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Michael
Christian watches Poland's shift from Communism to the free
market. Liberty
Around the World The Real
India,
Behind the Fog by Jayant
Bhandari India boasts one of the world's fastest
growing economies — but the wealth hasn't reached everyone
yet.
Just over a decade ago, in the British university where I
was studying, some students did not know where India was. Some thought that it
was somewhere in Africa. (Admittedly, quite a lot of Indians who had emigrated to
the UK had moved not from India, but from African countries.) Given the kind of
television images they saw, a lot of them thought that all Indians did was throw
dead bodies in the Ganges, burn widows on their husbands' funeral pyres, charm
snakes, and ride on elephants. They thought there were more cows on the roads
than people — if roads existed at all. They thought India's population was
so large that people would soon need to sleep on top of each other, and that this
was what they were doing anyway. Some thought it was a miracle if an Indian could
add two and two.
| | Jayant
Bhandari works as a business analyst in Vancouver, and writes about
collectivism and Indian society. |
|
Today the perception is completely different. Today India is a mammoth. Its
GDP is tenth highest in the world, ahead of Singapore, Hong Kong, Finland,
Austria, Sweden, Belgium, Switzerland, the Netherlands, and Australia. With the
West's rate of growth at about 2% and India's at about
6.9%,1 India is seen as a powerhouse and its
inhabitants as supermen, achieving economic progress that could not occur in the
wildest dreams of Westerners. People speculate about when, not whether, India and
China are going to take over as the economic powers of the world. Indians
are regarded as top-class doctors and engineers, men and women for whom nothing
is now impossible. Starting in May 2005, Canada's National Post, a
generally anti-statist newspaper, ran a series of stories on the enormous
successes of India's opening economy. On the first day of the series, most of the
front page was occupied by a picture of an Indian rocket taking off. The story
said that the Indian government was seriously contemplating a mission to the
moon. How much of this is truth, and how much of it is rhetoric, a false
perception based on partial numbers and skewed analysis, catering to what people
want to see instead of what they do see when their eyes are open? Let's sort
things out. Yes, India's GDP is almost the same as that of Australia. But
its population is more than 50 times bigger than Australia's. Each year, India
adds to itself a population nearly equal to that of Australia. When you re-rank
the two countries on a per capita basis, Australia goes to the 24th position, and
India slips to almost the bottom, way behind Albania ($2,080), Swaziland
($1,660), Angola ($1,030), and the Congo ($770). With a per capita GDP of $620,
India is slightly ahead of Pakistan ($600) and Mongolia
($590).2 In other words, an average Indian lives
on about $1.70 a day. And how does India's glamorous growth appear from this
perspective? Australia's growth in GDP (which is around 2%) will add about
$600 to its per capita GDP, almost as much as India's total GDP per capita. Its
6.9% growth will give the average Indian about 11 cents extra for use each day, a
year from now. So here is the summary: India is not an
economic power, and at this rate cannot be one for the better part of this
century. Just add 11 cents to the average daily per capita income of an Indian
for the next year, and another 13 cents next year* and so on, and you will quickly see the truth
— and remember, these gains will be accomplished only if India manages to
sustain 6.9% growth.
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| Despite its economic
growth, India remains one of the world's poorest and most wretched countries. The
proof is visible in all its nakedness barely a few miles from the city limits.
|
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Here is the rest of the truth: India is developing fast, by Indian standards.
For the average Indian living on $1.70 per day, an extra 11 cents next year will
be a windfall. Despite their similar GDPs, the expenditure profiles of India and
Australia are very different. The Indian will likely spend his 6.9% growth on
food and accommodations, and will continue doing so for many decades to come. If
Australia sent a mission to the moon for the ego satisfaction of its elites, it
would be robbing the rich of their luxuries. If India sends its lunar
mission,3 it will be robbing the poor of their
bread. What an irony: capitalist Australia refuses to rob — at least
in this case — even the rich, whereas so-called socialist India robs the
poor. This, of course, is not a perception that Indian statists wish to
encourage. The lobbyists whom the state of India has employed in North
America4 have done a good job. They have helped Indian
politicians hijack credit for whatever economic development has taken place. It
is mostly forgotten that India has done better in the last decade largely because
a few people have managed to bypass the state, using the Internet to create a
huge software and call-center industry. To the degree that India may be
considered an economic "powerhouse" (and that is a very small degree), it is so
despite the state. The Real India, Then In 1993,
I returned to India after completing my business education in the UK. During the
two years I spent in Britain, perceptions of India had started going through a
complete transmutation — the snake-charmers were becoming software
engineers. Working as country manager for a British company, I was among the
first to exploit the opportunities that a newly opening economy presented to
foreign companies. Soon, every self-respecting company had to do something
in India.*
| One of the several laws I
broke in those days was the law restricting the fax machine itself.
