern of society’ was all about. The deal was: Give me your freedom, and I will give you Equality. It was a bad deal, to put it mildly. We Indians only got a VVIP culture: no equality at all. We lost our freedoms in a fruitless quest. It is also strange that an OFFICER of THE IMPERIAL POLICE, should enjoy ‘equality’ with peasants, and not ‘know’ that he was, in many ways, ‘superior’. As an officer, you are trained to command: to be ‘superior’. Whenever I travel in rural India, I always feel infinitely ‘superior’ to the peasantry. That does not mean I look down upon them; just that they look up at me!
Finally, Orwell seems to be one of those Brits with what Lord Bauer called ‘class on the brain’. He simply hates England and its ‘money-tainted air’, and all the various classes in society that naturally ensue. He actually hates prosperity and civilization, since it stinks of money. He revels in a poverty of equals. He desires to establish Socialism and put an end to all economic and social differences in one fell swoop. The goal: we are all equally peasants; precisely what Hayek, a ‘sleek little professor’, called ‘the road to serfdom’. In reality, Britain, with its much maligned ‘class society’ has always been a haven for hard-working and talented members of the working classes, enabling hordes of them to rise to giddy heights. In the 1840s, Samuel Smiles’ classic Self-Help recounted hundreds of such instances. In modern-day Britain, Lord Bauer’s essay “Class on the Brain” is a similar demonstration of the fact that the ‘class society’ of Britain is a socialist myth, and that tens of thousands of perfectly ordinary people have climbed to the top aided by nothing more than character, perseverance and ability. Like the Beatles, who started off really poor in the back streets of Liverpool. Therefore, another lesson to learn is that we libertarians must ensure that citizens see the benefits of inequality. We must convince them that the socialists malign something that is not only natural, but also beneficial. For example: Whenever a new product emerges, it is expensive – like the first car, computer or mobile phone. Only the rich can afford it then. It is the custom of the rich that enables these first producers of that good to find markets, improve upon their offerings, expand production scales and bring prices down – so that ultimately everyone can afford that product. The rich help society. Orwell is the perfect example of the misguided intellectuals of the 1940s who championed socialist projects at home and abroad, armed not with reason, but with romance and ‘mystique’. Together, they destroyed half the world. Bad ideas also have consequences.
CHAPTER SIXTEEN POLITICS
What is politics? • • • • Wearing a T-shirt supporting human rights is politics. Putting a bumper sticker on your car saying “No To Nuclear Weapons” is politics. Writing a ‘Letter to the Editor’ is politics. Giving a lecture to slum dwellers on rent control is the POLITICS OF KNOWLEDGE.
POLITICS ARE THE PUBLIC ACTIONS OF FREE PEOPLE. 30 That is, active citizenship is politics. Joining a centralised, hierarchical political party and following the dictates of a ‘leader’ is not politics: it is slavery; it is fascism. There is no need for parties to practice free politics. It is not just about politics against the government: it could be free politics against a polluting industry; it could be free politics against a cheating multinational. Citizens who are active in free politics are gems beyond compare and breathe life into democracies. You can participate in all these kinds of politics and contribute to a healthy and vibrant democracy. So, have faith in yourself and in the fact that you can survive best if left free to gain knowledge and specialise in a free market economy, free to practice politics and take an active interest in the world around you. BELIEVE WITH ALL YOUR HEART IN FREEDOM! In India, there is law against the formation of political parties that are not SOCIALIST. Thus there is no free market party. The democracy is restricted to socialists: we are free to choose amongst various alternatives, all of which are socialist. There was once a Swatantra Party led by liberals like Minoo Masani, but it was destroyed by Indira Gandhi who amended the Representation of Peoples Act to ensure that no new free market party is allowed to legitimately be set up. THIS SHOULD BE STRONGLY CHALLENGED. To reiterate: There are three pillars of a free society: • The economic freedom of the FREE MARKET. We need UNILATERAL FREE TRADE, COMPLETE ECONOMIC FREEDOM, with SOUND MONEY and PRIVATE PROPERTY RIGHTS.
Professor Bernard Crick coined this definition in his widely read “In Defence of Politics”.
The political freedom of DEMOCRACY. Here, liberals are kept out by legislative diktat, while many weirdo, wacko parties are ‘recognised’, although they are neither ‘socialist’ nor even ‘democratic’: they are all ‘pirate ships’. Liberal education: that which teaches THE VALUE OF FREEDOM. Here, state education is shameless STATE PROPAGANDA.
WE HAVE A LONG WAY TO GO TO BUILD A PROSPEROUS, HEALTHY, CLEAN, AWARE AND FREE SOCIETY. LET’S START!
Ban the bomb Save the whale Free Tibet Such campaigns never fail. Put it on a button Stick it on your car Take part in politics – Age and sex no bar!
POINTS TO PONDER There are all kinds of political creeds: communists, socialists, and so on. Those who believe in freedom call themselves LIBERTARIANS. What do you call yourself? Whatever you call yourself, how can you best practice your politics?
Ten Libertarian Principles
1. 2. 3. 4. 5. The road to hell is paved with all the good intentions of the government. Free people are not equal (in wealth), and equal people are not free. What’s yours, you take care of; what belongs to everyone or no one falls into disrepair. Sound economics consists of looking at the long-run effects of an act or policy on all groups, not simply the short-run effects on a few. If you encourage something, by spending your money on it, you get more of it; if you discourage something, by refusing to spend on it, you get less of it: like beggars, or B-schools. Nobody spends someone else’s money as carefully as he spends his o w n. The government has nothing to give anybody except what it takes from somebody. A government that’s big enough to give you everything you want is big enough to take away everything you’ve got. Some people are dissatisfied with free enterprise if it doesn’t work perfectly and satisfied with government even if it doesn’t work at all! Eternal vigilance is the price of liberty.
6. 7. 8. 9. 10.
A PRAYER BEFORE DAWN
Amazing Grace, How sweet the sound, That saved a wretch like me. I once was lost, But now I’m found, Was blind, But now I see.
Comments for the back cover:
“Well written, fast paced, entertaining yet instructive, this book will move the furniture around in your mind.” JOHN BLUNDELL Director-General, Institute for Economic Affairs, London.
This book is full of wisdom – but the language is simple, laced with wit and humour. You will feel like reading it at one stretch. There are many other books on the subject – but not one is for the layman. This book is for everyone – students, teachers, professionals, businessmen and even economists. Both Free Your Mind, and its companion volume, Free Your Life: A Beginner’s Guide to Justice & The Law, ought to be prescribed at the PU level so that well before branching out into other areas, all students possess a thorough grasp of the social sciences. CLEMENT D’SOUZA Head of the department of Economics, St. Agnes’ College, Mangalore
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