|
|
I moved to Delhi. To my dismay, no one wanted to rent me a
decent place to live in. The landlords mostly refused to talk to me, and had
blatantly advertised their property as for foreigners only. Dogs and Indians were
not allowed. I feigned an English accent and fooled a landlord about my
nationality. It was the only way to get the (less than perfect) place I wanted
— my skin-color was not white, and whiteness was a necessity for a really
decent abode.* After looking
for a place for over a month, and spending a fortune staying in a hotel, I got an
accommodation with a preinstalled telephone, the most highly prized commodity in
India in those days. People who worked in public sector monopolies, which most
industries were, made fortunes collecting bribes. On several occasions I was to
see that they didn't even care about money — they wanted the sadistic
enjoyment of making people grovel. But having a phone was not enough. It
usually did not work, and when it did, I usually could not use my fax machine
because of the "noise" that infested the communications network. For the next
three years, I spent, on average, one day a month to keep my phone in operation
by making personal visits to the telecommunication department. For the next three
years I walked to the market four times a day, every day, to send and receive
faxes for my British company. One of the several laws I broke in those
days was the law restricting the fax machine itself. I should have sought a
license to use it; but getting it would have meant tens of visits to the
telephone office, more hefty bribes, and the certainty that if I was refused a
license, I would not have been able to communicate. This meant that the
government employee responsible for keeping track of my telephone connection got
a particularly heavy bribe. I was committing a criminal offense simply by trying
to participate in a modern economy. In addition, I spent the equivalent of
one day a month depositing my telephone, electricity, and water payments.
Completing a simple transaction at a bank could easily cost an hour. Sometimes I
traveled by train, but according to the law only I could buy my ticket. The lines
to buy tickets used to be so long that it took me a day to get to the train
station, buy my ticket, and return. I decided not to honor that law. Instead, I
engaged an "illegal" company to send someone to present himself as me and buy my
ticket.
| Landlords refused to talk
to me and blatantly advertised their property as for foreigners only. I feigned
an Egnlish accent and fooled a landlord about my nationality.
|
|
Getting money from the UK was another bureaucratic nightmare. The money came
to the foreign currency department of a public sector bank. Once the bank got the
money it would take about two months to give it to me — the check just
traveled around and around inside their office. I had to go to the bank several
times to see whether my money had arrived, something not easily accomplished, as
you might imagine if you think about the motivation of the bank employees.
Usually no one knew that any money of mine was lurking inside their piles of
papers. Each visit to the bank consumed a day. The finance director of my UK
company, who had never been outside the UK, thought I was completely
stupid. In a grudging and belated concession to avoid defaulting on its
foreign currency commitments, the Indian government had recently started to allow
foreign companies to invest in India. Thick books were available to help in
interpreting the associated laws. Legally, I could create one of the following
entities: a liaison office, a branch office, or a subsidiary, each encumbered
with unrealistic limitations on what we could or could not do therein. We spent a
fortune, and more than two years of hard labor, just to get the necessary
approvals. Otherwise I did, as did other Indians, what was necessary
— growing a guilty conscience, suffering the moral corruption that results
from dealing with a corrupt system, and eventually losing consciousness of what
was a good law and what was a bad one. There is a generally accepted saying in
India: "You can scoop out butter only with a crooked finger." The company I
worked for made high-technology equipment to measure gaseous emissions from
chimneys. As we had no current installation in India, my company offered one
installation to a (public sector) electricity generating company free of cost.
The would-be installation site was about 38 miles from my place in Delhi —
about five hours by taxi. The responsible person at the site, holding the fancy
title of Deputy General Manager (Operation & Maintenance), had too important
a designation to meet me before I held protocol meetings with his secretary, a
relatively uneducated person endowed with some of the ugliest manners I have ever
encountered. I was forced to meet with him several times before I could organize
my first meeting with the boss. The secretary himself was too important to talk
to me on the phone. A year was consumed before my first real meeting took place;
two more years were wasted in bureaucratic dramas before I got the free
installation running.
| The minimum wage laws are
very strict, but most private employers simply ignore them.
|
|
Since a good part of my day was spent in making sure that my telephone,
electricity, and water were in operation, and the rest was spent dealing with
bureaucracies, I worked almost 14 hours a day, every day of the year, and still
lacked any real results (what the economists would call product or real
value-addition) to show for it. A year after I moved to Delhi, I employed
a peon, a runner boy to take over the job of waiting in lines to make utility
payments, visit banks, and do other non-productive administrative activities. I
paid him a salary that was equivalent to about $40 a month. This was just above
what the minimum wage laws asked for, and twice as much as the generally accepted
minimum wage. Half the time, the peon didn't come to the office, but I accepted
the situation and never blamed him. Like most Indians who take such jobs, he was
fatalistic and unreliable. Who wouldn't be, in the system we lived in? If I had
paid him more, I suspect, he would have reduced his visits until they were
sufficient to earn the basic salary. In those days, the Indian
GDP hovered around $300 per capita — an average of less than a dollar a day
per person. My education in economics in the UK had told me that with Western
salaries almost a hundred times higher, jobs should flood into India. I had
learned that minimum wage laws were the biggest reason for unemployment in the
West. I wondered why, given the fact that there were (for all practical purposes)
no minimum wages in India,* more than
half the country was unemployed. My return to India showed me what government can
do to achieve this result. My company spent more than three years and a
million dollars to achieve what would have taken just a couple of days of work in
the West. This is my anecdotal experience of what made India so pathetically
poor, what made its productivity close to zero, and usually negative, as
reflected in its GDP. While I worked in Delhi, newly graduated university
students were happy to work for me for free, just for the experience of working.
But one of the most difficult things was to find people with decent work ethics
— one of the primary victims of the collectivist system in which my
associates had been reared. This is how India, despite its lack of an effectively
implemented minimum wage, managed to have high unemployment: the marginal
productivity of employing another Indian was zero, or even negative.
| There is a generally
accepted saying in India: "You can scoop out butter only with a crooked finger."
|
|
Human life, which should have been the nation's biggest asset, had been
transformed into a liability by idiotic laws and customs. Free from legal
encumbrances, the cow was, of course, more holy and productive. The Real
India, Now In 1998 I moved to a self-sufficient gated community with its
own electrical generating plant, water supply system, and private security —
probably among the first such communities in India. Telephones had just started
becoming private all over the country. A guy wearing a suit in the sweltering
heat of Delhi came to install my new telephone. He made no pretensions of looking
important and called me "sir" more often than he should have. Efficient private
banks had opened everywhere. I could talk to them on the telephone, and they even
delivered money to my place without charge. GM and Ford had just been
allowed entry into the country, and those who could afford them had decent cars.
Private airline flights were frequent and reliable — it continued to be
common for the public sector airline to complete an hour's flight in five,
hopping to destinations not on its direct route. Cellular phones were cheaper and
easier to get. Private electricity companies started to operate. They didn't
waste time and resources the way the public sector did. Selling my company's
equipment to them was peanuts compared to what I had experienced with the public
sector. Well-paid people like me were increasingly
common. They were spending less and less time dealing with the bureaucracy and
more and more time producing things that customers wanted. Industries catering to
their needs started to appear. Life was starting to be easy. The best brains
stopped working for the state and began working for the private sector, initially
to deal with and circumvent legal restrictions, but later in productive
activities that went beyond all that.* By 2004, Indian GDP had grown to $620. Most
of this growth was spearheaded by an emerging service industry related to
software and telecommunications. It has therefore been restricted to the
megacities, and even there to the relatively educated minority; the entire IT and
office-service industry of India employs only about 1 million
people.5 To put this figure into perspective: the
Indian population grows by more than a million every month! What the foreign
business tourist saw in the megacities he soon considered characteristic of India
as a whole. But despite its economic growth, India remains one of the world's
poorest and most wretched countries. The proof is visible in all its nakedness
barely a few miles outside the city limits. The foreign
and Indian companies that managed to succeed in the new India were in the
industry that the bureaucrats, in their stupidity, didn't know how to regulate:
telecommunications and business based on the Internet. Manufacturing,
agriculture, and mining remain under the control of a profoundly corrupt
state.* According to Transparency
International, perceived levels of corruption haven't changed since
1998.6 Today, the poor are doing better than
before because of the cascading effect of money generated in the service sector.
For a developing country, India devotes a remarkable, indeed an anomalous, share
of its economy to services: 51.8%. A big chunk of "industry" is "missing."
| If there is one lesson I
have learned, it is this: if government simply lets people get on with their
lives, even the poorest and seemingly most stupid people can make their lives
work fabulously well. |
|
A lot of multinational corporations ignored India as a place for their
so-called sweatshops, as the bureaucratic costs of doing business in India more
than offset the cheap labor costs. These "sweatshops" would have provided much
needed employment to the poor, covering a much broader base than a
service-industry driven economy ever can. Ironically, several Indian companies
have moved their manufacturing operations to
China.7 When I lived in Delhi, I drove a good
car, not because I wanted to show off, but because the car ensured that the
police would not stop me all the time. In the capital city of Delhi, if you are
poor, you have to go through a police verification to get a job — a
practice, reminiscent of the old communist countries, that started in the
mid-'90s.8 If you are rich, you are fine. For India's
poorest to do better, the restrictions on their lives and work have to be
removed. The Future of India India is finally growing, and that
is great news. It is out of the vicious cycle, and the future is bright. But it
can do a great deal better; it can go much faster; and it should. Free
marketers who read India wrong, who see in it a powerhouse and an economic
miracle, risk glorifying its persistent statism. Sending a mission to the moon is
not a victory for the individual Indian. He needs more self-esteem and
self-reliance, but that can come only if he can succeed and grow on his own
terms, and above all if he is allowed to strive for the best in himself. If
anything, the idea of a moon mission testifies to India's entrenched statism and
collectivist thinking. Praise for the statist present is already harming
the process of liberalization. Current benefits are enjoyed by people who can
bypass the state — people in the software and telecommunication-based
service industries. While "India" is praised for this mighty progress, the real
India still lacks an emerging manufacturing sector, which could employ the poor.
The meddling and corrupt politicians remain in power; and I have never met an
honest politician or bureaucrat in India. Let us not glorify the enemy (the
state) by calling it the savior; let us not believe that all is well in India
just because we have seen the relative prosperity of Bangalore, a city that has
less than 1% of India's population. The truth of the poor is terrible. If
there is one lesson I have learned, it is this: if government simply lets people
get on with their lives, even the poorest and seemingly most stupid people can
make their lives work fabulously well. Since this is happening in a small way in
India, I see a future for that country, and for the billion people who suffer
there from the horrors of statism. That is great news economically and morally.
It is great news when people can grow up in a liberal environment, free from
dehumanizing bureaucracy. But for this to happen in India, the lesson to which I
just referred must be learned, both by the opinion leaders of the West and,
especially, by the opinion leaders of India itself. Until the early '90s,
India had no foreign companies of any significance. I did not know what Coke,
Pepsi, or McDonald's were. We were abysmally poor, and although the poverty was
all of our own making, we blamed the CIA, our scapegoat for all our problems. Now
university students, like their brethren in the West, rally against exploitation
by multinational corporations and the Indian private sector. They rally to stop a
clean private electrical generating plant from opening in Delhi, while the
state-owned plant spews black soot into the heart of the city. They complain that
the bottled water marketed by multinational corporations fails to abide by
European standards, while the tap water in India causes sickness and death. The
facts are clear, but the young ignore them — perhaps because facing those
facts might reflect poorly on India itself. This, of course, is nonsense.
What matters to the real India is the lives of individuals, and the truth —
the history that future generations will read when they are trying to decide what
made India a success: was it the state, or was it the free market?
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| * | Optimistic calculations — taking into account population
growth, this actually drops to about 5.5%. |
BACK
| * | Moving among expatriate businessmen, I was amazed at how the
boards of many big companies had decided to enter India solely on the basis of
irrational emotions. The consultants worked backwards, to justify what was
already fated to be done. |
BACK
| * | It is easy to blame the landlords for this ugly racism
perpetuated against their own kind, but it was legally impossible for a landlord
to get rid of a tenant if the tenant was an Indian. I was to experience more
overt and irrational racism from the public sector. See the transcript of a speech that I recently gave
at the Fraser Institute to see how collectivism corrupts individuals
morally. |
BACK
| * | The minimum wage laws are very strict, but most private
employers, apart from the very big ones, simply ignore them. Manufacturing is
only for those who know how to bend the rules, which are the would-be killers of
entrepreneurship. |
BACK
| * | I guarantee that most Indians would still find little value
difference between time spent sorting out legal hassles, and time spent doing
productive work. |
BACK
| * | When I started working, a lot of public servants expected small
bribes: cordless telephones, an expensive dinner, etc. When they saw money being
generated by the private sector, they started to expect as gifts such things as
foreign travel. In the early '90s, the best went to work for the state. Then they
stopped, and the quality of those who remaned with the state went
down. |
BACK
ENDNOTES 1.
http://devdata.worldbank.org/external/CPProfile.asp?PTYPE=CP&CCODE=IND
2.
http://www.worldbank.org/data/databytopic/GNIPC.pdf
3.
http://www.washtimes.com/upi-breaking/20050228-101848-3167r.htm
4.
http://www.washingtonpost.com/wp-dyn/content/article/2005/09/14/AR2005091402612.html
5. The Economist, Oct. 29th, 2005, p. 26
6.
http://www.transparency.org/publications/annual_report
7.
http://www.ibef.org/artdisplay.aspx?cat_id=349&art_id=6023
8.
http://www.delhipolice.nic.in/home/servant.htm
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